Mr. Market’s mood swings continued this past week, as global stock markets were hit Nov. 23 with the one-two combination of a bailout for Ireland and an attack on South Korea by an impulsive North Korea. Not surprisingly, your position in the iShares MSCI South Korea Index (EWY) pulled back sharply to trade near its stop price of $52.00.
However, we stopped out of two positions since our last hotline, including one today amid the military skirmish in Korea. We finished with a profit in iShares MSCI Singapore Index (EWS), while we exited our position in JinkoSolar Holding Co., Ltd. (JKS) with a loss. We are putting both of these positions on a “watch list” to re-enter in the future.
I don’t believe the exchange of artillery fire will lead to a full-on war between the two Koreas. South Korea has little incentive to turn North Korean provocations into all-out shooting wars.
I also continue to believe that the sell-off across the board is typical, “baby-out-with-the-bathwater” behavior by investors and not about a fundamental shift in the case for global markets. The potential for financial contagion from the Irish situation actually is a much more real threat — though I believe that the European Union will fight tooth and nail to contain it, doing whatever it takes.
Prior to the North Korean-induced sell-off, most of your Global Stock Investor positions had bounced off of their 50-day moving averages, and were well on their way to recovering to previous highs. Among your current holdings, I’d highlight Las Vegas Sands (LVS), which actually ended the week up about 6% and remains a strong buy. In addition, Market Vectors Indonesia ETF (IDX) and iShares MSCI Taiwan Index (EWT) have held up particularly well. CurrencyShares Japanese Yen Trust (FXY) always offers a safe haven during times of uncertainty.
Buried among all of the bad news is that the U.S. economy grew more than expected in Q3, with GDP growth revised upward to 2.5%. The index of leading economic indicators is now higher than it has been in six months, suggesting that a double-dip recession has been averted successfully. The fundamentals of global economies are much stronger than that of the United States. Finally, like it or not, the U.S Fed’s quantitative-easing program is flooding global financial markets with liquidity.
That means the bullish case for global stocks remains in place, a trigger-happy North Korea or not.
Portfolio Update
Market Vectors Brazil Small-Cap ETF (BRF) pulled back to last Wednesday’s lows. Economists now see Brazil’s gross domestic product expanding more than 7% this year, putting it among the fastest-growing in the world. Having dropped through its 50-day moving average, BRF remains a HOLD.
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) rose lightly this week. Although a pillar of stability among otherwise swooning financial markets, CYB has fallen below its 50-day moving average, and is now a HOLD.
iShares MSCI Malaysia Index (EWM) actually was up on the week until yesterday’s sell-off. Malaysia intends to surpass this year’s record initial public offerings in 2011, as government efforts to boost the economy bolster investor confidence. EWM is a HOLD.
iShares MSCI Taiwan Index (EWT) ended the week flat, even after Tuesday’s correction. Taiwan’s export-reliant economy surged 9.8% year-on-year in the third quarter on strong foreign demand for the island’s electronics. EWT remains a BUY.
iShares MSCI South Korea Index (EWY) fell more than 5% on news of the attack from North Korea. That’s a shame, as it had bounced strongly from last week’s lows. EWY is a HOLD.
Freeport-McMoRan Copper & Gold, Inc. (FCX) climbed backed over the $100 level on Monday, before selling off Tuesday. A bet on both copper and gold, FCX remains a BUY.
Claymore/BNY Mellon Frontier Markets (FRN) clawed back last week’s losses by Monday, only to lose them Tuesday. FRN is a HOLD.
CurrencyShares Japanese Yen Trust (FXY) actually rose this past week, as investors sought classic safe-haven assets like the yen. Japan’s currency remains a defensive HOLD.
Global X FTSE Nordic 30 ETF (GXF) rose through its 50-day moving average last week, before dropping back sharply. GXF is a HOLD.
Market Vectors Indonesia ETF (IDX) was trading back near record highs before Tuesday’s sell-off. Like Taiwan, it has been a strong performer and IDX remains a BUY.
Las Vegas Sands Corp. (LVS) ended the week up about 6%, even after Tuesday’s sell-off. Back up the truck, as LVS is still a BUY.
Market Vectors Russia ETF (RSX) was up almost 4% for the week, before Tuesday’s sell-off. RSX remains a HOLD.
iShares MSCI Turkey Invest Mkt Index (TUR) also was well on its way to recovering, before the sell-off. The number of 2010 initial public offerings on the Istanbul Stock Exchange is expected to exceed 30 by the end of the year. TUR is now a HOLD.
Vale S.A. (VALE) has unveiled a $10-billion spending spree in Canada, including a multibillion-dollar potash project in Saskatchewan, just two weeks after a rival’s bid to acquire the province’s largest mining company was rejected by Ottawa. Vale remains a HOLD.
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.
