Don Dion posts his current insights on the stock, bond, commodity and currency markets in his RealMoney blog , anticipating which ETFs will be in play next. This week, among his blogs featured below, he wrote about developments in Singapore and China, ongoing problems in the natural gas futures market, and using currencies in your portfolio.Click here for information on RealMoney, where you can read daily blogs, including Don Dion's, and reader comments in real time.
Sticking with Asia, the South China Morning Post reports that Beijing may shift economic policy in the second half of the year. After a $600 billion infrastructure-focused stimulus package was introduced in the first half, economists inside and outside government expect the leadership to introduce measures designed to boost domestic consumption and move away from the export-led growth model of the past decade. Expect investors to react positively to any change in this direction. My favorite China ETF remains Claymore/Alpha Shares China Small Cap ( HAO); the next best fund is PowerShares Golden Dragon ( PGJ), followed by the largest and most liquid iShares FTSE/Xinhua 25 China Index ( FXI). It may take some time for the change to unfold, though, because the unrest in Xinjiang province may delay the high-level economic meetings scheduled for this month.
Google ( GOOG) beat analysts' estimates for profits and sales, but the stock is down 2.5% in after-hours. IBM ( IBM) also beat earnings and lifted its 2009 full-year estimate by more than 5%; its shares are up 2% after hours. These developments are all positive for the market, and the after-hours drop in Google, if it doesn't reverse tonight, is likely to reverse in the morning following the coming stream of positive news coverage this evening and tomorrow morning. As long as Citigroup ( C), Bank of America ( BAC) and General Electric ( GE) don't derail the market, it could finish the week at a new near-term high. The S&P 500 index peaked at 956 intraday on June 11; a 1.7% gain tomorrow would match that high. If that's the case, the leading momentum ETFs -- technology (specifically networking), emerging markets, financials and commodities/materials will lead the way.
As with commodities, the best way to trade currencies is to head straight to the forex and futures markets, but currency ETFs offer a way for conservative investors to put cash to work or hedge their investments. During last fall's market decline, PowerShares U.S. Dollar Bullish Fund ( UUP) and the FXY were two excellent plays. Both funds delivered returns of more than 10% between the end of July and the end of October, while the S&P 500 index suffered a 24% decline. Instead of going straight to cash, investors can use currency ETFs to deliver extra returns on top of sitting out a market decline. It's also a great way to hedge for investors nervous about the markets. For the past two years, the dollar and yen weakened when risk appetites increased and strengthened when fear increased. Or investors can increase their risk and pile onto a trade, increasing their exposure. Buying emerging-market ETFs along with PowerShares DB U.S. Dollar Bearish Fund ( UDN) would give a portfolio heightened exposure to a weak dollar. However, as the IDX example shows today, investors already have direct currency exposure if they own an international ETF holding local stocks. I have used both UUP and UDN in model and client portfolios. Currently, UDN is in some portfolios due to the near-term outlook. Risk appetites have been increasing since March, and the U.S. dollar weakened from $1.25 to more than $1.40 vs. the euro, which makes up more than 50% of the Dollar Index tracked by UUP and UDN. Since reaching that level in June, however, the euro/dollar has stayed within a very tight range, and our position could change at any time due to market conditions.