iShares are Expanding Single-Country ETF Offerings

iShares has a long list of single-country exchange traded funds (ETFs). Now the provider is getting ready to expand their popular lineup even further. The proposed funds cover everything from the United States to the Philippines.

More single-country ETFs are on the way for iShares, which already touts an impressive list of single-country ETFs. Cinthia Murphy for Index Universe reports that the latest group of proposed funds covers a some areas that are already backed by ETFs, along with some first-of-their-kind funds.

The ETFs are:

iShares MSCI USA Index Fund: The U.S. fund is a diversified ETF that will essentially be a mid- and large-cap portfolio that tracks an index investing in securities from companies in the top 85% of the domestic space by market capitalization.

iShares MSCI Brazil Small Cap Index Fund: iShares’ take on Brazil’s small-cap market is perhaps an attempt to replicate the success Van Eck has had in that segment with its version of a Brazil small cap fund, Market Vectors Brazil Small-Cap (NYSEArca: BRF).

iShares MSCI Egypt Capped Investable Market Index Fund: The Egypt ETF will track an index of 41 companies, with most sector allocations dedicated to financials, industrials and telecommunications services.

iShares MSCI Ireland Capped Investable Market Index Fund: The Ireland fund’s benchmark held 21 names as of October, and focused primarily on consumer staples, financials and materials.

iShares MSCI Russia Capped Index Fund: This will track an index that is a variation of the MSCI Russia Index, the MSCI Russia 25/50 Index. While the new fund will invest in the top 85% of Russia-listed companies by market capitalization, it will also take into account investment diversification requirements that apply to regulated investment companies (RICs), under U.S. law. This fund would go head-to-head with the Market Vectors Russia (NYSEArca: RSX).

iShares MSCI Philippines Investable Market Index Fund: The Philippines ETF will replicate an index of 28 companies, mostly in utilities, telecommunications and financials.

The debuting ETFs focused on Ireland, Egypt and the Philippines could be the first country-specific funds available to investors for each of those economies .

How to Profit by Swing Trading

It’s not exactly breaking news. A buy and hold strategy hasn’t worked for the last decade. You probably know as much if you’ve opened your retirement account statement lately. The Dow, S&P 500, and NASDAQ are all flat or down over the last 10 years.

It’s time to face facts, the old-time buy a few large-cap blue chips and hold them forever strategy has gone the way of the Dodo bird.

So, what’s the answer for this particular market?

Personally I swing. Swing trade that is.

I like swing trading for this market because it takes advantage of momentum… or trading in and out of stocks and sectors that are seeing a temporary boost. There’s no ‘buy and hope’ strategy at play here.

Let’s take a look at how swing trading works.

In a nutshell swing trading is… buying the lows and selling the highs. Ok, I know what you’re thinking… how do I consistently buy the lows and sell the highs? It seems like it is easier said than done.

Although there’s a lot of different ways to approach it, my favourite is looking for technically-based short-term trends. And taking a position to profit from the trend.

Here’s something you might not know; swing traders don’t care why a stock is trending. If the technical’s show there’s a trend, it’s not your job to figure out why. You just want to profit from it.

But here’s the catch… the stock market isn’t just flat over the last 10 years. It’s flat over the last few months too. Lots of volatility but no real trends.

You may be happy to see a flat market – especially after last year. But for swing traders like me a flat market is worse.

So how do you overcome a flat US market?

By not limiting yourself to just the stock market.

Here’s why. You won’t always find a trend in the US stock market. So I’ll trade foreign markets, bonds, commodities and even currencies. Until recently, access to these markets was difficult and often required separate trading accounts.

In the past, many individual investors found it hard to trade these markets. This helped give rise to the notion that a buy and hold strategy is the best way to invest.

Now, there’s an easy way to trade ASX stocks, foreign stocks, bonds, commodities, and currencies using momentum. It’s quick, cheap, painless and you can do it all from one trading account.

Want to know what it is?

