This kind of see-saw trading is actually quite typical of the summer months, and I expect the range-bound trading to continue. On the one hand, it would take a spate of unexpectedly bad news to take global stock markets much farther down from their current levels. On the other, the markets are so technically oversold that they are due for at least a moderate bounce — a bounce that may have already started last week.
This week’s Global Bull Market Alert pick is a bet on a low-profile foreign market, Israel, which has turned out to be one of the world’s top performers this year: the iShares MSCI Israel Cap Invest Mkt Index (EIS). Here’s why I expect the Israeli market to continue to perform well over the next few months.
First, before the onset of the global recession, Israel’s GDP has been growing solidly around 5% for the past few years. Barclays Capital sees Israel’s economy rebounding in 2010 to grow 2.9%, following a drop of only 1.8% in 2009. The Israeli shekel also has been one of the strongest currencies in the world over recent years. That means U.S. investors in Israeli assets benefit greatly from Israeli currency exposure in a strengthening shekel environment.
Second, Israel has just graduated from “emerging market” to “developed market,” according to Morgan Stanley Capital International (MSCI). By way of contrast, two of Asia’s original “tiger economies,” South Korea and Taiwan, were under review for an upgrade, but remained “emerging markets.” In any case, rating Israel a developed market constitutes a vote of confidence in Israel’s economy. It also means that developed market, index-tracking capital will be pouring into the Israeli stock market.
Finally, even as far back as a decade ago, the Israeli stock market was covered not only by emerging market managers but also by mainstream technology investors. Israel’s technology industry was that dominant. But with financial stocks, pharmaceutical and industrial chemicals each up approximately 20% of the MSCI Israel index, investing in this week’s pick is about more than just investing in the “Nasdaq of the Middle East.”
So buy the iShares MSCI Israel Cap Invest Mkt Index (EIS) and place your stop at $36.50. There are no options on this one.
The iShares MSCI BRIC Index ETF (BKF) rose 3.0% this week, even as it paid out a dividend of 16.2 cents per share on June 23. With China’s market continuing to power ahead, I am moving BKF back to a BUY.
WisdomTree Dreyfus Emerging Currency ETF (CEW), last week’s defensive pick, worked as advertised and ended the week slightly up. CEW remains a BUY.
PowerShares DB Commodity Double Long ETN (DYY) ended the week slightly down, even as it rose from its bottom hit last Monday. This bet on crude oil, heating oil, corn, wheat, gold and aluminum remains a HOLD.
The iShares MSCI Chile Investable Market Index (ECH) ended the week very slightly down, even as it paid out a 41-cent dividend on June 23. Chile remains a BUY.
The iShares MSCI Hong Kong Index (EWH) recovered strongly as it rose 5.4%, even as it paid out a 17.5-cent dividend. EWH is a BUY.
Both the SPDR Gold Shares ETF (GLD) and the PowerShares DB Gold Double Long ETN (DGP) rose slightly this past week and both bets on the yellow metal remain a defensive BUY.
The iPath DJ AIG Copper TR Sub-Idx ETN (JJC) closed back up near the $32 level. With inventories low and the physical marketplace tight, “Dr. Copper” remains a BUY.
Russia’s Mechel (MTL) tumbled early last week, before recovering much of its losses. Russia now is the most out of favor market among the BRIC economies. Until this sentiment turns, I am keeping MTL at a HOLD.
Your Rydex Inverse Government Long Bond Strategy Inverse (RYJUX) slipped this week as the world’s appetite for U.S. debt turned out to be stronger than expected. Nevertheless, RYJUX remains a BUY.
Shanda Interactive Entertainment Ltd. (SNDA) soared 10% this past week, and is now trading back above the $60 level. With the Chinese market outperforming its global counterparts, this volatile pick remains a BUY.
Rydex Weakening Dollar 2x Strategy H (RYWBX) rose to a two-week high on Friday. This bet against the Greenback remains a BUY.
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