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Profit From Turkish Turmoil With These Global Inverse ETFs

Sanghamitra Saha
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The selloff in the lira, double-digit inflation, aftereffects of policy tightening in the United States political woes and persistent concerns about economic stability have dealt a heavy blow to Turkey stocks this year. Turkey ETF dropped to a nine-year low in Q2. iShares MSCI Turkey ETF TUR was off 52.2% this year (read: Best & Worst Zones of 1H 2018 and Their ETFs).

To add to the woes, President Donald Trump tweeted last week that he has doubled steel and aluminum tariffs against the country. Turkey is already facing U.S. sanctions for its arrest of “U.S. evangelical pastor Andrew Brunson, who is being held on espionage charges.”

In reply, Turkish president Recep Tayyip Erdogan adopted a non-conciliatory tone. Plus, Turkey has intensified its relationship with Russia and Iran at a time when both the countries’ relationship with the United States is hostile (read: Why to Dump Russia ETFs Despite Higher Oil Prices).

How Did Markets React?

Turkey ETF TUR slid 14.5% on Aug 10, while the lira slumped as much as 17%. Per J.P. Morgan Asset Management, the drop in lira value is many-sided. Alongside a wide current account deficit and insufficient currency reserves, a stressed political environment actually led to this currency carnage. Turkey now appears more prone to default on its debt than Greece, per an article published on Bloomberg.

Global Market Behavior

Turkey’s capacity to repay foreign-currency debt has upset the global equity markets. The 10-year U.S. Treasury yield dropped 6 basis points to 2.87% on Aug 10 from the day before. The S&P 5000-based fund SPDR S&P 500 ETF SPY lost 0.7% on Aug 10, SPDR Dow Jones Industrial Average ETF DIA shed roughly 0.7%, all world-ETF iShares MSCI ACWI ETF ACWI dropped about 1.2%, Vanguard FTSE Europe ETF VGK retreated around 2.2%, iShares MSCI Eurozone ETF EZU lost about 2.9%, iShares Asia 50 ETF (AIA) dived around 1.9% and iShares MSCI Emerging Markets ETF EEM fell more than 2%.

How to Profit?

Given the upheaval, investors can easily profit from the situation by going short on global equities as long as the contagion of selloff in lira persists. Below we highlight a few of them.

Europe

The way to make the most out of the present Turkish crisis is to invest in ProShares UltraShort FTSE Europe EPV (up more than 4% on Aug 10).

S&P 500

Investors can go against the S&P 500 with ProShares Short S&P500 ETF SH (up 0.8% on Aug 10) and Direxion Daily S&P 500 Bear 1X Shares SPDN (up 1% on Aug 10). 

Dow Jones

Investors planning to go against the tumbling Dow Jones may tap ProShares Short Dow 30 DOG (up 0.8% on Aug 10), ProShares UltraShort Dow30 DXD (up 1.5% on Aug 10) and ProShares UltraPro Short Dow30 SDOW (up 2.2% on Aug 10).

EAFE

ProShares Short MSCI EAFE EFZ (up 1.8% on Aug 10) could be a good way to short stocks from the EAFE region and avoid the spillover effect of the Turkey issue.

Emerging Markets

Investors can short emerging markets with Direxion Daily Emerging Markets Bear 3X Shares EDZ (up 6.5% on Aug 10) and UltraShort MSCI Emerging Markets EEV (up 4.5% on Aug 10) (read: Top and Flop EM ETFs as Taper Tantrum Completes 5 Years).

Bottom Line

As a caveat, investors should note that such products are suitable only for short-term traders as these are normally rebalanced on a daily basis (see: all the Inverse Equity ETFs here).

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