/Climb Resumes as Markets Stabilize

Climb Resumes as Markets Stabilize

Monday, August 20, 2018 – Last week began with investor concerns about potential contagion in the Turkish Lira and potential weakness in the US housing market. By midweek, investors refocused on strong corporate earnings and that the US economy is roaring ahead while much of the world is crawling along if not in downright recession. For example, the S&P 500 Index is up some 6.6% YTD while MSCI World Ex US Index is down almost 5%. MSCI Emerging Markets Index is down some 10% in USD. While fears of recession from trade wars capture news headlines, investors may be sensing that their fears may be overblown and as the US has the upper hand in such negotiations despite select regional industrial/agricultural pain. Indeed, it appears the US Market may be poised to continue its extended bull run.

US indexes ended the week mixed overall except for the heavy large cap weighted S&P 500 which closed at 2,850.13 and the broader NASDAQ Composite closing at 7,816.11 for a weekly move of plus .59% and minus .29 % respectively.
The discussion on the Turkish Lira continues, as well as, on other emerging market currencies that are likely to come under pressure thanks to our friends at Geopolitical Futures. The common thread here is that countries in the high to moderate risk categories have high USD debts both in the private and government sectors. The concern is that as the dollar stays high or moves higher against local currencies, these countries including the domestic private sector will not be able to service their debt thus leading to a default and potential banking crisis which could spread to creditors in the major countries.
Since these pressures take years to develop, it is unlikely that they will simply disappear but instead will hit in periodic waves. No doubt these concerns will be high on the discussion list at this week’s Central Bank Economic Symposium at Jackson Hole.
The chart below shows which countries are at most at risk. All of these countries have country ETFs that allow investors to play their view. TUR, ARGT, AGT, EZA, XINA, PKE, ASHR, FBZ, EIDO, and IDX are vehicles to keep an eye on. Be sure to avoid currency hedged funds so you get both the FX move and local market move — presumably down. Check the prospectus or the ETFG Tear Sheets for this information. Note also in times of fast moving (and usually downward markets), these ETFs could temporarily halt creations and redemptions which could result in significant market price deviation from NAV.
Forgotten over the past 2 weeks was the 10-year anniversary of the Russo-Georgian War which began on August 7th 2008. Concurrently, the US subprime mortgage crisis was picking up steam which lead to the Sept 15th Lehman Bankruptcy. What is the significance of this for investors? It marked the beginning of the end of the post-Cold War international regime that dominated the world with notion of that free trade would rule the day and international institutions would dominate the nation-state.
Looking back, we see the awakening of the Russian Bear and its resurgence to act in its self-interest in regional conflicts around the Asia-Middle East region, as well as, a much more aggressive superpower eager to change the status quo.
At the same time, the world was entering a liquidity crunch and debt default period of US homeowners which weakened the global financial system which led to the Great Recession.   The prosperity brought by globalization of trade and money flows has come under fire by national populist movements as the distribution of the benefits of the regime was increasingly challenged as well as the very root of liberal democracies. This is setting the stage with the help of a more aggressive China to slowly start to chip away the at the dominance of the US Dollar and its global payment system which has allowed the US to exert considerable soft power over the decades.
Investor capital will increasingly find itself in a less welcoming world when journeying outside its national boundaries. Volatility is likely to return to FX markets which means prudence would dictate holding diverse assets.
We suggest keeping 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.
Thanks for reading ETF Global Perspectives.
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Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice.  ETF Global LLC (“ETFG”) and its affiliates and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively ETFG Parties) do not guarantee the accuracy, completeness, adequacy or timeliness of any information, including ratings and rankings and are not responsible for errors and omissions or for the results obtained from the use of such information and ETFG Parties shall have no liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of such information. ETFG PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.  In no event shall ETFG Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the information contained in this document even if advised of the possibility of such damages.
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This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.  Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue.  Prices, values, or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested.  Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate.  Where an investment or security is denominated in a different currency to the investor’s currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor.

 

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Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice.  ETF Global LLC (“ETFG”) and its affiliates and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively ETFG Parties) do not guarantee the accuracy, completeness, adequacy or timeliness of any information, including ratings and rankings and are not responsible for errors and omissions or for the results obtained from the use of such information and ETFG Parties shall have no liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of such information. ETFG PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.  In no event shall ETFG Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the information contained in this document even if advised of the possibility of such damages.

ETFG ratings and rankings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. ETFG ratings and rankings should not be relied on when making any investment or other business decision.  ETFG’s opinions and analyses do not address the suitability of any security.  ETFG does not act as a fiduciary or an investment advisor.  While ETFG has obtained information from sources they believe to be reliable, ETFG does not perform an audit or undertake any duty of due diligence or independent verification of any information it receives.

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