The volatility of global markets over the past week has been one for the record books. After global markets sold off hard and fast across the board on Monday and Tuesday, most of them — particularly in Asia — snapped back like a rubber band in overnight trading after the Fed’s surprise rate cut.
After recording back-to-back losses on Monday and Tuesday that had not been seen since Sept. 11, Hong Kong’s Hang Seng Index shot up 10.7%. Australia broke a 13-day losing streak with strong gains and New Zealand’s NZX 50 index added 0.2% at 3,615.30 after declining in the previous 14 sessions. So the Federal Reserve’s emergency rate cut helped calm global markets — at least in the short term. But don’t expect a change in sentiment overnight.
If there is one word for current market conditions, it is “treacherous.” The volatility in global markets is as high as it has been in recent historical memory — though it is typical of “relief rallies” in sinking markets. At times like this, the game is all about the market regaining confidence. Until then, you can expect some vertigo inducing gyrations.
So what does all this mean for your Global Stock Investor portfolio?
Barrick Gold (ABX) and the CurrencyShares Japanese Yen Trust (FXY) are your most defensive positions.
If you are looking to profit from any short-term bounce, Potash (POT), ICICI Bank (IBN), iShares MSCI Brazil Index ETF (EWZ) and Veolia Environnement are your best bets. When market sentiment turns, these positions will rebound strongly, as they did in August.
If you get stopped out of any positions, you should reallocate the funds to one of your two most defensive positions — at least until markets calm.
PORTFOLIO UPDATE
Barrick Gold (ABX) was upgraded to "Outperform" from "Neutral" by investment bank Credit Suisse this week, as it raised its price target from $43 to $59. The investment firm also forecasts that gold will breach the $1,000 mark by 2009 and hit $1,145 an ounce by 2012. Shares of Barrick rose $2.85, or 6.1%, yesterday and this “safe haven” stock held up better than any of our other picks in the recent turmoil. It remains a BUY.
Coca-Cola Hellenic Bottling (CCH) actually rose slightly this week after being pummeled the week before. That is a massive relative outperformance indicating that CCH has some serious buying support in the financial market at current levels. It remains a BUY.
iShares MSCI Brazil Index ETF (EWZ) held up remarkably well in the recent global turmoil, closing 4.45% higher on U.S. rate-cut euphoria Tuesday. Brazilian oil giant Petrobras announced a potentially important natural gas find off of the southern coast of Brazil, and its shares shot up 9.8%. Global turbulence notwithstanding, Brazil is a BUY.
CurrencyShares Japanese Yen Trust (FXY) barely budged during the recent market turmoil. This defensive position remains a BUY.
ICICI Bank’s (IBN) net profit rose 35% for its fiscal third quarter to rise to 12.3 billion rupees ($313.6 million) from 9.1 billion rupees a year earlier. ICICI Bank continues to benefit from India’s booming economy, which is expected to grow 8.5% for the current fiscal year that ends March 31. Ignore the volatility and BUY ICICI Bank.
Millicom International (MICC) fell this week, but not by as much as in past moments of crisis. That indicates that there are plenty of buyers on the dips. If you can stomach the volatility, BUY Millicom.
ArcelorMittal (MT) CEO Lakshmi Mittal was summoned by French President Nicolas Sarkozy after the company announced around 600 job cuts at its plant in Moselle in eastern France. So much for French market-style reforms. This stock will get hit as fears about global growth accelerate. But based on the fundamentals, the stock remains a BUY.
Potash (POT) sold off sharply as investors took some big profits in this stock. With both wheat and sugar hitting record highs this week, the agricultural boom isn’t going anywhere. Potash is a BUY.
Tesco (TSCDY) plans to build department store-style shops to take on the likes of Marks & Spencer and other department store chains in the United Kingdom. It is the latest salvo in Tesco’s attempts to win even more market share from rivals. Tesco already takes nearly £1 in every £7 spent in the United Kingdom. Given the headwinds in the global retail sector — and the weakening of the pound — this Warren Buffett favorite is a HOLD.
Veolia Environnement (VE) won a two-year renewal of its contract to operate the public transport network in the U.S. city of Las Vegas. Southwark Council in the United Kingdom also selected Veolia (VE) last week to construct a state-of-the-art waste and recycling facility as part of a 25-year project. This is a steady business that has become an excellent value in the recent market sell off and remains a BUY.
