ETF Securities – Global political upheaval offers a silver lining to ETP flows

Highlights

• Silver ETPs attracted the lion’s share of inflows.
• Inflows into global equity ETPs led by robotics rose to their highest level in 8 weeks.
• Safe haven currency seekers drove inflows into long yen ETPs to their highest level on record.

Silver ETPs attracted the lion’s share of inflows, worth US$54.5mn, marking its highest level of inflows since September 2017. The main catalyst has been the political tensions emanating between the UK and Russia over the poison attack on a former Russian spy in England. Britain has imposed sanctions on Russia and in retaliation Russia intends to expel British diplomats. The US, France and Germany have also shown their support for the UK and hold Russia responsible for the poison attack.

Added to that, the frequent shake-up of the Trump Administration, which last week saw the dismissal of secretary of state Rex Tillerson owing to differences over foreign policy issues, have raised concerns over protectionist US policies. Silver is attractively priced, with the gold to silver price ratio remaining elevated relative to recent history. We continue to have a positive view on silver’s fundamentals owing to a strong industrial cycle and constrained mine supply and expect silver to play catch-up in 2018.

Gold ETP flows reversed the prior week’s anomaly of inflows in 2018 by posting outflows of US$28.7mn. Gold prices tend to show weakness in the run-up to Fed meetings. This was evident last week as investors shifted their attention to this week’s Federal Reserve policy meeting, gold prices headed for their biggest weekly drop in a month. The key takeaway will be the likelihood of four rate hikes in the Fed’s projected dot plot for 2018.

Inflows into global equity ETPs, led by robotics worth US$24mn rose to their highest level in eight weeks. Looming political risks and rising protectionist policies caused global equity markets to end the week on a weaker footing. As a consequence investors sought to increase exposure to niche sectors within technology such as robotics and cybersecurity.

Redemptions from US equities totalling US$9.8mn led by Master Limited Partnership (MLPs) rose to their highest level since June 2015. Subsequent to the ruling from the Federal Energy Regulatory Commission (FERC) last week disallowing income tax recovery on interstate pipeline contracts, the MLP industry faced a broad sell off. We believe this is an overreaction. We expect pipelines owned by MLPs that cross state lines and rely on FERC-regulated tariffs to be the most impacted by this ruling.

Long Yen ETPs attracted the highest inflows on record amounting to US$25.2mn as investors took shelter among safe haven currencies amidst the global political upheaval.

Tighter monetary policy signalled by Norway’s central bank led to US$9.3mn of outflows from NOK ETPs. Last week Norway’s central bank signalled it will raise interest rates faster than expected supported by higher growth and a change in the inflation target. This led buoyancy to the Norwegian Krona, that surged 0.9%, reaching its highest level since November 2017.

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