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Deutsche Bank Index Fundamental Views Equities: Euro Stoxx 50 (Buy), Solid Q4 ahead
January 21, 2011--Trade idea: Buy Euro Stoxx 50 (ES50)
We have identified 3 key themes which support our positive view on the ES50 as
our bottom-up implied 2011E index target scores 3,308 index points which
corresponds to an upside of 14% to the current price level. Key theme no.1 is the positive view on European Banks (Bank account for c20% of ES50 index weight).
Banks are relatively cheap and have seen
strongest ETF inflows over the past months among the European sector universe. Our European Strategy team is overweight ‘Banks’ and ‘Insurances’ (Financials account for c27% of ES50 index weight). Key theme no. 2 involves the upcoming Q4 2010 reporting season which promises solid results as we expect analysts’ estimates beats on net income and revenues in the order of >60%. A bottom-up aggregation of 28 ES50 companies suggests net income should grow by 45% qoq relative to Q4 2009 (up 44% yoy). Finally, our key theme no. 3: Fundamentals. Key metrics in the focus are a) attractive dividend yield/growth, b) comfortable
leverage and c) a strong cash position (see middle chart on the right).
European fund flows: Strong flows into Euroland and especially into Banks Equities continue to be the most attractive class on our Asset Class Scorecard (review our ‘Index Trading Ideas and Flows’ note, published 11 January 2011). Overall, ETFs focused on Euroland added 3.8% to their AuM (+E734m) over the past month while ETFs focused on the European Union suffered outflows at 1.9% (-E464m).
Top investors raise alarm on inflation
January 21, 2011--Some of the world’s leading investors have turned increasingly bearish on government bonds from developed countries as they warn of the growing danger of inflation.
Data this week showing the UK consumer price index hit 3.7 per cent in December fuelled concern and sent benchmark British borrowing costs to an eight-month high of 3.72 per cent.
Hedge Fund Industry Assets Swell to $1.92 Trillion
January 20, 2011--Hedge fund assets grew a record $149 billion during the last three months of 2010, according to new data released on Wednesday. According to Hedge Fund Research (HFR), which tracks industry performance and asset flows, hedge funds around the world now invest $1.917 trillion.
Investors added $13.1 billion in new money during the last quarter after having put in $19 billion in the third quarter. In total, pension funds, endowments and wealthy investors added $55.5 billion in new money in 2010, the highest annual total since 2007. The rest of the increase during the last quarter came from market gains.
Deutsche Bank 2010/2011 ETP Review & Outlook : ETFs walk an equity-able path towards $1.8 trillion in 2011
January 20, 2011--By all counts, 2010 was a very strong year for ETPs across all three major global regions. The global ETP market grew (in US$ terms) by an impressive 28%. The European market led the [percentage] growth registering 36% (in Euro terms), followed by the Asian market with growth of 31% (in US$ terms) and the US market registered growth of 28%. Growth in all three major regions was bolstered by very healthy cash flows (totaling $176.2 billion) that contributed to 16% of the year’s growth. Recovering asset markets also gave ETP assets a strong push, contributing an average of 13% increase to AUM from market appreciation.
We expect the global ETP market to continue growing by close to 30% [probability weighted scenario: 27.5%] in 2011. In our view, the ETF part of the market will lead the [dollar] growth, fueled by returning domestic equity investors both in the US and Europe. Market consensus growth estimates predict [ETF AUM weighted] average growth of 23.0% in North America and 13.2% in Europe, something which will benefit ETF AUM both from a market appreciation point of view as well as from increased allocation to the industry’s biggest asset class, equity.
2010 was the strongest product launch calendar for the industry with an impressive 648 new product launches. Europe led the way with 391 new product launches, followed by the US and Asia with 176 and 81 product launches respectively. Most of the new products launched, 533, were ETFs, with ETCs in Europe taking second position (106) and ETVs in the US taking third place (9).
Emerging markets were undoubtedly the biggest success story of 2010 in the global equity ETF market. In search of return opportunities and in light of increased mid-year volatility in both the US and European domestic markets, investors elevated ETFs to one of the major emerging market investment tools. The global ETF industry saw a total of $42.0 billion of new flows to this corner of the market, with both the US and European markets strongly supporting this trend.
