The coronavirus pandemic just gave China its first quarterly gross domestic product (GDP) contraction since the data was tracked in 1992 and this could be a global trend hitting all nations. China’s contraction was about 7%, but some market observers are expecting the U.S. economy to contract by double that amount.
“I think we may be at minus 10% to minus 14% growth for the U.S.,” said Allianz chief economic advisor, Mohamed El-Erian on “Squawk Box.” “This is a big hit.”
More specifically, El-Erian said this economic downturn is distinct and as such, could prevent a rebound from the coronavirus-fueled market sell-off it experienced in the month of March.
“The benefits you would expect normally, lower oil price means more dollars in consumers’ pockets, even that doesn’t work in this economy,” said El-Erian. “So I’m a little bit more worried than what the consensus of economists out there is right now.”
El-Erian’s comments came after data was released from CNBC’s Rapid Update survey, which incorporates various GDP forecasts from market experts. Last week’s GDP estimate revealed a 4% decline in U.S. GDP for his year, according to CNBC’s Steve Liesman.
The International Monetary Fund said last week that the U.S. economy could shrink 5.9% in 2020. The IMF said the world will “very likely” experience its worst economic hit since the Great Depression.
With U.S. equities successfully parrying the effects of the coronavirus as of late, this all this creates an opportunity for investors to capitalize on the Direxion FTSE Russell US Over International ETF (NYSEArca: RWUI).
RWUI features:
- Seeks investment results, before fees and expenses, that track the Russell 1000®/FTSE All-World ex-US 150/50 Net Spread Index (the “index”).
- The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in securities that comprise the Long Component of the index or shares of ETFs on the Long Component of the index.
- The index measures the performance of a portfolio that has 150% long exposure to the Russell 1000® Index (the “Long Component”) and 50% short exposure to the FTSE All-World ex-US Index (the “Short Component”).
Investors looking to play the other side can use the Direxion FTSE International Over US ETF (NYSEArca: RWIU) to capitalize on international equities will outdoing U.S. equities. RWIU seeks investment results, before fees and expenses, that track the FTSE All-World ex-US/Russell 1000 150/50 Net Spread Index, which measures the performance of a portfolio that has 150 percent long exposure to the FTSE All-World ex-US Index and 50 percent short exposure to the Russell 1000® Index.
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