After reaching record highs last Thursday, June 11, global financial markets have corrected with some of the sharpest sell-offs since late March. Many of your Global Stock Investor positions are now as oversold as they have been since early May. But after a three-month bull run, such a correction is not only expected, but also welcome.
Why do I think this not the start of a sharp and sustained correction? Trading volumes have been relatively light. That indicates that investors aren’t dumping assets en masse. If history is any guide, the recent consolidation probably just marks the start of the traditional quiet period in the summer. With so much cash sitting on the sidelines, it is high likely that institutional investors will take advantage of the recent correction to enter the market at lower levels. That may not happen tomorrow. But it is likely to come before the end of the quarter “window-dressing” period ends in two weeks time.
The bottom line? Hold off on adding to your positions in your Global Stock Investor portfolio this week and keep an eye out for your stops — the iShares MSCI Taiwan Index (EWT), in particular.
The one exception to this advice is your position in the UltraShort Lehman 20+ Treasury ProShares ETF (TBT). Last week’s sharp drop in TBT offers you a second bite at the apple in your bet against Treasuries. The London Financial Times today reported that the U.K. government had to use a syndicate of banks to place government debt. That’s a strategy that is normal for low-grade corporate debt — but not for creditworthy governments. With borrowing requirements hitting $3.25 trillion in 2009, the United States can’t be too far behind. Use positive news of moderate inflation today to add to your position in TBT here.
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) stayed flat this week. The People’s Bank of China set the central parity rate for the dollar-yuan pair at 6.8340. The yuan is allowed to strengthen or weaken 0.5% from the parity rate, so it won’t go too far either way. CYB remains a defensive BUY.
The iShares MSCI Taiwan Index (EWT) fell below the $10 level for the first time since late April. Wait for the market to settle before you enter this position at current levels. But with Taiwan probably now the most oversold among the major emerging markets, EWT remains a long-term BUY.
Freeport-McMoRan Copper & Gold Inc. (FCX) broke through the $60 level on Thursday, before correcting sharply during the last three trading days. Sharp corrections are not unusual for commodities stocks highly geared to the price of copper. FCX is a BUY.
Market Vectors Gold Miners ETF (GDX) corrected as the price of gold fell back to the $932 per ounce level. Short-term movements don’t change the long-term argument for this month’s Global Stock Investor pick. GDX remains a BUY.
ICICI Bank Ltd. (IBN) pulled back just below the $30 level this week, as India corrected along with the other major emerging markets. The Indian stock market is now at around 15,000, almost double from the bottom hit in November 2008. IBN remains a BUY.
Chemical & Mining Co. of Chile Inc. (SQM) dropped back this week. But the company has more than one arrow in its quiver. Not only is it a leading fertilizer company, but it also is the world leader in Lithium supply. SQM remains a BUY.
The UltraShort Lehman 20+ Treasury ProShares ETF (TBT) tumbled from a high of $58.77 last week as inflationary expectations over the next 10 years soared to 2.13%. That’s a 10-month high. Inflation is coming. This sell-off is a good time to add to your position. TBT remains a BUY.
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