Betting on the #1 Market of 2010

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

That was, of course, bad news for last week’s pick, the UltraShort MSCI Emerging Mkts ProShares (EEV), which we exited at a loss. That said, over the long term, the markets’ strong performance last week is good news. The markets appear to have broken through some key technical levels. Both the S&P 500 and Nasdaq tried to overtake their 50-day moving averages on three separate occasions over the last few months. Last week was the first time they actually did. The S&P 500 also closed above the key 1,100 level for the first time in a month, after coming close but failing four times in July. Although it is natural for markets to consolidate and even pull back after such strong gains, this may indicate an important shift in investment sentiment.

As you know, there have been only a handful of global stock markets that have performed well in 2010. We have recommended virtually all of them at some point or another, and two of them you hold in your current Global Bull Market Alert portfolio, including iShares MSCI Chile Investable Mkt Idx (ECH) and Global X/InterBolsa FTSE Colombia 20 ETF (GXG), both of which rose strongly this past week. 

This week’s Global Bull Market Alert pick revisits a recent pick — the Market Vectors Indonesia ETF (IDX). I recommended IDX in the June 14 issue of Global Bull Market Alert as a way of playing the bounce in the markets, and you exited that position with a nice short-term gain.

Here is a quick reprise of the investment case for Indonesia…

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Few markets in the world — except for maybe Brazil — have enjoyed as much of a turnaround in investor sentiment as Indonesia. As the world’s fourth-largest country with a population of 225 million, Indonesia boasts a young-and-growing population with Jakarta, the nation’s capital, expected to be the largest city in the world within two decades. Once the sick man of South Asia, economic reforms initiated in 2004 have helped make it official Indonesian policy to add another "I" to the "BRIC" (Brazil, Russia, India, and China) acronym.

The International Monetary Fund (IMF) has forecast that Indonesia will grow 6% this year, up from 4.5% in 2009. The chairman of Indonesia’s Investment Coordinating Board claims 6% to 7% growth is "pretty much in the pocket."

It’s no surprise then that Indonesia is the single-best performing global market of 2010 — up around 23.8% in U.S. dollar terms, and hitting a record high last week. It is also only one of two global markets that I still have exposure to in my client accounts at my investment firm Global Guru Capital.

So buy the Market Vectors Indonesia ETF (IDX) at market today, and set your initial stop at $70. There are no options on this one.

Portfolio Update

iShares MSCI Chile Investable Mkt Idx (ECH) soared 7.5% last week, hitting a year high of $63.10. With risk appetite returning to global markets, I am moving ECH back to a BUY. Raise your stop to $58.00.

iShares FTSE/Xinhua China 25 Index (FXI) rose last week as global markets rallied. Although China remains the worst-performing market in the world after Greece in 2010, with global markets rallying, I am moving this bet against China back to HOLD.

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SPDR Gold Shares (GLD) rose slightly last week as gold’s downward trend stabilized. With the yellow metal as technically oversold as it has been since the sharp pullback in December 2009, GLD now is back to a BUY.

Global X/InterBolsa FTSE Colombia 20 ETF (GXG) rose another 4.23% this past week. Despite the military posturing between Venezuela and Colombia over the weekend, Latin America’s "bad boy" GXG is back to a BUY. Raise your stop to $33.00.

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.

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For all of the handwringing about the direction of markets, the truth is that markets are stuck in a relatively narrow trading range. As a result, most of your current Global Stock Investor picks barely budged this week.

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