The global economy has developed to a point where a small disturbance can create ripples that reach to the far corners of the world, and the stumbling U.S. economy has done just this by disrupting other markets and their related exchange traded funds (ETFs).
The American way is almost synonymous with consumption, but recent economic hiccups have forced us to buy less which has consequentially slowed exporting economies, reports Tony Sagami for Money and Markets.
The Chinese ETFs have been experiencing a downward trend as others are buying less. Its economy saw the weakest quarterly growth rate in seven years as it only expanded 6.8% in the last quarter compared to 13% in the same period in 2007. In 2007 China’s exports were up 25.7%, whereas in 2008 it was only up 17.2%.
The slowdown in China’s will then go on to affect other Asian countries that rely on exports to China.
- Japan, iShares MSCI Japan Fund (EWJ) down 6.8% in the last month, is an export-dependent country and it has reported that its exports plunged by 35% in December from the year before.
- South Korea’s, iShares MSCI South Korea (EWY) down 8.4% in the last month, economy diminished 5.6% last quarter which was twice as bad as was expected. China is South Korea’s biggest export market, but China’s demand for South Korean goods have waned.
- Australia’s, iShares MSCI Australia Index (EWA) down 11.1% in the last month, Prime Minister, Kevin Rudd, has stated that the slowdown in China will reduce $3.3 billion in business from the economy. Mining companies in Australia are also cutting jobs due to decreases in demand for metals in China, the world’s largest consumer of metals.
Sagami also provides five ways investors could consider to protect their sorely gained wealth and profits:
- Use rallies to sell stocks and to reduce exposure to equities.
- Expect U.S. stocks and bonds to be among the worst performers in the world.
- Government overspending will create rampant inflation so include inflation hedges such as commodities.
- Intrepid invstors may consider long-term put options or inverse ETFs that track the inverse of index performances.
- Ready, Set, Buy! The best time to buy is when no one else wants to. Historically, the markets bottom out 6 to 12 months before the economy.
Note, our strategy in any market recovery is to put 25% of the value into your portfolio when a fund crosses above its 50-day moving average. When the fund goes up 5%, put another 25% in. By the time this point is reached, the 200-day moving average should be within sight.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.