The selloff in the lira, double-digit inflation, aftereffects of policy tightening in the United States political woes and persistent concerns about economic stability have dealt a heavy blow to Turkey stocks this year. Turkey ETF dropped to a nine-year low in Q2.
iShares MSCI Turkey ETF TUR was off 52.2% this year (read: Best & Worst Zones of 1H 2018 and Their ETFs).
To add to the woes, President Donald Trump tweeted last week that he has doubled steel and aluminum tariffs against the country. Turkey is already facing U.S. sanctions for its arrest of “U.S.
evangelical pastor Andrew Brunson, who is being held on espionage charges.”
In reply, Turkish president Recep Tayyip Erdogan adopted a non-conciliatory tone. Plus, Turkey has
intensified its relationship with Russia and Iran at a time when both the countries’ relationship with the United States is hostile (read: Why to Dump Russia ETFs Despite Higher Oil Prices). How Did Markets React?
Turkey ETF TUR slid 14.5% on Aug 10, while the lira slumped as much as
17%. Per J.P. Morgan Asset Management, the drop in lira value is many-sided. Alongside a wide current account deficit and insufficient currency reserves, a stressed political environment actually led to this currency carnage. Turkey now appears more prone to default on its debt than Greece, per an article published on Bloomberg. Global Market Behavior
Turkey’s capacity to repay foreign-currency debt has upset the global equity markets. The 10-year U.S. Treasury yield dropped 6 basis points to 2.87% on Aug 10 from the day before. The S&P 5000-based fund
SPDR S&P 500 ETF SPY lost 0.7% on Aug 10, SPDR Dow Jones Industrial Average ETF ( DIA Quick Quote DIA - Free Report) shed roughly 0.7%, all world-ETF iShares MSCI ACWI ETF ACWI dropped about 1.2%, Vanguard FTSE Europe ETF VGK retreated around 2.2%, iShares MSCI Eurozone ETF lost about 2.9%, EZU iShares Asia 50 ETF (AIA) dived around 1.9% and iShares MSCI Emerging Markets ETF EEM fell more than 2%. How to Profit?
Given the upheaval, investors can easily profit from the situation by going short on global equities as long as the contagion of selloff in lira persists. Below we highlight a few of them.
The way to make the most out of the present Turkish crisis is to invest in
ProShares UltraShort FTSE Europe EPV (up more than 4% on Aug 10). S&P 500
Investors can go against the S&P 500 with
ProShares Short S&P500 ETF (up 0.8% on Aug 10) and SH Direxion Daily S&P 500 Bear 1X Shares SPDN (up 1% on Aug 10). Dow Jones
Investors planning to go against the tumbling Dow Jones may tap
ProShares Short Dow 30 (up 0.8% on Aug 10), DOG ProShares UltraShort Dow30 (up 1.5% on Aug 10) and DXD ProShares UltraPro Short Dow30 (up 2.2% on Aug 10). SDOW EAFE ProShares Short MSCI EAFE (up 1.8% on Aug 10) could be a good way to short stocks from the EAFE region and avoid the spillover effect of the Turkey issue. EFZ Emerging Markets
Investors can short emerging markets with
Direxion Daily Emerging Markets Bear 3X Shares EDZ (up 6.5% on Aug 10) and UltraShort MSCI Emerging Markets (up 4.5% on Aug 10) (read: EEV Top and Flop EM ETFs as Taper Tantrum Completes 5 Years). Bottom Line
As a caveat, investors should note that such products are suitable only for short-term traders as these are normally rebalanced on a daily basis (see:
all the Inverse Equity ETFs here). Want key ETF info delivered straight to your inbox?
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