Daily Gains Letter

Make Twice the Money with This ETF When Eurozone Stock Markets Fall

By for Daily Gains Letter | Feb 14, 2013

















DL_Feb_14_2013_MoeThe eurozone has become one of the biggest concerns lately, and it’s sending ripples through countries in the global economy. In addition, the debt-infested nations, such as Greece, Spain, Portugal, and Italy, are dragging their peers down the path of economic misery—hurting their economic growth prospects.

Greece is in a depression, with increasing unemployment and its economic conditions quickly deteriorating. The International Monetary Fund (IMF) suggests Greece still needs more help from the other eurozone countries. The IMF believes that all the measures taken so far by the eurozone nations since the crisis began in Greece aren’t enough to bring Greece’s national debt to a sustainable level. The IMF predicts that Greece will need as much as 9.5 billion euros from 2015 to 2016, just to bring its national debt to a sustainable level. (Source: Rastello, S. and Petrakis, M., “IMF Says Greece Will Need More Money, Has Elevated Risks,” Bloomberg, January 18, 2013.)

Similarly, Spain is sinking further into recession. Spain’s economy contracted 0.7% in fourth quarter 2012. Mind you, this was the steepest decline in the country’s production since 2009. (Source: “Spanish Economic Contraction Accelerates,” Deutsche Welle, January 30, 2013.)

As a result of all this chaos, strong countries in the eurozone started to suffer, and the entire region entered another recession in the third quarter of 2012. The 17 nations of the eurozone contracted 0.1% in the third quarter, after seeing a decline in the region’s gross domestic product (GDP) of 0.2% in the first quarter. (Source: “Eurozone falls back into recession,” BBC News, November 15, 2012, last accessed February 13, 2013.)

Looking ahead, things appear to be much bleaker. Germany, the biggest economy is the eurozone region, is struggling for growth. The central bank of Germany has cut its GDP growth projection by 60%; the bank now predicts that Germany’s GDP will increase by just 0.4% in 2013, compared to the prior estimate of one percent. (Source: “France Set to Cut 2013 Growth Forecast,” The Wall Street Journal, February 1, 2013.)

Likewise, France, the second-largest economic hub in the eurozone region, is expected to slash its growth target for 2013 to 0.3%–0.4%, compared to the 0.8% it previously projected. (Source: Ibid.)

With all this happening in the eurozone, if the recession continues to deepen, the companies doing business in the region will face difficulties. Once their corporate earnings suffer, the stock markets will see their demise.

If you are looking to profit from the economic slowdown in the region, then I’d suggest you look at an investment like ProShares UltraShort MSCI Europe (NYSEArca/EPV). Note that this is not a specific buy recommendation, but just an example of the type of opportunity you should seek out.

ProShares UltraShort MSCI Europe (EPV) is an exchange-traded fund (ETF) that provides investors with exposure to different eurozone equity markets. This ETF seeks to gain twice the inverse return of the MSCI Europe Index. (Source: ProShares web site, last accessed February 12, 2013.)

When investors purchase this ETF, they can make money as the stock markets in the European countries decline. By buying EPV, investors can expose their portfolio to stock markets in Germany, France, Spain, Greece, Italy, Portugal and other eurozone nations.

Keep in mind, EPV is an inverse-leveraged ETF, meaning that if the European indices increase in value, EPV declines, and vice versa. This ETF might not be suitable for investors who are looking for gradual growth. EPV can be used as a speculative play to take advantage of the coming fluctuations in the eurozone markets.

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