EWG Overview

U.S. Market Performance: The S&P 500 has gained 15% year-to-date, primarily driven by large-cap technology stocks, but U.S. equities have underperformed compared to several international markets.

International Market Gains: Countries like South Korea and Peru have seen equity returns exceeding 80%, with strong performances in Southern Europe and resource-rich economies due to rising commodity prices and improved growth expectations.

Investment Outlook: J.P. Morgan Asset Management suggests that investors should diversify away from U.S. tech stocks, as future global equity performance may favor markets with strong earnings growth and attractive valuations.

Regional Diversification Benefits: The report emphasizes that diversifying investments can mitigate risk and enhance returns, particularly if enthusiasm for U.S. artificial intelligence themes diminishes.

Euro Area Inflation: The inflation rate in the Euro Area remained stable at 2.10 percent in November.

Currency Movements: The EUR/USD exchange rate increased due to recent dollar weakness and comments from the ECB President.

Market Volatility: The QQQ-SPX volatility spread has widened to a one-year high, reflecting concerns in the tech sector.

France's Economic Growth: The French economy grew by 0.5% in Q3, with inflation expected to remain steady.

Germany's Composite PMI: The HCOB Flash Germany Composite PMI Output Index fell to 51.5 in December from 52.4 in November, indicating a slowdown in service sector growth to its weakest level since September.

Manufacturing Sector Decline: The HCOB Flash Germany Manufacturing PMI dropped to 47.7, marking a 10-month low and indicating a deeper contraction in manufacturing activity for the second consecutive month.

Services PMI Update: The HCOB Flash Germany Services PMI Business Activity Index decreased to 52.6 from 53 in November, reflecting a three-month low in service sector activity.

Economic Outlook: Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, expressed concerns over the manufacturing sector's downturn, noting that declining order intakes and production levels do not bode well for the upcoming year.

Trade Surplus Increase: Germany's trade surplus rose to €16.9 billion in October 2025, exceeding market expectations and up from €15.3 billion in September.

Decline in Imports: Imports fell by 1.2% to €114.5 billion, contrary to forecasts of a slight increase, primarily due to reduced purchases from non-euro-area countries.

Exports Growth: Exports increased by 0.1% to €131.3 billion, reaching a six-month high and surpassing expectations of a decline, driven by stronger demand from EU partners.

Market Context: The news comes amid a week of significant central bank decisions and a generally flat performance in European indexes.

Corporate Insolvency Surge: Germany is projected to experience its highest corporate insolvency rate in over a decade, with an estimated 23,900 companies expected to go bankrupt in 2025, primarily affecting small and micro-enterprises.

Impact on ETFs: The rising insolvency rates pose risks for investors in the iShares MSCI Germany ETF and Global X DAX Germany ETF, as the financial strain on small businesses can lead to supply-chain disruptions and affect the performance of larger companies.

Consumer Financial Strain: Private bankruptcies are also anticipated to rise by 6.5% in 2025, driven by over-indebted households and increasing unemployment, further complicating the economic landscape for ETFs with exposure to consumer sectors.

Challenging Economic Outlook: Creditreform warns of a deteriorating competitive position for Germany due to high costs and bureaucratic challenges, suggesting a tough economic environment for both corporate and consumer sectors leading into 2026.

Chancellor's Budget Action: German Chancellor Friedrich Merz has enacted a significant fiscal policy change by passing a budget for 2026 that includes substantial spending measures.

Market Reaction: Despite the introduction of this fiscal "bazooka," the financial markets did not show a strong reaction, indicating a lack of concern or surprise regarding the budget changes.