ETFs - International and Commodities ETFs’ Markets Overview

Various unexpected news led the markets to fluctuate during the week. The greater part of countries ETFs have improved during the week, with an average of 2.84%, while commodities ETFs ended this week with 4.7 %. Moreover, the ‘world stocks’ index - MSCI World - has increased by 4.36 %. Investors around the world were waiting for an approval of financial aid equal to 15 billion dollars to U.S. car manufacturers. On Thursday various support agreement was reached, however, on Friday U.S. Senate rejected the automobile manufacturers rescue plan. The bankruptcy of car manufacturers such as General Motors or Chrysler would worsen the longest recession since the early 1980s. U.S. employers in November cut 533 thousand jobs, the fastest pace in 34 years. What is more, Germany suffers from falling factory orders, which has felt by 2.1 %. Moreover, British house sales have reached 30 year low. Furthermore, China’s exports fell by 2.2 percent, it was the first fall since 2001.

During the second winter week, majority of ETFs increased in their value. The biggest gainers among ETF commodities were Market Vectors Steel ETF (SLX), which managed to gain 16.43% per week and closed at 22.80EUR (30.47USD) and Market Vectors Coal ETF (KOL) with a positive change of 10.87%. The worst weekly performer was PowerShares DB US Dollar Index Bullish (UUP) which declined to 19.05EUR (25.46USD), equal to 3.12% fall. Even 18 out of 22 international ETFs traded in the Investment game has increased in their value. The most significant raise was demonstrated by iShares MSCI Brazil Index (EWZ) and iShares MSCI Italy Index (EWI) with increases equal to 9.90% and 8.57% respectively.  The biggest decline in value was in iShares MSCI Turkey Invest Mkt Index fund (TUR) equal to 18.74EUR (25.04USD) or downfall of 3.25%.

One of this week’s gainers among commodities ETFs is PowerShares DB Gold (DGL), which incresed by 6.01% and reached the value of 22.56 EUR (30.15 USD).

Chart 1  PowerShares DB Gold (DGL). Source: www.finance.google.com

Gold is considered to be an alternative investment to the U.S. dollar being an investment to defend the money against inflation. Gold and other commodities usually move oppositely with the dollar. For instance, this year the dollar has risen by 12% for the first time since 2005 while gold has decreased by 8.2% for the first time since 2000 as investors sold it to get cash and recover from losses in other markets. However, this is the smallest decline among other commodities as the Reuters/Jefferies CRB Index (tracking the prices of 19 raw materials) plunged by 40% this year. Gold peaked in May while CRB rose to an all-time high in July and the dollar was the lowest against the euro. Thus, the increase in gold this week is related to the weakening dollar.

On Monday, after the U.S. newly-elected president Barack Obama promised the largest public-works program since the 1950s to stimulate the economy, the dollar fell 1.7% against a weighted basket of six major currencies and CRB rose by 4.7%. On Wednesday, gold began to climb more considerably on speculation that the dollar will weaken as the Federal Reserve will cut the interest rate on December 16. The Fed began slashing the interest rate in September 2007 as U.S. economy was moving towards the recession. Moreover, the U.S. government attempts to revive the economy and bail out banks and automakers are expected to lead to higher inflation. These speculations caused gold reaching eight-weeks high this week.

As most probably the expectation that the Fed will cut the interest rate next week will turn out to be true, this will weaken the dollar and strengthen gold. That is why we strongly believe that gold will increase even more next week. 

Chart 2 iShares MSCI Italy Index (EWI). Source: www.finance.google.com

One of the winners among international ETFs this week is iShares MSCI Italy Index (EWI), which increased by 8.54% and reached the value of 11.98EUR (16.01 USD). One of the news that definitely contributed to EWI price increase was statement given by Co-Chief Executive of Assicurazioni Generali SpA (which is the fourth biggest holding of the EWI taking 7.86% of total portfolio) Giovanni Perissinotto, who on Wednesday claimed that the situation in the company is solid and ensured that dividends are going to be paid on March 2009. Furthermore, one of the biggest holdings of the EWI Enel SPA, which is the biggest electricity producer in Italy, announced about long-term partnership with luxury automaker Daimler in Germany. The plan is to expand electric vehicles production and deploy infrastructure, including a system for drivers to locate available stations. For the first three days of the week almost all companies on the Italian stock exchange list gained and Italy’s benchmark S&P/MIB Index increased substantially during these days; on Thursday this index began to decrease (by 0.8% on Thursday and 2.6% on Friday) since majority European stocks dropped due to the news about China, Germany and the U.S. getting into even deeper recession. However, this decrease was not reflected in EWI price (see the graph above) since on Thursday the USD/EUR exchange rate increased a lot and canceled out the decline. Unfortunately, on Friday the exchange rate did not change by so much, thus the investors suffered from a drop in iShares MSCI Italy Index ETF value.

All things considered, the markets were really generous to investors this week despite some disappointing news. Analytics from the European Central bank is expecting economy recovery by the end of next year’s second quarter. The inflation (CPI) in U.S. is expected to increase, while industrial production is predicted to fall. Due to the investors’ fear of possible car manufacturers’ bankruptcy and slowing world economy growth, it is expected that some ETFs will loss in their value during next week.