With equity markets starting off the new year with a bang, investors are now looking to see which corners of the market are poised to perform well in 2013 and which investments they need to stay clear of. Though bonds and equities are usually an investor’s main focus, currency plays are often overlooked as many shy away from this misunderstood asset class. Not surprising, currency markets thus far in 2013 have been highly active as countries around the globe continue to cobble together stimulus measures to prop up their lackluster economies. In general, the fate of an economy or any decision made by governments and central banks is closely linked to the currency market. As such, keeping a close eye on this corner of the investing universe may help investors better position themselves in 2013. Below we highlight this year’s top currency trends, as forecasted by Merk Investments [see also Favorite ETF Positions For 5 Super Investors].
For all simplicity purposes, “the yen is indeed doomed,” according to Merk Investments. Known for its dovish reputation, the Bank of Japan spent most of last year cobbling together trillions of dollars worth of patch-worked stimulus measures to boost the flailing Japanese economy. Despite its efforts, the nation’s current account is dangerously sliding towards a deficit, which eventually will push the cost of borrowing to unsustainable levels. Japan’s over 200% debt-to-GDP ratio is also a glaring red flag, leading many to be understandably bearish on the yen. For those looking to make a play on the seemingly doomed currency, there are several ETF options (both leveraged and non-leveraged) [see 13 Rapid Fire ETF Ideas For 2013]:
- CurrencyShares Japanese Yen Trust (FXY, B+)
- JPY/USD Exchange Rate ETN (JYN, B)
- ProShares UltraShort Yen (YCS, A-)
- ProShares Ultra Yen (YCL, B-)
Diamond in the Rough: the Euro
No one can argue that the euro has had some rough times over the past few years as the region’s seemingly never-ending debt crisis continues to plague the currency bloc. Merk Investments, however, believes that “the euro may be the rock star of 2013,” citing that regardless of the additional money-printing speculations, the balance sheet of the European Central Bank may actually shrink this year. Though such an event is highly speculative, many investors have already turned into “closet bulls” on the euro. Whether you can put your faith back into the currency or not, here are some of the most popular euro ETFs available:
- CurrencyShares Euro Trust (FXE, B)
- ProShares UltraShort Euro ETF (EUO, A)
- ProShares Ultra Euro ETF (ULE, B)
- Market Vectors Double Short Euro ETN (DRR, A+)
Uncertain Times for the Greenback
With Helicopter Ben indicating a pullback in the near future, Merk Investments believes that the central bank’s emphasis on employment (rather than inflation) may be a hindrance to the dollar, as growth is inherently dollar negative. Though the Fed has expressed its desire to keep the cost of borrowing as low as possible, an uptick in rates will eventually come, causing investors to be bearish on the bond market. In general, the dollar will likely see major swings this year as volatility in bonds is poised to rise in 2013. To make a play on the greenback, there are several exchange-traded options [see King Dollar ETFdb Portfolio]:
- DB US Dollar Index Bullish Fund (UUP, A)
- DB US Dollar Index Bearish Fund (UDN, B+)
- 3x Long U.S. Dollar Index Futures ETN (UUPT, B+)
- 3x Short U.S. Dollar Index Futures ETN (UDNT, C)
Disclosure: No positions at time of writing.
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