Connect with us

Trading

European Equity Market Drivers – The Compounding Effect of Currency

Published

on

chart2

By Tom Goodwin – Senior Research Director, Russell Indexes

How has Turkey managed to outperform all Eurozone markets year-to-date according to Russell Indexes research?  The answer can be attributed in part to the strong performance of this country’s growing economy, often earning it the label “New Tiger.”  However, the answer can also be attributed to the decline of the euro and the impact it can have on the return experienced by global investors.  An examination of the equity market performance of Turkey and other select non-Eurozone countries year-to-date relative to the Eurozone from various aspects helps illustrate the importance of currency in driving market performance, particularly in Europe. Currency’s Impact on Market Performance Unlike all Eurozone countries within the Russell Global Index, Turkey is not tied to the euro currency, which may have actually helped its performance in recent years.   During the high-flying years of the Euro, a number of markets such as Turkey may have felt left out of the party, but interestingly not being linked to the euro currency may have actually benefitted some of these economies in the longer term.  Turkey was able to fuel its export sectors by keeping the Turkish Lira competitive against the Euro and other developed currencies.  It also encouraged direct foreign investment.  Consider the performance comparison of Russell Index returns for Eurozone countries relative to Turkey and some other non-Eurozone European nations for 2012. •    Among Eurozone countries within the Russell Global Index, for the year-to-date period as of May 31st, Ireland has led all countries with an 8.3% return, followed by Germany (7.2%) and Austria (4.7%).  Spain has been the worst performing Eurozone country year-to-date, with a (-26.4%) return, followed by Greece (-17.4%) and Portugal (-13.8%). •    Interestingly, within the Russell Global Index, non-Eurozone country Turkey has returned +16.8% for the year-to-date period as of May 31st, outperforming all Eurozone country constituents. •    Poland is often mentioned in the same breath as Turkey as another “New Tiger” country which has benefitted from being decoupled from the Euro. Poland also had a positive return year-to-date of 2.0%. 2012 YTD Market Performance (a/o May 31st) Russell Global Index Eurozone Country Returns    2012 YTD Returns (as of May 31, 2012) Ireland             8.3% Germany          7.2% Austria             4.7% France            -0.5% Finland            -3.6% Netherlands    -4.1% Luxembourg    -5.8% Italy              -11.2% Portugal        -13.8% Greece          -17.4% Spain            -26.4% Russell Global Index Non-Eurozone Country Returns    2012 YTD Returns (as of May 31, 2012) Turkey    16.8% Poland    2.0% Source: Russell Investments.  Returns are euro-denominated. Currency’s Impact on Investment Return Beyond playing a role in the economic drivers of market performance, underlying currency can also play a large part in determining the actual experience an investor has when committing investment capital to a certain market.  This is illustrated when comparing 2012 Russell Eurozone Index performance when based in U.S. dollars relative to euros, relative to the British pound sterling.  Investors in European equities may have a different outlook on these markets in 2012 depending on their location and home currency. Investors have felt the “double whammy’ effect on the markets caused by deterioration of the euro currency in 2012.  In particular, in the month of May the Russell Eurozone Index returned -6.8% in euro, -8.1% in British pound sterling and -12.9% in US dollars.  The difference is due to the deterioration of the Euro: -1.8% in the EUR/GBP rate and -5.0% in the EUR/USD rate.  For the year-to-date, the fall of the Euro has lopped off nearly 4% return when based in British pound sterling and nearly 5% when based in US dollars. chart Let’s Not Forget Fundamental Factors While currency is a big part of the investment story, it is just one part of the story and investors should not lose sight of fundamental market characteristics when evaluating a potential country or region in which to invest.  Turkey, for example, has benefitted from a number of positive factors in recent years.  These include a liberalized and well-regulated banking sector, favorable demographics including an expanding middle class, growing exports and increased foreign investment. In sum, Turkey has an environment that is very conducive to high economic growth and high investment growth, which are important factors for investors to consider when evaluating Turkey as a market.  However, just as important, when considering any investment today in Europe or Europe’s neighbors, our research tells us that investors should consider currency and the potential impact of the declining euro on relative market and investment performance. Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investments, nor a solicitation of any type.  The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional. Opinions expressed by Mr. Goodwin reflect market performance and observations as of May 31, 2012 and are subject to change at anytime based on market or other conditions without notice.  Please remember that past performance does not guarantee future performance. The Russell Global Index includes more than 10,000 securities in 48 countries and covers 98% of the investable global market. All securities in the index are classified according to size, region, country and sector. Daily Returns for the main components are available here: http://www.russell.com/indexes/data/daily_total_returns_global.asp Please note: Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Russell’s publication of the Indexes or Index constituents in no way suggests or implies a representation or opinion by Russell as to the attractiveness of investing in a particular security. Inclusion of a security in an Index is not a promotion, sponsorship or endorsement of a security by Russell and Russell makes no representation, warranty or guarantee with respect to the performance of any security included in a Russell Index. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.

