At long last, there's a deal in place to help contain the debt
crisis in Europe and keep the euro currency in action. Exchange
traded funds (ETFs) are soaring on the news in keeping with the
adage that the most beaten-down areas perform the best in
recoveries.
Looking at the leaderboard this morning, European-focused ETFs
are charging ahead this morning led by two countries that many
feared were next in line for trouble: Spain and Italy.
iShares MSCI Spain (NYSEArca:
EWP
)
and
iShares MSCI Italy (NYSEArca:
EWI
)
are up by more than 10% so far today.
It's no surprise. The European Union's jaw-dropping $1 trillion
rescue deal should lay to rest concerns about continuing issues in
Europe, particularly in the troubled PIIGS group of countries. The
PIIGS are Portugal, Italy, Ireland, Greece and Spain. The deal was
reached early today. [
U.S. Dollar Has Moment In the Sun.
]
In a move called the "nuclear option," the European Central Bank
is going to buy both government and private debt to grease those
markets and keep borrowing costs low,
says the Associated Press
.
The markets heartily approve of the move. Following the
agreement, stock market futures soared to their daily limit and
upon opening, the Dow Jones Industrial Average rocketed more than
350 points.
Aside from the Italy and Spain ETFs, the rest of the
top-performing funds today are nearly all Europe-focused ETFs. This
might be the beginning of a beautiful friendship, but bear in mind
that several of these ETFs are well below their long-term trend
lines. Italy and Spain are both more than 20% below the mark. [
Tom Lydon Says Why He's Bullish.
]
Various ETFs reacted differently to the crisis. Most of the fear
was, as we said above, centered on the PIIGS. But many funds were
dragged down as the fear of a contagion effect took hold.
iShares MSCI Sweden (NYSEArca:
EWD
)
,
iShares MSCI Switzerland (NYSEArca:
EWL
)
and
iShares MSCI United Kingdom (NYSEArca:
EWU
)
are the least off their long-term trend lines, down 8.5% at the
most. [
Positives and Negatives in France ETF.
]
If you're fearful or skeptical of this deal and the impact it
may have and don't want to take on single-country risk, a broader
Europe ETF might be a better option for you.
SPDR Dow Jones Euro STOXX 50 (NYSEArca:
FEZ
)
and
iShares MSCI EMU Index Fund (NYSEArca:
EZU
)
are two such choices that give more diversity. [
The Case for Buying the Euro.
]
And lastly, one area that really got beaten up in this move is
the euro.
CurrencyShares Euro Trust (NYSEArca:
FXE
)
and
WisdomTree Dreyfus Euro (NYSEArca:
EU
)
are two ways to play any recovery witnessed in the weakened
currency. On the flip side is a bearish dollar play with
PowerShares DB U.S. Dollar Bearish (NYSEArca:
UDN
)
.
Whether today's move has staying power remains to be seen, so
keep your strategy firmly in place and wait for that trend line
crossover before acting if you want exposure to the European
economy.
Go
here for more stories about Europe
.