When I visited Cyprus several years ago, I had no idea this
tiny, beautiful nation would one day play a pivotal role on the
international financial stage.
This country is slightly larger than Delaware, yet its
debtissues have the eurozone scrambling for a solution. Cyprus
has long been suspected of operating as a money-laundering hub
forwealthy Russians, which meant the EuropeanCentral Bank has not
been as keen to provide a Cypriotbailout as it has been for
But eurozone leaders settled on a last-minute bailout on March
25. The dealwill provide Cyprus $13 billion in emergency loans
from an international lending group.
But the terms are extremely onerous: The country must close
its second-largest bank, and large depositors will take a hit in
After closing for more than 14 days, Cyprus banks reopened on
March 29; meanwhile, many depositors haven't been allowed to
withdraw more than $130 from ATMs per day.
German Chancellor Angela Merkel said the bailout will hold
responsible those who caused the failure. The repercussions are
harsh --bank deposits above $130,000 are being wiped out at
Cyprus's second-largest bank, and about 30% to 40% of bigdeposits
are being confiscated at the largest bank.
Since thesefunds are primarily Russian, this action has caused
a rift between Russia and Germany. This may force Cyprus to leave
In addition, the precedent set by the government's seizure of
bank deposits, even if themoney is suspected of being dirty, is
highly irregular and poses extreme danger to free markets
worldwide. Other eurozone nations fear the government may decide
to seize bank accounts. This fear has sent the euro sliding
No one knows what the end game will be for the Cypriot crisis,
let alone the eurozone. One thing is certain: Things will likely
get worse before they get better. And that's to going create
opportunities for investors.
In fact, I've found a unique opportunity toprofit from the
As you can see from the chart, the euro has weakened
dramatically during the crisis.
A weak euro aids international companies exporting items from
Europe becaue those items become comparatively less expensive to
buy with other currencies. Therefore, as the crisis worsens, the
euro weakens, which helps bolster eurozone nations' exports.
Also, a weak euro helps tourism; therefore, a tourist mecca such
as Greece should see benefits from greater numbers of visitors
attracted by favorable exchange rates.
Italy has many manufacturing firms that export; therefore, the
MSCI ItalyIndex Fund (
makes sense as a Cypriot crisisinvestment .
As you can see from the daily chart, Italian political issues
have knocked down the price of thisexchange-traded fund (
) to a technicalsupport level of just above $11 a share. A
breakout above $12 would make a great entry point with a 12-month
target price of $15.
Greece'seconomy will also benefit from the falling euro, which
Global X FTSE Greece 20ETF (
a sensible choice right now. Like the Italian-based ETF, this one
has also been knocked lower to technicalresistance in the $15
range. A breakout close above $16, combined with improving
economic conditions, may push this ETF to $20 a share within the
next 12 months.
Risks to Consider:
are highly speculative because of major internal issues within
Italy and Greece that may supersede the benefits of a weaker
Action to Take -->
I like these ETFs as speculativeinvestments based on the
weakening euro and technicalsupport being hit on the downside.
Buying both on a breakout close above my suggested prices makes
solid technical sense.