Trading

Energy stocks drag down FTSE 100, IG Group slides

Published

on

Energy stocks drag down FTSE 100, IG Group slides 1

By Shivani Kumaresan

(Reuters) – London’s FTSE 100 slipped on Thursday, weighed down by falls in energy stocks as oil prices slid after a surprise increase in U.S. crude inventories, while IG Group tumbled on plans to buy U.S. trading platform tastytrade for $1 billion.

The blue-chip FTSE 100 index lost 0.4%, while the domestically focussed mid-cap FTSE 250 index also slid 0.4%.

Energy majors BP and Royal Dutch Shell fell 3.2% and 2.5%, respectively, and were the biggest drags on the FTSE-100 index. [O/R]

“What is holding back the UK is a lack of tech stocks to capture the ‘rotation’ back into tech seen since Netflix results,” said Chris Beauchamp, chief market analyst at IG.

“Stock markets overall are much quieter today, looking so far in vain for a new catalyst for further upside.”

The FTSE 100 shed 14.3% in value last year, its worst performance since a 31% plunge in 2008 and underperforming its European peers by a wide margin, as pandemic-driven lockdowns battered the economy and led to mass layoffs.

British Prime Minister Boris Johnson said it was too early to say when the national coronavirus lockdown in England would end, as daily deaths from COVID-19 reach new highs and hospitals become increasingly stretched.

IG Group tumbled 8.5% after announcing plans to buy tastytrade, venturing into North America after a stellar year for the new breed of retail investment brokerages.

Ibstock jumped 7.3% to the top of the FTSE 250 after the company said fourth-quarter activity benefited from better-than-expected demand for new houses and repairs.

Pets at Home Group Plc rose 2.2% after reporting an 18% jump in third-quarter revenue, boosted by higher demand for its accessories and veterinary services as more people adopted pets during lockdowns.

(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V and Mark Potter)

Continue Reading

Trading

Wall Street bounce, upbeat earnings lift European stocks

Published

on

Wall Street bounce, upbeat earnings lift European stocks 2

By Amal S and Sruthi Shankar

(Reuters) – European stocks rose on Wednesday after Dutch chip equipment maker ASML and Swiss luxury group Richemont gave encouraging earnings updates, while investors hoped for a large U.S. stimulus plan as Joe Biden was sworn in as president.

The pan-European STOXX 600 index closed 0.7% higher, getting an extra boost as Wall Street marked record highs.

All eyes were on Biden’s inauguration as the 46th U.S. President, with traders betting on a bigger pandemic relief plan and higher infrastructure spending under the new administration to boost the pandemic-stricken economy.

Tech stocks rallied to a two-decade peak in Europe after ASML Holding NV rose 3.0% to all-time highs on better-than-expected quarterly sales and a strong order intake for 2021.

Meanwhile, Richemont rose 2.8%, after posting a 5% increase in quarterly sales as Chinese splashed out on Cartier, its flagship jewellery brand.

Britain’s Burberry jumped 3.9% after it stuck to its full-year goals, saying higher full-price sales would boost annual margins, while Asian demand remained strong.

The pair boosted European luxury goods makers that are heavily reliant on China, with LVMH and Kering gaining between 1% and 3%.

“Any sign that retail spending is picking up in China is going to be a boost to the Western markets and those heavily exposed to it,” said Connor Campbell, financial analyst at SpreadEx.

The European Central Bank is set to meet on Thursday. While no policy changes are expected, the bank could face more questions about an increasingly challenging outlook only a month after it unleashed fresh stimulus to bolster the euro zone economy.

“With the new round of easing measures fully in place and no new forecasts to be presented tomorrow, it should be a fairly uneventful day for the euro,” ING analysts said in a note.

Italy’s FTSE MIB gained 0.9% and lenders rose 1.6% after Prime Minister Giuseppe Conte won a confidence vote in the upper house Senate and averted a government collapse.

Conte narrowly secured the vote on Tuesday, allowing him to remain in office after a junior partner quit his coalition last week in the midst of the COVID-19 pandemic.

Daimler AG jumped 4.2% after its Mercedes-Benz brand unveiled a new electric compact SUV, the EQA, as part of plans to take on rival Tesla Inc.

Germany’s Hugo Boss added 4.4% after Mike Ashley-led Frasers said it boosted its stake in the company.

(Reporting by Sruthi Shankar and Amal S in Bengaluru; Editing by Shailesh Kuber and Arun Koyyur and Kirsten Donovan)

Continue Reading

Trading

Miners lead FTSE 100 higher on earnings cheer

Published

on

Miners lead FTSE 100 higher on earnings cheer 3

By Shivani Kumaresan

(Reuters) – UK’s FTSE 100 rose on Wednesday as miners gained after a strong production forecast from BHP Group, while encouraging updates from luxury brand Burberry and education group Pearson drove optimism about the earnings season.

BHP Group Ltd climbed 2.8% after it forecast record iron ore production for fiscal 2021, helped by high prices for the commodity. Other miners Rio Tinto, Anglo American and Glencore rose more than 2%.

Global markets rallied in anticipation of more fiscal spending as Joe Biden prepared to take charge as the 46th U.S. president.

