As traders head back to work after a week shortened by the Thanksgiving holiday, there is no shortage of activity and anxiety in global equity markets. The critical holiday shopping season is well underway, and an escalating debt crisis in Europe and potentially explosive confrontation in Korea have forced investors to cast a wary eye across all regions of the world. The coming days will bring a slew of critical data releases, a handful of earnings reports, and more than likely, fresh rounds of protests and debate over the various austerity plans being promoted to stave off a collapse of the eurozone. Below, we profile three ETFs that figure to be active this week, including funds that will take their cues from developments domestically and abroad [for more ETF ideas, sign up for our ETF newsletter].
S&P Retail SPDR (NYSE: XRT )
In recent years, the day after Thanksgiving has become more of a spectacle than the holiday itself. With the month-long stretch leading up to Christmas accounting for a significant portion of sales for many retail companies, Black Friday has become an increasingly important day for a wide variety of companies. With unemployment still running high and consumer confidence running low, most projections for the holiday shopping season were tempered, as economists predicted small increases over the abysmal year-ago period. But there are some indications that retail sales may surprise on the upside this year, as the first official weekend of the shopping season delivered some impressive results.
According to the National Retail Federation, some 212 million Americans visited a retail store or web site this weekend, an increase of nearly 9% over a year ago. Other surveys indicated that the amount spent by the average consumer jumped more than 6%, surpassing many predictions. Of course, it remains to be seen if the aggressive marketing campaigns implemented this year merely pushed up spending, or if strong sales numbers will continue.
If Americans are indeed spending freely this season, it could be good news for the S&P Retail SPDR. This fund offers exposure to many of the most popular holiday shopping destinations, tracking an equal-weighted index consisting of about 65 retailers, including both brick-and-mortar stores and online shopping destinations [see Judgment Day for Retail ETFs].
IQ Korea Small Cap ETF (SKOR)
The brewing conflict on the Korean peninsula has dominated global headlines in recent days, as the North has stepped up its aggressive rhetoric and the U.S. and China have chimed in on an extremely volatile situation. Tensions have flared somewhat regularly between the North and South in recent years, including a tense confrontation earlier this year after a South Korean navy vessel sunk, killing several sailors. That development caused equity markets to plummet on fears of an all-out armed conflict, but cooler heads ultimately prevailed, and stocks bounced back to quickly reclaim the ground lost in the midst of the surge in anxiety [read Korea ETFs Plummet as North/South Tensions Flare].
The events of the last week have followed that formula, as South Korean stocks plummeted in recent sessions as investors worried that a war with the North would weigh on the country's economy (or perhaps that a reunification would force the South to pay a substantial economic cost). Following the initial sell-off, tensions have remained high as the U.S. sent an aircraft carrier to participate in military exercises, and China protested the show of support for South Korea. Coming days should provide some indication as to the severity of the situation; if diplomatic efforts prove successful, South Korean markets could experience a recovery. But if displays of aggression persist, markets could be battered further.
The most popular ETF offering exposure to South Korean equity markets is the iShares MSCI South Korea Index Fund (NYSE: EWY ) , a product dominated by holdings in large-cap and mega-cap Korean stocks. SKOR, on the other hand, focuses exclusively on small caps, and as such consists of local companies that could be impacted more directly by the conflict [see all the ETFs that offer exposure to South Korea here].
ETFS Physical Palladium Shares (NYSE: PALL )
When the calendars turn to December later this week, U.S. automakers will report sales for the month of November. The connection between this monthly ritual and an ETF that invests in bars of palladium may not be obvious, but this precious metal is a key component of catalytic converters, and as such demand is tied to the health of the U.S. automotive industry.
Experts are predicting a strong November for Detroit, forecasting that sales will be up about 17% from a year ago (although down about 8% from the previous month). Each of the "Big Three" is expected to post solid gains, with Ford Motor Company (NYSE: F ) leading the way. "Seasonal fluctuations notwithstanding, we're seeing some stability and consistency in the marketplace for the first time," said Jessica Caldwell, a senior analyst at Edmunds.com. "The automakers have realized they can achieve profitability at this level of sales, and they seem to be settling into that reality."
After flirting with a complete collapse during the most recent recession the U.S. auto industry has rebounded, highlighted by the successful IPO for General Motors. If November sales figures impress and keep the winning streak going, PALL could get a slight bump from expectations for stronger auto-related demand [also read Playing Precious Metals Through Equity ETFs].
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