Exchange traded funds that invest in Europe were lower Friday after several Eurozone countries extended their ban on short selling, or betting against, financial stocks.
In particular, German stocks have been volatile this week on whispers the country may see its triple-A credit rating downgraded.
A row over collateral and other problems are threatening the second bailout of Greece and raising default fears, MarketWatch reports.
The iShares S&P Europe 350 Index Fund (NYSEArca: IEV) lost 2.6% on Thursday. [ETFs May See Big Moves as Bernanke Speaks]
Spain and Italy have extended their short-selling bans to Sept. 30 while Belgium and France have not specified an end-date to their short-selling ban, stating that they will lift the ban as soon as market conditions warrant, reports Huw Jones for Reuters. Greece will review its decision by the end of September.
ETFs tracking the countries include:
- iShares MSCI Spain Index Fund (NYSEArca: EWP)
- iShares MSCI Italy Index Fund (NYSEArca: EWI)
- iShares MSCI France Index Fund (NYSEArca: EWQ)
- iShares MSCI Belgium Index Fund (NYSEArca: EWK)
The self-imposed bans are an attempt to provide to support to the equities market, especially financial shares, amid the credit crisis. However, some observers question whether the move will support financial stocks.
“Short-selling was not the reason bank share prices were under pressure and banning it has not relieved that pressure,” commented Andrew Baker, chief executive of the Alternative Investment Management Association, a hedge fund lobby group.
Germany has stated that it will not broaden its long-standing short-selling restrictions. Martin Dobson, head of trading at Westhouse Securities, remarked that traders were shorting Germany’s DAX prior to Germany’s announcement, fearing they would be unable to short DAX futures, reports David Brett for Reuters.
European stocks and the euro currency also experienced a precipitous decline on fresh rumors of a possible downgrade to Germany’s triple-A rating, according to FXStreet. However, CNBC reported that three major rating agencies denied any change to Germany’s sterling sovereign debt credit rating.
- iShares MSCI Germany Index Fund (NYSEArca: EWG)
For more information on Europe, visit our Europe category.
Max Chen contributed to this article.