“There is a view in the markets that more spending is in the pipeline, after all, Mr Biden will want to start his presidency on a positive note,” said David Madden, market analyst at CMC Markets UK.

The FTSE 100 index rose 0.4% and the domestically focussed FTSE 250 index added 1.4%.

The FTSE 100 has recorded consistent monthly gains since November after the sealing of a Brexit trade deal and hopes of a vaccine-led economic recovery, but has recently lost steam as tighter business restrictions sparked fears of a slow rebound.

Burberry rose 3.9% as it stuck to its full-year goals and said higher full-price sales would boost annual margins and Asian demand remained strong.

Global education group Pearson jumped 8.6% after its global online sales grew 18% in 2020, helped by strong enrolments in virtual schools.

WH Smith Plc surged 10.4% to the top of the FTSE 250 index as its trading during Christmas was ahead of its expectations.

(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V, William Maclean)

Continue Reading
Editorial & Advertiser disclosureOur website provides you with information, news, press releases, Opinion and advertorials on various financial products and services. This is not to be considered as financial advice and should be considered only for information purposes. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third party websites, affiliate sales networks, and may link to our advertising partners websites. Though we are tied up with various advertising and affiliate networks, this does not affect our analysis or opinion. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you, or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish sponsored articles or links, you may consider all articles or links hosted on our site as a partner endorsed link.

Call For Entries

Global Banking and Finance Review Awards Nominations 2021
2021 Awards now open. Click Here to Nominate

Latest Articles

Top 8 Tax Scams to Watch Out For 4 Top 8 Tax Scams to Watch Out For 5
Finance13 hours ago

Top 8 Tax Scams to Watch Out For

It is tax time and that means finding the best way to file your taxes and to get a refund...

CEO Hisham Itani and Resource Group Recognized in the 2020 Global Banking & Finance Awards® 6 CEO Hisham Itani and Resource Group Recognized in the 2020 Global Banking & Finance Awards® 7
Technology14 hours ago

CEO Hisham Itani and Resource Group Recognized in the 2020 Global Banking & Finance Awards®

Global Banking & Finance Review has awarded Hisham Itani the Chairman and CEO of Resource Group, Technology CEO of the...

Euro zone business activity shrank in January as lockdowns hit services 9 Euro zone business activity shrank in January as lockdowns hit services 10
Business16 hours ago

Euro zone business activity shrank in January as lockdowns hit services

By Jonathan Cable LONDON (Reuters) – Economic activity in the euro zone shrank markedly in January as lockdown restrictions to...

Volkswagen's profit halves, but deliveries recovering 11 Volkswagen's profit halves, but deliveries recovering 12
Business17 hours ago

Volkswagen’s profit halves, but deliveries recovering

BERLIN (Reuters) – Volkswagen reported a nearly 50% drop in its 2020 adjusted operating profit on Friday but said car...

Global chip shortage hits China's bitcoin mining sector 13 Global chip shortage hits China's bitcoin mining sector 14
Business17 hours ago

Global chip shortage hits China’s bitcoin mining sector

By Samuel Shen and Alun John SHANGHAI/HONG KONG (Reuters) – A global chip shortage is choking the production of machines...

Iran's oil exports rise 'significantly' despite sanctions, minister says 15 Iran's oil exports rise 'significantly' despite sanctions, minister says 16
Business18 hours ago

Iran’s oil exports rise ‘significantly’ despite sanctions, minister says

DUBAI/LONDON (Reuters) – Iran’s oil exports have climbed in recent months and its sales of petroleum products to foreign buyers...

Nissan to source more UK batteries as part of Brexit deal 'opportunity' 17 Nissan to source more UK batteries as part of Brexit deal 'opportunity' 18
Business18 hours ago

Nissan to source more UK batteries as part of Brexit deal ‘opportunity’

By Costas Pitas LONDON (Reuters) – Nissan will source more batteries from Britain to avoid tariffs on electric cars after...

Muted recovery for UK retailers in December ends worst year on record 19 Muted recovery for UK retailers in December ends worst year on record 20
Business18 hours ago

Muted recovery for UK retailers in December ends worst year on record

By David Milliken and Andy Bruce LONDON (Reuters) – British retailers struggled to recover in December from a partial coronavirus...

Chinese phone maker Honor partners with key chip suppliers after Huawei split 21 Chinese phone maker Honor partners with key chip suppliers after Huawei split 22
Business18 hours ago

Chinese phone maker Honor partners with key chip suppliers after Huawei split

By David Kirton SHENZHEN, China (Reuters) – Chinese budget phone maker Honor said on Friday it had signed partnerships with...

Oil down $1 as China COVID-19 cases trigger clampdowns 23 Oil down $1 as China COVID-19 cases trigger clampdowns 24
Business18 hours ago

Oil down $1 as China COVID-19 cases trigger clampdowns

By Noah Browning LONDON (Reuters) – Oil prices fell on Friday, retreating further from 11-month highs hit last week, weighed...

Newsletters with Secrets & Analysis. Subscribe Now