Don't Be Afraid Of The European Crisis -- Profit From It Instead


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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 Greece. 

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 their accounts. 

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 the eurozone. 

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 lower.

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 Cypriot crisis.

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 ( EWI ) 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 ( ETF ) 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 makes Global X FTSE Greece 20ETF ( GREK ) 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: Both ETFs are highly speculative because of major internal issues within Italy and Greece that may supersede the benefits of a weaker euro. 

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. 


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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This article appears in: Investing
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