ETFdb.com analyzes the search patterns of our visitors each week. By sharing these trends with our readers, we hope to provide insights into what the financial world is concerned about and how to position your portfolio.
There was no central theme this week, but an interesting trend is the presence of the U.S. election through the infrastructure ETFs. China has also grabbed headlines with the Chinese yuan and the government’s decision to sell a big chunk of its cotton reserves in light of an apparent lack of supply in the country. Brazil and the British pound are last in the list.
Cotton: The Turning Point
Cotton has taken first place in our list with a 115% increase in viewership week-over-week. There are two exchange-traded notes tracking the commodity, and both have rallied impressively since the beginning of the year on a waning supply glut. For example, iPath Bloomberg Cotton Subindex Total ReturnSM ETN (BAL B+) has jumped 12.75% year-to-date, but has fallen 4.49% over the past five days. There is a clear reason for that, namely China.
This week, the Chinese government said it had extended a deadline to the end of September for mills to purchase cotton from its vast reserves. In addition, it said it may sell more than the 2 million tons initially put up for sale, in order to meet skyrocketing demand and keep prices down. However, it is unclear how long the government will be able to do so, given that Chinese farmers have increasingly shunned cotton in the recent years for other crops such as wheat because of the low return on investment. Cotton has started a recovery over the past month, but throughout the last two years, prices have been severely depressed, and they are still down 27% over the past five years.
Still, many investors think the cure for low prices are even lower prices, and have increased their bets on a recovery, according to a Bloomberg News report dated August 7. Smaller crops in China, which lost its crown to India this year, coupled with dryness in the U.S., the largest exporter, and India, must weigh positively on prices. Cotton may have finally turned a corner.
Chinese Yuan: Better Stable Than Global
The Chinese Yuan has seen its viewership rise about 89% this past week, as China prepares to make it a global reserve currency over the next few weeks. But, making the Chinese currency go global has hardly worried investors. Instead, the market rightly remembers the moves in the Chinese currency around the same period last year. A nasty fall in the yuan back then prompted a global selloff in equity markets, with many continental European indexes failing to recover since then, despite new stimulus measures from the European Central Bank.
The Chinese authorities have succeeded at reining in yuan’s drop and making it stable enough. WisdomTree Chinese Yuan Strategy Fund (CYB A+) has barely budged since the beginning of the year, up 0.90%. Over the past five days, WisdomTree Chinese Yuan has risen 0.29%.
But that stability came at a cost for the government, which wants to make the yuan a global reserve currency, although it backed down a little bit on that ambition. To do so, the central bank needs to liberalize the currency regime, but that is particularly tricky considering the slowing Chinese economy and the potential outflows. Latest data from China has confirmed the grim outlook, with exports and imports falling in July, 4.4% and 12.5% in U.S. dollar terms, respectively. In light of this picture, officials have tightened capital controls and pushed back ambitions to make the currency global.
Infrastructure: A Political Battleground
Infrastructure ETFs have been boosted by good news lately, with both U.S. presidential candidates promising to increase spending for these projects. Infrastructure ETFs are slightly behind the Chinese yuan in the list, with 82% growth in viewership over the past week. iShares Global Infrastructure ETF (IGF A-) – which is 43% composed of U.S. stocks – has increased 0.55% since last Thursday, but year-to-date it is up as much as 15%.
Infrastructure companies stand to benefit soon from an increased spending bill from the U.S. government, no matter who wins the election this November. It seems that both presidential candidates agree that the U.S. infrastructure is in dire need of help, and promise to rebuild it. Democratic presidential nominee, Hillary Clinton, said she wants to approve a massive $275 billion increase in infrastructure spending over the next five years, while her Republican opponent, Donald Trump, promises to double Clinton’s bill.
British Pound: Poised to Fall
The British pound is again in the spotlight, as it continued its slide following the Bank of England’s decision to ease monetary policy last week. Britain’s currency has taken fourth place in the list, with a 58% rise in viewership. The pound (FXB A-) has dropped 2.29% this past week, extending losses to as much as 11.91% since the beginning of the year.
The losses this week came after the Bank of England reduced its interest rate from 0.50% to 0.25%, and unveiled an asset-purchase package worth 170 billion pounds. The officials also made clear they were willing to take further action if needed, in order to counter the negative effects of Britain’s decision to leave the European Union. The measures evidently weakened the pound, and may continue to do so in the future.
Brazil: Political Drama Nearing End
ETFs tracking Brazil have seen their traffic increase 40% week-over-week, as the Olympic Games officially started six days ago. The country’s stock markets have continued their ascent, as investors brushed aside political turmoil to focus on the potential positive effects of the Olympic Games. iShares MSCI Brazil Capped ETF (EWZ B+) has jumped 3.27% since last Thursday, extending year-to-date gains to as much as 65%.
Although the world has largely focused on the Olympic Games taking place in Rio de Janeiro, investors have turned their attention to the political drama surrounding President Dilma Rousseff. If she is impeached in the coming weeks, ground will be cleared for acting President Michel Temer to continue his fiscal reforms that were much cheered by the market. A final vote on Rousseff’s impeachment could come as soon as this month.
The Bottom Line
The U.S. election is slowly making its way onto our trends list, with the infrastructure debate probably being the starting point. Cotton’s rebound this year and the Chinese yuan are both in the crosshairs of the Chinese government, which wants to keep their prices stable by tapping its huge reserves. The British pound, meanwhile, has continued to fall following the Bank of England’s new stimulus measures, while Brazil is expected to gain further if the political fallout ends this month.
By analyzing how you, our valued readers, search our property each week, we hope to uncover important trends that will help you understand how the market is behaving so you can fine-tune your investment strategy. At the end of the week, we’ll share these trends, giving you better insight into the relevant market events that will allow you to make more valuable decisions for your portfolio.