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Natural Gas ETPs See Surge of Inflows as Price Drop Viewed as Excessive
ETF Securities – Natural Gas ETPs See Surge of Inflows as Price Drop Viewed as Excessive. US payrolls surprised to the upside and China growth data also came in above expectations, creating a strong base for continued gains for cyclical assets. At the same time, the ECB cut its benchmark refinancing rate by 25ps to 0.25% sending the Euro sharply lower. The cut followed the release of October CPI showing that Eurozone inflation fell to 0.7% in October, the lowest level in nearly four years. While a stronger USD may continue to create headwinds for the gold price in the near term, we expect most other commodities and cyclical assets to benefit as the main reason for US dollar strength is the strength of the US (and global) economic recovery, which is positive for the more industrially-oriented commodities. We remain particularly positive copper and lead in the industrial metals sector and platinum and palladium within precious metals.
Long natural gas ETPs see third consecutive week of strong inflows, as investors appear to view recent price decline as excessive. Last week ETF Securities natural gas ETPs saw $15mn of inflows, bringing total inflows over the past three weeks to $41mn. Henry Hub gas prices have been falling on the back of warmer-than-normal temperatures in several parts of the US. However, with prices now back near the lower end of recent trading ranges and forecasts that US winter temperatures will be colder than usual, investors appear to be using the price declines as a good entry point.
Platinum and palladium ETPs receive combined inflows of almost US$10mn on a tighter market outlook. Strong manufacturing and growth numbers from China and the US, coupled with persistent supply uncertainty in South Africa, spurred PGM prices last week. US GDP growth and job numbers also came in higher than expected. With both markets expected to record a deficit this year we believe both platinum have positive price prospects.
Long gold ETPs record the biggest inflows in 10 weeks
totalling US$7.6mn, as investors remain concerned about the outlook for the Eurozone and a potential excessive rally in cyclical assets. With France’s credit rating cut to AA by S&P and the ECB having to deal with extremely low inflation and high unemployment, tail risks in Europe remain elevated, prompting investors to seek protection in gold.The extent of the recent rally in equity markets may also be starting to worry investors, causing some reallocations into gold as a hedge.
ETFS Aluminium (ALUM) saw US$57.9mn of outflows as investors remain concerned about continued large global aluminium surpluses. China is expected to produce a record 24mn tonnes of aluminium this year, according to Chalco, China’s largest producer. With China continuing to increase capacity instead of cutting production, prices have remained under pressure. Meanwhile, ETFS Daily Short Copper (SCOP) saw US$9.7mn of inflows last week.
Key events to watch this week
Industrial production numbers for India, Japan, EU and the US will be released this week, with better than expected data likely to benefit cyclical commodities. Q3 GDP data for the Eurozone, Germany and France will also be published this week providing a clearer picture of the extent (or lack thereof) of the European recovery. The Eurozone Finance Ministers meeting will also be monitored closely as Europe remains the biggest risk to global stability. Perhaps of greatest market interest in relation to the longer-term commodity outlook will be any new policy initiatives announced following China’s Third Plenum meeting.
Important Information
General
This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority.
Hashdex Nasdaq Crypto Index ETP, den största kryptoindexprodukten i Europa med över 500 miljoner USD i AUM, har nominerats till ETF Stream Awards 2024, i kategorin ”Digital Assets ETP Of The Year”!
Hashdex är glada över att se sitt engagemang för att tillhandahålla innovativ, reglerad tillgång till kryptotillgångsklassen erkänd. Detta erkännande belyser deras ledarskap när det gäller att utveckla kryptoinvesteringslösningar.
Hashdex Nasdaq Crypto Index ETP, den största kryptoindexprodukten i Europa med över 500 miljoner USD i AUM, har nominerats till ETF Stream Awards 2024, i kategorin ”Digital Assets ETP Of The Year”!
