As the sovereign debt crisis continues to take its toll on Europe and fails to linger away, currencies continue to deteriorate, government bond yields continue to rise and stock markets remain volatile. Depsite the fear that this crisis has brought on, there are four ways one can play it.
Many believe that the next country to be hit by the crisis is Japan. Traditionally, the Japanese Yen and Japanese bonds have been a safe haven in times of uncertainty; however, this is no longer the case. According to a study conducted by Moody’s, Japanese government debt is estimated to be more than 200 percent of the nation’s gross domestic product (GDP), which puts limitations on the government’s ability to spend and implement additional fiscal stimulus plans to stimulate a much battered economy.
In regards to interest rates, the Bank of Japan needs to keep interest rates at or close to zero and continue its asset-purchase program to curb the effects of deflation and worsen the overall health of its economy. To make things even more challenging in the Asian nation, Japan’s demographics are highly unfavorable. The Japanese population is aging and shrinking, which eventually will result in the labor force retiring and cashing in on government bonds, which is likely to result in the Japanese government borrowing more at higher yields from more prospering countries.
With the future looking relatively gloomy for Japan, some possible plays include the ProShares UltraShort MSCI Japan (EWV), which aims to seek twice the inverse daily performance of the MSCI Japan index. A second play includes the ProShares UltraShort Yen (YCS), which allows one to bet against the Japanese Yen. EWV closed at $47.29 on Tuesday and YCS closed at $20.65 on Tuesday.
Nations that are fast-growing and rich in natural resources are likely to be at the forefront of this crisis. One such nation is Brazil. Brazil is one of the few countries in the world that is self-sufficient in oil as well as is a leader in alternative energy. Regardless of the volatility in crude, it will continue to remain a sought after commodity as global economies grow and nations rich in black gold will reap the benefits. Read More…
As George Soros says:
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