With Wednesday’s rebound failing to hold amidst renewed uncertainty, Europe region-related exchange traded funds retreated, with major European benchmarks revisiting their two-year lows.
On Thursday, the Vanguard FTSE Europe ETF (NYSEArca: VGK) was down 1.7% and iShares MSCI EMU ETF (NYSEArca: EZU) was 1.3% lower, with both broad Europe ETFs trading near their lowest level March 2017. Year-to-date, VGK declined 15.7% and EZU decreased 17.4%.
On the other hand, bearish traders have been capitalizing on the weakness through inverse ETFs, such as the ProShares UltraShort FTSE Europe (NYSEArca: EPV), which tracks the -2x or -200% daily performance of the FTSE Developed Europe Index. EPV rose 3.6% on Thursday and jumped 34.2% year-to-date.
Additionally, the VellocityShares 1x Long VSTOXX Futures ETN (NYSEArca: EVIX), which tracks VSTOXX Short-term Futures, a widely observed measure of European equity market volatility, similar to what the VIX or CBOE Volatility Index does based on U.S. equity market volatility, surged 15.1% on Thursday.
The Stoxx Europe 600 Index was trading at its lowest level since November 2016 while the Euro Stoxx 50 closed in a bear market, Bloomberg reports.
The European benchmarks were set for their worst year since the 2008 financial downturn as a combination of political risk and economic concerns triggered about $70 billion in outflows from the region’s stock funds. For example, VGK experienced $2.4 billion in outflows and EZU saw close to $7.0 billion in outflows year-to-date, according to XTF data.
“It’s a combination of nervousness, growth fears and in particular Brexit uncertainty. Liquidity is very thin, and political risks are more severe for Europe,” Ulrich Urbahn, head of multi-asset strategy and research, told Bloomberg. “The hope is that with some re-balancing flows at the end of the year and new risk budgets at the beginning of next year, markets will find a bottom.”
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