After trading in a narrow range over most of the last two months, global markets finally have broken out to the upside. Last Friday, the MSCI Emerging Markets Index sliced through its 200-day moving average, a level it has been flirting with since the sharp sell-off in May.
The fundamentally bullish case for global stocks has been clear for some time now. First, the stocks of both developed and emerging markets are almost as cheap on an earnings basis as they were when the market bottomed in March of 2009. Second, most of the growth, even in the earnings of U.S. companies, is coming from fast-growing countries in Asia. Third, there has been a shift in investor psychology, as well, away from the focus on Europe and its weaknesses to strong earnings from U.S. companies and high growth in booming Asia.
Once emerging markets break out of their trading range, they have a tendency to run hard and fast. So, having gradually re-entered the market over the past few weeks, you are already particularly well-positioned to profit from a bullish phase of the market.
The Market Vectors Russia ETF (RSX), Brazil’s resource giant Vale S.A. (VALE) and Freeport-McMoRan Copper & Gold, Inc. (FCX) all have broken through their 50-day moving averages. That means it is time to re-enter these positions. Your weakest positions are your currency bets — CurrencyShares Japanese Yen Trust (FXY) and the PowerShares DB US Dollar Index Bullish (UUP) — both of which are “HOLDs” and near their stop prices.
Portfolio Update
Market Vectors Brazil Small-Cap ETF (BRF) jumped 3.1% higher this past week. A leveraged play on Brazil’s growth, BRF remains a BUY.
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) was flat this week, as the rally in global markets overshadowed the controversy about China’s currency. CYB is a BUY.
iShares MSCI Malaysia Index (EWM) ended the week up 1.7%. JPMorgan Chase & Co. said Malaysia’s stock market is a “safe refuge” for foreign investors seeking shelter from volatility in other Asian markets because of its domestic economy and defensive qualities. EWM is a BUY.
iShares MSCI Taiwan Index (EWT) rose 1% last week. Taiwan’s economy expanded 13.3% from a year earlier in the first quarter, the fastest pace in more than three decades, as overseas sales jumped 42%. This tech-heavy index is a BUY.
iShares MSCI South Korea Index (EWY) ended the week 3.3% higher. With Barclays calling South Korea the best value in Asia with a market P/E of only 9.9, EWY remains a BUY.
Freeport-McMoRan Copper & Gold, Inc. (FCX) shot through its 50-day moving average this week. This volatile bet on copper and gold is now a BUY. Place your stop at $58.50.
Claymore/BNY Mellon Frontier Markets (FRN) rose 3% this past week. With FRN’s component stock markets in Colombia and Chile among the best-performing markets in the world, FRN remains a BUY.
CurrencyShares Japanese Yen Trust (FXY) dropped back this week as risk appetite came back to the markets. With the stop price of $111.00, be prepared to take your profits on this one soon if it drops back much more. FXY is a HOLD.
Market Vectors Indonesia ETF (IDX) ended this past week flat, after hitting a record high of $77.38 on Friday. As the strongest-performing market in Asia this year, IDX remains a BUY.
Market Vectors Russia ETF (RSX) is off of our watch list, having regained positive momentum. With the Russian currency undervalued by 38%, according to the Economist’s Big Mac Index, and the market having regained momentum, RSX is a BUY. Place your stop at $27.00.
iShares MSCI Turkey Invest Mkt Index (TUR) rose 3.7% this week in the portfolio, and now is flirting with 2010 highs. TUR remains a BUY.
PowerShares DB US Dollar Index Bullish (UUP) fell back slightly this week as risk appetite surged. This is a defensive position that will do well when global markets sell off. Trading near its stop price of $23.75, this position remains a HOLD.
Vale S.A. (VALE) has bounced strongly, and the Brazilian mining giant now is back to a BUY. Put your stop at $24.25.
P.S. Important Reminder: Today at 2:00 p.m. EDT, join me for a FREE Global Stock Investor conference call on “5 Bulls in China’s Shadow.” Simply pick up your phone when we call you between 1:55 p.m. and 2:05 p.m. EDT. If you weren’t contacted yesterday to remind you of the call, you still can participate. All you have to do is call the following number, 877/229-8493, at 2:00 p.m. EDT and, when prompted, enter code 14884. I look forward to speaking to you this afternoon.
P.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.
