The tension between Ukraine and Russia, renewed financial crisis fears in Portugal and tepid growth are taking their toll on Europe, pushing the markets into back-to-back weekly losses and sending Germany and France country-specific exchange traded funds into a broad correction.
Since the June 6 high, the iShares MSCI Germany ETF (NYSEArca: EWG) is down 12.6% and iShares MSCI France ETF (NYSEArca: EWQ) is 12.8% lower, falling below the widely viewed 10% gauge for a market correction. The broader Vanguard FTSE Europe ETF (NYSEArca: VGK) fell 9.1% since the high. [German Bund ETFs Rally on Safe-Haven Demand]
“The correction is a wake up a call,” Ros Price, chief investment strategist at Seven Investment Management Ltd., said in a Bloomberg article. “Yes, it is true that markets have weathered lots of risks, but people are rightly becoming worried now. We’re being assaulted on all sides.”
Germany is taking a hit as tensions between Russian and the West escalate. Specifically, European Central Bank President Mario Draghi has stated that the tit-for-tat sanctions between Europe and Russia will weigh on Eurozone growth, the Wall Street Journal reports.
“There’s a perception of German industry and Russian energy being closely intertwined,” Neil Wilkinson, a senior fund manager at Royal London Asset Management, said in the WSJ article. “We have a big universe of stocks we can invest in. With so much uncertainty, it’s pretty hard to justify holding firms with a big chunk of their business in Russia.”
Germany accounts for 30% of Eurozone exports to Russia, and the latest round of sanctions and counter sanctions are adding to the perceived risk to trade.
On top of the pessimistic outlook, Germany revealed that its economy has been slowing. Factor orders in June dipped 3.3% from the May level and was 2.4% lower year-over-year, Business Insider reports. Observers believe German GDP growth likely stagnated in the second quarter after a subdued 0.8% quarterly gain in the first three months.
iShares MSCI Germany ETF
For more information on Europe, visit our Europe category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.