Investor sentiment turned negative in global markets this past week, after a record plunge in home sales in July, adding to evidence the U.S. economy is stumbling. Global markets as a whole have pulled back — erasing the last month’s worth of gains. With most Asian markets down overnight, you can expect more red ink in today’s trading.
Yet there also was some good news in your portfolio. The Japanese yen hit another new record high against the U.S. dollar — terrific for your position in CurrencyShares Japanese Yen Trust (FXY). The iShares MSCI Malaysia Index (EWM) closed at a yearly high yesterday, as well, with Market Vectors Brazil Small-Cap ETF (BRF) and Market Vectors Indonesia ETF (IDX) also trading near record levels. These global stock markets have proven to be surprisingly resilient.
That said, we also are entering into September — traditionally an unsettling time for the market. So with global markets turning edgy, it’s time to take some risk off of the table.
As a result, I have placed a handful of your holdings — Freeport-McMoRan Copper & Gold, Inc. (FCX), Vale S.A. (VALE), iShares MSCI Taiwan Index (EWT), iShares MSCI Turkey Invest Mkt Index (TUR) and WisdomTree Dreyfus Chinese Yuan Fund (CYB) — on a temporary HOLD.
Market Vectors Brazil Small-Cap ETF (BRF) closed at a record $51.48 last week before ending the week 1% lower. With the Bovespa Index trading for 12.6 times analysts’ 2010 earnings estimates, this bet on Brazil’s domestic growth remains a BUY.
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) ended the week exactly where it started. With China’s exporters suffering from a drop in demand from the West, the pressure on the yuan is now on the downside. CYB is a HOLD.
iShares MSCI Malaysia Index (EWM) closed at a record high of $12.82. On Aug. 19, the Malaysian currency reached a 13-year high of 3.1242 against the U.S. dollar — the strongest level since October 1997. So far this year, it has appreciated by 9.3%. EWM is a BUY.
iShares MSCI Taiwan Index (EWT) finished the week flat. Taiwan’s economy grew 12.53% year-on-year in the June quarter, slower than 13.71% in Q1 but higher than consensus estimates of 10.5%. With the “other China’s” growth closely linked to the slowing “real” China, EWT is a temporary HOLD.
iShares MSCI South Korea Index (EWY) fell back slightly this week, even as Korean giants Samsung Life and Korea Life got a boost after Deutsche Bank started coverage of both firms with a buy rating. EWY remains a BUY.
Freeport-McMoRan Copper & Gold, Inc. (FCX) dropped sharply this week. This is a volatile stock that tends to pull back sharply on any market corrections. I am putting FCX on a short-term HOLD.
Claymore/BNY Mellon Frontier Markets (FRN) fell back only slightly. With FRN’s largest-country weightings consisting of top-performing Chile (28%) and Colombia (12%), FRN remains a BUY.
CurrencyShares Japanese Yen Trust (FXY) hit a record high of $117.53, as the yen struck a 15-year high against the dollar and a nine-year peak against the euro, as investors and speculators tested the resolve of Japanese authorities to stem the yen’s steady rise. FXY is a defensive HOLD.
Global X FTSE Nordic 30 ETF (GXF) is being tarred by the same brush as weaker European markets. With Sweden expected to grow 3.8% for the remainder of 2010, it is the top-performing economy in Europe. Although the pullback is unjustified by fundamentals, GXF is now a HOLD.
Market Vectors Indonesia ETF (IDX) climbed back up near record highs before settling 0.6% higher. With the Harvard endowment revealing that it increased its stake in IDX last quarter, this bet on Indonesia remains a BUY.
Market Vectors Russia ETF (RSX) slipped back under the $30 level for the first time in a month. As the cheapest major emerging market on the planet with a forward P/E of less than six, RSX remains a BUY.
iShares MSCI Turkey Invest Mkt Index (TUR) dropped back under the $60 level this week. As the sixth-largest economy in Europe, boasting a per capita GDP higher than China, Brazil, India and Russia, as well as a public debt to GDP ratio of less than 40%, Turkey is a terrific long-term bet. But it also is unusually vulnerable to shifts in investor sentiment. It is now a temporary HOLD.
Vale S.A. (VALE) dropped to the lowest price in a month, after metals slid and company officials said they are not engaged in talks to acquire Potash Corp., the giant Canadian fertilizer company. Until the market settles, the world’s biggest iron ore producer is a HOLD.