ETF Securities Weekly Flows Analysis – Oil ETP outflows reach 11-month high as investors take profit
Highlights
- Crude oil ETPs saw largest outflow since December 2016 as investors took profit.
- Third consecutive week of inflows in gold ETPs, totalling US$181mn over the period.
- Largest weekly inflows into robotic themed ETFs see since their inception.
- Agricultural ETPs saw largest outflows since July 2017.
Crude oil ETPs saw largest outflow in since December 2016 as investors took profit on further price gains. Brent crude prices lurched 2.3% higher last week as a geopolitical premium became priced-in to the oil benchmark. Outflows of US$109.1mn last week was the tenth consecutive week of withdrawals from ETPs and marked the highest since May. We believe that unless the geopolitical tensions remain on top of investor list of concerns, the geopolitical premium will dissipate. Last week Saudi Arabia’s internal fight against corruption, implicating a large number of the political and financial elite, and its external proxy war with Iran escalated. That has led to market fears about a potential disruption to supply. However, as we have observed in the past, unless these risks are crystallised (or new developments keep the issues at the forefront rather than simmering in the background), the geopolitical premium tends to fade away.
Third consecutive week of inflows in gold ETPs, totalling US$181mn over the period. Inflows into gold ETPs continued last week to the tune of US$111mn. Gold prices gained 0.4% in light of the elevated geopolitical tension in the Middle East. Furthermore US President Trump’s comments during his trip to Asia has stoked concerns about a military confrontation with North Korea. The sabre-rattling that looked like it had calmed down over the past month is resurfacing. The outflows from gold ETPs that took place in Q3 2017, appear to be reversing as investors recognise that at current prices gold provides a relatively cheap hedge to rising risks of a disruption to cyclical asset performance. In our base case scenario, we think the downside risks to gold prices are fairly limited, however, a shock event could take gold prices higher, making it an attractive insurance asset.
Largest weekly inflows into robotic themed ETFs see since their inception. Last week’s inflows of US$39.8mn marked the largest weekly inflows. After close to 60% of companies in the sector having reported Q3 net income, close to 65% have beat analyst estimates. Investors are increasingly enthusiastic about the role of robotics in the modern world and have identified an investment opportunity in the companies that enable the deployment of this technology.
Agricultural ETPs saw largest outflows since July 2017. A total of US$16.3mn of outflows were seen from long agricultural ETPs, despite a US$2.5mn inflow into long coffee ETPs. Outflows were concentrated in the broad baskets due to price weakness (US$9.5mn). However, there was also profit-taking of US$8.8mn in cocoa ETPs after a 7.5% rally in prices last week. Cocoa prices had been depressed until mid- August due to a bumper crop. However, due to excessive rain the spread of crop diseases like black pod and brown rot has increased, damaging the prospect for future crops and thus has lifted the price.
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