What a difference a week makes. Just since Wednesday, global stocks have entered their sharpest decline since the June and October 2009 corrections.
Investor sentiment shifted suddenly, thanks to a combination of Obama’s anti-banking rhetoric, an uncertainty surrounding Ben Bernanke’s re-appointment, and, most importantly, moves by the Chinese government to tighten lending. China’s three leading banks, the Industrial & Commercial Bank of China Ltd., China Citic Bank Corp. and Bank of China Ltd. all suspended loans for the rest of January. As a result, Asian markets now have fallen sharply for the sixth-straight day from fears that the cut-off of Chinese stimulus will undercut the global recovery in its nascent stages.
So, how did this news impact your Global Stock Investor portfolio?
Recall that I had tightened your stops in some of your positions so that we could prune the portfolio of relatively weak performers. As a result, you were stopped out of the Claymore/BNY Mellon BRIC ETF (EEB) and the SPDR Dow Jones Intl Real Estate (RWX), both at slight losses.
In addition, both the Market Vectors Russia ETF (RSX) and Freeport-McMoRan Copper & Gold Inc. (FCX) hit their stop prices yesterday on intra-day trading, and you exited with gains of 16.4% and 25.4%, respectively. You also stopped out of VALE S.A. (VALE) today for an 8.61% profit. You’ve hit your stop positions before and have re-entered some of them successfully. I am putting these positions on our “watch list” for possible re-entry as markets settle.
You are also very close to your stop prices on Chemical & Mining Co. of Chile Inc. (SQM) and iShares MSCI Taiwan Index (EWT), both of which I have moved to HOLD.
So, where does that leave you now?
Global financial markets are clearly oversold. And, global markets rarely go down six days in a row without some sort of strong bounce. And there is reason to think that global markets will settle, once Chinese banks turn on the lending spigots as we enter February.
So, the question is whether you buy into the market dip aggressively? Or, do you adhere to an old trader’s saw that when the market is uncertain, you need to step back from the plate?
I am recommending that you do what I am doing for my money management clients: hold off on most additional investments until the dust settles. You can always re-enter positions later.
And, as always, keep your stops in place. Think of it like keeping your seat-belts fastened in a flight — just in case of unexpected turbulence.
Portfolio Update
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) always outperforms during times of turmoil, just by staying flat. Despite pressures on the Chinese government on all fronts to revalue the yuan, I am keeping this actively managed currency at a HOLD.
iShares MSCI Taiwan Index Fund (EWT) fell sharply this week to an eight-week low, after flirting with 12-month highs just the week before. Yet, if you want evidence of a global economic turnaround, look no further than Taiwan. Its industrial output soared an eye-popping 47.34% in December as the island exited its worst-ever recession. EWT is now a HOLD.
SPDR S&P Emerging Markets Small Cap (EWX) also fell sharply, after hitting a record high of $49.88 only two weeks ago. I am still bullish on emerging markets and small caps, in particular, EWX. But because of the sharp sell-off, I am moving this temporarily to a HOLD.
iShares MSCI South Korea Index Fund (EWY) fell back along with the rest of global markets, after closing at a 12-month high just a week ago. South Korea posted a current account surplus of US$1.52 billion in December. That was below analyst expectations for a surplus of US$2.23 billion, following the US$4.277 billion surplus in November. EWY is a HOLD.
Market Vectors Gold Miners ETF (GDX) dropped sharply, but seems to have found support around the $43 level. Despite being counter-cyclical over longer-time horizons, the gold price and gold mining stocks tend to decline alongside more traditional stocks during times of stress in the marketplace. With GDX declining 13.9% over the past ten trading days, I am keeping this temporarily at a HOLD.
Market Vectors Indonesia ETF (IDX) dropped along with other Asian markets last week. Yet, Indonesia’s fundamentals remain strong and are getting stronger. Fitch Ratings Monday upgraded Indonesia’s sovereign credit rating to one notch below investment grade, reflecting the country’s resilience to the recent global financial crisis. IDX remains a BUY.
Arcelor Mittal (MT) also fell sharply as investors dumped any stock linked to the prospects of global economic recovery. Yet, the company is ramping up production. Arcelor Mittal Tallin, an Estonia-based steel galvanizing subsidiary, plans to restart its production operations in February, as the market situation and demand has improved. Systems tests were started in December. This bet on steel and global economic recovery is now a HOLD.
iShares MSCI Turkey Invest Mkt Index (TUR) held up remarkably well for a traditionally volatile market, having recently hit a 12-month high of $59.17. Turkey is the unheralded success story of global investing. TUR is a BUY.
Chemical & Mining Co. of Chile Inc. (SQM) pulled back below the $40.00 level. With the stock now dangerously close to its stop price of $38.00, SQM is a HOLD.
P.S. I’ve scheduled a special private meeting for my subscribers of Global Stock Investor and Global Bull Market Alert on Friday, Feb. 5, at this year’s MoneyShow in Orlando, where I’ll reveal special techniques and "tricks of the trade" that I use in investing. This is the kind of hands-on training that I can only offer you in person. I’ll also discuss my secret technique for choosing customized exit prices, as well as an easy-to-implement formula on how much of each pick to buy to maximize your returns. I’ll also discuss where I think the biggest returns for 2010 will be found. Please join me at the Orlando Money Show, Destin room, on Friday, Feb. 5, from 3:30 to 4:30 p.m. by registering here.
P.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.
