At times like this, it is tough to focus on the long-term bullish case for global stocks. The MSCI Emerging Markets Index is now trading below its 200-day moving average. The market is lower than it was after the sell-off in January, and it closed yesterday at its lowest level since September.
Yet, the fundamental outlook for global stocks remains strong. Following the International Monetary Fund, the Organization for Economic Cooperation and Development (OECD) raised its growth forecasts for this year on expectations that developing economies will drive the global expansion. The economy of the OECD’s 30 members will grow 2.7% this year, more than the 1.9% predicted in November, the Paris-based group said today in a report. Including non-members such as China, the global economy will expand 4.6% this year and 4.5% in 2011, compared with an average of 3.7% during the decade through 2006.
Morgan Stanley is calling for investors to overweight emerging-markets equities. Despite the gloom out of Europe and concerns about China tightening credit by potentially boosting the reserve requirements of its lenders, the underlying earnings fundamentals have become far stronger in the last two months. Strong earnings results have led to rapidly increasing 2010 earnings-per-share (EPS) growth forecasts for 2010. Forward price-to-earnings (PE) ratios have fallen to about 11 times analysts’ profit estimates for this year — the lowest level since March 2009. Emerging markets don’t look expensive on a more stable price-to-book (PB) valuation metric.
And remember, markets can turn on a dime, once investor sentiment changes.
Your bet against the euro through the UltraShort Euro ProShares (EUO) traded slightly down at one point this week, but is now trading back above the $25 level. With the euro’s trend still firmly down, EUO remains a BUY.
The iShares MSCI Malaysia Index (EWM) fell this past week. But that had everything to do with the nearby crises in Thailand and South Korea — and nothing to do with Malaysia itself.
On a fundamental level, I continue to be particularly bullish on the iShares MSCI Turkey Invest Mkt Index (TUR), Market Vectors Indonesia ETF (IDX) and iShares MSCI Israel Cap Invest Mkt Index (EIS).
Portfolio Update
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) largely was flat during the last week as it dipped less than 1%. It stays a BUY.
iShares MSCI Malaysia Index (EWM) fell 7.78% during the past week due to the crises in nearby Thailand and South Korea. Despite the pullback, EWM is a BUY.
UltraShort Euro ProShares (EUO) rose 1.36% during the past week. Your bet against the euro remains a BUY.
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.
