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DB Equity Research -European Weekly ETP Market Review: The Three MuskDAXiers
May 14, 2010-Highlights
Uncertainty fueled by Euro-zone sovereign solvency concerns, US stock market trading system errors, regulatory investigations and elections in the UK and Germany ensured that the week just passed went down in history, one that saw some of the largest intra-day market drops since records began. Yet, the exchange-traded products market saw total inflows of €9.1 billion, the largest weekly flows so far this year, continuing a very strong inflow pattern that has characterized 2010.
Market Watch: Massive daily equity market drops and increased volatility
The week just passed was marked by a sell-off that marred riskier assets in both Europe and the US markets, leading to a very large rise in equity market volatility levels. The European VSTOXX index, based on Euro Stoxx 50 real time options prices and reflecting market expectations of near-term volatility,rose an astounding 72% for the week that ended May 7 2010. Equities and fixed income fell across the board, while the price of gold and the US dollar rose (against the Euro – 4.9% - and the British pound - 4.1%).The Euro Stoxx 50 index dropped 11.2% by the end of the week, while the German DAX fell 8.9%. Gold (USD) price continued to rise, finishing the week up 2.6%, following gains for the prior two weeks of 2.4% and 1.5% respectively. The iBoxx Euro Sovereign 3-5 years was down 1.2%.
ETP Weekly Flows: Saved by the Three MuskDAXiers
.. Overall European market inflows for the week reached €9.1 billion, primarily led by €8.5 billion of equity inflows. Fixed income and commodities saw more muted inflows of €344 million and €319 million respectively. Currency and alternative ETPs experienced inflows of just €30 million. .. The inflows of the equity ETP market were driven by three funds, which together accounted for €9.7 billion of inflows. All of those three ETFs have one common characteristic: they all relate to the German equity market DAX Index. The iShares DAX (DE), iShares DivDAX (DE) and the ETFlab DAX saw inflows of €6.0 billion, €2.5 billion and €1.3 billion respectively. The vast majority of these inflows occurred on May 6th, when the DAX finished the day down 0.84%. The DAX rose 8.8% between May 6th and May 13th... While certainly very nicely timed, it is unlikely that these inflows represent macro plays. As the German domiciled DAX ETFs get 100% dividends, the sheer size of these flows together with the fact that the German dividend season is approaching, leads us to think that these flows have originated from banks and are unlikely to represent sticky money over the long term... Adjusting for the massive inflows into these three funds (totaling €9.7 billion), the rest of the European equity ETP market saw outflows of €1.3 billion, a trend that is certainly consistent with the sell-off observed across equity markets in both Europe and the US over the week... Fixed income ETPs experienced overall inflows of €344 million, largely carried by inflows into sovereign ETFs (€292 million) and money market ETFs (€76 million). ETFs tracking CDS indices (primarily iTraxx) saw outflows of €49 million... Precious metals inflows continued this week, totaling €294 million, contributing to the commodity ETPs sector amassing total inflows of €319 million. ETPs targeting broad commodity indices saw inflows, albeit weaker, of €17.0 million while energy saw overall outflows of €4 billion. Overall, flows for commodity ETPs were largely muted, with the exception of precious metals, most of which came from the gold sector (€270.9 million). Gold continues its strong performance run this year, up 13.0% YTD, following an increase of 24.4% in 2009.
Both fixed income and commodity inflows (sovereign, money market, gold) together with the net adjusted (excluding the three DAX funds) equity outflows point to a retreat into safer assets over the week. While sovereign concerns played a big role in generating market uncertainty, sovereign fixed income ETFs saw inflows which seem like an oxymoron, given the Euro-zone solvency concerns. We believe that this is largely due to the fact that due to its current credit rating, Greece has dropped off from the benchmark indices that these ETFs track.
New Listings and De-listings
New listings activity was very subdued over the week that finished on May 7.There were no new product launches, while there were a handful of crosslistings.
Turnover
European average daily ETP turnover reached an all-time high of €477, rising by an incredible 23.1% and totaled €2.5 billion over the five working day week.Turnover in the single European country (38.9%) and European regional (28.7%) ETPs had the most significant increase within equity ETPs. Strategy ETPs (Leveraged, Short and Leveraged Long) as a sub group also experienced increased turnover activity.Outside equity, we should note increases in daily average turnover of fixed income sovereign and precious metals of 61.7% and 62.0% respectively, driven by reallocations that took place in the latter part of the week.
