News that the little Mediterranean island of Cyprus is looking
to impose a tax on bank deposits to fund some of its needed
financial-system bailout sent a wave of outsized ripples across
financial markets Monday, pushing many Europe-focused
lower on worries the effects of the tax could spread far beyond
Cyprus' decision to vote on a tax-as high as 9.9 percent-to be
levied against bank depositors in an attempt to raise $7.6 billion
to help bail out its financial system, as reported by the Wall
Street Journal, raised concerns that not only local citizens would
be rushing to ATMs to withdraw their savings, but that the fear
could cause contagion across Europe and even in the United
'For Cyprus, where the financial and insurance sector accounts
for around 8 percent of gross domestic product, the proposed
measures will probably lead to a substantial loss in the financial
sector and therefore weaken the overall economy,' a research note
from Stratfor, the geopolitical consultancy, said Monday.
Going forward, much depends on how German opposition to using
taxpayer dollars for bailouts plans shakes out, and an upcoming
German parliamentary election all but ensures the question will get
an extended hearing that could have implications well beyond the
borders of the eurozone's largest economy.
'Finding a balance between addressing the Euroskeptic voters in
northern Europe while ensuring cohesion of the eurozone is becoming
more difficult, especially for Germany, which is facing rising
opposition in Europe,' the note from the Austin, Texas-based think
'Depositors in other troubled countries, such as Spain or
Portugal, will be increasingly concerned that future rescue
measures would result in similar taxes on their deposits,' Stratfor
added. 'Therefore, any future signs of financial instability in
certain countries will likely lead to capital flight and aggravate
the crisis further.'
The $1.7 billion SPDR Euro Stoxx 50 ETF (NYSEArca:FEZ)-a fund
that taps into some of the largest companies across Europe and
holds France and Germany as its two largest country
allocations-dropped 2.12 percent Monday, erasing many of the gains
tallied in the past 10 days. The losses came as the Dow Jones
industrial average slipped 0.43 percent on the day while the
S&P 500 dropped 0.55 percent.
Similar weakness was also seen in the behemoth $41.4 billion
iShares MSCI EAFE Index Fund (NYSEArca:EFA), which ended the day
1.1 percent lower after gapping to the downside in daily charts.
The developed-world-focused portfolio of some 900 securities has
more than half its country exposure tied to European nations, but
the fund remains ahead by more than 4 percent year-to-date.
For now, banks in Cyprus remain closed at least until later this
week, and a vote on the proposed tax has been postponed as
regulators grapple with the implications of making this move. For
U.S. investors, the latest tidbit out of Europe is a blunt reminder
of the fragility of the so-called global economic recovery, with
another round of eurozone-centered issues clouding the outlook for
Other ETFs worth noting include the $16.7 billion Vanguard FTSE
All-World ex-US ETF (NYSEArca:VEU), which also slipped 1.1 percent
Monday. The fund taps into developed and emerging economies with
the exception of the U.S., and roughly 45 percent of the
2,332-stock portfolio is currently allocated to Europe.
The CurrencyShares Euro Trust (NYSEArca:FXE), sponsored by
Guggenheim Investments, is a currency play on the euro. The fund
closed 1 percent lower Monday.
FXE hit a peak of $135.49 a share on Feb. 1, but has since been
declining steadily, having now slipped some 5 percent from that
Even as these funds underperform, investors have still poured
assets into ETFs that serve up exposure to Europe.
Year-to-date, all of these eurozone-focused portfolios have been
net gatherers of assets, with EFA leading the pack with net inflows
of $744 million since Jan. 1.
VEU has attracted a net of $640 million, while FEZ and FXE have
seen inflows of $541 million and $36 million, respectively,
according to data compiled by IndexUniverse.
Permalink | 'copy; Copyright 2009 IndexUniverse LLC. All rights
Don't forget to check IndexUniverse.com's ETF Data
2013 IndexUniverse LLC
. All Rights Reserved.