U.S. Markets closed

ETFs to Watch as OECD Cuts Global Forecast


Global markets and exchange traded funds have put the worst behind them, but the Organization for Economic Cooperation and Development warned that we could see slower growth this year due to unexpectedly sluggish large emerging economies.

Policy makers “can now switch from avoiding disaster to fostering a stronger and more resilient recovery,” the OECD said, pointing to a less precarious environment than in recent years, the Wall Street Journal reports.

Nevertheless, the OECD warned that growth will be weaker than previously forecasted due to the impact of a normalizing U.S. monetary policy on emerging economies, instability in China, and rising tension between Russia and developed Western states.

Investors interested in tracking global markets can take a look at the iShares MSCI ACWI ETF (ACWI) or Vanguard Total World Stock ETF (VT) . Both ETFs track a market capitalization-weighted index of companies from both developed and emerging countries. ACWI and VT have both increased about 2.0% year-to-date.

Looking at global regions, the OECD cut its forecast on Chin, arguing thatthe extent of the current slowdown and “fragility of the banking system” are uncertain. Chinese equities are struggling this year, with the iShares China Large-Cap ETF (FXI) and SPDR S&P China ETF (GXC) both declining over 9% year-to-date. [A Yes on Indonesia, Taiwan, but China ETFs Struggle]

The organization also cut its growth forecast for Japan, citing the need for additional fundamental reforms to support economic growth and an outline to diminish the budget deficit. Year-to-date, the WisdomTree Japan Hedged Equity Fund (DXJ) , which tries to hedge against a weakening Japanese yen, has declined 9.1% and the iShares MSCI Japan ETF (EWJ) , which is exposed to currency risks, decreased 8.0%.

Additionally, the OECD placed its largest downgrade on Russia. The Russian economy is estimated to expand 0.5% this year, compared to the previous forecast calling for a 2.3% growth, as “the moderate recovery that was under way at the end of 2013 has been halted by the turbulence related to the events in Ukraine,” according to the OECD. The Market Vectors Russia ETF (RSX) has plunged 22.5% year-to-date. [Russia ETFs Slide After S&P Downgrade]

In an unusual fashion, the OECD suggested that the European Central Bank’s refinancing rate “should be reduced to zero” from 0.25% as a way to kick start inflation.Iif the ECB does decide to take a looser stance on monetary policies, the WisdomTree Europe Hedged Equity Fund (HEDJ) would benefit from a weakening euro currency and an expanding economy. HEDJ is up 2.1% year-to-date. [Europe ETFs for Possible ECB Quantitative Easing]

For more information on global markets, visit our global ETFs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.