After leading the markets earlier this year, Germany exchange traded funds have pulled back, with the German Benchmark Index now in a correction.
Since the April highs, the iShares MSCI Germany ETF (NYSEArca: EWG) declined 6.5%.
Meanwhile, the DAX Index fell 10.6% since its April 10 high and is trading near its lowest level since February.
Somewhat cushioning EWG’s decline, the euro currency has been appreciating since April. Since the April 13 low, the CurrencyShares Euro Currency Trust (NYSEArca: FXE) has strengthened 6.5%. [Euro Currency ETFs Regain Momentum]
Meanwhile, euro-currency-hedged ETFs have not been as lucky. For example, since the April highs, the iShares Currency Hedged MSCI Germany ETF (NYSEArca: HEWG) decreased 11.8%, Deutsche X-trackers MSCI Germany Hedged Equity Fund (NYSEArca: DBGR) declined 11.8% and WisdomTree Germany Hedged Equity Fund (NasdaqGM: DXGE) dropped 11.3%. [Investors Prefer Euro Hedged Germany ETFs]
“All the positive momentum factors that had driven markets are either gone or priced in,” Hendrik Koenig, an equity strategist at B. Metzler Seel Sohn & Co., said in a Bloomberg article. “We anticipated a correction, and the one for German stocks was definitely overdue. There could be some further downside risk here, especially if we have external shocks from the Greek situation or further strengthening of the euro.”
A correction is defined of at least a 10% negative movement in a security or market to adjust for an overvaluation. The corrections are typically temporary in an uptrending market and are short in nature.
The decline in the German markets may also be contributed to concerns over the ongoing Greek debt concerns and potentially forced exit from the Eurozone, which would weigh on Germany as it is Greece’s largest lender.
As the euro currency appreciated over the past few weeks, German automakers led the declines. Germany is an export-oriented economy, so a strengthening euro currency translates to more expensive goods for foreign buyers.
Consumer discretionary, which includes automakers like Daimler and Volkswagen, is the largest sector weight in Germany country-specific ETFs, accounting for 21.7% of EWG, 21.8% of DBGR and 22.4% of DXGE.
iShares Currency Hedged MSCI Germany ETF
For more information on the German markets, visit our Germany 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. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.