The Global Bull Doubles Up On Asia

Nicholas Vardy

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

But if U.S. markets are rising, Asian stock markets are on fire. Your bet on Taiwan — the iShares MSCI Taiwan Index (EWT) — has soared 17.42% over the past two weeks alone, as its new government decided to allow mainland Chinese institutional investors to invest in the Taiwanese stock market. The market surged another 5.6% in this morning’s trading.

This week’s Global Bull Market Alert pick doubles up your bet on Asia with another “China play,” the iShares MSCI Hong Kong Index (EWH).

Here’s why I think Hong Kong’s stock market is set to soar over the coming months.

First, although it is thousands of miles away, the Hong Kong stock market is directly subject to the whims of U.S. interest rate policy. As you know, the Fed has cut interest rates to essentially zero in the U.S. What you may not know is that Hong Kong’s monetary policy is closely tied to the U.S. dollar. For the last 25 years, the Hong Kong dollar has been worth about $7.80, a level ensured through an interest rate policy implemented by a currency board. As a result, Hong Kong’s stock market is subject to wild “booms and busts” for reasons that have nothing to do with its own economic prospects. Every time the Fed cuts real interest rates to zero — as it did in 1992-1993, and again in 2003-2005, the Hong Kong stock market has at least doubled.

Second, let’s not forget Hong Kong’s strong — and improving — fundamentals. Hong Kong has been for decades one of the "freest" markets in the world. It is also the safest and most liquid direct play on the Chinese stimulus package and global economic recovery. Yet when investors were throwing the baby out with the bathwater, Hong Kong stocks hit single-digit price-to-earnings (P/E) ratios. Every time the market has collapsed to such low levels in the past, Hong Kong stocks have gone on to double and even triple within a few years time.

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Finally, while pundits debate whether the U.S. stock markets are in a genuine uptrend, by many measures, emerging markets are already there. After falling over 60% from their peak last May, global emerging market indices bottomed in December. Since late 2008, they have staged a series of higher highs and higher lows. Just last week, both emerging markets and the Hong Kong stock market crossed the all important 200-day moving average, confirming a long-term uptrend.

So buy the iShares MSCI Hong Kong Index (EWH) at market today, and place your stop at $10.25. For even bigger potential gains, I recommend the September $12 call options (EWHIL.X).

Portfolio Update

The iShares MSCI BRIC Index ETF (BKF) roared ahead last week, as Brazil, Russia, India and China continue to outperform their developed peers. BKF is a BUY.

The Market Vectors Double Short Euro ETN (DRR) hit a high of $51.45 last Monday before dropping back. I’m still very bearish on the European economies and the euro. DRR is a BUY.

The iShares MSCI Chile Investable Market Index (ECH) resumed its uptrend last week, hitting levels not since Oct. 2. Chile remains a BUY.

The iShares MSCI Taiwan Index (EWT) soared a whopping 12.43% last week as the government allowed Chinese investors to invest in Taiwan for the first time. This market has all the momentum in the world behind it. It remains a BUY. Tighten your stop to $8.50.

The CurrencyShares British Pound Sterling Trust (FXB) remains locked in a trading range. With the position nearing its stop price, I am keeping this short position in FXB at a HOLD.

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Both the SPDR Gold Shares ETF (GLD) and the PowerShares DB Gold Double Long ETN (DGP) fell back this week, as risk appetite returns to global financial markets. Both positions are defensive BUY.

Your position in the iShares iBoxx $ High Yield Corporate Bond (HYG) breached the $76 level in intra-day trading on Thursday before correcting slightly. You should have received your 59 cent dividend per share on May 1. Yielding 11.56%, HYG remains a BUY.

The iPath DJ AIG Copper TR Sub-Idx ETN (JJC) recovered sharply last week, soaring 9.66% from the low it hit on Tuesday. With economic recovery on the horizon, I am keeping “Dr. Copper” at a BUY.

Your Rydex Inverse Government Long Bond Strategy Inverse (RYJUX) jumped 2.93% to $14.70 level not seen since last Thanksgiving. Your bet against U.S. Treasuries remains a BUY.

P.S. Gain the knowledge and insights you need to make smart investment decisions at the most important investor gathering in 2009. Join me for this year’s Money Show Las Vegas, May 11-14, 2009, at the Mandalay Bay Resort and learn how the experts are finding profitable opportunities during the market crisis and how to position your portfolio for safety and growth. To register FREE, call 800/970-4355 and mention priority code 012653 or register online!

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