By Daniel James Hayden IV
Stock prices across Asia continued to fall during trading on Monday over worries about possible defaults on sovereign debt facing the United States and the European Union.
There is growing concern that President Barack Obama and the United States Congress will be unable to agree to a deal that would allow the American government's debt ceiling to be raised and avoid a default on American federal debt that could prove catastrophic to world markets. The two sides seem to be playing a high stakes game of chicken, in which neither the President nor Republican congressional leaders want to show weakness by giving in to the other side's demands. It doesn't help the situation that Republicans like Michele Bachmann, who are preparing for primary elections, are more concerned with pleasing their conservative base than appealing to the wider electorate.
The state of affairs has gotten serious enough that Obama stated that the government is "running out of time" to solve the budget crisis.
Of course, the European Union has debt problems of its own that are so grim that George Soros recently said that it's looking as though an eventual default by a euro zone country is inevitable. Although Greece and Italy both recently passed crucial austerity measures, the markets are still concerned that the actions taken by the two countries may be cases of too little, too late.
Greece has faced widespread rioting and general strikes that have led the international markets to question whether or not the Greek government will even be able to stick to the reforms. There are concerns that the Greek government may eventually give in to public outrage over the sale of treasured state assets and rising taxes for the nation's poorest workers. If this were to happen, the Greeks may choose default over widespread civil unrest and chaos.
Any news regarding the fiscal problems that the United States and the European Union are experiencing tends to have an immediate impact on Asian stock prices. Stock markets across Asia fell further during Monday trading, as the export driven economies are highly dependent on the American and European economies. The Hang Seng Index of Hong Kong traded stocks fell 70.63 points, or 0.32%, to 21,804.75 on Monday. The KOSPI Composite Index of of Korean stocks was down 14.72 points, or 0.69%, to 2,130.48 by the end of the trading on Monday in Seoul. The SSE Composite Index of Chinese stocks fell 3.48 points, or 0.12%, during trading in Shanghai. The Taiwan Capitalization Weighted Stock Index, or the TSEC weighted index, dropped 36.34 points, or 0.42%, to 8,538.57 during Monday trading in Taipei. The Japanese stock market was closed on Monday, so the NIKKEI 225 index of Japanese stocks was unmoved on Monday.
If any of the euro zone countries eventually default or the United States fails to raise its debt ceiling, the economies of Asian exporters are sure to take a hit. Such an event would likely reduce Western demand for Asian products and cause Asian stock markets to plummet. The ProShares UltraShort FTSE China 25 (NYSEARCA:FXP) and the ProShares UltraShort MSCI Japan (NYSEARCA:EWV) are two ETFs that are likely to see their share prices climb if European or American debt problems escalate.
Investors who feel that both the United States and the European Union will solve their debt problems may want to take a closer look at the iShares FTSE China 25 Index Fund (NYSEARCA:FXI), the iShares MSCI Japan Index Fund (NYSEARCA:EWJ) and the iShares MSCI South Korea Index (NYSEARCA:EWY). Each of these ETFs invests in a range of the stocks traded on Asia's most dynamic economies. If the American government and the European Union are able to solve their current debt problems, the economies of China, Japan and Korea will benefit and each of these funds should see their share prices move higher.
Investors looking for a safe haven investment, regardless of the outcome in the United States and the European Union, should look into the CurrencyShares Swiss Franc Trust (NYSEARCA:FXF) and the SPDR Gold Shares (NYSEARCA:GLD). The Swiss franc has been gaining in popularity with international investors because of the country's conservative fiscal management and gold is an ever popular choice during times of economic uncertainty.