A Portfolio Well-Positioned For Shaky Global Markets — And Taking Some Double- and Triple-Digit Profits

If you’re new to the global investing game, you may be wondering why global stocks seem to go up and down in sync with the U.S. markets when global economies are doing so much better than their U.S counterparts.

There is an old trading law that says: “When markets go down, the only thing that goes up is correlation.” 

Over the short term, the correlation between global stocks and the U.S. markets can be quite high. In fact, with global stocks generally twice as volatile as their U.S. counterparts, you may find this volatility quite unnerving. But keep in mind that day-to-day swings notwithstanding, global stocks have significantly outperformed their U.S. counterparts this year — just as they have in the past. Consider that as of last Friday, the S&P 500 is up only 3.5% for the year. Some of your holdings move that much in a single day. In fact, the biggest challenge of investing in global markets is to not let the markets take you out of your positions unnecessarily. As always, understanding how much you risk on each position and sticking to your stops are the keys to trading success.

PORTFOLIO UPDATE

Market mood swings notwithstanding, your portfolio is well positioned to ride out the current bout of market weakness. But it’s also a good time for you to take some profits in some of your current stock and option positions.

Two of your eight positions are in Russia — a market that has traditionally performed very strongly in Q4. Your positions in cell phone play Vimpelcom (VIP) and steelmaker Mechel (MTL) are up 39.78% and 19.86%, respectively, and you’ve already taken triple-digit percentage profits in the options of both stocks. Given the uncertainty in the markets, sell your remaining options in Mechel to lock in a 108% gain. But hold on to both stocks for now as Russia is one of my favorite markets to hold at this time of the year.

This week, also close your long-time position in Korean steelmaker Posco (PKX). If you’ve been in the stock since day one, you’re booking a 57.1% gain in the stock, for an annualized return of 85.91%. Although you’ve made some big option gains during the time Posco has been in our portfolio, close your current option position at a loss. Warren Buffett’s investment notwithstanding, this stock just ran out of steam.

Your short position in China — through the UltraShort FTSE/Xinhua China 25 Proshare (FXP) — soared almost 20% last week. That made it the top-performing stock on Wall Street last week. With Hong Kong’s benchmark Hang Seng index sinking 3.51% and all 43 blue chips in the index falling overnight, this position should have a big day today. Remember, the volatility of the Chinese market combined with the 2x leverage in this play make it behave more like an option. You should think of this pick as a double- or triple-sized bet on a downturn in the market.

While the top-down story on both India and Brazil remains strong, your two global banking plays — HDFC Bank (HDB) in India and Banco Bradesco in Brazil (BBD) — are still in the red. Although neither bank has any exposure to the U.S. subprime crisis, both banks trade in markets that move in lockstep with Mr. Market’s mood swings. Your two global telecom plays Turkcell (TKC) and Telefonica (TEF) are evenly split — Turkey’s Turkcell is up while Spanish telecom giant Telefonica is down. Turkcell will always move more sharply, while Telefonica is more of a steady performer. With all Global Bull Market Alert picks supported both by strong earnings growth and positive momentum, look for these to bounce strongly on any improvement in market sentiment.

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