That’s right, ETFs (Exchange Traded Funds). These are the one investment that can give you exposure to all of these markets. Today’s ETFs are revolutionizing the ability to trade currencies, commodities, and foreign markets. You can now really drill down and focus on specific subsectors of all these markets.

As I said… follow the trend. If you can’t find it in the US stock market, you now have easy access to an entire array of markets with ETFs.

I believe that the big money over the next few months and years will be found in the ’specialty’ ETFs that are popping up. The value of these ETFs can be derived from commodities like gold, currency pairs, corporate bonds, and any specific subsector you can think of. The list goes on and on.

And now you can go long or short with two or even three times leverage. Talk about spicing things up!

And remember as a swing trader you don’t care why the ETF is trending. The patterns and trends you use as a swing trader hold up regardless of the asset being traded. So you can apply the same technical analysis principles that you use with stocks.

Combining technical analysis, momentum trading, and specialty ETFs isn’t a bad way to trade this market right now. And it sure beats the heck out of buying a few blue chips and holding on for dear life!

ETFs Increasingly Dominate Trading

During the course of 2009, my trading transitioned from a lifelong habit of focusing primarily on single stocks to rapidly making exchange-traded funds (ETFs) my favored means by which to trade stocks and options. Just three years ago, ETFs accounted for less than 10% of my trading. In 2009, that number will be close to 80%.

The headline above could just as well apply to ETFs as a whole, where there are now over 100 issues that average in excess of one million shares traded per day. Just using ETFs from the million share club, an investor can go long or short stocks, use leverage, pick from a wide variety of sectors, tackle geographies as off the beaten track as Malaysia, make use of junk bonds and inflation-protected bonds, dive into commodities or real estate, and even take a position on the VIX. Better yet, most of these ETFs have options associated with them, which further broadens the investing opportunities that are available.

I am particularly fond of ETFs because of the broad range of asset classes, sectors, geographies and other investment ideas they make easily accessible. For the options trader, ETFs are a boon because these investment vehicles all but eliminate single stock risk in the form of earnings, M&A activity, executive shuffles, legal matters and a myriad of other company-specific events.

In 2010 I intend to give more attention to ETFs in this space in hopes of educating and encouraging those for whom the rapidly expanding ETF universe is a good fit for their trading goals and approaches.

Russia Soaring

we’ve been hearing calls lately for Russia to lose its BRIC status because it’s not in the same league as Brazil, India, or China.  While some might take offense to this, other investors in Russia probably don’t care as long as its stock market continues to perform like it has in recent months.  As shown below, Russia’s RTSI index has soared to new 2009 highs over the past few days, and it is now up 117% year to date.  For comparison’s sake, India’s Sensex is up 72.5% YTD, Brazil’s IBOV is up 70%, and China’s Shanghai Composite is up 60%.

Source: Bespoken Research

Source:

Commodity Snapshot

Below we provide charts of ten major commodities.  In each chart, the light green shading represents two standard deviations above and below the sector’s 50-day moving average.  As we all know, gold is all the rage right now and oil has taken a back seat.  As shown in the chart of oil below, it has basically gone nowhere over the last two months.  It is currently trading right in the middle of its trading range. 

Natural gas, on the other hand, has made a significant move higher and broken its long-term downtrend.  With gold charging higher, silver and platinum have also moved up, but they haven’t broken to new rally highs yet.  This is a key signal that the gold move is pretty much based solely on the dollar’s move lower. 

Looking at the rest of the bunch, copper has actually been trending downward, corn has bounced nicely recently, wheat is close to oversold levels, and coffee and orange juice are in neutral territory.

Source: Bespoken Research

Are There Bright Spots Amid the Global Recession? – Nouriel Roubini

This week, I take a look at which countries have best weathered the global recession and credit crunch. All economies have been affected by the crisis, but a combination of policy responses and strong fundamentals has given some countries, especially some emerging market economies, a relative edge. These same strengths could lead the countries I highlight below to perform better as the global recovery begins, even if their growth rates remain well below 2003-07 trends.

