Sliding global economic sentiment, receding oil prices and the approach of the second-quarter earnings season combined to extend the sell-off in global financial markets that began earlier this month. Both commodities and stocks have participated in the broad-based sell-off.
But this week, most eyes from Washington to Taipei were fixed on the Federal Reserve Board as it headed into its two-day meeting on monetary policy. The Fed was widely expected to leave the federal funds rate unchanged near zero. Hints that the U.S. economy is nearing a recovery have some observers arguing that the Fed should raise rates soon to prevent inflation from reigniting. Others, including the World Bank, see a risk of a global economy plunging back into a recession.
Negative headlines notwithstanding, the correction in global stock markets has been relatively tame so far. I believe this is a pullback within a longer uptrend in global stocks and commodities. Trading volumes have been relatively light, suggesting a lack of conviction behind the down moves. In addition, we are now at the start of the quiet period that so often characterizes the summer months. As I noted last week, institutional investors left on the sidelines during the market rally in the last three months are likely to take advantage of pullbacks in global markets to build positions once the third quarter gets underway. That said, it is crucial to stick to your stops in all of your Global Stock Investor positions. Keep a particular eye out for Freeport-McMoRan Copper & Gold Inc. (FCX) which is now near its stop price of $44.50.
Portfolio Update
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) remained flat again this week. But with the yuan still substantially undervalued in terms of purchasing power, CYB remains a defensive BUY.
The iShares MSCI Taiwan Index (EWT) remained below the $10 level and slipped to $9.56. But with the Taiwanese market rallying 3% overnight and Taiwan still among the most oversold of the major emerging markets, EWT remains a long-term BUY.
Freeport-McMoRan Copper & Gold Inc. (FCX) broke the $60 level on June 11 and plummeted precipitously since then. That said, both copper and gold tend to be among the top-performing sectors when markets bounce. With Freeport now dangerously close to our stop price of $44.50, I am moving FCX to a HOLD.
ICICI Bank Ltd. (IBN) corrected during the past two weeks, along with other emerging markets. But bulls have been on the run in India since the recent re-election of its pro-growth government. This top-rated commercial bank’s record is still impressive and it remains a BUY.
After wavering early in the day, Market Vectors Gold Miners ETF (GDX) closed yesterday at $37.33, up from Monday’s close of $35.74. This leveraged play on the price of gold remains a BUY.
Chemical & Mining Co. of Chile Inc. (SQM) took a breather in the past two weeks, but the bullish case for it remains intact. Besides having a monopoly on fertilizer in Chile, SQM also claims a 30% share of the world’s market for lithium, which is used in hybrid-car batteries. SQM remains a BUY.
The UltraShort Lehman 20+ Treasury ProShares ETF (TBT) dropped sharply last week as risk aversion rose in global financial markets. With the U.S. government flooding the markets with U.S. debt for the foreseeable future, the long-term case against the United States is as solid as ever. The recent correction is a perfect opportunity to add to your position. TBT is a BUY.
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