How to Profit From Grim IMF Global Outlook
The International Monetary Fund (IMF) gave a grim outlook for the global economy in its most recent World Economic Outlook report.
According to the IMF, “financial volatility has again increased drastically, driven by concerns about developments in the euro area and the strength of global activity, especially in the United States. Policy indecision has exacerbated uncertainty and added to financial strains, feeding back into the real economy.”
The International Monetary Fund slashed projected economic growth rates for the United States and eurozone members. The IMF lowered its expected growth rate for the Unites States to 1.5 percent in 2011 and 1.8 percent in 2012, down sharply from the June forecast of 2.5 percent in 2011 and 2.7 percent in 2012. The IMF also lowered its forecast of economic growth for the 17 eurozone countries to 1.6 percent growth in 2011 and 1.1 percent in 2012, down from its June forecast of 2 percent growth in 2011 and 1.7 percent in 2012.
Olivier Blanchard, the chief economist of the IMF, added to the gloomy outlook for the global economy when he said at a press conference that "the global economy has entered a dangerous new phase. The recovery has weakened considerably."
While growth in the developing world was also slowing down, it was still far outpacing growth in the developed world and contributed to the IMFs global economic growth forecast of 4 percent in both 2011 and 2012.
Although many investors will say that the International Monetary Fund's World Economic Outlook report told them what they already knew, it could also be used to support in defense of investment strategies based upon the belief that emerging markets will continue to outperform developed countries for the foreseeable future.
Investors who are weary of the bond market because of the financial issues faced by struggling eurozone countries and the United States might want to invest in Asian stock markets if they are looking for growth. According to the IMF's report and most economists' expectations, the emerging markets like China and India will account for much of the world's expected economic growth. The iShares FTSE China 25 Index Fund (NYSE: FXI), the iShares S&P India Nifty 50 Index (Nasdaq: INDY) and the First Trust ISE Chindia (NYSE: FNI) ETFs are worth considering for exposure to a broad range of stocks from economies that are growing much faster than United States and Europe.
As their economies continue to grow, the currencies of these countries could also appreciate substantially. The WisdomTree Dreyfus Indian Rupee (NYSE: ICN) and the WisdomTree Dreyfus Chinese Yuan (NYSE: CYB) ETFs could see their share prices climb higher if the values of their representative currencies move higher along with their economic growth.
Investors could also short the dollar and the euro if they want to profit from the developed world's ongoing financial struggles. America's favorite response to economic woes is to print and borrow more money, while troubled eurozone countries like Greece and Italy try to shift their financial burdens onto better managed eurozone economies like Germany. These are good reasons to take a look at the Market Vectors Double Short Euro (NYSE: DRR) and the PowerShares DB US Dollar Index Bearish (NYSE: UDN) ETFs. These ETFs could post more gains if the governments of the United States and the European Union continue to manage their finances the same way that they have for years.
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