What do these countries have in common? One major theme is that they tended to have lower financial vulnerabilities due to more restrictive regulation and less developed financial markets, as well as larger and stronger domestic markets that sustained domestic demand. Moreover, they had the resources to engage in countercyclical fiscal and monetary policies, actions that were not possible in past crises. In contrast, countries that borrowed heavily to finance domestic consumption in the days of easy money are now facing sharp economic contractions. Despite the relative strength of these countries, however, their ability to return to sustained growth will depend on structural reforms that support consumption.

Latin America

A couple of countries in Latin America have thus far been able to weather this crisis better than their neighbors. Brazil and Peru stand out for their relatively healthy fundamentals and financial systems. Both countries have benefited from being relatively closed economies and from having diversified export markets and products. They also took advantage of the boom years (2003-08), reducing external vulnerabilities and increasing savings (fiscal and international reserves). By the time these the crisis hit, both countries had well regulated financial systems that saved them from being contaminated by toxic assets. The fact that their domestic credit markets are at an early developmental stage, so consumption is not very dependent on credit, helped them shelter internal demand. Finally, these countries enjoyed strong policy credibility.

Brazil

The Brazilian economy is definitely showing signs of resilience, given the massive adjustments among the developed economies. As early as Q1 of 2009, GDP data showed signs of resilient consumption despite the contraction in investments and the collapse of the industrial sector. Throughout the second quarter, manufacturing continued to show very weak performance vis-à-vis 2008 levels, although the sector has shown some tentative signs of improvement on a monthly basis. In the meantime, the retail sector continues slowly to adjust to a much less favorable environment than in 2008, and sales growth keeps on moderating, due to slower real income growth and a challenging credit atmosphere. Yet consumer confidence, which has now almost returned to precrisis levels, could support consumption, despite the labor market losses to come. The central bank’s own assessment of the state of the economy suggests that the monetary and fiscal stimuli will remain in place to help the recovery process. The fiscal packages for infrastructure and the housing sector, as well as the tax breaks to the auto industry and capital goods sales, should in part support the labor markets and the expansion of domestic production.

Peru

Peru’s economic performance has been relatively strong compared to its global and regional peers despite slowing sharply. In fact, Peru’s economy continued to grow in Q1 2009, with domestic confidence holding up and real lending to the private sector keeping growth at high levels. Construction projects continued, and the currency did not experience sharp fluctuations. Although Peru’s economy might contract mildly in Q2 and Q3 2009 due to tardy monetary policy actions and slow implementation of fiscal stimulus (an infrastructure development program), these programs are likely to take hold and prompt the economy to bounce back by the end of the year. A high level of international reserves also helped the central bank avoid destabilizing currency movements and properly provide liquidity to the financial system. Moreover, previous liability management operations helped Peru to reduce risks associated with maturity and currency mismatches, and to reduce external debt.

Asia-Pacific

Australia

Australia narrowly escaped a technical recession by force of luck and policy. Despite a slowdown in global manufacturing activity, China and other emerging markets continued to tap Australia’s abundant natural resources, boosting Australia’s net exports in 2009. Meanwhile, a leap in fiscal spending and a reduction in policy interest rates prevented a sharp falloff in consumer spending and housing prices. Thanks to resilience in Australia’s twin pillars of growth, exports and domestic demand, expenditure GDP growth turned positive in Q1 2009. Production and income measures of GDP nevertheless indicate Australia is effectively in recession, but the good news is that the bottoming of production around the world suggests Australia will avoid technical recession this year and that its effective recession will be brief.

