Increased positions in short European equity ETFs
Investors have increased positions in short European equity ETFs by the highest amount in over a year last week after a strong stock market rally over the past few weeks, according to the latest figures from ETF Securities.
The firm reports that in the week to 13 January, investors poured money into short European equity products at the highest rate since September 2015. The firm’s short DAX ETPs saw inflows of $5m during this period, while its short FTSE 100 ETPs took in $7.8m, suggesting investors are beginning to take contrarian positions with regard to their equity allocations.
From 2 December to 20 January, the German DAX index has rise over 10%, while the FTSE 100 has rallied nearly 7% over the same period, currently trading close to the 7,200 mark. The FTSE has been supported primarily by a weak pound, but European equities also experienced a traditional ‘Santa rally’ ahead of the festive period, which has carried into the New Year.
However, over the past week to 20 January the FTSE began giving up some of its gains, at the same time as the pound strengthened on the back of Prime Minister Theresa May’s comments about Brexit, which seemed to give more clarity about her plan to lead Britain out of the European Union.
December inflows data from TrackInsight revealed continued strong inflows into European large-cap equity ETFs, with products listed in Europe taking in some €1.6bn in inflows during the month.
Volatility in Europe vs optimism in the US
However, as 2017 holds more elections in European countries, and the end of the first quarter is expected to bring the triggering of Article 50 which will begin the divorce proceedings between the UK and the EU, volatility in the region is likely to increase. This could be another reason to explain the growing interest in short European equity ETPs.
However, over in the US the financial world has reacted with optimism as Donald Trump was inaugurated as the 45th United States President on Friday 20 December.
According to Reuters, a number of S&P 500 company chief executives, including the CEOs of Morgan Stanley and Delta Air Lines, have said a Trump presidency spells a brighter outlook for US businesses. Firms are particularly optimistic about the prospect of tax cuts, infrastructure spending and reduced regulation.
The S&P 500 closed Friday 0.3% higher at 2,271. Since 2 December the flagship index is up 3.7%.
