Europe Falls Prey to Economy’s Ills

08/12/2008 12:00 am EST


Tom Lydon

Editor and Publisher, ETF Trends

Tom Lydon of ETF Trends says housing and auto manufacturing woes are not just affecting the US.

In Ireland, investors have packed up and are nowhere to be seen, as the credit crunch has halted the housing market, leaving real estate exchange traded funds (ETFs) at a standstill.

The Belfast region of Ireland is especially hurting from the recent credit crunch, and the economic growth rate has slowed to an estimated 1%. Last year, the province was expecting an economic revival of sorts, as the Catholics and Protestants declared peace, reports Colm Heatley for Bloomberg.

United Kingdom home prices fell as July consumer confidence declined to an all-time low [and] the country borders on a recession, says Brian Swint for Bloomberg. (Confidence is down 11 points, to 51, according to the Nationwide building society's index-Editor.)
Average home values dropped 8.1% from the previous year. Falling retail sales, dropping home values, high food prices, and credit tightening are weighing on the economy and real estate ETFs.

ETFs that are feeling the pain [include]: iShares S&P World ex-US Property Index Fund (NYSE: WPS), which is down 20.6% year-to-date; SPDR Dow Jones Wilshire International Real Estate (AMEX: RWX), which has declined 16.4% in 2008; iShares FTSE EPRA/NAREIT Global Real Estate ex-US Index Fund (Nasdaq: IFGL): down  20.5%, and iShares FTSE EPRA/NAREIT Europe Index Fund (Nasdaq: IFEU): down 13.5% so far in 2008.

Meanwhile, Fiat's woes are putting pressure on an Italy ETF.

Italy's biggest carmaker, Fiat SpA (Milan: F.MI), is closing four of its six auto plants in the country for three weeks between September and November, report Sonia Sirletti and Marco Bertacchi for Bloomberg.

Slumping sales are to blame, and the closures are to affect the factories at Mirafiori, Termini Imerese, Pomigliano, and Melfi. Together, these sites employ 22,000 people, or three-quarters of Fiat's workforce.

iShares MSCI Italy Index (NYSEArca: EWI) holds 2.9% in Fiat and may take the ETF to a fork in the road. Record oil prices and a slowing economy have turned consumers off to buying. Overall auto sales fell 19.5% in June, for the sixth straight month. Fiat fell 6.6%. It's not good for Italy, which is Europe's second-largest car market, after Germany.

The Italian economy overall is forecast to stall this year, with a 0.5% rate of expansion. It's the slowest pace among the 15 countries sharing the euro.

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