Assets Under Management (AUM)
Despite extremely negative performance across major European equity markets, ETP AUM rose by a moderate 1.4%, totaling €192 billion at the end of the week. Equity ETPs had the lion’s share with €123 billion and 64% of market share, followed by Fixed Income funds with €39 billion and 21% of market share. Strong equity inflows helped avert AUM experiencing a negative week. European ETP AUM are up 12.7%.to request report
Source: Christos Costandinides-Deutsche Bank - Equity Research
Bank of Ireland to raise €1.6bn
May 14, 2010--Bank of Ireland last night announced a deeply discounted rights issue to raise €1.6bn (£1.4bn), in a move aimed at boosting its capital buffers to absorb losses on its property loan book.
The three-for-two rights issue, priced at 55 cents a share, represents a 64 per cent discount to yesterday's closing price of €1.53.
UK suffers hedge fund blow British diplomats tried on Wednesday to persuade Paris and Berlin that Mr Cameron’s coalition needed more time to prepare for Tuesday’s meeting of EU finance ministers. read more Bail-out worries weigh on the euro “Global investors prefer to allocate funds towards areas with more favourable growth prospects. In addition, the EU crisis package will ensure that the [European Central Bank] will keep a loose monetary policy for longer,” says UBS.
read more Europe 2020: A strategy for smart, sustainable and inclusive growth view the Europe 2020: A strategy for smart, sustainable and inclusive growth report BlackRock ETF Landscape: European STOXX 600 Sector ETF Net Flows, week ending 07-May-10 to request report CPSS and IOSCO consult on policy guidance for central counterparties and trade repositories in the OTC derivatives market
"These two complementary sets of high-level guidance constitute an important response of the CPSS and IOSCO to the recent financial crisis. They also reflect the G20's recommendations for the strengthening of the OTC derivatives market," said William C Dudley, CPSS Chairman, and Kathleen Casey, Chairman of the Technical Committee of IOSCO.
Guidance on the application of the 2004 CPSS-IOSCO Recommendations for Central Counterparties to OTC derivatives CCPs
In response to the recent financial crisis, authorities in many jurisdictions have set out important policy initiatives encouraging greater use of CCPs for OTC derivatives markets. Recently, several CCPs have begun to provide clearing and settlement services for OTC credit default swaps. A CCP interposes itself between counterparties to financial transactions, acting as the buyer to every seller and the seller to every buyer.
Mr Dudley and Ms Casey said: "This is a positive development because a well designed CCP can reduce the risks and uncertainties faced by market participants and contribute to financial stability. As the greater use of CCPs for OTC derivatives will increase their systemic importance, it is critical that their risk management should be robust and comprehensive. Moreover, because of the complex risk characteristics and market design of OTC derivatives products, clearing them safely and efficiently through a CCP raises more complex issues than the clearing of exchange-traded or cash products does."
These issues were not fully discussed in the 2004 report of the existing RCCP. Consequently, the CPSS and the Technical Committee of IOSCO have identified such issues and developed international guidance tailored to the unique characteristics of OTC derivatives products and markets. The aim is to promote consistent interpretation, understanding and implementation of the RCCP across CCPs that handle OTC derivatives.
view the Considerations for trade repositories in OTC derivatives markets EU defends hedge-fund rules in face of US pressure
In a statement after the meeting, the two men said they had agreed broad principles to move forward, but did not give details.
read more EC report looks to relaunch single market
"The Lisbon strategy, let's be frank, was not a success", said Mr Buzek. "It was based on the co-ordination method. We must learn from this. It is the Community method, reinforced by the Lisbon Treaty and defended by Parliament, which is right. It is this method that will enable us to revitalise the internal market. Relaunching it is essential to the European economy in the years to come, but also to emerging from the current crisis".
read more FESE statement - CESR Consultation Paper on Equity Markets FESE statement - CESR Consultation Paper on Equity Markets If you are looking for a particuliar article and can not find it, please feel free to contact us
Source: FT.com
May 13, 2010--European Union countries led by France and Germany plan to push through controversial new hedge fund regulations next week after turning down British pleas to defer a vote in Brussels.
