Market Overview

How to Profit as Asian Stocks Plummet over Fears of Global Recession

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Stock markets across Asia had a dismal performance a day after the Dow Jones Industrial Average suffered its biggest single-day drop in nearly three years.

Asian stock markets started the week off on a positive note, rising after news broke that President Barack Obama and Congressional leaders had reached a compromise that prevented the United States from defaulting on its national debt.

However, as the week progressed Asian stocks fell partially over concerns that the very plan that was heralded for averting a financial crisis might push the United States into recession (as if with today's unemployment rates we aren't already in the midst of one).

The deal calls for massive spending cuts that will have the biggest impact on the consumers who depend the most on the government for a substantial portion of their discretionary income.

As benefits to these consumers are reduced, their spending will fall as well, which will hurt the export-driven economies of Asia.

There are increasing fears that the world may be headed for another global recession as the United States and many of the troubled eurozone countries slash spending during a period of slow economic growth.

The European Central Bank didn't help matters yesterday when in a show of support it intervened in the market by buying the bonds of some of the smaller troubled eurozone members, while avoiding purchasing bonds from the bigger troubled eurozone countries Italy and Spain.

The move made investors question whether or not the European Union would be able to save Italy or Spain from financial disaster the same way it prevented Greece from defaulting last month.

With the possibility of a default by the United States government eliminated for the next couple of years and growing fear of a global recession, many investors are now moving their money back into treasuries and other safe haven investments like gold.

As investors pulled their money out of Asian stock markets, the major Asian stock market indexes were down an average of nearly 4% by time that stock markets ended trading on Friday in Asia.

The TSEC weighted index of Taiwanese stocks was plummeted 464.14 points, or 5.58%, to reach 7,853.13 by the end of Friday .

The Hang Seng Index of Hong Kong traded stocks plunged 938.60 points, or 4.29%, to end the day at 20,946.14.

The Nikkei 225 index of Japanese stocks dropped 359.30 points, or 3.72%, to end Friday trading at 9,299.88.

The KOSPI Composite Index of Korean stocks fell 74.72 points, or 3.70%, to end the Friday trading session at 1,943.75.

The Straits Times Index of the Singapore stock market finished 112.23 points lower, or 3.61%, to end the day at 2,994.78.

The SSE Composite Index of stocks traded on the Shanghai Stock Exchange was one of the "better" performing Asian stock indexes during Friday trading. The SSE Composite Index fell "only" 57.62 points, or 2.15%, to end Friday trading at 2,626.42.

Investors who think that the Western economies' reduced government spending during a time of slow economic growth will lead to a global recession have a number of options to consider.

For the time being a default by the American government is no longer a major concern, so the iShares Barclays 20+ Year Treasury Bond (NYSE: TLT) and the iShares Barclays 7-10 Year Treasury (NYSE: IEF) are two ETFs to consider if you want an investment that should fair better than stocks during a recession.

The ProShares Short FTSE China 25 (NYSE: YXI), ProShares UltraShort FTSE China (NYSE: FXP), the ProShares UltraShort MSCI Japan (NYSE: EWV) and the ProShares UltraShort MSCI Pacific (NYSE: JPX) are all ETFs that will benefit if a recession sends Asian stock prices plummeting further.

The SPDR Gold Shares (NYSE: GLD), the PowerShares DB Commodity Index (NYSE: DBC) and the CurrencyShares Swiss Franc Trust (NYSE: FXF) are ETFs worth a look by investors looking for an alternative to stocks and bonds.

Although US treasuries seem like a safer bet than just a week ago, the United States still faces the possibility of losing its top rated credit rating and was even downgraded by Chinese rating agency Dagong Global Credit Rating earlier this week.

The long term outlook for American bonds still doesn't look good, so moving money into commodities or a safe haven currency like the Swiss Francs may be a good move.

 

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