What a difference a couple of weeks makes. It seems like only yesterday that we were celebrating, with most of our positions nudging record highs. But by the end of last week, all but one of our picks — Tesco (TDSDY) — had hit their stop prices. Indeed, up until the past week or so, global markets — particularly emerging markets — had weathered much of the recent market turmoil surprisingly well. During the last serious sell off (between May and June 2006), the MSCI Emerging Markets Index had plummeted a whopping 26%. Until last week, the index had barely dropped half that. But that all changed by Thursday, when the index had plummeted over 20% off its highs.
All of that said, the current volatility leaves our Global Stock Investor portfolio in a challenging position. On the one hand, our suddenly new high cash position means that we’re better insulated against further falls. On the other hand, if global markets do bounce back as they have after previous market hiccups, then we’re back in the global investment ring with one arm tied behind our back. No matter how you slice and dice it, sticking to our stops is one of the most challenging (yet necessary) aspects of managing our investments.
With that in mind, here is my recommended strategy going forward. It is an old investment saw that when volatility in the market shoots up as it has in the past few weeks, it is best to stand back from the market. Yet it is important to stress that from a fundamental standpoint, all of the global megatrends that underlie our stock picks remain intact. Therefore we will be looking to re-enter our positions once global markets have settled. That’s why it’s even more important that you pay especially careful attention to our weekly hotline updates, even as we continue to keep track of our "watch list" of picks as we have in the past.
PORTFOLIO UPDATE AND WATCH LIST
Anglo American (AAUKD) soared 3.1%, in London yesterday as rival BHP Billiton (BHP) beat analysts’ expectations. BHP’s upbeat outlook on the global commodities sector gave a much-needed boost to the sector, which has been hit hard by the fallout from the global credit crunch in recent weeks. Anglo American has given its shareholders the ultimate vote of confidence by aggressively buying back shares, with most of the purchases coming during the last few weeks.
ABB Ltd. (ABB) announced that it has won a $140 million contract from Qatalum, a joint venture between Qatar Petroleum and Norway’s Hydro Aluminum, to construct the world’s largest aluminum plant. Production is expected to start in late 2009. ABB will supply a high-voltage power station and cabling, as well as engineering, training, installation and commissioning. This is familiar territory for ABB, since it has equipped an estimated 80% of the smelting facilities in the Gulf region.
America Movil (AMX) is going from strength to strength. Its Brazilian subsidiary Claro’s July 2007 subscriber base grew 25.8% over the prior year period to reach 26.76 million. That’s leaps and bounds ahead of Brazil’s 14.2% wireless subscriber growth. While Claro is the third-largest carrier in Brazil, it captured 44.9% of new subscribers — a whopping 876,000 additions in July, more than any other carrier. Claro’s steady gain in market share during the past two years has come at the expense of Telefonica SA (TEF), the lead carrier in Brazil. America Movil expects to grow its Q3 revenues 34% over the prior year period to $7.13 billion, and its net income 51% to $0.83 share. To read a recent Fortune magazine cover story about controlling shareholder, Carlos Slim, now the richest man in the world, click here.
Global steel giant Arcelor Mittal (MT) rose yesterday when Credit Suisse analyst Michael Shillaker upgraded the entire steel sector to "overweight." He noted that a current steel destocking trend points to an upcoming period of accelerating demand growth. Global demand growth drivers such as urban development, infrastructure rebuilding, commodity and energy shortages are likely to continue. He noted that 2008 and 2009 could be robust years for steel prices and volumes. His #1 pick in the sector? Our own Arcelor Mittal.
ICICI Bank (IBN) has won government approval to sell up to 24% of ICICI Financial Services to foreign investors. ICICI Financial Services holds 74% of both ICICI Prudential Life Insurance Co. and ICICI Lombard General Insurance Co. It also owns 51% of both ICICI Prudential Asset Management Co. and ICICI Prudential Trust Ltd. Local media said that Goldman Sachs and other foreign funds were interested in buying the stake.
Tesco (TSCDY) increased its share of the British grocery market to 31.8% in the 12 weeks to Aug. 12. Ignore Mr. Market, and BUY Tesco.
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