By ETF Stocks
Regular market watchers are well aware of the perils of the Euro zone debt crisis. Now, an another element, is Greece in or out has been added to the mix.
While some prognosticators believe sending the Greeks back to the Drachma ages would give the market a boost, Fitch Ratings says, “If Greece left the euro zone as a result of its political crisis or its economy failing to stabilise, it would impact the sovereign ratings of euro zone countries across the board.” Specifically, the agency named France, Italy, Spain, Cyprus Ireland, Portugal, Slovenia and Belgium as the most vulnerable.
In our weekend review of all exchange-traded funds, ETF stocks noticed one name on this list with underperformance traits.
iShares MSCI France Index (EWQ)
France could be experiencing its own version of a Freddie Mac mortgage meltdown. Concerns were raised when one of the country’s largest real estate mortgage providers, Credit Immobilier de France Developpement's (CIFD), failed to publish audited 2011 accounts. As a result, the group had its senior unsecured and mortgage covered bond trading suspended on May 8th.
Credit Immobilier is so important that Fitch believes the “French state would intervene to secure CIFD's future if required.”
Additionally, Moody’s recently affirmed its view of France’s top AAA rating with a negative outlook, but said it would be watching new President Francois Hollande's spending as he’s promised growth i.e. more government spending over austerity.
The uncertainties on both fronts will likely weigh on investors. That probably explains why EWQ looks so weak on its chart.
Across the Atlantic, US markets aren’t sparkling as of late. ETF Stocks believes the US indexes could be headed for sideways trading as the NASDAQ is stuck between resistance and support at 2900 and 2,778.79 respectively.
While the US markets might bounce around between the upper and lower guardrails, the charts say the NASDAQ should perform better than the French index. If ETF Stocks assessment is correct, investors can purchase PowerShares QQQ (QQQ) and short an equal dollar amount of iShares MSCI France Index (EWQ).
If QQQ outperforms EWQ, it doesn’t matter if either market goes up or down, the trade will pull a profit – minus commissions, fees, margin interest or whatever else your broker charges.