Detta erkännande belyser Hashdex engagemang för att tillhandahålla innovativa, robusta produkter som förenklar tillgången till kryptotillgångarnas värld. HDX1 erbjuder diversifierad exponering och tydlighet på en komplex marknad, vilket förkroppsligar Hashdex uppdrag att föra kryptons framtid in i nutiden av investeringar.
Prisutdelningen äger rum den 28 november i London, där Hashdex kommer att ansluta sig till branschens främsta ETF-spelare.
For years, India has been ramping up to contend with China as the region’s top technology leader. Pandemic-era supply chain issues hastened its successes in luring foreign tech firms. Now, equity investment flows are following suit. Dina Ting, Head of Global Index Portfolio Management at Franklin Templeton, highlights a few factors behind how the subcontinent is benefiting from rotational flows.
As China braces for renewed friction over President-elect Donald Trump’s tariff threats, investor flows may be following similar currents as those of regional supply chain shifts—that is to say, diversifying from China and toward opportunities in markets such as India and Japan.
After the People’s Bank of China revealed the most aggressive stimulus package it’s rolled out since the COVID-19 pandemic, China stock markets saw a short-lived rally at the end of September. A lack of detailed measures targeting consumption seems to have disappointed investors and led the bullish sentiment to deflate.
Adding to the country’s economic woes are societal changes like falling birthrates and a rapidly ageing population. Estimates by China’s National Health Commission suggest the country’s elderly population will grow to over 400 million by about 2035. To better cope with this crisis, China’s statutory retirement age will be extended, starting in January 2025, for the first time since the 1950s.
India investors, meanwhile, are finding the subcontinent—which has already overtaken China as the world’s most populous nation—appealing for its relative immunity to global risks, given its domestic-driven economy. Its younger labor force has also attracted a market pivot to this prime alternative to China manufacturing. For the 12-month period prior to China’s September 2024 stimulus announcement, US-listed India equity exchange traded funds (ETFs) garnered US$7.5 billion in flows—a sharp contrast to the US$6 billion in outflows experienced by China ETFs over the same period.1
Judging by India’s impressive initial public offering (IPO) environment, businesses there are feeling the optimism. The country’s 258 IPOs accounted for 30% of the global total by number by the end of September and 12% by the amount of money raised, in an economy that makes up just over 3% of global GDP.2
And investors in India are taking note. Aided by the improving digitalization of finance and increased internet access, India’s middle class is also an expanding retail investor class. By one measure, nationwide stock trading accounts nearly tripled from 2019 to 2023 to roughly 140 million.3
In dollar terms, total returns for Indian stocks have risen by 93% over the past five years, compared with about a 24% rise overall for emerging markets and drop of 5% for China stocks over the same period.
Many investors seeking to better diversify emerging market exposure or layer in targeted broad country allocation can tap single-country exchange-traded strategies.
Emerging markets in the Asia region are not the only beneficiaries of a potential US-China trade war. Earlier this year, investors were already driving up flows into Japan ETFs. Market watchers consider Japanese stocks to be indirect beneficiaries of Trump’s reflationary economic policy—which may keep interest rates high, thereby boosting the dollar and weakening the yen to the advantage of Japanese exporters.
The MSCI Japan Index is up nearly 21% in US dollar terms in the one-year period ending October 31, 2024. Consumer discretionary, financials and industrials holdings led gains during this time.
An element of uncertainty around the policies of a second Trump term, however, are still causing jitters around Asia, especially given the president-elect’s transactional approach to international relations.
Fortunately, Japan is seeing a renaissance in its semiconductor industry for which Tokyo is investing heavily (more than US$25 billion through 2025) and has established strong multilateral trade partnerships.
Japan has already elevated its role in global supply chain reorganization in recent years, and seeks to take advantage of its clout in joint free trade initiatives, such as the US’s Indo-Pacific Economic Framework for Prosperity to strengthen its regional supply-chain leadership.
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