US equity emerging market inflows reached $26.5 billion, while the respective number for Europe registered at €9.1 billion. The most popular ETF emerging markets benchmark, MSCI Emerging Markets, saw its ETF assets appreciate by $41.3 billion over the year, while the index itself (NDUEEGF) rose by 19.0% in 2010. This follows returns of 78.5% in 2009. With US and European domestic investors returning to their own markets, the debate has now moved to whether this segment of the equity market has perhaps had its run. Several short emerging market ETF products have been launched in anticipation of this scenario materializing. Equity research analysts are however predicting continued average growth in emerging markets of close to 12%.
In the US market, fixed income had a very strong run. The asset class took in a total of $33.0 billion of new money, with corporate and high yield ETF benchmarks gaining the lion’s share, amassing inflows of $14.3 billion. The European fixed income market, while it received positive flows of €5.8 billion, it experienced much weaker activity [than the US], despite a major fixed income product push by many European providers. Fixed income investors’ interest in the European Union in the first three quarters of the year revolved around sovereign ETF indices (2010 inflows €3.6 billion), while corporate ETF benchmarks also saw a fair level of interest (2010 inflows €2.0 billion) especially in the third quarter of the year.
Gold, another one of the year’s big success stories, significantly contributed to bolstering ETC and ETV flows over 2010 and it single-handedly carries the credit for lifting the fortunes of the commodity ETP space in 2010. The US market saw $13.1 billion of precious metals ETP inflows, while gold accounted for $9.2 billion of those. In Europe, the picture was very similar to that in the US. The European commodity ETP market gathered €6.0 billion of inflows, while gold accounted for €5.1 billion. As equities markets continue to rebound, the spotlight this year is firmly set on ETFs, where we expect to see most of the cash flows in 2011. Subject to gold price dynamics, gold ETPs will continue to receive inflows, but unless we see a significant downward change in equity market sentiment, gold is likely to be on the slow burner [in terms of ETP flow growth] for the year ahead.
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Economy: Well functioning housing markets are key for stability and growth
January 20, 2011--Poorly managed housing markets played a key role in triggering the recent global financial crisis and may be slowing the recovery. A new OECD study offers governments a roadmap for sounder housing policies.
“Housing and the Economy: Policies for Renovation” says reforms to financial sector regulation, taxation, land-use, rental market rules and the provision of social housing will improve both the real estate sector and spill-over to the economy as a whole.
OECD countries have seen the damage caused by badly designed policies through their effects on housing markets,” said OECD Secretary-General Angel Gurria. “As we search for new sources of growth, as we seek to restore trust in our financial sectors, as we try to green our economies, policies related to housing can have a huge impact on our future”.
The OECD says that easy credit over the past two decades amplified price volatility, with real housing price jumps of 90% or more in Australia, Belgium, Finland, Ireland, Netherlands, New Zealand, Norway, Spain and the United Kingdom over the study period. Deregulation and innovation in mortgage markets – coupled with inadequate supervisory frameworks – contributed to a significant relaxation in lending standards, an increase in non-performing loans and the sub-prime crisis.
view the report Housing and the Economy:
Policies for Renovation
NYSE Euronext Global Index Group Announces 2010 Performance of Indices
New Indices and Services Introduced
January 20, 2011--NYSE Euronext’s Global Index Group today announced the 2010 performance of its benchmark indices.
New Indices and Other Initiatives
In Europe, the NYSE Euronext’s Global Index Group added seven new indices. These new indices included the NYSE Alternext OSEO Innovation Index®, which covers French small cap companies which have been identified as innovative. Several new indices were also introduced that support trading strategies around the main proprietary indices, CAC 40® Index; leverage and short offering three, four and five times exposure.
The Global Index Group continued to harmonize its European index offering, in which the AEX-Index® was converted from a fixed divisor basket index to a floating divisor portfolio index. Additionally, corporate action rules were further harmonized removing inconsistencies among the country indices. As of December, both net and gross total return index levels are available for the European country indices.
The Credit Outlook Navigating a Risk Laden Recovery
January 20, 2011--Highlights
A global economic recovery is occurring but it remains fragile with possible pitfalls. In this environment, Fitch Ratings expects macro factors to continue to dominate credit markets. Accommodative policy support and emerging market dynamism are
important drivers of growth.
Although macro risks remain, Fitch’s rating outlooks are continuing to stabilise across most sectors. This reflects both improved credit profiles and downgrade action, followed by stabilisation at such lower levels.
