Portugal ETP Flows Strong Despite Banking Woes

July 14, 2014

Flows into exchange traded products tracking the Portguese stock index (PSI) remained strong despite the Portuguese regulator suspending trading of Banco Espirito Santo last Thursday after its share price crashed 17 percent.

The mounting banking crisis in Portugal, which has seen one of the country’s biggest banks stall, has sent angst through the financial markets with stocks falling across European exchanges.

It saw trading in several Italian banks stop as the FTSE MIB index fell nearly 3 percent last Thursday.

However, despite global stocks falling, investors have continued to put money into ETPs. According to data from Markit, ETP investors have so far stayed the course with their Portuguese holdings despite the PSI 20 index falling by 12 percent in the last four weeks.

There are two ETPs benchmarked to the PSI 20 index which have seen their AUM jump by 50 percent since the start of the year with just over $50 million of inflows. So far in July, these ETPs have hit $2.9million of inflows.

- The Comstage ETF PSI 20 UCITS ETF tracking NYSE Euronext PSI 20, Total Gross Return.

- The Comstage ETF PSI 20 Leverage UCITS ETF tracking NYSE Euronext PSI 20, Leverage, Price Return

- Other products that have also done well on the back of the Portuguese crisis are highly rated government bonds - Italian and Spanish 10-year yields rose by 7 basis points last week – and gold.

Gold ETPs have seen outflows of $243 million, according to data from ETF Securities. This is as a result of investors taking profits from the rise in price following the Portuguese news breaking.  The gold price hit $1,337.00 on Friday amid banking fears in the European market.

Nicholas Brooks, head of research at ETF Securities, said in a note: “Banco Espirito Santo has lost over half of its value over the past month on fears that the financial difficulties at the Espirito Santo Group will engulf the bank and prompt a banking crisis in Europe.

“With the potential for a European banking crisis back on many investors' radar, financial risk hedges are likely to remain in demand in our view.”

The outbreak of crisis at Banco Espirito Santo, Portugal’s biggest bank, reminded investors that Europe is still far from fully recovered from the 2008-10 financial crisis.


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