After a stellar start to the year, global equity markets hit a rocky stretch after a closer look at Europe’s fiscal health uncovered cause for significant anxiety. Although equities have recovered somewhat from their recent plunge, pessimism runs rampant on Wall Street as the bears are coming out of the woodwork. The confidence that investors regained in the second half of 2009 has virtually disappeared as the short-term outlook has soured considerably.
And the sudden wave of pessimism over economic prospects has no shortage of justification. The pendulum in Europe has swung completely in the other direction, as governments are reeling in stimulus plans and imposing strict austerity measures. Analysts are warning that China may see “severe” employment losses next year when millions of temporary jobs created by a 4 trillion yuan stimulus package wrap up. And in the U.S., long-awaited job creation has finally materialized, but largely in the form of temporary jobs created by the census.
As the reality of the “new normal” sets in, hopes for another stellar year for equity markets have largely been dashed. A recent survey from economists at top U.S. financial firms revealed expectations for continued moderate economic growth and “painfully” slow job creation to ease an elevated unemployment rate. Although the panel downplayed the possibility of a double dip, it did cite a number of threats to economic growth, including a still-dismal real estate market, higher taxes, and stubbornly high unemployment.
There are, of course, some contrarians out there who have taken advantage of the recent dip to snap up risky assets. Although the hurdles in the current environment are abundant, some believe that a resolution of the debt crisis in Europe could buoy confidence around the globe and give equity markets a push in the second half of the year. While a full blown bull market rally seems unlikely, a steady climb higher is well within the realm of possibility. While such an optimistic scenario would boost risky assets around the globe, some stand to gain more than others. Below, we highlight three equity ETFs that could be expected to turn in impressive performances if the final six months of 2010 proceed smoothly (for more actionable ETF ideas, sign up for our free ETF newsletter):
- Claymore Shipping ETF (SEA): This ETF, which was recently re-launched after shutting down due to bizarre circumstances earlier this year, offers unique exposure to a sector that thrives during bull markets but often struggles mightily during downturns. SEA’s holdings consist of companies that derive their revenues from seaborne transport, meaning that demand for services jumps when manufacturing and export activity rises.
- SPDR S&P International Consumer Discretionary Index Fund (IPD): This ETF offers exposure to the global consumer discretionary sector, a segment of the world economy that tends to exhibit a relatively high beta. IPD has minimal exposure to U.S. equities, focusing instead on Europe (44% of holdings) and Japan (37%).
- Dow Jones Emerging Markets Metals & Mining Titans Index Fund (EMT): In any economic downturn, mining stocks are often pummeled by a decline in demand for raw materials (as well as a strengthening of the U.S. dollar). Conversely, during economic booms hard asset producers can benefit from strong materials demand and rising natural resource prices. As a combination of a risky sector (mining) and a risky geographic allocation (emerging markets), EMT is one of the more volatile equity ETFs out there. This combination has led to big losses over the last quarter, but also makes EMT an intriguing play if a steady recovery is ahead.
Disclosure: No positions at time of writing.