Market Overview

Got Good Credit? These Countries Do, But For How Long?

These days, it appears no country's credit rating is safe. That's a slight over exaggeration, but Moody's Investors Service, Standard & Poors and Fitch Ratings are showing they aren't shy about taking the ax to a country's credit rating. Just ask Uncle Sam.

Still, there are plenty of countries that are still sporting AAA credit ratings, no matter how tenuous those ratings may be. Moody's was nice enough to keep Austria at AAA status. However, the endorsement of that rating was far from bullish.

The good news is ETF investors that demand the highest of credit ratings when it comes to the international portion of their portfolios have ample choices. Let's have a look at a few country-specific funds that are currently backed by AAA status.

iShares MSCI Austria Investable Market Index Fund (NYSE: EWO): As we just mentioned, Austria is clinging to its AAA rating. But we've also noted recently that this ETF has some problems. Beyond the macro issues of sitting smack dab in the epicenter of the Euro Zone crisis, EWO's chart is ugly. The ETF is down 34% year-to-date and the longer it languishes around $14, the better the chance it falls to $12.

iShares MSCI Australia Index Fund (NYSE: EWA): This might be one member of this list that is appealing as a 2012 rebound candidate. With its proximity to Asia and a dominant position as a materials exporter, Australia has developed market status and the credit rating to prove it, but EWA can offer emerging markets-like returns in the right environment. Plus, EWA has yield that is currently pushing 5%.

Market Vectors Germany Small-Cap ETF (NYSE: GERJ): We could have just as easily put the iShares MSCI Germany Index Fund (NYSE: EWG) on here, but small-caps could be an ideal way to play a rebound in European equities next year. There are a lot of big "if's" surrounding that scenario, but Germany's economy is sound and GERJ is chock full of exporters that will benefit in a rebound scenario.

iShares MSCI Netherlands Investable Maket Index Fund (NYSE: EWN): Here's what keeps us from being more enthusiastic about the iShares MSCI Netherlands Investable Market Index Fund: Guilt by geography. You don't really hear much about the Netherlands being a big culprit in the European sovereign debt fiasco, but EWN has still seen its value trimmed by more than 17% this year. At the end of the day, the Netherlands is a safer bet than the PIIGS, Belgium and probably France as well.

Global X Norway ETF (NYSE: NORW): We reiterated the following view on the Global X Norway ETF: Norway's economy has held up well, features a safe debt-to-GDP ratio and is NOT a Euro Zone member. All good things that probably aren't reflected in NORW's shares. If you're looking for backdoor developed market play on rising oil prices, NORW is your ETF.

iShares MSCI Sweden Index Fund (NYSE: EWD): Speaking of Nordic countries, there is the biggest and best of them all: Sweden. The country that gave us Abba deservedly has AAA status that is NOT in jeopardy. Plus, EWD has a yield over 4%.

iShares MSCI Singapore Index Fund (NYSE: EWS): Thousands of miles from the Europe fiasco is Singapore, a developed economy in an emerging corner of the globe. EWS has been hammered by its heavy allocation to bank stocks (43% of the fund's weight), but Singapore's GDP expectations are too compelling to ignore in this environment of slack global growth and EWS now yields north of 4.3%. Get out if EWS drops below $10.

iShares MSCI Hong Kong Index Fund (NYSE: EWH): The iShares MSCI Hong Kong Index Fund has slumped this year for the same reasons its Singapore counterpart has: High dependence on trade with China and excessive exposure to financials. In the case of EWH, that sector accounts for over 58% of the ETF's weight. Yikes. The only way EWH rebounds next year is if Chinese stocks rebound and China stems inflation. Still, Hong Kong has an AAA rating and that's nothing to scoff at with an emerging markets ETF.


ACTION ITEMS:

Bullish:
Traders who believe that the AAA rating will be a boon for the countries that have it might want to consider the following trades:
  • Long German stocks and ETFs. This the Euro Zone's strongest and largest economy.
  • Long Nordic ETFs like EWD and NORW. More Nordic ETFs are expected to roll out next year, too.
  • Get away from Europe and head to Australia and Singapore
Bearish:
Traders who believe that these AAA ratings are in jeopardy may consider alternative positions:
  • Long the ProShares UltraShort Europe (NYSE: EPV).
  • Long U.S. stocks, which have been developed market standouts this year.
  • Long the U.S. dollar as a player on lower credit ratings from countries with major currencies.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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