How to Profit as Major Economic Hubs Struggle for Growth
The global economy seems to be in trouble. Some of the major economic hubs are showing deep concerns about their growth, while others are in outright economic misery and are registering poor economic performances.
China, the second-biggest hub in the global economy, is expected to grow at a much lower rate than its historical average. The International Monetary Fund (IMF) predicts the Chinese economy to grow 7.75% this year, lowering its prior forecast of eight percent. (Source: “IMF cuts China growth forecast to 7.75% in ’13,” China Daily, June 3, 2013.)
In 2012, the Chinese economy grew at the pace of 7.8%. Sadly, while this growth rate does look impressive for developed nations like the U.S., it was the slowest China had experienced in 13 years.
Japan, the third-biggest nation in the global economy, is experiencing a recession. The Bank of Japan has taken a severe approach to bringing the Japanese economy up to par, but it continues to fail. Exports from the Japanese economy remain stagnant, despite its currency falling more than 12% since the beginning of the year.
Bringing attention to the eurozone, it remains under severe stress. This time around, as the common currency region is in a recession once again, it’s not only the debt-infested nations that are suffering; the strongest and most major economies are also struggling for future growth.
Germany, the fourth-biggest economy in the world and the biggest in the eurozone, only grew 0.1% in the first quarter of 2013. In the last quarter of 2012, the German economy witnessed an economic contraction of 0.7%. (Source: “Germany reports sluggish first-quarter growth of 0.1%,” BBC web site, May 24, 2013.)
Unfortunately, the troubles don’t end there for the German economy. The IMF expects Germany to grow only 0.3% this year. This is half of the 0.6% it predicted for the country back in April. (Source: “IMF halves 2013 German growth forecast to 0.3 percent,” The Guardian, June 3, 2013.)
These are only a few of the biggest nations in the global economy that are suffering; others like France and India are facing severe headwinds, as well. To give you some perspective: France is in a recession for the third time in five years, and the Indian economy grew at its slowest pace in a decade.
Looking at all this, how can an investor grow their portfolio as countries in the global economy struggle for growth?
When a country is facing severe pressures, one phenomenon usually occurs; the businesses suffer, causing the stock market to go lower. Investors can profit by going short.
Thanks to financial innovation, investors don’t really have to leave the comfort of their own home and short shares of companies in different countries to do this. To profit from the falling stock market in different countries, investors may want to look at exchange-traded funds (ETFs) like the ProShares UltraShort FTSE China 25 (NYSEArca/FXP). This ETF provides investors with twice the inverse return (-2x) of the FTSE China 25 Index, which comprises the 25 biggest Chinese companies. This means that if the FTSE China 25 index declines by one percent, this ETF increases by two percent. (Source: “FXP Profile,” Yahoo! Finance web site, last accessed June 3, 2013.)