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Stocks Bleed with Paris; Safe Havens Surge: ETFs in Watch

Ominous clouds over the Euro zone are refusing to pass. At least back-to-back hits last week corroborate this fact. If weaker-than-expected GDP data for the bloc in Q3 - merely 0.3% - was not enough to dampen investors' mood, a gruesome terror attack in Paris, slaughtered whatever little bit of risk-on trade investing sentiment over the region was left.

In fact, not only the Euro zone, the entire risk-pro global investing backdrop took a beating after the terrorist group ISIS took responsibility for the attack in the French capital on Friday. Squads of Islamic State-backed gunmen assassinated about 129 people in a chain attack at various locations and left hundreds severely injured. This was Europe's worst terror assault in over a decade, as per Bloomberg .

In vengeance, France bombed the Syrian city of Raqqa on Sunday night which was the most hostile anti-terrorism strike by the former against this Islamic group. With the global superpowers including France now looking confident of bolstering defense against ISIS, geo-political issues may crop up in the coming days.

Needless to say, all global risky assets went into a tailspin following this horrible incident. Though the French economy fared better than other biggies in the bloc in Q3, having returned to subtle growth on higher domestic demand , investors did not have time to celebrate the recovery as terrorism took the upper hand over an improving economy.

Market Impact

Investors appeared to take this bloodbath too seriously and rushed to panic selling in apprehension of a surge in geo-political threats. The sudden elevation of risk aversion in the market brightened the appeal for safe haven assets. Volatility ETFs which track the implied volatility of the market also surged thanks to the massacre in the stock market and concerns over a further downturn.

This specifically caused the uptrend in a few segments of the financial world that are seeing dire trending of late, but hold promises now. Below, we highlight a few of the biggest gainers from the latest sell-off in the global stock market. Also, these ETFs may continue to thrive should tensions persist in the global economy in the near term.

Gainers

Gold

Gold is often viewed as a hedge against market risk. The precious metal went through a brutal stretch in the last one-month period thanks to the rising greenback and reduced demand from the major consuming nations like China. The metal has seen some strength thanks to this market turmoil. In fact, the solid Fed rate hike bet for December couldn't hold back this safe haven metal post Paris attack.

The ETF tracking gold bullion SPDR Gold Shares ( GLD ) added over 0.5% after hours on November 13 and is expected to tack on gains in the short term. GLD was down 9% in the last one month.

Long-Term U.S. Treasury

Though U.S. treasuries were out of favor a few days back due to worries over Fed tightening, heightened global uncertainty brought this safe asset into the limelight. Along with the terror attack, global growth worries and severely low oil price, which put a lid on global inflation should help treasury valuation going forward (read: Do Treasury Bond ETFs Deserve a Place in Your Portfolio? ).

Yields on the U.S. benchmark 10-year notes slipped to 2.28% on November 13 from 2.32% recorded the day earlier. Long-term U.S. bond ETF iShares 20+ Year Treasury Bond ETF ( TLT ) was up 0.6% on November 13 and added over 0.3% after hours. For the month, the fund is down about 3.9%.

Greenback

U.S. dollar or greenback is yet another product which acts favorably when a flight to safety commands the market. Plus, a ripe prospect of a sooner-than-expected Fed lift-off also favors this asset class. As a result, PowerShares DB US Dollar Bullish ETF (UUP) added about 0.4% on November 13, advanced about 0.6% after hours and soared about 5.4% in the last one month.

Yen

The Japanese currency, yen, is often considered a classic safe haven asset. Though a somber GDP data for Japan - which indicates that Asia's second-largest economy is into a recession in Q3 - had the chance of wrecking havoc on yen, the currency moved higher on a safe-haven appeal. Thus, CurrencyShares Japanese Yen Trust ( FXY ) might see a surge ahead (read: Guide to Currency Hedging ETFs ).

Volatility

When sentiments among investors are so shaky, the volatility index is sure to gain. Obeying this law, the CBOE volatility index or "fear gauge" reached its highest tip since October 2. ProShares VIX Short-Term Futures ( VIXY ) - the ETF tracking the performance of the S&P 500 VIX Short-Term Futures Index - returned over 6.8% on November 13 and added more than 2.8% after hours. However, investors should note that volatility investments are not meant for long-term traders.

Losers

Along with several research houses like Goldman , we believe that this market turmoil is here to stay. Yet, we would like to highlight the losers in the wake of the Paris attack. While most of the global equities lost after the massacre, with the U.S. equity gauge SPY losing 1.12% on November 13 and shedding over 0.8% after hours, Europe-based products are likely to be the worst hit.

France

As expected, France equities and the related ETFs was the worst hit. The pure-play France ETF iShares MSCI France (EWQ) lost 1.1% on November 13 and plunged over 4% after hours (read: Which Country ETF Wins Cinco de Mayo 2015? ).

Euro

First a soft GDP report and then the attack weighed on the common currency Euro and its related ETFs. The euro fell to a six-month low versus the greenback. CurrencyShares Euro Trust (FXE)lost over 0.5% on November 13 (read:Short the Euro with These Inverse Currency ETFs).

Broader Europe

Since the impact of this bloodshed would be far reaching, broader Europe ETFs would also be vulnerable in the coming few days. Already, Vanguard FTSE Europe ETF (VGK) shed over 0.8% on November 13 and went on to lose over 1.3% after market.

Bottom Line

Though we do not expect this bearish move to continue especially in the U.S. which has a strong trend underneath, the upheaval in the stock market may persist for a week or so due to the gloomy global backdrop and the rise in fear among investors. However, as the central banks of the U.S., Euro zone and Japan start to speak again, this unsteady market will take solid shape and decide the fate of several asset classes and sectors.

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SPDR-GOLD TRUST (GLD): ETF Research Reports

ISHARS-20+YTB (TLT): ETF Research Reports

PWRSH-DB US$ BU (UUP): ETF Research Reports

CRYSHS-JAP YEN (FXY): ETF Research Reports

IPATH-SP5 VX ST (VXX): ETF Research Reports

SPDR-SP 500 TR (SPY): ETF Research Reports

ISHARS-FRANCE (EWQ): ETF Research Reports

CRYSHS-EURO TR (FXE): ETF Research Reports

VANGD-FTSE EUR (VGK): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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