As we warned investors on June 11th, the canary in the coal mine was in our view Brazil’s stock market drop that week. August tends to be a month with increased volatility and the one that currency crises tend to favor as noted below:
Recent Currency Crises of Significance
July 1997 Thai Bhat crisis and beginning of the Asian Contagion
August 1998 Russian Ruble and Debt crisis
August 2015 China Yuan devaluation and global market correction
August 2018 Turkish Lira plummets 23% in one week.
We hope our readers brought a fully
charged cell phone to the beach this weekend.
US indexes ended last week flat for
the S&P 500 and the NASDAQ Composite with the indexes closing at 2,833.28
and 7,839.11 respectively for a weekly move of minus .25% and plus .35%.
A brief tour around the globe would
raise some orange flags and red flags for some emerging market investors. The
usual concerns of rising US interest rates, inflation and increasing trade
tensions were eclipsed by the rising US Dollar and the increasing pressure on
select emerging markets and Italian bonds. Countries running large current
account deficits particularly Brazil, India, Indonesia, Turkey and South Africa
may offer trading opportunities via various Country Funds which can be found in
the ETF Global Screener. Expect Investor
money to flee these markets for the safety of US money markets.
Domestic Politics and International
Relations will determine how far the Turkish crisis goes. Endogan needs to continue domestic
expansionary policies to keep his base. This will lead him to mend relations
with the US and Europe in return for a bailout or pursue a new alliance with
either China and/or Russia or face a severe domestic economic shock of crushing
interest rate increases and capital controls.
For those who want to play the news,
TUR, the iShares MSCI Turkey ETF would be a good trading vehicle. To play a
scenario of a continued strong US Dollar – let us not forget Brexit is looking
increasingly like a rough landing and any banking crisis resulting from Italian
debt pressures or Turkish defaults, investors may want to use FXB, the Invesco
British Pound Currency Shares ETF.
Forgotten in this week’s headlines was
the 10 year anniversary of the Russo -Georgian War which many believe marked
the end of the Post-Cold War Era and set the stage for the breakdown of the
global regime of that era. We will look at the significance of this for
investors next week.
We suggest a mindful eye on tools like
our Select List and Risk and Reward Ratings that can be used to evaluate the
vast set of opportunities in the ETF marketplace. Today’s market realities
require a new approach to macro investing, one in which individual investors
now have access to tools via ETPs to customize risk and return profiles in
their portfolios. Use our Scanner to find those funds.
Thank you for reading the ETF Global
Perspectives
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