China

China’s aggressive fiscal and monetary stimulus helped reaccelerate growth in the first half of 2009 from a near stall at the end of 2008. Manufacturing is expanding, new orders are up and the property market correction has been clipped. Yet it remains uncertain whether the government’s response merely bought time. China’s stimulus adds its own risks, including those of asset bubbles, overcapacity and nonperforming loans. Yet there are some signs that, supported by government incentives, domestic demand has been stronger than anticipated. A sustained increase in consumption, which has lagged overall growth in recent years, would require a reallocation of funds domestically, likely through patching holes in the Chinese social safety net. The Chinese stimulus has been dominated by infrastructure projects, which could boost productive capacity but would do little about structural factors that keep national savings rates high. However, there could be space to implement some such countercyclical policies in H2 2009 and 2010. If so, the Chinese recovery could have greater legs and could provide more support to other countries. If these efforts fail or are delayed, however, Chinese and global growth could be much more sluggish.

India

Despite slowing from highs of 8% to 9% growth, India’s economy will grow close to 6% in 2009. Amid domestic and global liquidity crunch, large domestic savings and corporate retained earnings are financing investment. Sluggish labor market and wealth effects have hit urban consumption. But low export dependence, a large consumption base and the high share of employment (two-thirds) and income (one-half) coming from rural areas has helped sustain consumption. Pre-election spending, especially in rural areas, and high government expenditure, are also pluses. Timely monetary and credit measures have played a key role in improving private demand, liquidity and short-term rates and reducing the risk of loan losses. Credit is largely channeled by domestic banks, especially state-controlled ones, which have low loan-to-deposit ratios and little exposure to toxic assets. IT exports have held up despite repercussions on jobs and consumer spending. The oil price correction cushioned India’s trade deficit and large foreign exchange reserves helped the country withstand capital outflows in 2008. High returns in real estate and infrastructure and planned liberalization also helped boost capital inflows and asset markets when global risk appetite revived recently.

The Philippines

The Philippines’ stalwart consumers saved the economy from the recessions that plagued its more export-dependent neighbors. Remittances proved surprisingly resilient despite the global economic slowdown as Filipino laborers, especially professional or skilled workers, continued to find strong demand overseas. This was partly due to the government’s diligence in forging new hiring agreements with several countries. Unperturbed remittance growth shielded domestic demand from high unemployment rates at home, which is obscured by the country’s very loose definition of employment. In the meantime, however, dependence on external demand for Filipino labor denotes a lack of progress in developing the local economy. Apart from land grabs by Persian Gulf countries, the Philippines has attracted little foreign investment of the kind needed to create jobs and lift Filipinos out of the poverty that afflicts a third of the country’s 90 million people.

Indonesia

The global downturn and commodity correction have hit Indonesia’s exports and government revenues. But a low export-to-GDP ratio and a greater reliance on domestic demand relative to its Asian peers have cushioned growth. The Chinese stimulus is, to a degree, boosting commodity exports. Fiscal stimulus and election spending, along with monetary, credit and foreign exchange measures since late 2008, have sustained private demand and financing needs, despite tight external credit. Corporations’ external liabilities and banks’ nonperforming loans are significantly lower compared to those of the 1997-98 crisis. External loans and attractive yields, meanwhile, are financing the fiscal deficit. A revival of risk appetite and the carry trade has buoyed capital inflows. Swap agreements with Asian central banks have cushioned exchange-rate pressures and the scarce foreign exchange reserves. Favorable election outcomes and aggressive antiextremist measures have boosted investor confidence despite some recent risks, and investors are bullish about ongoing reforms and unexploited opportunities in the resources sector.

Europe

Poland

Amid the general Eastern European malaise, Poland’s economy has been a bright spot. In the first quarter, the economy posted positive real growth of 0.8% y/y, outperforming all other E.U. economies with the exception of Cyprus.

Why is Poland a standout? For starters, Poland’s economy did not boom to the same extent as its regional peers in the Baltics and the Balkans, and therefore did not build up the same level of accompanying external imbalances, which helps explain its milder downturn. Second, as Eastern Europe’s biggest economy, Poland has a large domestic market, making it relatively less dependent on exports to ailing Western Europe. Third, the country’s flexible exchange rate and record-low interest rate have helped cushion the slowdown. Finally, Poland proactively distinguished itself from others in the region and boosted investor confidence in May by securing a $20.5 billion flexible credit line from the IMF, a special facility reserved for emerging markets with strong fundamentals. While Poland’s economy has weathered the global turmoil better than its regional peers, a rapid recovery is unlikely and the outlook is not without risks. In particular, Poland’s fiscal situation is deteriorating, which will likely push back the country’s planned euro adoption in 2012.

