Tuesday’s ETF To Watch: Market Vectors Germany Small-Cap ETF (GERJ)

by on June 21, 2011 | ETFs Mentioned:

Sentiment on the Greek crisis is changing by the day, forcing investors to constantly stay up-to-date on the political movements in this highly indebted country. The latest news suggests that European finance ministers have delayed handing over close to $17 billion in aid to the country until the nation agrees to slash its budget and embark on a major privatization campaign in order to raise more cash. However, the Greeks appear increasingly opposed to this, causing the euro zone ministers to withhold funds which could potentially push the country into default in the very near future. Thanks to this uncertainty, European stocks have been crumbling as of late as many investors look for a glimmer of hope in the bleak situation. Now more than ever, investors need to see that major economic powers, such as Germany, are pulling their weight and continuing to remain robust despite risks in many peripheral euro zone members.

Luckily for investors who are honed in on the German market and its fourth largest economy in the world, an important piece of the sentiment puzzle looks to be released later today, potentially helping to give the markets direction in the region. The German ZEW Economic Sentiment survey will be released, giving investors insight into how German institutional investors feel about business conditions. The survey is conducted from about 350 German institutional investors and analysts, and a reading above zero indicates optimism while one below zero suggests pessimism. Last month’s reading came in at 3.1 while this month’s looks to be at about -3.0, suggesting a drop in confidence by this key group [Five ETFs For A Tumbling Euro].

Even more troubling is the recent trend for this key figure; after beating expectations in January, the survey level has failed to match the forecast numbers in each of the last four releases and has declined from a reading of 15.7 in February all the way down to a 3.1 reading in May. Should figures come in below expectations again, it could represent a nearly 20 point drop in this index in just a few months time. If this happens, it could suggest to many that German investors are increasingly losing confidence over the outcome of the situation in Greece and are pulling back investments until a more certain resolution is reached. This could be poor news for investors not just in Germany but across the euro zone region since Germany is thought to be one of the stronger members of the currency union and if it is experiencing such a dramatic loss of confidence than events must be even worse across the less robust members as well [ETF Insider: Buying Opportunities After Panic Selling].

Thanks to this key release, as well as any further news regarding a bailout package for Greece, investors should look for the Market Vectors Germany Small Cap ETF (GERJ) to be in focus throughout today’s trading session. The fund tracks the Market Vectors Small-Cap Index which includes small cap companies listed in Germany or that generate at least 50% of their revenues in Germany. Some consider small caps to be a better ‘pure play’ on a local economy since the vast majority of their revenues are made in their home nation, potentially suggesting that local events have a bigger impact on this asset class [see more on the GERJ fact sheet].

Due to recent worries over Greece, this relatively new fund has had a rough couple of weeks. The fund sank by 3.8% in the past week and is down by 4.2% in the past month alone, suggesting that the crisis is taking a toll on this fund as well. However, should the ZEW survey manage to finally end its streak of underperformance, look for GERJ to rise on the day and gain back some of its recent losses. If, however, the survey suggests further weakness and if the Greek crisis continues to deteriorate, investors in GERJ could see further losses in today’s trading session.

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Disclosure: No positions at time of writing.