NEW YORK (
) -- Don Dion posts his current insights on the stock, bond, commodity and currency markets in his
blog, anticipating which ETFs will be in play next.
In the following three blogs from the past week, Don commented on how steady oil prices and a stronger economy make Russia ETF a good bet; China's move to raise the minimum downpayment required on property in a bid to slow the housing market; and the performance of a regional bank ETF.
Russia ETF Has Room to Run
Posted 4/23/2010 10:39 AM EDT
Steadily rising oil prices and a strengthening economy make the
Market Vectors Russia ETF
an attractive buy.
Year to date, the energy-heavy RSX has gained more than 11%, but I believe there's still room to grow in the short term.
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Demand for Russian bonds has far
outstripped supply, as the country re-enters the international bond market for the first time since 1998, when Russia suffered a financial collapse. That was likely last time many investors took stock of Russia's bond-market potential. State debt, at only 8% of GDP, now make these bonds a much more stable bet, and I believe the strengthening bond market signals overall economic health.
RSX is based on an index designed by Market Vectors, and it offers exposure to a basket of Russian ordinaries -- equities traded on local exchanges. Rather than trying to pick a foreign exchange to gain exposure to Russia's overall economy, RSX offers a simple alternative.
I recently added RSX to the
ETF Action Portfolio, and I believe the summer-driving season -- combined with a relatively strong economy -- will help keep this fund running up.
China Slams Brakes On Real Estate
Posted 4/21/2010 5:11 PM EDT
Last week, China's government raised property downpayment requirements by 10%. First-time home buyers now need 30% downpayments, second-home buyers 50% and third-home buyers can no longer get a mortgage. Also, the minimum rate of interest on second-home mortgages will rise from 0.8x the benchmark lending rate to 1.1x.
The response by a small minority of Chinese investors has been swift and dramatic. While previous measures failed to stem rising prices, this latest move may have done the trick. Buyers are now forfeiting deposits on purchase contracts, thinking that the loss of their deposit will be smaller than the coming drop in prices. According to one firm in Shenzhen, 1% of buyers have already defaulted on their agreements.
Investors in China ETFs should take this news with a grain of salt. The rules may cool the market initially, but buying could pick up again if the reaction doesn't have legs. Nevertheless, it highlights one of the reasons why I have recommended
Claymore/AlphaShares China Small Cap
FTSE/Xinhua China 25
as the choice for a broad China ETF -- FXI's 45% weight in financials versus HAO's more reasonable 12% exposure.
The banks in FXI are already looking to raise capital to shore up their balance sheets and meet regulatory requirements. And on that score, the banks may find they need to raise even more capital. Today, the China Banking Regulatory Commission said banks must stress-test their real-estate loans quarterly and use the new loan regulations in their tests. They will be required to have capital reserves based on these tests by the end of the third quarter.
Though I prefer HAO, I would hold off on adding to positions right now, as a cooling in the property sector would have widespread effects on stocks in the short term, but investors in FXI who want to maintain China exposure should switch to HAO. FXI has closed some of the performance gap to HAO over the past month, but year to date, HAO is still beating it, with a 4.9% gain compared with a loss of 0.6%. And by the end of the year, I expect this gap to have widened.
Regional-Bank ETF Is a Giant-Killer
Posted 4/21/2010 2:28 PM EDT
Since big banks are on Washington's regulatory radar, smaller regional banks have been given an opportunity to take the lead.
Since the start of the year, the
SPDR KBW Regional Banking ETF
has gained 27%, vs. the 16% rise in the
SPDR S&P Financial ETF
True to its name, KRE tracks an index that's void of big names. Instead, the fund's top holdings include smaller, lesser-known institutions such as
Interestingly, simply being labeled a regional bank does not ensure a spot within KRE. Larger regional banks such as
are excluded from the fund's index. These two firms command 30% of the fund's closest competitor, the
iShares Dow Jones U.S. Regional Banks Index Fund
The success of KRE's index throughout the start of the year has gained the attention of not only investors and ETF commentators, but ETF providers as well. Tomorrow, ProShares is slated to launch two new funds that allow investors to take bullish or bearish bets on the same regional banking index that KRE uses. The ProShares Short KBW Regional Banking ETF (KRS) will provide bearish bets, and the ProShares Ultra KBW Regional Banking ETF (KRU) will provide investors with twice the daily performance of the index.
As with any leveraged ETF product, I advise only the more sophisticated investors to test these waters.
Barring any surprises, the positive momentum in KRE should carry it to $30 by May.
At the time of publication, Dion owned RSX.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.