Bargain Hunting For Beaten Down ETFs
The Dynamic Wealth Report
May 28, 2010
by Corey Williams, Editor
There’s no other way to say it. The last month’s been ugly for
stocks. Just look at the S&P 500. It’s down 179 points, or more than 14%
from peak to trough.
Back on March 6, 2009, a bull market began that lasted 1 year, 1 month,
and 21 days. Then a long overdue market correction punched the bulls
right in the face.
Investor confidence is shaken. And fear is dominating investor emotions.
But the last few days we’ve finally gotten some good news. I think it’s
time to go bargain hunting for beaten down ETFs. I have a few ideas
I’ll get to in a moment…
Finally, some good news! It came from two (unofficial) reports out of
China.
First off is China’s commitment to refocus on growth. They view the
sovereign debt crisis in Europe as a major threat to their growth rate.
Outside of the U.S., the EuroZone countries are the largest importer of
Chinese products. If the European economy slows down, so will the number
of products they import from China.
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Obviously, this is a major threat to Chinese economic growth.
The rest of the world needs strong Chinese growth to sustain the
economic recovery. And China’s commitment to keeping their growth rate
high is a step in the right direction.
Another report out of China is very good for European sovereign
debt. (And their debt problems are what sparked the correction
in the first place.) Despite all of the fear and speculation of
countries defaulting on their debt, China doesn’t plan on selling the
debt they already hold.
China’s showing confidence in the plan the EuroZone has in place to
prevent countries from defaulting on their debt. And it’s kind of
important considering China owns $2.5 trillion in foreign debt…
The bottom line is, if China decides to sell their European debt
holdings, I don’t think the EuroZone can throw enough money at the
problem to save some countries from defaulting.
But right now, China’s not selling. And they’re refocusing on
stimulating economic growth. I think it’s reason enough to go bargain
shopping for beaten down ETFs.
Here’s a couple I’m looking at… and you should too!
Ever since China announced restrictions on lending, Chinese stocks have
been trending lower.
The iShares FTSE/Xinhua China 25 Index Fund (FXI) hit a
high of $46.66 on November 13th of last year. Since then, it’s fallen
22%. It hit a low of $36.36 last week.
FXI owns stock in 25 of the largest Chinese companies. The ETF is
dominated by financial stocks. A full 45% of the ETF is financial
companies.
Now that China’s loosening the purse strings, the financials should make
a killing. Take a look at FXI, it’s one beaten down ETF poised to come
roaring back.
Another ETF to take a look at is the State Street SPDR S&P
Inter-national Materials Sector ETF (IRV).
IRV owns stock in materials companies from 21 different countries. And
63% of the companies are in the metals and mining industry.
The materials sector was driven higher by China’s insatiable demand for
raw materials. But the industry lost its bullish momentum when China
tightened their lending.
IRV fell 27% from the peak on April 5th to the trough May 21st. Take a
look at IRV, it’s been beaten down and looks like a bargain right now.
Once again, China’s refocusing on growth and lifting their lending
restrictions. This will certainly stimulate economic growth and drive
business to materials and financial companies. Don’t miss your chance
to profit from these trends. Grab your shares of FXI and IRV today.
• Ulta Salon (ULTA) was upgraded by Robert W.
Baird from Neutral to Outperform and given a $30 price target. The
company is scheduled to report first quarter earnings next Thursday,
June 3, 2010.
• Nokia (NOK) was upgraded from Sell to Neutral by MKM
Partners. The shares appear to be rebounding after a 35% drop over the
past two months.
• Caris & Co. rolled out a bullish call on e-commerce this morning. The
boutique investment bank initiated coverage with Buy ratings on comScore (SCOR) and ValueClick (VCLK) and an
Above Average rating on Digital River (DRIV).
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