Bargain Hunting For Beaten Down ETFs

| May 28, 2010 | 0 Comments

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.

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.

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Category: ETFs

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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