Norway

Although Norway’s economy slipped into negative growth in the fourth quarter, its downturn will be among the mildest of advanced economies, with analysts expecting a contraction in the range of 1.0 to 2.0% in 2009 and a return to growth in 2010. What set Norway apart are years of current account and budget surpluses (both in the double digits as a percentage of GDP), a sizable public sector and a hefty war chest of oil revenues amassed in the Government Pension Fund. Consequently, Norwegian policymakers have had ample room to use fiscal and monetary policy to soften the downturn.

Statistics Norway estimates the impetus from fiscal policy in 2009 to be 3% of mainland GDP–the strongest stimulus since the 1970s. Meanwhile, the benchmark interest rate is at an all-time low of 1.25%, down from 5.75% in October 2008. Also helping to alleviate the pain of contraction is the fact that Norway’s economy is well equipped with automatic stabilizers. Given Norway’s comparatively bright outlook, there is talk that the country will be the first among advanced economies to hike rates. The central bank sees the first hike coming in Q2 2010, though some analysts think it may come earlier.

France

The French economy managed to avoid a recession in 2008 and is expected fare best among the big four euro zone member countries in 2009. France’s more balanced domestic demand-led growth model has served it relatively better during a synchronized global downturn. The large social safety net fully served its automatic-stabilizer purpose in a countercyclical manner. Fiscal measures were targeted to the short term and included mostly nonrecurring spending. France’s relatively healthy banking sector received targeted support and is in a position to fully sustain the recovery in the euro zone.

North America

Canada

Despite relatively sound finances that helped it outperform the rest of the G7 in 2008 and early 2009, Canada’s exposure to the U.S. for trade and investment suggests its recovery may lag that of the U.S. (a trend that Q2 2009 data seems to support). However, a more consolidated financial sector with lower leverage, lower default rates and a revival of domestic demand should support recovery in 2010, albeit one characterized by below-potential growth. Canadian households and corporations still have more access to credit than their U.S. counterparts, a factor that helped buffer Canada from a more severe property market correction. Yet the nascent revival in consumption may be weaker than the Bank of Canada expects. The rebound in commodity prices is mixed news. Higher commodity prices and greater demand for metals, if not yet for oil and cheap natural gas, should contribute to an expansion of mining and energy output–but too strong a surge could boost the Canadian dollar, exacerbating Canada’s manufacturing weakness as it boosts labor costs.

Middle East and North Africa

Overall, countries in the region were relatively sheltered from the financial spillovers, but suffered from reduced demand. Expansionary fiscal policies throughout the region and effective–if in some cases belated–financial-sector support offset the export and investment weakness. The GCC countries most reliant on foreign financing to fund credit expansion, such as the UAE, are suffering the sharpest effects. However, past savings provide a cushion. In the long-term the region’s growth outlook depends on the price and effective deployment of its hydrocarbon endowments.

Egypt

Despite Egypt’s GDP growth slowdown to well below recent trends in 2009 (about 3.8% instead of the 7% in 2007 and 2008), the country has been able to weather the financial crisis better than its peers. The narrow exposure of Egypt’s financial sector to foreign structured finance, coupled with a low reliance on foreign bank loans, sheltered the country. Egypt’s countercyclical monetary and especially fiscal policies also shielded the economy somewhat, and previous reforms reduced financial vulnerabilities. Doubling the country’s stimulus package took the budget deficit to 6.9% of GDP for the last fiscal year (similar to the previous one). Should the FDI slowdown persist, financing this deficit will be more costly, however, and political issues surrounding the succession of Egypt’s president could potentially hamper reforms.

