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How to Profit from Asia's Reaction to Obama Default Speech


Stock indexes across Asia finished Tuesday trading higher, as positive earnings news overshadowed concerns that the United States government faces a default.

President Barack Obama gave a nationally televised speech on Monday evening that gave no indication that he was closer to reaching a deal with the United States Congress to solve the budget impasse that could lead to a default on American debt.

The speech sent the dollar falling lower against a number of currencies but Asian stocks traded higher during the Tuesday trading session.

Despite the looming possibility of an American default, there's a widely held belief that President Obama and the United States Congress will eventually reach a deal because the alternative to compromise could be catastrophic.

Although an American default would likely have a negative impact on Asian markets, investors may be moving their funds into Asian stocks because the region's higher growth rates and better government fiscal positions are making Asian stocks look more attractive.

Most Asian stock markets moved dramatically higher during Tuesday trading.

The Taiwan Capitalization Weighted Stock Index, or the TSEC weighted index, jumped 110.73 points, or 1.28%, to end Tuesday's trading session at 8,794.24.

The Hang Seng Index of Hong Kong traded stocks surged 278.79 points higher, or 1.25%, to end the day at 22,572.08.

The KOSPI Composite Index of Korean stocks climbed 18.22 points, or 0.85%, to finish the Tuesday trading session at 2,168.70.

The NIKKEI 225 index of Japanese stocks surged 47.71 points, or 0.47%, to end Tuesday trading in Tokyo at 10,097.72.

There are a few ways for investors to trade on rising Asian stock prices.

Investors who feel that their dynamic economies and growing middle classes will continue to send Asian stock prices higher should consider the iShares MSCI Taiwan Index Fund (NYSE: EWT), iShares MSCI Hong Kong Index Fund (NYSE: EWH), the iShares MSCI South Korea Index (NYSE: EWY) and the iShares MSCI Japan Index Fund (NYSE: EWJ).

Each of the stock markets represented by these ETFs moved higher during Tuesday trading in Asia despite the possibility of an American default. As domestic spending and regional trade play a more important part in Asian economies, America's economic problems will play a smaller part in the Asian economies' growth prospects.

Investors who feel that Asian markets are downplaying the effects that a default by the United States government would have on Asian economies might want to take a look at the ProShares Ultrashort FTSE China 25 (NYSE: FXP), the Direxion Daily China Bear 3x Shares (NYSE: CZI), the ProShares UltraShort MSCI Japan (NYSE: EWV) and the ProShares UltraShort MSCI Pacific ex-Japan Index Fund (NYSE: JPX).

Although many Asian economies don't depend on exports to the United States as much as they used to, America is still one of their most important trading partners and an American default could lower earnings throughout the Asian region.

Investors who feel that the dollar may be headed lower but don't want to invest in Asian stocks may opt for a safe haven investment like the CurrencyShares Swiss Franc Trust (NYSE: FXF) or the SPDR Gold Shares (NYSE: GLD). Gold is a traditional safe haven investment and the Swiss Franc has been attracting more attention as both the United States and many eurozone countries face the very real possibility of default.


Related Articles (EWH + CZI)

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