After stabilizing over the past week, global markets endured another volatile day yesterday on the U.S. market’s subprime lending woes. Subprime mortgage lender New Century Financial Corp. was all but kicked off the New York Stock Exchange Tuesday, as federal investigators looked into accounting errors at the company. U.S. markets recorded their second-biggest drop of the year. Asian markets also sold off overnight. Stocks in Japan, Hong Kong and Australia all fell more than 2%, while shares in Singapore, India, Malaysia and the Philippines tumbled at least 3%.
A BIT OF MARKET WISDOM
Many investors get nervous after trading days like yesterday. This is particularly the case in global investing, where the moves in stocks tend to be more exaggerated than in developed markets like the United States.
One of the challenges of investing is to distinguish between a "signal" and "noise." "Signals" matter. "Noise" does not. Yet almost all of what you see in the markets on a daily basis is "noise."
Here’s my view of yesterday’s sell-off. Yes, subprime lenders like New Century have their problems (that’s a "signal"). But New Century has nothing to do with our global investment themes of banking in fast-growth markets (IBN), Latin American cell phone plays (AMX), U.S.-based outsourcing (CTSH), Swedish economic reforms (EWD), and Chinese hotels (HMIN). When these stocks sell-off in sympathy with the woes of a U.S. based lender — as they did yesterday — well, that’s just "noise."
How best to deal with this "signal" vs. "noise" problem? Use an intelligent combination of stock picking and risk management. As long as you size your positions appropriately, never take too much risk in any single position, and place your stops in the market, you can ignore the day-to-day "noise" of the markets.
STOCK UPDATE — HOME INNS’ HOME RUN, ICICI’S GLOBAL AMBITIONS
Our speculative Chinese small cap, Home Inns (HMIN) — our play on the 2008 Beijing Olympics — hit a home run when it announced earnings last Thursday.
Total revenue increased by 105.9% in 2006 to over $75 million. Over the past year, Home Inns has grown from 68 to 134 locations in 50 cities, with another 48 inns currently in development. Home Inns expects another 60% to 70% in revenue growth through 2007. Its occupancy rate hit a stunning 93% for all of 2006. That’s the highest — if not THE highest — in the industry.
Home Inns is our most volatile stock and it can jostle around 6% to 8% any day. But with the very wide stop we have on Home Inns, it should remain in your portfolio over any short-term dips.
In other developments, ICICI Bank (IBN) signed a $50 million Line of Credit (LoC) agreement last week with Export Development Canada (EDC), Canada’s Export Credit Agency, to support Indian corporations importing capital goods and services from Canada.
ICICI’s activities in Canada highlight the bank’s remarkable expansion in recent years. This "Citibank of India" now has an international presence across 17 countries, with subsidiaries in the United Kingdom, Canada and Russia; offshore banking units in Singapore and Bahrain; an advisory branch in Dubai; branches in Sri Lanka, Hong Kong, Belgium and Qatar; and representative offices in the United States, China, United Arab Emirates, Bangladesh, South Africa, Indonesia, Thailand and Malaysia.
Our Latin American cell phone pick, America Movil (AMX), was featured as a "billionaire stock" in a recent edition of Forbes magazine. This core holding of the largest global hedge funds should resume its upward trend once markets settle.
Otherwise, I am hard at work on next month’s edition of Global Stock Investor. This issue will feature a global blue chip that is the #1 overseas investment pick of one of the world’s top investors. Although it is one of the top brands globally, it is little known in the United States. This exciting pick is a real keeper — one that could remain a core holding in your stock portfolio for many years to come.
P.S. Be My Guest at The Money Show Las Vegas…
Join me at The Money Show Las Vegas May 14-17, 2007, at the Mandalay Bay Resort & Casino for the best investment experience available. It’s a move that is sure to supercharge your portfolio and give you the momentum you need heading into the summer months. You can learn from more than 250 FREE workshops and over 12 panels geared to give you profitable new investment ideas and in-depth analysis on various sectors. Meet and greet top investment newsletter editors face to face. Acquire the market insights and perspectives of more than 100 renowned advisors and analysts. Network with fellow market enthusiasts, exchange investment ideas, and share experiences and enjoy the fellowship of like-minded investors.
For complete details or to register for free admission, call 800.970.4355 (be sure to mention priority code 008335), or visit the Las Vegas Money Show website here.