The month of September has been a surprisingly strong month for global stock markets.
Your Global Stock Investor portfolio continues to outperform, with many positions hitting records or 52-week highs at some point during the last week. These include the iShares MSCI Malaysia Index (EWM), the Market Vectors Brazil Small-Cap ETF (BRF), the Market Vectors Indonesia ETF (IDX), the iShares MSCI Turkey Invest Mkt Index (TUR), the Global X FTSE Nordic 30 ETF (GXF) and your most recent pick, the iShares MSCI Singapore Index (EWS).
In addition, in light of a clear shift in the Chinese government’s exchange-rate policy, I have moved the Chinese yuan investment — through the WisdomTree Dreyfus Chinese Yuan Fund (CYB) — back to a BUY.
You will see many of your current positions highlighted in a recent CBS Marketwatch article on the biggest winners in the global financial crisis, in which I was quoted.
While the strong performance of your current portfolio is terrific news, there are reasons to think that the market will endure a sell-off in the coming weeks.
First, small investors have become too bullish — which often happens right before a market sell-off. In the latest American Association of Individual Investors (AAII) Sentiment Survey taken on Sept. 15, bullish sentiment — expectations that stock prices will rise during the next six months — rose 7.0 percentage points to 50.9%. This is the highest level of optimism since August 13, 2009, just about the time the U.S. market started flat-lining. Bearish sentiment — expectations that stock prices will fall during the next six months — fell 7.4 percentage points to 24.3%. This is the lowest level of pessimism since December 31, 2009.
Second, a strong start to September notwithstanding, we are still in a seasonally weak part of the year. Markets have a habit of getting nervous as we head into October.
So what is the best strategy moving ahead? Although I expect a pullback in the markets, you also should be aware that Q4 is traditionally the strongest time of the year for global markets. That means that it is best to hold on to your current positions through any sell-off. That said, although I have many of your current positions as “buys,” I would be cautious about adding to your positions just now.
I am continuing to keep some of your more volatile holdings — Vale S.A. (VALE), iShares MSCI Taiwan Index (EWT) and Freeport-McMoRan Copper & Gold, Inc. (FCX) — on a temporary HOLD.
Market Vectors Brazil Small-Cap ETF (BRF) hit a record $55.47, before pulling back and ending the week a hairsbreadth higher. Although as one of the world’s more volatile markets, Brazil is likely to pull back sharply when global markets correct, BRF remains a BUY.
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) is back on its path of appreciation. With pressure on China to revalue the yuan growing, the Chinese currency strengthened for the ninth consecutive day yesterday — breaking through the 6.7 per U.S. dollar mark for the first time since 1993 — the day after President Obama criticized China for using its currency to gain a trade advantage. CYB is back to a BUY.
iShares MSCI Malaysia Index (EWM) hit yet another record of $13.80 this past week. The Malaysian prime minister noted that the Malaysian economy is expected to achieve better than 6% gross domestic product (GDP) growth for the full year, despite a slight moderation in the global economy in the second half of the year. EWM is a BUY.
iShares MSCI Singapore Index (EWS) rose in its first week in the portfolio, ending the week at a yearly high of $13.03. Last week, the trade promotion agency reported that Singapore’s exports climbed 31.2% in August. Forbes also ranked Singapore fifth among the best countries for business. With GDP projections of 13% to 15% for full year growth, Singapore will grow faster than both China and India in 2010. EWS remains a BUY.
iShares MSCI Taiwan Index (EWT) hit a high of $13.29 this past week, almost reaching highs last seen in January. Taiwan’s export orders totaled US$34.9 billion in August, a record high. That represents a year-over-year growth of 23.3%. EWT is a temporary HOLD.
iShares MSCI South Korea Index (EWY) closed the week at $52.37 last week, highs not seen since May. With the South Korean market flirting with two-year highs, EWY remains a BUY.
Freeport-McMoRan Copper & Gold, Inc. (FCX) hit a high of $83.35 last week, ending the week 1.9% higher. FCX remains a HOLD.
Claymore/BNY Mellon Frontier Markets (FRN) ended the week flat, after hitting a high of $22.40. With Chile, Colombia and Poland among the planet’s top-performing stock markets, FRN remains a BUY.
CurrencyShares Japanese Yen Trust (FXY) hit a record high of $119.13 last Monday, before pulling back sharply on the Japanese government’s intervention last week. That said, it has already resumed its pace upward, which you can expect to continue as markets correct. FXY is a defensive HOLD.
Global X FTSE Nordic 30 ETF (GXF) closed at a record high of $18.19 this week. Sweden’s government was re-elected this week, after it steered the largest Nordic economy through its worst recession since World War II, cut taxes and ran the narrowest budget deficit in the European Union. GXF remains a BUY.
Market Vectors Indonesia ETF (IDX) hit another record of $84.86 on Monday, before dropping back slightly. Indonesia’s economy will expand 6% this year after growing 4.55% in 2009. Indonesia remains a BUY.
Market Vectors Russia ETF (RSX) closed at $32.47 last week, before dropping back in the last few trading days. The world’s cheapest major stock market remains a BUY.
iShares MSCI Turkey Invest Mkt Index (TUR) hit a yearly high of $66.99, before ending the week 3.25% higher. The Turkish economy grew at 10.3% GDP in Q2 of the year, making it the world’s third-fastest growing economy, behind Singapore and Taiwan. Turkey remains a BUY.
Vale S.A. (VALE) ended the week 1.2% higher. The world’s largest iron-ore company said that producers of the steelmaking ingredient face more difficulties than a decade ago in bringing new projects on stream as the market tightens. Vale remains a HOLD.