This past week was a solid one for global stock markets, with the MSCI Emerging Markets Index rising 2.35% and the MSCI EAFE Index markets rising 3.3%. That said, both of these broad measures of global stocks still are trading well below their 200-day moving averages, so the general trend still is negative.
The past week, however, saw a sharp reversal in some well-established currency trends, with the euro jumping more than 3% last Thursday and the Greenback weakening against its rivals. As a result, you were stopped out of your position against the euro through UltraShort Euro ProShares (EUO), with a gain of 14.99%. I continue to be negative on the euro and expect it to resume its downward trend toward parity with the U.S. dollar. That said, there is no ignoring the euro’s recent bounce and it’s best not to fight the tape on this position. As the rally in the U.S. dollar has petered out, I also am moving PowerShares DB US Dollar Index Bullish (UUP) to a HOLD.
The currency of choice among global investors is the Japanese yen through the Currency Shares Japanese Yen Trust (FXY), which was up again this past week. Raise your stop to $110 to lock in your gains.
Overall, I am of two minds on your positions in global stocks. On the one hand, both developed and emerging markets stocks are almost as cheap on an earnings basis as they were when the market bottomed in March of 2009.
On the other, growth in the global economy is slowing, even as the traditional “V” shaped recovery that characterizes previous recessions is proving elusive in most parts of the world. This trend, combined with the outbreak of fiscal “austerity fever” in Europe, does not bode well for the stock market moving ahead.
Our strategy moving forward is to continue to limit our exposure to global stocks to the stock markets that are relatively strong performers. These include your positions in Market Vectors Indonesia ETF (IDX), the iShares MSCI Malaysia Index (EWM) and the Market Vectors Brazil Small-Cap ETF (BRF). Among the positions on your “watch list,” both the iShares MSCI Turkey Invest Market Index (TUR) and the iShares MSCI Taiwan Index (EWT) are flirting with their 50-day moving averages, which would be a signal for us to re-enter these positions. That said, as choppy as global stock markets have been, we are not chomping at the bit to get back into the market.
Market Vectors Brazil Small-Cap ETF (BRF) rose 1.8% this past week, as Brazil continues to boom. BRF remains a HOLD. Raise your stop to $41.00.
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) was flat this week, with little news from China to move the currency in either direction. With Chinese revaluation of the yuan in the cards, CYB is a BUY.
iShares MSCI Malaysia Index (EWM) rose 2.1% this week. Malaysia may raise interest rates for a third time this year as policy makers weigh the risks of faster inflation against threats to the global economic recovery. EWM is a HOLD. Raise your stop to $10.90.
iShares MSCI South Korea Index (EWY) rose 1.65% this past week. Samsung, the world’s largest seller of flat-screen televisions, and the biggest component of EWY, said that it expected consolidated operating profit of between 4.8 trillion won and 5.2 trillion won ($4.2 billion) for the three months ended June 30. That would beat the company’s previous all-time high of 4.41 trillion won set in the first quarter. EWY remains a HOLD.
CurrencyShares Japanese Yen Trust (FXY) jumped 1.18% this week, breaking above the $113 level. With risk appetite among investors low, and the Japanese yen a safe haven, FXY remains a defensive BUY. Raise your stop to $110.00.
Market Vectors Indonesia ETF (IDX) rose 2.37% this past week. As the strongest-performing market in Asia this year, IDX remains a BUY. Raise your stop to $65.00.
PowerShares DB US Dollar Index Bullish (UUP) fell back this week, as the dollar rally faded. With UUP slicing down through its 50-day moving average, this position is now a HOLD.