Bank Run: ETFs for a Run on European Banks (EWP, GXF, EWO)
It's probably not a surprise to many market observers, but Google Trends shows searches for the phrase "bank run" have reached record levels. The phrase "Spanish banks" has seen exponentially higher search volume in recent days as well. In fact, searches for that phrase have been far higher in recent weeks than they were in July 2011 when five Spanish banks failed stress tests.
To say a run on Euro Zone banks is a legitimate possibility might be understating the matter. Withdrawals from Greek banks have averaged 2 to 3 billion euros per month for about two years, according to Dr. Jeff Lewis.
Of course, it's not just Greece. Last month, global financial markets were shaken by news that Spanish citizens were pulling over $1 billion out of Bankia, the now nationalized Spanish lender. Cross-border lending by global banks plunged by almost $800 billion in the fourth quarter of 2011 as deposits were pulled from PIIGS and other Euro Zone banks according to the Bank for International Settlements.
It's understandable why Greece, Spain and friends are being hit by massive withdrawals. Any country that departs the euro to go back to a previously used currency will see the value of its bank deposits and currency plunge. By some estimates, a new drachma would mean Greeks would see their deposits and assets lose 60% of their value.
Even from across the Atlantic, investors can profit from this trend with the following ETFs.
iShares MSCI Spain Index Fund (NYSE: EWP) We've long been bearish on EWP, the lone Spain ETF, and that view has been rewarded with a plunge of about 27% year-to-date.
While EWP has started to perk up in recent days (can you say dead-cat bounce?), being long a country ETF that devotes over 41% of its sector weight to financials when that country's banking system is in crisis is not a wise idea. As long as Spanish banks need to be recapitalized and as long as that plan doesn't come to fruition, EWP can only be played from the downside.
iShares MSCI Austria Investable Market Index Fund (NYSE: EWO) In defense of EWO, which is 31.3% allocated to financials, Austria is still an AAA-rated country. It should also be noted that Austrian banks probably won't see a run on them that reminds global investors of Greece or Spain, but Austrian banks are struggling with loans to Eastern European nations such as Hungary and Ukraine made prior to the financial crisis.
Those loans looked like good bets back then, but now, not so much and Austrian banks are believed to be struggling to meet the new standards set forth by Basel III.
Global X FTSE Nordic Region ETF (NYSE: GXF) EWO and EWP are current losers due to the calamitous state of affairs among European banks, but the Global X FTSE Nordic Region ETF is a potential winner. It has been noted that some Spanish and Greek withdrawals have been deposited in Scandinavian countries. That's good news for GXF, which allocates 30% of its weight to bank stocks.
iShares MSCI Sweden Index Fund (NYSE: EWD) Norway and its banks are strong, healthy and have been attracting deposits from peripheral Euro Zone countries, but the two Norway ETFs available to U.S. investors skimp on bank stocks in favor of the energy sector. So for those that want country-specific exposure to strong European banks, the iShares MSCI Sweden Index Fund makes sense.
Swedish banks are viewed as among the strongest in the world and EWD features an almost 25% allocation to that sector with a decent yield of 3.65%.
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