Short-Term Hedge Opportunity Opens Up in Europe
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An analyst report out of Jefferies Equity Research may point to a potential short-term hedge opportunity in Europe.
In the report, an analyst stated that the relative fall in CAC financial valuations relative to the DAX over time has been in line with the relative loss of competitiveness of France compared to Germany and the differences in current account positions between the two countries. However, recently, sentiment has become overly bearish on French equities versus German shares. In the short term, Jefferies analysts expect this to reverse.
"There's been a one-way trend of net outflows from mutual fund/ETF investors. However the pace of withdrawals has markedly slowed in recent weeks. A change in investor sentiment could be a near-term catalyst for equity performance. Excess flows could be a forward indicator for near-term equity market direction, which currently appears to favour France over Germany."
Investors looking to take advantage of this opportunity can take a hedged short position in iShares MSCI Germany Index (NYSE: EWG) and a long position in iShares MSCI France Index (NYSE: EWQ).
In the report, an analyst stated that the relative fall in CAC financial valuations relative to the DAX over time has been in line with the relative loss of competitiveness of France compared to Germany and the differences in current account positions between the two countries. However, recently, sentiment has become overly bearish on French equities versus German shares. In the short term, Jefferies analysts expect this to reverse.
"There's been a one-way trend of net outflows from mutual fund/ETF investors. However the pace of withdrawals has markedly slowed in recent weeks. A change in investor sentiment could be a near-term catalyst for equity performance. Excess flows could be a forward indicator for near-term equity market direction, which currently appears to favour France over Germany."
Investors looking to take advantage of this opportunity can take a hedged short position in iShares MSCI Germany Index (NYSE: EWG) and a long position in iShares MSCI France Index (NYSE: EWQ).
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