My #1 Global Bull Market In Asia

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Brazilian natural resource play CVRD (RIO) also is up 29% since our initial recommendation — and we have averaged triple-digit percentage gains on CVRD options on two separate transactions.

Another market that almost has matched Brazil’s torrid pace this year has been South Korea. And we’ve made even bigger profits from this market’s stellar performance, with our position in steelmaker Posco (PKX) returning close to 55% during the last few months.

This week’s Global Bull Market Alert recommendation doubles up our Korean bet with the iShares MSCI South Korea Index (EWY). Here’s why we think Korea will continue to generate big profits over the next few months.

First, South Korea was given a big boost a few weeks ago by ratings agency Moody’s. The ratings agency, citing continued fiscal prudence and favorable macroeconomic prospects, placed Korea on review for possible upgrade. Korea’s economy is going from strength to strength. Exports are soaring. Its external payments position is strengthening. Its substantial buildup in official foreign exchange reserves is providing insulation from possible external shocks. The stock market’s upward momentum will continue to be supported by global economic growth, Asia’s economic rise, a flight of capital into equities and strong corporate earnings. South Korea and the United States also recently signed a free-trade agreement and Seoul has started negotiations for a similar treaty with the European Union. Despite the recent run up in stock prices, the overall market is cheap with a P/E of less than 13. That’s just about half the current P/E of India.

Second, the South Korea ETF also has solid exposure to the Korean banking sector through holdings in Kookmin Bank and Shinhan Financial Group. Just last week, South Korea announced that it plans to ease regulations to help banks enter foreign markets such as China and India, as well as to lift restrictions on private equity funds to further develop the country¡¯s financial markets. Shinhan Bank and Hana Bank announced that they expect to win approval soon to set up units in Beijing and they plan to spend $130 million and $260 million each to incorporate in China. I expect Kookmin bank to follow soon. Korean banks are moving fast to enter the Chinese market to provide financial services to corporate clients, including Samsung Electronics, LG Electronics and Hyundai Motor, which have extensive operations in China.

Exclusive  Markets Bouncing Back

Finally, the South Korea ETF also offers a strong play on the comeback in global technology. And Korean giant Samsung has the single-biggest weighting in the Korean ETF to account for close to 19% of the fund¡¯s portfolio.

So buy the Korea ETF (EWY) at market, and place your initial stop at $58.50.

If you want to play the options, I recommend the January $70 calls (EWYAN.X). There may be some short-term volatility in the South Korean ETF over the next few weeks. But overall, I predict that the stock market will continue its upward ascent, and positively soar during the traditional Q4 rally.

PORTFOLIO UPDATE

To make room for South Korea, let’s exit our position in LAN Airlines (LFL) for a small gain of about 3% since June 4 (that’s 24.48% annualized). The negative sentiment following the airline crash in Brazil may weigh on the stock during the next month or so. For those of you who have a longer time horizon, hold on to this fast-growing Chilean airline and place a trailing stop of 20%.

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It was another strong week for our Global Stock Investor portfolio. Five of our eight holdings hit record highs last week on the back of the strong rally in the markets. I continue to be pleasantly surprised by the market momentum this summer. Let's enjoy the wave while it lasts.

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