Tag Archives: EWU

Reuters: Germany, U.K. ETFs Best Way to Play Europe

With the recent agreement to save the Eurozone, European leaders seem to be ignoring one of the major problems, which is that Europe’s “economies are growing too slowly,” says Reuters.

The strict budget guidelines outlined in the agreement may actually exacerbate this problem Add cost-cutting austerity measures and huge debt burdens to slow growth and the recession that’s already engulfing Spain, Portugal and Greece will soon move into France and Germany over the next six months, according to Standard & Poor’s.

The United Kingdom also offers opportunities because it doesn’t use the euro, but rather the pound sterling. Because the UK has control over its currency, it can take measures to offset the slowing growth. The iShares MSCI United Kingdom Index Fund (EWU) holds 106 stocks, and provides a decent proxy for the British stock benchmark, the FTSE 100, which is currently not tracked by a U.S. ETF.

Because of recession fears and as a proxy for their European-wide market viewpoints, investors have been selling German stocks. The sell-off has left the German market trading at nine times forward earnings vs. the S&P 500’s forward multiple of about 12. Reuters says a good way to play the European crisis is to buy German stocks because of low valutions and because any drop-off in German exports to Europe may be picked up by the U.S. and China. I doubt the U.S. and China can make up for Europe’s weakness. But a good way to play it is to buy the iShares MSCI Germany Index Fund (EWG), which holds Germany’s 50 largest companies. It’s down 17% this year and yields 3.3%.

If you believe the euro will continue to fall as the debt crisis continues, Reuters says pick up the PowerShares DB US Dollar Index Bullish (UUP). By tracking the performance of the dollar against the euro and five other currencies it provides a hedge to U.S. investors holding European stocks.

Europe’s Financial Crisis Sends U.S. Stocks Lower

Fears over the state of European banks after the European Central Bank lent dollars to a eurozone bank sent European markets plunging and have started a huge sell-off in the U.S. One bidder borrowed $500 million from the ECB and the news suggests at least one bank is having problems getting the cash it needs, according to Financial Times and CNBC.

At Thursday’s close, the SPDR S&P 500 (SPY) tumbled 4.3% to $114.51.
The SPDR Financial Select Sector Fund (XLF) sunk 4.8% to $12.38.
The SPDR Technology Select Sector Fund (XLK) fell 4.9% to $23.08.
And finally, the SPDR Gold Trust (GLD) rose 1.9% to $177.72.

Last week regulators in Italy, Belgium, France and Spain banned short-selling of financial stocks in an effort to curb volatility and bring some order to markets. How is that working out for you? Meanwhile, it’s nearly impossible to get any numbers on the shorting of U.S. stocks or ETFs on short notice, I wouldn’t be surprised if investors were using U.S. ETFs to short the European financial stocks.

Meanwhile, here are 4 funds that measure global financial stocks.
iShares MSCI Europe Financials Sector Index Fund (EUFN), of which banks make up 52% of the portfolio, plummeted 8% to $16.68.
iShares S&P Global Financials Sector Index Fund (IXG) plunged 5.2% to $36.99.
SPDR EURO STOXX 50 (FEZ) dived 5.5% to $31.06.
iShares MSCI United Kingdom Index Fund (EWU) skidded 4.6% to $15.71.

Finally, the ProShare UltraShort MSCI EAFE Fund surged 9.7% to $28.75. With a ticker of (EFU), this is probably the most appropriate sentiment of the day.