The refusal by Paris and Berlin to delay a decision on the new rules, which are opposed by the UK, has set up a bruising early confrontation with David Cameron’s new government>
Source: FT.com
May 13, 2010--The euro slid back to a fresh 14-month low against the dollar as the tremors from Monday’s €750bn eurozone bail-out package continue to reverberate.
The single currency in the final minutes of the session touched $1.2516, below last week’s nadir before the bail-out package was implemented, and well off Monday’s high of $1.31 just after the rescue was announced.
Source: FT.com
May 13, 2010--Over the last two years, we have faced the world's worst economic crisis since the 1930s. This crisis has reversed much of the progress achieved in Europe since 2000. We are now facing high levels of unemployment, sluggish structural growth and excessive levels of debt. The economic situation is improving, but the recovery is still fragile. At the same time, the world is moving fast and long-term challenges – globalisation, pressure on resources, climate change, ageing – are intensifying.
Europe can succeed if it acts collectively, as a Union. The Europe 2020 strategy put forward by the Commission sets out a vision of Europe's social market economy for the 21st century. It shows how the EU can come out stronger from the crisis and how it can be turned into a smart, sustainable and inclusive economy delivering high levels of employment, productivity and social cohesion. To deliver rapid and lasting results, stronger economic governance will be required.
Source: European Commission
May 12, 2010--Highlights
Last week saw US$401.1 Mn net outflows from STOXX 600 sector ETFs. The largest sector ETF inflows last week were in Industrial Goods & Services with US$68.5 Mn and Oil & Gas with US$43.0 Mn while Banks experienced net outflows of US$421.0 Mn.
Year-to-date, Media has had the largest net inflows with US$359.8 Mn net new assets, followed by Oil & Gas with US$97.0 Mn YTD. Banks sector ETFs have had the largest net outflows with US$303.3 Mn YTD. In total, STOXX 600 sector ETFs have seen US$340.6 Mn net outflows YTD.
Source: Global ETF Research & Implementation Strategy Team, BlackRock
May 12, 2010--The Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) have today issued two consultative reports containing proposals aimed at strengthening the OTC derivatives market.
The first report, Guidance on the application of the 2004 CPSS-IOSCO Recommendations for Central Counterparties (RCCP) to OTC derivatives CCPs, presents guidance for central counterparties (CCPs) that clear over-the-counter (OTC) derivatives products.
The second report, Considerations for trade repositories in OTC derivatives markets, presents a set of considerations for trade repositories (TRs) in OTC derivatives markets and for relevant authorities over TRs.
Source: CPSS and IOSCO
May 12, 2010-- EU internal market commissioner Michel Barnier on Wednesday defended Europe's right to set tough new hedge-fund rules as he sought to heal a transatlantic spat.
Ending a three-day US visit, Barnier met Treasury Secretary Timothy Geithner to discuss rules that could force speculative US investors to obtain a "passport" to operate in European Union markets.
Source: EUbusiness
May 12, 2010--A report for the European Commission calls for a replacement for the Lisbon strategy, a strategy which, according to Euro-Parliament president Jerzy Buzek, has not been a success. The report, presented to MEPs by former Commissioner Mario Monti, stresses the need to "seek a balance between economic factors, such as competitiveness, and the rights of consumers and workers in order to "relaunch" the single market before 2012.
As the EU (established in 1992 by the Maastricht Treaty) approaches its 20th anniversary, Mario Monti was asked by José Manuel Barroso in October 2009 to draw up a strategy to revitalise the single market by 2012. Six months later, Professor Monti presented the fruit of his work, done in parallel with a similar parliamentary project, to EP President Jerzy Buzek and MEPs.
Source: EUbusiness
May 12, 2010--FESE welcomes the CESR Consultation Paper on Equity Markets, April 2010, which aims to assist CESR on providing the European Commission (EC) with technical advice on the MiFID Review regarding equity markets by July 2010.
The CESR CP confirms that about 38% of all EU trading is OTC, a figure which has been the subject of much public debate for a year. FESE therefore welcomes this finding and the CP, which confirms our estimates of the OTC business done in EU markets based on the best publicly available figures.
Source: FESE
