ETF investors are backing U.S. equities despite the U.S. interest rate turnaround. The recovery in China is also being tracked by ETFs, while European equities in particular are being hit by losses.
29 March 2022. Frankfurt (Börse Frankfurt). Falling oil prices, which above all reflect the possible economic consequences of the Corona lockdown in Shanghai, are dampening inflation fears. As a result, share prices are rising again and investors are becoming more willing to take risks. But that is no reason to breathe a sigh of relief, according to experts:
"The recent turmoil in the equity and bond markets is causing some investors to question whether the recent upswing in equities is sustainable," says Hubert Heuclin of BNP Paribas, commenting on market events. Bonds around the world have suffered unprecedented losses, while equities have largely held up well and risen to pre-war levels, he said.
"Stock markets have largely priced in the Ukraine war, surging commodity prices, high inflation and rising interest rates," said Maurice Touma of Lang & Schwarz, describing the trading. Market movements are not as pronounced as they were at the end of February, for example, he said. "Whether the stability continues depends heavily on the current news situation."
Major weather situation: Global equities and US stocks instead of euro zone
Overall, BNP Paribas clients mainly buy trackers on global equities and U.S. stocks: Accordingly, the globally investing iShares Core MSCI World UCITS ETF (IE00B4L5Y983) and the iShares Core S&P 500 UCITS ETF (IE00B5BMR087) lead the list of the most traded stocks with the highest inflows at BNP Paribas. European stocks, on the other hand, are being removed from portfolios, including primarily the Xtrackers Euro Stoxx 50 UCITS ETF (FR0010424135). However, the upcoming dividend season is also accompanied by ETF investments. For example, the iShares EURO STOXX Select Dividend 30 (DE0002635281) is among the stocks with inflows on a weekly basis at BNP Paribas.
At Lang & Schwarz, the major equity indexes are the usual turnover leaders. "However, we see more subdued trading here than in the previous week," adds Touma.
China: Recovery after heavy losses
After the massive price slump in the middle of the month, Chinese stocks are recovering, including technology stocks in particular. Alibaba, for example, gained 11 percent on a weekly basis. In mid-March, the U.S. Securities and Exchange Commission (SEC) announced that it would be scrutinizing Chinese companies more closely, which fueled concerns among investors that delistings in the U.S. could be imminent. As a result, the Nasdaq Golden Dragon Index fell 10 percent. BNP Paribas clients are betting the nascent recovery mainly on the iShares MSCI China UCITS ETF (IE00BJ5JPG56). Touma also notes higher turnover in favor of Asia or China trackers.
Renaissance of cryptos and renewables
Touma is registering a lot of demand for crypto ETNs in particular: "We're seeing big turnover primarily in Ethereum ETNs right now." The ETN of 21shares (CH0454664027) is traded particularly frequently, he said.
In the usually high-turnover sectors such as technology or financials, Touma notes comparatively quiet, balanced trading.
Renewable energy is once again on the rise and remains a beneficiary of the energy crisis, with Touma reporting that the iShares Global Clean Energy UCITS ETF (IE00B1XNHC34) had already seen above-average inflows in recent weeks, despite the recovery in oil prices, and is also currently on buy lists.
Commodities: Nickel tradable and sought after again
After the resumption of nickel trading in London, ETFs with nickel are again tradable in Germany. Touma reports then also of high turnovers and a very volatile business, as soon as the trade was possible again. "In the meantime, purchases dominate," he explains. He notes this especially in leveraged products, such as the WisdomTree Nickel 2x Daily Leveraged ETC (DE000A2BDEC4).
The rally of the U.S. dollar, which benefits from the prospect of further rising interest rates and a weakening risk aversion pushes the gold price on a weekly basis into the red. The investors of Lang & Schwarz nevertheless grab: Tracker on the precious metal are among the purchased values of the week.
Bonds: Rising interest rate expectations
In the bond markets, speculation about higher interest rates is increasing. Particularly noteworthy is the inverse yield curve between five- and ten-year U.S. government bonds. In this case, the interest rate on short-dated bonds is higher than that on paper with long maturities. This is the other way around because of the higher risk of long maturities. Inverse interest rate structures are seen as a reflection of recession expectations.
Market participants are bracing themselves for a rapid tightening of U.S. monetary policy: "In the meantime, the U.S. Federal Reserve is expected to raise interest rates by more than 200 basis points by the end of the year," says Martin Hartmann of Commerzbank, commenting on the situation. Nevertheless, business with U.S. bonds as well as Eurobonds has remained fairly constant at Lang & Schwarz, reports Touma.
Heuclin notes mainly inflows into U.S. government bonds, e.g., iShares USD Corp Bond UCITS ETF (IE0032895942), while outflows mainly characterize trading in Chinese and Japanese bonds, examples include iShares China CNY Bond UCITS ETF (IE00BYPC1H27), Xtrackers II Japan Government Bond UCITS ETF (LU0952581584).
Equity | |
USA | Purchases |
World | Purchases |
Europe | Sales |
China | Purchases |
Branches | |
Clean Energy | Purchases |
Gold | Purchases |
Nickel | Purchases |
Bonds | |
US treasuries | Purchases |
Corporate bonds | Purchases |
from: Antje Erhard, 29 March 2022, © Deutsche Börse AG
Antje Erhard is a journalist and moderator specializing in the stock market, business and finance.
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