European equity ETFs rally as fears over Brexit ease

Jun 21st, 2016 | By | Category: Equities

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Exchange-traded funds tracking major European equity indices rose sharply on Monday as investors traded on revised expectations of the outcome of the UK’s EU referendum. The release of new polling data suggest the ‘Remain’ camp may have established a lead ahead of Thursday’s vote on Brexit.

European ETFs rally as fears over Brexit vote ease

The latest polling data show a three point lead to the ‘Remain’ camp with 45% of respondents stating they wish to remain in the European Union.

As of 1pm, the Euro Stoxx 50 index of mega-cap eurozone stocks was up 3.2%, leading to healthy gains for widely traded ETFs such as the €5.5bn iShares Euro Stoxx 50 UCITS ETF (Xetra: EXW1) and the €4.6bn db x-trackers Euro Stoxx 50 UCITS ETF (Xetra: XESC).

The UK’s blue-chip FTSE 100 benchmark was up a similar amount, with the £3.6bn iShares Core FTSE 100 UCITS ETF (LSE: ISF) and £2.1bn Vanguard FTSE 100 UCITS ETF (LSE: VUKE), two of the most popular ‘Footsie’ ETFs, adding around 3.2%.

UK mid-cap ETFs, which are seen as offering a better gauge on the performance of the domestic UK economy, also took part in the rally, with the iShares FTSE 250 UCITS ETF (MIDD) and Vanguard FTSE 250 UCITS ETF (VMID) gaining circa 3.4%.

The gains extended across the European continent, with ETFs tracking individual country stock markets posting similar returns. France’s CAC 40, Germany’s DAX and Spain’s IBEX 35 had all posted solid returns, adding 3.4%, 3.5% and 3% respectively, with corresponding performance gains for ETFs tracking the indices such as the €3.5bn Lyxor CAC 40 UCITS ETF (LSE: CACX), €7.4bn iShares Core DAX UCITS ETF (Xetra: EXS1) and €203m db X-tracker Ibex 35 UCITS ETF (Madrid: DXIBD).

The bullish sentiment appears to be attributed to a poll conducted over the weekend by market research agency Survation showing a resurgence in support for Britain remaining in the European Union. The firm reported that 45% of those surveyed were in favour of EU membership compared to 42% who wished to leave. The result represents a swing from the three point lead attributed to the ‘Leave’ camp as reported in Survation’s previous poll conducted on Thursday 16 June 2016.

Laith Khalaf, Senior Analyst, Hargreaves Lansdown, commented: “Waves from the Brexit vote are buffeting the UK stock market, tossing it up and down as the opinion polls shift this way and that. Until the vote is over we can expect more price swings, as markets struggle to price in a unique event that carries with it such a high degree of uncertainty.

“If you want to get an idea of what stocks will do well in the event of a vote to stay in the UK, it’s worth taking a look at today’s FTSE leader board. The market has clearly identified financials and house builders as beneficiaries of a vote to remain in the UK.”

The new data has also been bullish for the British pound, rising over 2% against the US dollar and 2.3% against the yen. Sterling was trading at 1.4650 $/£ and 153.100 ¥/£ at the time of writing.

The shift to greater risk-on sentiment resulted in traditional safe-haven assets losing ground with the yield on 10-year German Bunds rising by 3bp to 0.049%. The yield on 10-year Bunds had previously reached a historic low of negative 0.037% on Thursday 16 June 2016. The yield on 10-year US Treasuries was also up by 6bp to 1.671% while gold had traded down by 1.4% to $1,280 per ounce.

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