Look to This Eurozone Nation for Shorting Opportunities
Investors who are looking to profit from the ongoing crisis in the eurozone should really be looking at Italy. It may just be the next country in the common currency region to run into troubles after Greece, Portugal, Ireland, Spain, and Cyprus have already made their own headlines.
Confesercenti, Italy’s retail association, recently reported that each day in Italy, 143 businesses are closing. Since the troubles emerged in the global economy in 2008, 224,000 businesses have closed their door in this one eurozone nation. (Source: “Crisis is closing ‘134 retail outlets’ a day in Italy,” ANSA English, June 19, 2013.)
“It’s a massacre,” said Confesercenti president Marco Venturi. “Every day five grocers, four butchers, 42 clothes shops, 43 restaurants and 40 bars and catering businesses close down.” (Source: Ibid.)
And the economic miseries for Italy don’t end there. The economic slowdown in the country is deep in the roots of its economy and is taking a heavy toll.
The index tracking industrial production in Italy is in a continuous plunge. It stood at 80.80 in April, down 0.3% from March and at its lowest since April of 2009. The last time the index was that low was back in the late 1980s. (Source: “Production of Total Industry in Italy,” Federal Reserve Bank of St. Louis, July 1, 2013.)
Making things worse, Standard & Poor’s Ratings Services downgraded Italy’s credit rating to BBB from BBB+ after citing a negative outlook. This puts the sovereign rating of the eurozone country very close to the junk rating—speculative and with a higher risk of default. (Source: “ECB’s Noyer: S&P Italy Downgrade Underlines Priorities for Whole Euro Zone,” Wall Street Journal, July 10, 2013.)
Eventually, all of these troubles in Italy will add severe pressures to businesses there. Industrial production is already declining, and if the demand in the eurozone nation stays stagnant, it may decline further and hurt the profitability of companies in that sector.
What many North American people forget is that Italy is the third-biggest economic hub in the eurozone. If it runs into more trouble ahead, the effects could be immense—not only in that country, but throughout the region, and even in the global economy. It would certainly have a much greater effect than when other debt-infested eurozone nations were in similar situations.
Investors can profit from this situation in the making by shorting the iShares MSCI Italy Capped Index (NYSEArca/EWI) exchange-traded fund (ETF). This ETF provides investors with exposure to the Italian stock market, so shorting it gives them the opportunity to earn profit as the stock market in the eurozone nation declines.