How Smart Investors Can Benefit from the Current Global Economic Slowdown
It is becoming very evident that the global economy is marching towards a period of major turbulence. I see both established and emerging economic hubs in the global economy struggling, and if it continues, then economic slowdown becomes inevitable.
Consider the estimates of growth in the global economy by the International Monetary Fund (IMF). It expects growth in the global economy to be as stagnant as 2012, forecasting a growth rate of a little over three percent. The IMF expects emerging economies to grow by five percent in 2013 and about 5.5% in 2014. (Source: “Emerging Market Slowdown Adds to Global Economy Pains,” International Monetary Fund web site, July 9, 2013.)
But with what we are already seeing, these estimates might just become obsolete, and the IMF might once again lower its forecast for the global economy.
For example, consider the Chinese economy, the second-largest economic hub in the global economy. It grew at an annual pace of 7.5% in the second quarter of this year from a year earlier—a decrease from 7.7% in the first quarter. The Chinese economy’s performance in the second quarter was the slowest in the last three quarters and marked the longest streak of growth rates below eight percent in at last 20 years. (Source: “China Growth Slows to 7.5% as 2013 Target Under Threat,” Bloomberg, July 15, 2013.)
China is performing well below its historical average. It wasn’t uncommon for the Chinese economy to grow at an annual pace of more than 10% in recent years.
The problems for the global economy don’t end there, as the troubles in the eurozone still continue. And it’s not just the much-publicized problems in Greece, Spain, Portugal and Italy; this time around, even stronger nations like Germany and France are facing the same issues.
France has lost its prime credit rating it held with Fitch Ratings, and Germany is struggling with exports. In June, car sales in Germany fell 4.7% and plummeted 8.4% in France. Overall for the region, in the first half of 2013, European car sales declined to the lowest level in 20 years. (Source: “UPDATE 2-European car sales sink to 20-year low in first half,” Reuters, July 16, 2013.)
Furthermore, 2,000 of the biggest companies in the global economy have started to slow their spending on machinery and investments. Standard & Poor’s, the credit rating agency, suggested these are early warnings of an economic slowdown. (Source: Evans-Pritchard, A., “Renewed fear of global recession as companies rein in spending plans,” The Telegraph, July 11, 2013.)
I have no doubt that problems in the global economy are increasing. Investors need to be careful about the recent developments, because they can cause damage to their portfolios. They need to reduce their risks in the regions where economic slowdown is gaining some ground.
To profit from the situation, investors can go with an exchange-traded fund (ETF) that gives them a short bias to a certain country. Alternatively, they may want to look at an ETF such as ProShares Short MSCI EAFE (NYSEArca/EFZ). That ETF lets investors profit from any downturns in the European, Australasian, and Far East (EAFE) stock markets.