In the US, Fitch has recently upgraded GDP forecasts. However, the economy is vulnerable to shocks, with weak labour and housing markets. There has been determined positive action to boost growth, notably through the extension of tax relief and a second round of quantitative easing (QE2), to which the financial markets have responded enthusiastically. However, there is a risk that QE2 could undermine confidence in the US dollar and raise inflation expectations. It also poses challenges for the rest of the world, including fast?growing developing and emerging economies. Together with exceptionally low interest rates, quantitative easing may result in yield?seeking capital and financial flows undermining economicand financial stability in stronger?growing emerging markets (EMs).
In the euro area, support measures have been substantial, although at times hampered by inconsistent communication from the region’s policymakers. Confidence in the sustainability of public finances and bank liquidity and asset quality will remain fragile and sovereign credit profiles will continue to be under pressure.
IEA Oil Market Report
January 19, 2011--Highlights
Marker crudes approached $100/bbl in early January, prompting concerns over the impact of high prices on the global economic recovery. December futures prices rose for the fourth month running, trading in a range of $88-$92/bbl. Robust economic growth in Asia,
especially China, coupled with stronger thanexpected oil demand in
the OECD has pushed crude above the $70-$80/bbl range seen for
much of 2010.
Global oil product demand for 2010 and 2011 is revised up by an
average of 320 kb/d on higher?than?expected submissions, reflecting
buoyant global economic growth and cold northern hemisphere weather. Global oil demand, assessed at 87.7 mb/d in 2010
(+2.7 mb/d year?on?year), rises by 1.4 mb/d to 89.1 mb/d in 2011.
Global oil supply fell by 0.3 mb/d to 88.1 mb/d in December, as non? OPEC output was reduced, on short?lived outages. An Alaskan pipeline leak and a fire at a Canadian oil sands upgrader also cut January output. Overall, 2010 and 2011 non?OPEC estimates are unchanged at 52.8 mb/d and 53.4 mb/d, respectively. OPEC NGLs contribute 5.3 mb/d in 2010 and 5.8 mb/d in 2011.
OPEC supply gained 250 kb/d to reach 29.58 mb/d in December, continuing a rising trend evident since the spring. In light of stronger demand estimates for 2H10, output in 3Q10 and 4Q10 has been lagging the underlying ‘call’, which is revised up to 29.9 mb/d for 2011. OPEC effective spare capacity has nudged below 5 mb/d for the first time in two years.
‘Countries must act now to achieve a secure and cleaner energy future’ – IEA’s Executive Director
January 19, 2011--Nobuo Tanaka speaks on opening day of World Future Energy Summit
The International Energy Agency’s Executive Director, Mr Nobuo Tanaka, has said that renewable sources of energy “will need to play a central role” in reducing carbon emissions and diversifying energy supplies.
Although encouraged by the 70 countries which have policies in place to foster both the deployment and development of renewable sources of energy, such as wind, solar and biomass, he stressed the urgent need for others to follow.
“We cannot wait for a global climate deal,” said Mr Tanaka, speaking on the opening day of the World Future Energy Summit, taking place in Abu Dhabi. “A lack of ambition in the Copenhagen Accord pledges has increased our estimated cost of reaching the 2ºC goal by USD1 trillion and undoubtedly made it less likely that the goal will actually be achieved.”
TABB Group Launches Eight-Part Commentary Series Examining the European Commission’s MiFID II Review
January 19, 2011--TABB Group announced today it is introducing an eight-part series of commentaries based on the public consultation on the review of the Markets in Financial Instruments Directive (MiFID) published December 8, 2010 by the European Commission.
According to TABB, the London- and New York-based strategic advisory and research firm, the review attempts to fix some of the gaps in the initial MiFID document and takes on the challenges of key market issues: market fragmentation; pre- and post-trade transparency; market-data aggregation; actionable indications of interest (IOIs); dark pools; high frequency trading; and, in conjunction with the European Markets Infrastructure Regulation (EMIR), OTC derivatives regulation.
The review, says TABB Group founder and CEO Larry Tabb, is one of the most significant regulatory initiatives undertaken by the European Commission. “The Consultation paper on the review, referred to as MiFID II, contains a vast number of proposals packed into its 83 pages. Like it or hate it, whether you’re an investor, broker, exchange or pensioner, implementation of these proposals will have an impact on the way you invest, trade, broke or match buyers with sellers in the European marketplace.”
The ramifications of these proposals, he adds, are so extensive that they will have an impact across asset classes and on market participants within the European Union as well as the global markets. “We believe that other regulators will look to copy, cherry pick or avoid similar rules. As a result, if you’re an investor, bank, broker or exchange, you will need to realign your offerings to either comply – or avoid – huge changes in how the financial markets will operate across Europe.”