How to Profit as Asian Stocks Hit 52-Week Lows on Standard & Poor's US Debt Downgrade
Several Asian stock market indexes hit 52-week lows during trading on Monday in Asia, the first day of trading after Standard & Poor's lowered its rating of United States government debt.
While much of the selloff in Asian stocks could be blamed on the Standard & Poor's move to lower its rating of American debt from AAA to AA+, there's also growing anxiety over the slow the pace of economic growth throughout the Western world.
As the United States and troubled eurozone countries like Greece, Ireland, Portugal and Spain reduce spending in the midst of slow economic growth and high unemployment rates, there's growing concern that the world may be headed for another financial crisis or years of recession.
Asia's most dynamic economies depend on exports to the United States and Europe for much of their economic activity.
Any slowdown or recession in the West is sure to put a break on the surging economies of East Asia.
In a move that some may see as ironic, many investors are moving money away from Asian stocks and into U.S. Treasuries because they see U.S. Treasuries as a safer investment than Asian stocks after Friday's downgrade.
Although the image of U.S. Treasuries has been tarnished, they're benefiting from the selloff of Asian stocks and yields on Treasuries are actually dropping as investors flee riskier Asian equities for the perceived safety of American debt.
Every major Asian stock market index saw steep declines during Monday trading, with several of them reaching 52-week lows.
The TSEC weighted index of Taiwanese stocks once again led the declining indexes of Asia, plummeting a further 300.33 points, or 3.82%, to reach 7,552.80 by the end of Monday .
The KOSPI Composite Index of Korean stocks was also hard hit, falling 74.30 points, or 3.82%, to end the Monday trading session at 1,869.45.
The SSE Composite Index of stocks traded on the Shanghai Stock Exchange fell 99.61 points, or 3.79%, to end Monday trading at 2,526.82 and at one point reached a 52-week low of 2,497.92.
The Straits Times Index of the Singapore stock market finished 110.78 points lower, or 3.70%, to end the day at 2,884.00, after reaching a 52-week low of 2,847.00.
The Nikkei 225 index of Japanese stocks was down 202.32 points, or 2.18%, to end Monday trading at 9,097.56.
The Hang Seng Index of Hong Kong traded stocks plunged 455.57 points, or 2.17%, to end the day at 20,490.57, after hitting a 52-week low of 20,044.37.
Investors who feel that Asian stock may bare the brunt of economic pain from a coming worldwide recession may should take a look at the ProShares UltraShort MSCI Japan (NYSE: EWV), the ProShares UltraShort MSCI Pacific (NYSE: JPX), the ProShares Short FTSE China 25 (NYSE: YXI), and the ProShares UltraShort FTSE China (NYSE: FXP).
In the event that Asian stock markets continue their fall, each of these ETFs should climb higher.
Many investors may see last week's compromise between President Barack Obama and Congressional leaders to raise the debt ceiling and avoid a default on American debt as a sign that the American system still works and that U.S. Treasuries are still one of the safest investments in the world.
These investors might want to consider putting some of their money back into Treasuries by buying into the iShares Barclays 7-10 Year Treasury (NYSE: IEF) ETF or the iShares Barclays 20+ Year Treasury Bond (NYSE: TLT) ETF.
If a recession is on the way and we face years of negative or slow economic growth, U.S. Treasuries may be the best place for part of your portfolio to sit out the coming financial storm.
For those who feel that the Fed's moves to spur economic growth in America will push the dollar down even further, the CurrencyShares Swiss Franc Trust (NYSE: FXF) is worth consideration because the Swiss Franc is seen as a safe haven currency.
Investors who feel that stocks and bonds are both too volatile during the current investment environment and don't want to play the currency markets might want to consider a move into commodities.
The PowerShares DB Commodity Index (NYSE: DBC), the SPDR Gold Shares (NYSE: GLD) and the iShares Silver Trust (NYSE: SLV) are three heavily traded commodity indexes for those considering buying commodities.
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