Greece, Puerto Rico & China: How Should Investors React?
Markets have been abuzz recently with the imploding Greek debtcrisis - and, as I type this update after the “no” vote on the referendum,still nobody knows how the story will ultimately play out. But hand-wringingaside, quite a few pundits suggest that a so-called “Grexit” may already bepriced in to stock markets, and that exposure to the contagion that is Greekdebt is already well-contained. (This TIME article written before the vote, How Investors Should React to the Greek Crisis, summarizes that viewnicely.)
What’s more interesting to me are the two other financialdisasters brewing beyond our shores – namely, in China, the world’s largesteconomy with the U.S. a close #2, and Puerto Rico, an American protectorate.Puerto Rico claims it can’t pay its municipal debts, which – depending on howit’s addressed – could depress investor interest in municipal bonds State-sidebut otherwise seems limited in scope. China looks a lot more serious: its stockmarket has tanked precipitously in recent weeks, coupled with a slowing economyand deflating real estate prices. The Wall Street Journal’s GrandCentral blog warns China’s Slowdown is Greater than Greek’s Debt. Just putting the Chinesestock market drop, and volatility, into perspective is bracing. As of lastTuesday, “The Shanghai Composite Index closed up5.5%, after falling more than 5%. It is down 17% from a June 12 high but hasdoubled over the past year. This is like the Dow Jones Industrial averageveering between 17,000 and 18,900 in a single day and falling to less than15000 after shooting up from 9000.” Wow, right?
What fallouts do you expect from these three financial crises –and more importantly, how do you plan on trading them?
CEO, TradeKing Group
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