Inside The Outperforming Austria ETF [iShares MSCI Austria Investable Mkt(ETF), iShares MSCI Germany Index Fund (ETF)]

ETFs2013 was a big year for Europe with the debt-ridden Euro zone coming out of recession in the second quarter.  While most headlines were snatched by big names like Germany, France and Italy, one overlooked nation – Austria – rewarded investors with solid returns.

The only pure play on this market –iShares MSCI Austria Capped ETF (NYSEARCA:EWO) – added about 6% in the early days of 2014 on top of the 11% gain last year.  To add to this, the fund never tanked last year, and hovered in a tight range of $16.08–$20.24 all though 2013.

What’s Behind This Resilience?

Shrinking Trade Deficit: Austria is heavily dependent on exports for its economy. Moreover, with muted private consumption in recent years thanks to sluggish employment growth, feeble real incomes and on-going deleveraging (as per OECD), the country has grown more and more export-reliant.

With exports of goods and services accounting for a little less than three-fifth of total GDP (57% as of fiscal 2012), Austria remains vulnerable to the health of its major trading partners. The country trades a great deal with Germany (around 30%), ensuring that it is heavily exposed to one of the region’s top economies.

Notably, Germany was considered one of the most fiscally stable economies in the Euro zone even during the historic debt-debacle (read: Time for This Top Ranked German ETF?).

Germany, a major component of the region, started walking on the growth path since the beginning of 2013, indirectly giving a reason to be bullish on Austria’s GDP view. Beyond Germany, Italy, France and the Czech Republic contribute to Austria’s export profile among EU nations.

Lately, the massive drop in Austrian trade deficit corroborates this fact. The latest data shows that the trade deficit shrank in October 2013 considerably to EUR 97.6 million from EUR 793.06 million logged in the year-ago period. Exports grew 6.3% last October while imports nudged up 0.2%.

Decent Unemployment & Inflation: The country appears to score remarkably well on the employment front. In 2012, joblessness in Austria was 4.4% which came in stark contrast to the Euro Area average of 11.3%, putting Austria into rare company on the unemployment front.

In fact, the nation’s unemployment rate didn’t even spike during the Euro zone catastrophe as it hovered within the range of 4.2% to 4.8% in the 2009–2012 period.

While the entire continent is struggling to spur inflation, Austria has often been blamed for rising inflation which put a lid on its real income growth. Though it was very much contained at 2% in 2013, OECD expects the rate to decline to the 1.5% range by 2015. In fact, Austrian inflation has fallen for six straight months of the second half of 2013.

Pages: 1 2

Leave a Reply

Your email address will not be published. Required fields are marked *