The “Anti-Greece” of Emerging Markets

Nicholas Vardy

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

This was good news for last week’s recommendation, the Market Vectors Indonesia ETF (IDX), which jumped 6.64%. (Raise your stop to $68.00.) It was less good news for the other positions in your Global Bull Market Alert portfolio. Your short position in the euro through the UltraShort Euro ProShares (EUO) pulled back, as did your bet on the U.S. dollar through the PowerShares DB US Dollar Index Bullish ETF (UUP). Your bet on the Japanese yen through the CurrencyShares Japanese Yen Trust (FXY), however, ended the week in the black.

Frankly, I am skeptical of the market’s recent mini-rally. The market is two negative headlines away from resuming its downward trend. That said, from a trading standpoint, I won’t fight the tape. So this week’s Global Bull Market Alert pick increases your exposure to global stock markets with a relatively low-risk bet on Latin America’s Chile through the iShares MSCI Chile Investable Mkt Idx (ECH).

A small country of 17 million in Latin America, think of Chile as the “anti-Greece.” In contrast to the fiscal profligacy of Greece, whose spendthrift ways threatened to dissolve the euro, Chile has been a model for how a small developing country should conduct its economic affairs.

Chile first introduced free market-oriented reforms with the help of the "Chicago Boys" — a group of University of Chicago-trained economists — during the bad old days of August Pinochet’s military government in the 1970s. Chile’s economic growth rates quickly began to outpace that of its Latin American rivals with Chile’s growth in real GDP averaging an Asian Tiger-like 8% during the period 1991-1997. Chile has maintained its momentum, boasting growth rates of 5-7% for most of the past decade — considerably outstripping growth rates in neighboring Brazil. By 2006, Chile had the highest nominal GDP per capita in Latin America. And recently, it was the first Latin American country to join the Organisation for Economic Co-Operation and Development (OECD), an exclusive club of "developed nations."

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Chile’s impressive economic achievements have been reflected in its stock market. While most countries go in and out of fashion, Chile has been the single, most consistent performer among all global markets over the past decade. It has ranked as the third-best performing market in the world for each of the last 10 years and is a top performer so far in 2010.

So buy the iShares MSCI Chile Investable Mkt Idx (ECH) at market today, and set your initial stop at $50.50. There are no options on this one. This is a position that I hold for my clients at my investment firm Global Guru Capital.

Portfolio Update

UltraShort Euro ProShares (EUO) dropped as the European currency hit a three-week high. Although the fundamental rationale for euro weakness remains intact, with this position nearing its stop price, I temporarily am moving EUO to a HOLD.

iShares FTSE/Xinhua China 25 Index (FXI) rose slightly this past week — though it traded off of its mid-week highs. With the market abuzz over the prospects of the revaluation of the Chinese yuan, I am moving this bet against China to a HOLD.

CurrencyShares Japanese Yen Trust (FXY) rose this week. As long as global markets remain edgy, this low volatility position remains a defensive BUY.

Market Vectors Indonesia ETF (IDX) jumped 6.64% as Asian markets recovered. With Indonesia now trading near record highs, the “next BRIC” remains a BUY. Tighten your stop to $68.00.

PowerShares DB US Dollar Index Bullish ETF (UUP) traded down slightly this week, as risk appetite returned to global markets. Nevertheless, with the U.S. dollar a safe haven during uncertain times, UUP remains a defensive BUY.

Exclusive  Smart Money Masters -- January 2018 Issue

P.S. If you want to keep up with my latest insights on developments in fast-paced global markets, you can now follow me on Twitter on @NickVardy or on my new blog, NickVardy.com.

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Sentiment in financial markets shifted to the positive as global stocks hit a one-month high today and the euro briefly hit a two-week peak. The S&P 500 index turned positive for the year and closed above its 200-day moving average yesterday for the first time in a month. The MSCI Emerging Markets Index now is just a hairsbreadth below this critical level.

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