Back into Emerging Markets… and India

Last week was another solid one for global stock markets, with the Dow Jones up 0.99%, S&P 500 rising 1.16% and the NASDAQ eking out a 0.52% gain. The MCSI Emerging Markets Index had an uncharacteristically strong week, jumping 2.41%.

Big gainers in your Bull Market Alert portfolio included The Bank of Ireland (IRE), which jumped 5.18%, and the ProShares Ultra Nasdaq Biotechnology ETF (BIB), which rose 4.37%. The Bank of Ireland (IRE) also climbed back above its 50-day moving average and moved to a BUY.

Two of your positions, Priceline.com (PCLN) and Norwegian Cruise Line Holdings (NCLH), also hit a new 52-week high. Recall you booked a quick 110% on your Priceline options position last week.

This week’s Bull Market Alert recommendation takes you back into an asset class whose recent performance has been underwhelming — the emerging markets.

Specifically, HDFC Bank (HDB) is one of India’s largest banks. Here’s why I expect it to perform well in the coming weeks.

First, Friday saw a big jump in emerging market stocks across the board as the People’s Bank of China (PBOC) cut interest rates for the first time since 2012 to help shore up China’s stalling economy. This may be just what emerging markets need to the kick-start their lagging stock markets.

Second, the Indian stock exchange has been by far the world’s best performer this year among all the markets I follow. Within the Indian market, the country’s private-sector banks have been doing particularly well. Structural improvement in the governance of the country, accelerating gross domestic product (GDP) and diversified loan books mean that private sector banks are benefiting the most from the country’s economic turnaround.

Finally, HDFC Bank is one of the best ways to benefit from India’s rebound. The bank boasts strong fundamentals. It grew earnings 18% and 11% in fiscal 2013 and 2014, respectively. The current fiscal year’s earnings are expected to grow even more, by 23% in fiscal 2015 and then 24% in fiscal 2016. Jefferies analysts have a Buy rating on HDB and have actually made it their top pick in the banking sector. Jefferies’ revised price target for HDFC Bank implies upside of roughly 12% for the stock.

So buy HDFC Bank (HDB) at the market price today and place your stop at $48.00.

If you want to play the options, I recommend the January $55 calls (HDB150117C00055000), which last traded at $1.25 and expire Jan. 17.

Portfolio Update

The Bank of Ireland (IRE) jumped 5.18% last week. Moody’s recently upgraded IRE’s debt and deposit ratings, as well as its Mortgage Covered Bonds rating. The ratings service also released positive commentary stating IRE would likely strengthen its profitability and capital position due to lower funding costs and the declining cost of credit. Boosted by its favorable operating environment in Ireland and the United Kingdom, IRE rose above the 50-day moving average (MA) to become a BUY.

PowerShares DB Commodity Tracking ETF (DBC) continued to swing your way last week, dropping another 0.46%. Oil is but one commodity component of DBC, but the recent dramatic pullback has been a helpful tailwind on this short position. The Organization of Petroleum Exporting Countries (OPEC) has been thrown into turmoil as of late. Some members are calling for output cuts to stave off further price reduction while others are resisting this move to increase profits when oil does decide to head higher. DBC remains a SHORT SELL.

ProShares Ultra Nasdaq Biotechnology ETF (BIB) rose 4.37%. Biotech gained collectively last week as this sector exchange-traded fund (ETF) jumped higher. And, the “Ultra” in this ETF served to further your gain by packing on the profits in double-time. BIB is a BUY.

WisdomTree Japan Hedged Equity ETF (DXJ) added 0.09% last week. Rising exports are a positive sign for Japan’s recovery, and recent data shows that exports are at an eight-month high. Japan’s trade deficit came in at $6 billion in October, beating expectations of $8.5 billion. DXJ is a BUY.

Priceline.com (PCLN) dipped 1.83%. PCLN traded sideways last week as it worked to consolidate its big recent gains. However, you were able to book a quick 110% on your options position last week. The stock’s current consolidation is a typical pattern as it readies for its next move. PCLN is a BUY.

Norwegian Cruise Line Holdings (NCLH) added 0.58% for its first week in the portfolio and made a new 52-week high. I mentioned NCLH was in the process of acquiring Prestige Cruises International, Inc. in my recommendation last week. NCLH announced completion of this acquisition last Wednesday. Prestige Cruises is the leader in the upscale cruise segment, putting Norwegian Cruise Lines firmly into the more-lucrative luxury cruise business. This also grows its capacity by 20% — making it the third-largest cruise line in the world. NCLH is a BUY.

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