NEW YORK (TheStreet) -- International exchange-traded funds, including Australian ones, have been under fire as shifting currency woes and economic forecasts continue to indicate signs of trouble, but the selloff in ETFs from the Land Down Under is creating an investment opportunity.
Europe has continued to show relative overall weakness despite the commitment to lower rates and quantitative-easing efforts. Now emerging markets and other Asian nations are starting to show signs of weakness as well.
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The natural instinct for most investors is to react to these declines by reducing exposure and managing uncertainty by moving to cash or other opportunities. However, for those with cash on the sidelines that they are looking to put to work, these selloffs can be a profitable trading opportunity.
Australia has been hit particularly hard this month. The iShares MSCI Australia ETF (EWA) has fallen more than 9% despite hitting new highs in August.
EWA tracks 70 large- and mid-cap companies within Australia with 50% of the portfolio dedicated to financial stocks.
These losses have been mirrored or some say driven by declines in the Australian dollar as well. The CurrencyShares Australian Dollar Trust (FXA) has been relatively stable all year prior to a 5% decline this month that has foreign investors nervous.
The flight to quality in the U.S. dollar index and subsequent decline of the Aussie dollar makes investments overseas less attractive relative to domestic equities.
A look at a one-year chart of EWA and FXA shows a relatively high level of correlation between the two asset classes. Peaks and valleys associated with currency fluctuations have also been mirrored in Australian stock prices as well.