German ETFs took a beating yesterday as reports indicated a fall in business confidence in Europe’s biggest economy for the first time in four months. The Ifo Institute revealed that business climate index declined to 108.2 in October from 108.5 in September.
At the beginning of this month, ZEW Center for European Economic Research in Mannheim also revealed that its index of investor confidence decreased to 1.9 in October from 12.1 last month. This is the seventh consecutive decline, attributed to Volkswagen’s (VLKAY - Free Report) emission rigging scandal and sluggish growth in emerging markets (read: Three German ETFs Vulnerable to Volkswagen Scandal).
Further, Germany’s exports declined at the fastest pace in August since the financial crisis in August 2009. As per German Federal Statistics Office, the country’s seasonally adjusted exports tumbled 5.2% to €97.7 billion ($149.7 billion) in the month, from July. This certainly doesn’t bode well for an economy highly dependent on exports for growth.
Meanwhile, Germany’s economics ministry data showed that manufacturing orders ebbed 1.8% while industrial output slid 1.2% in August after a revised increase of 1.2% for July. The blame for all these goes largely to the slowdown in China and other emerging markets, those being the key export markets of Germany.
The weak global growth led the German government to lower its economic growth forecast for 2015 to 1.7% from its previous level of 1.8%, but it kept its 2016 growth outlook intact at 1.8%. However, the German Chambers of Commerce, or DIHK, predicted growth of only 1.3% for the next year.
On October 26, some of the major German ETFs such as iShares MSCI Germany (EWG - Free Report) , iShares Currency Hedged MSCI Germany (HEWG - Free Report) , WisdomTree Germany Hedged Equity ETF (DXGE - Free Report) , and First Trust Germany AlphaDEX ETF (FGM - Free Report) ended their sessions in the red. EWG fell 0.04%, DXGE dipped 0.3% while both HEWG and FGM declined 0.4% on the day (see all European Equity ETFs here).
Despite the fall, there are rays of hope that could cause the ETFs to rebound in the near term. The Ifo Institute revealed that in spite of the knockdown from the Volkswagen scandal, Germany’s automobile industry is optimistic about their present business environment and trade outlook for the next six months (read: Europe ETFs That Hit 52-Week Lows on Volkswagen Scandal).
Moreover, the indication of a fresh monetary stimulus for the Euro zone by December given by the European Central Bank president Mario Draghi and the cutback in interest rates by China to revive economic growth in the region are upsides to the prevailing economic scenario. These will definitely define the future movements of these ETFs.
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