A Bet on “China’s Twitter” — and Booking 50% gains in Brazilian Banking

Nicholas Vardy

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

Emerging markets, in particular, are on fire. At the start of October, investors pumped the most cash into emerging-market equities since late 2007, with inflows of more than $6 billion in the week ended Oct. 6. At the same time, investors are souring on the U.S. market, and took out $3.2 billion from U.S. stock funds during the same week.

Six of your positions — the MSCI Thailand Investable Market Index Fund (THD), Global X/InterBolsa FTSE Colombia 20 ETF (GXG), Itaú Unibanco Holding S.A. (ITUB), Credicorp Ltd. (BAP), the Market Vectors Indonesia ETF (IDX) and ICICI Bank Ltd. (IBN) — again hit either 52-week or record highs over the past five trading days.

With your January $22.50 call options in Itaú Unibanco Holding S.A. (ITUB) up 50%, sell half of your options to lock in your gains. But hold onto the stock and your reitmaining options for even more potential profits. The iShares FTSE/Xinhua China 25 Index (FXI) also rose again this past week. With global markets roaring ahead, I am throwing in the towel on this one, and covering our short position at a loss.

This week’s Global Bull Market Alert recommendation is another bet on China through SINA Corporation (SINA), a leading Chinese online media services provider. Up until relatively recently, Sina’s services were similar to other portals in China. But its Sina Weibo, Sina Corp.’s new twitter-like micro-blogging service, has caught users’ (and investors’) attention. Here’s why…

First, unlike Twitter, Sina Weibo is in Chinese, giving it a big edge with local users. It also allows users to attach pictures, video and audio to their postings — something you can’t do easily with Twitter. Second, Sina plays nice with the Chinese government’s restrictions on content. Sina is one of the few micro-blogging services still around in China after the government banned Twitter and other competitors for refusing to monitor their content. Finally, micro-blogging probably has bigger potential in China than anywhere else in the world. Why? Although like Twitter, Sina Weibo imposes a 140-character limit on messages, 140 Chinese characters convey much more information than 140 characters in English or Spanish.

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Some investors dismiss Sina as an also-ran compared with China’s current “perfect stock,” Internet portal Baidu (BIDU). They’re wrong for several reasons.

Although Baidu generates the most traffic, Sina is the default setting on more Chinese computers than any other portal, Baidu included. And stock picking is all about valuation. After its run-up over the past 18 months, Baidu is trading at a stratospheric 102 times this year’s earnings. That compares with Sina’s single-digit P/E of 7.3. And although most Chinese Internet stocks have lagged Baidu over the past year, Sina actually has outperformed Baidu over the last three months. No wonder Credit Agricole Securities recently reiterated a “Buy” rating on Sina and raised its price target on the micro-blogging service from $51 to $63. That’s about a 24% upside from its current price.

So buy Sina Corp. (SINA) at market today and place your stop at $42.50. For potentially even bigger upside, I recommend the January $50 call options (SINA110122C00050000). The options last traded at $4.50.

Portfolio Update

Credicorp Ltd. (BAP) jumped 2.97% this past week. The IMF said that Peru’s economy should expand 8.3% this year, the fastest among Latin America’s major economies. Peru’s BAP remains a BUY.

iShares MSCI Chile Investable Mkt Idx (ECH) took a breather from its relentless rise upward. Chile’s economy expanded 7.6% in the three months through August, the most since January 2005. This is a good time to add to your position. ECH remains a BUY.

ProShares UltraShort Euro (EUO) got off to a slow start as the euro continued to rally against the U.S. dollar. Although the European currency is severely overbought, I am moving your bet against the euro to a HOLD temporarily.

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Global X/InterBolsa FTSE Colombia 20 ETF (GXG) rose another 4% this week, hitting a record high of $45.59. Colombia is benefiting from economic policies improvements over the past two decades, easy access to external financing and strong commodity prices. GXG remains a BUY.

ICICI Bank Ltd. (IBN) rose 1.4% this week. With the Indian market flirting with all-time highs, IBN remains a BUY.

Market Vectors Indonesia ETF (IDX) hit another record high of $89.54 this past week. Two initial public offerings (IPOs) this week raised more than $1 billion as investors clambered to snap up shares in one of Asia’s hottest markets. The “Next BRIC” remains a BUY.

Itaú Unibanco Holding S.A. (ITUB) jumped another 4.1% this week, with banks leading the charge in Brazil’s rally. With your January $22.50 call options up 50%, sell half of your options here. ITUB remains a BUY.

iShares MSCI Thailand Investable Market Index Fund (THD) hit a record high of $63.38, before pulling back slightly by the end of the week. Take advantage of this opportunity to add to your position here. THD 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.

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