The big news in global markets this week was the Chinese government’s announcement that it may begin to re-value the yuan against the U.S. dollar. This marks a major shift in China’s currency policy. As a result, your bet on the yuan through the WisdomTree Dreyfus Chinese Yuan Fund (CYB) jumped on the news. That said, as a non-leveraged currency bet, this is never going to be a huge mover.
After the market digested the news about the Chinese yuan, positive sentiment in global financial markets abated slightly after what has been a steady rise over the past two weeks. The S&P 500 Index closed below its 200-day moving average yet again yesterday, as did the MSCI Emerging Markets Index. Global markets are on a knife’s edge, and the next week or so will reveal more about the sustainability of the current bounce.
That said, our rule of thumb is that if a position on our watch list penetrates its 50-day moving average, I will recommend that you re-enter the position. Based on this, I am recommending that you buy the iShares MSCI South Korea Index (EWY). The South Korean economy has recovered strongly since the bottom of the “Great Recession.” And your position in EWY will benefit substantially from South Korea’s sharply appreciating currency, the won. Set a stop-loss price on EWY of $40.
Overall, I still believe that we are never more than two negative headlines away from a sharp drop in the market. That’s why many of your other current positions in your Global Stock Investor portfolio continue to be defensive — most notably your bet against the euro through the UltraShort Euro ProShares (EUO), as well as new bets on the U.S. dollar through PowerShares DB US Dollar Index Bullish (UUP) and the Japanese yen through the Currency Shares Japanese Yen Trust (FXY).
Portfolio Update
Market Vectors Brazil Small-Cap ETF (BRF) rose 1% this week, on the back of improving sentiment in emerging markets, and Brazil’s continuing strong economic prospects. If the markets continue their recovery, this position should perform strongly. BRF is a BUY.
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) jumped 1% this week on the back of the big shift in China’s policy vis a vis the revaluation of yuan. Your bet on the Chinese yuan is once again a BUY.
iShares MSCI Malaysia Index (EWM) rose 1.64% as Asian markets continued to recover. With this exchange-traded fund one of the strongest performers in global markets in 2010, EWM is a BUY.
UltraShort Euro ProShares (EUO) resumed its upward trend this week, rising 1.3%. With Europe’s social welfare state just at the start of being dismantled, your bet against the euro remains a BUY.
CurrencyShares Japanese Yen Trust (FXY) jumped 1.15% this week. With the combination of Japan’s better-than-expected economic prospects and investors’ skittishness, FXY remains a defensive BUY.
Market Vectors Indonesia ETF (IDX) ended the week up 1.42% after nearly hitting a high for the year last Friday. As the strongest-performing market in Asia this year, IDX remains a BUY.
PowerShares DB US Dollar Index Bullish (UUP) was flat this week as the U.S. dollar took a break from its rise against major currencies. With market nerves hardly settled, King dollar remains a defensive BUY.
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 or on my new blog, NickVardy.com.
