Market Overview

How to Trade on News of Slowing Asian Growth


The Asian Development Bank (ADB) announced on Wednesday that it expected slower economic growth for Asian economies than it had predicted earlier this year.

The Asian Development Bank forecast growth for Asia (excluding Japan) of 7.5 percent in both 2011 and 2012, which was down slightly from its previous forecast of 7.8 growth for 2011 and 7.7 percent for 2012. Although the growth figures were down, they were still much higher than in the developed economies of Japan, the United States and Europe.

While most Western economies are struggling, Asian economies continue to grow at levels unheard of in the West. Although the troubles that Western economies are dealing with have caused Asian economies to grow at a slower rate, the region's countries are trading more amongst themselves and promoting more domestic demand. This should allow them to continue growing rapidly compared to their Western trading partners.

However, the Asian Development Bank did warn that a default by Greece could hit Asia's export-driven economies particularly hard. The ADB's 7.5 percent growth figures did not include the possibility of a Greek default. If a Greek default were to occur, the Asian Development Bank said that the rapidly growing Asian economies could suffer.

There are a number of ways to trade on the Asian Development Bank's report that Asian economies are growing slower than expected.

Although news of an economic slowdown is usually bad, the Asian economies are still growing at a brisk pace. The slowing pace of growth could actually relieve some of the inflationary pressure being felt across the region. This could give the countries' central bankers more options in the event of a default by Greece or one of the other troubled eurozone countries.

With economies that are expected to grow 7.5 percent over the next two years, Asian equities could be an attractive investment sector. Whether or not Greece defaults, the United States and Europe will struggle with growth. On the other hand, it looks like in the long run Asian economies will do relatively well compared to their Western trading partners regardless of what happens to Greece.

There are a number of options worth considering if one wants to profit from Asia's rapid economic growth. The iShares MSCI South Korea Index (NYSE: EWY), iShares FTSE China 25 Index Fund (NYSE: FXI) and the iShares MSCI Taiwan Index Fund (NYSE: EWT) ETFs allow investors to buy a wide range of leading companies in each of the ETF's respective countries. There's also the iShares MSCI All Country Asia ex Japan Index (Nasdaq: AAXJ) ETF for investors who want to buy a single security that gives them exposure to companies from across the entire region.

Still, a default by Greece is looking more and more likely and the Asian Development Bank did say that a Greek default could do a lot of harm to Asian economies. Asian stocks have dropped lower repeatedly this year whenever there was talk of possible American or European defaults. Investors who feel that Asian stocks will be headed for a fall after a soon to come Greek default should consider the ProShares Short FTSE China 25 (NYSE: YXI) or the ProShares Ultrashort FTSE China 25 (NYSE: FXP) ETFs. If a Greek default sends Asian shares plummeting, these ETFs should climb higher.


Related Articles (EWT + AAXJ)

View Comments and Join the Discussion!

Posted-In: Long Ideas News Sector ETFs Short Ideas Specialty ETFs Emerging Market ETFs Events Global Best of Benzinga