Qatar

Driven by an increase in liquefied natural gas (LNG) exports and government investment, Qatar is expected to be one of the fastest-growing economies in the world, with real GDP growth verging on the double digits in 2009. Government support allowed Qatar’s financial sector to more easily weather the turmoil than some of their Emirati or Kuwaiti counterparts. Noticeably slower growth in the economy’s nonhydrocarbon sectors, combined with lower loan growth, contributed to lower profitability and the weakening of balance sheets, prompting the government to buy stakes in local banks, as well as property and equity holdings on the balance sheets of local banks. Qatar’s relative strength contributes to the fact that Qatar’s sovereign wealth fund was among the first to return to significant foreign investment.

Lebanon

Lebanon appears to be withstanding the crisis remarkably well. The Lebanese banking sector was protected by regulations that restricted investment in subprime assets and in general kept Lebanese banks isolated from foreign credit. Domestic political uncertainty also added to the isolation. Unlike most emerging and frontier markets–but like Morocco and Tunisia–Lebanon continued to attract an impressive inflow of funds in 2008, although at a slower pace, meaning its asset markets outperformed. The recent political stability has given a boost to the tourism and real estate sectors. Stronger performance, however, would require Lebanon to more aggressively reduce its extensive debt burden, something which may not happen until 2011.

Source: Nouriel Roubini

Emerging Markets with Mark Mobius

Emerging markets have been outperforming thus far in 2009, do you think this trend will continue for the rest of the year?
Although we are optimistic about the opportunities for upside potential, it is important to realize the volatility is still with us and will be with us for some time. This means there will be periods when the markets go down as well as periods when they go up. We should therefore take advantage of dips in the markets to buy stocks cheaply, paying attention to valuations and long-term earnings growth prospects in order to avoid buying or holding expensive stocks. We continue to find good value in markets like China, Thailand, Brazil, Mexico, Turkey and South Africa.

What sectors are you looking at now?
Commodity stocks look attractive because many of them have declined below their intrinsic value and we expect the global demand for commodities to continue its long-term growth. Consumer stocks also look attractive. With rising per capita income and strong demand for consumer and other goods, the earnings growth outlook for these stocks is positive.

Will the global equity market retest the low point in March?
There is always the possibility of this happening and it could be triggered by something totally unexpected, such as war breaking out on the Korean peninsula or a massive global flu pandemic. As I have said, markets will continue to be volatile as global economies remain fragile and we should see rises and falls in the months ahead.

Which country do you expect to be the best performer among the BRIC markets?
That would be impossible to say at this time but we think China has a good chance of achieving that goal. Of course, I’m talking about measuring that move from the beginning of this year. Russia also looks very undervalued.

In view of China’s strong market performance, would you say that it’s in a bull market?
You can see that it is a bull market since the increase has been so dramatic, but it would be difficult to call it a sustainable bull market in view of its very sharp rise. I still feel we will face volatility and there will be corrections along the way. We do, however, expect China to continue to lead the global market recovery.

Will the Chinese government propose another stimulus package in 2009?
That all depends on the success of the measures already in place. They clearly have the resources to do this again. We should expect them to act if current measures and programs do not produce the desired results.

You mentioned in October that Russia’s cheap stocks were a once-in-a-lifetime opportunity. Since then, the RTS Index fell a bit more to 498, then subsequently doubled. After that great performance, are stocks still good value, or is it time to take a breather?
Russian stocks still look cheap. Yes, they have risen dramatically from their low point but they are still a long way from their previous high. Of course, the PE has risen this year but Russian stocks, as represented by the MSCI Russia index, are still trading at a single-digit PE of 6.8x as of end May, 2009 – an increase from an even lower 3.4x as of end December 2008.

Do the economic problems within Russia – unemployment rising to 10%, inflation at 13%, and possible GDP contraction of 6% – undermine the investment case for the country right now?
These factors will have a short-term impact on the market, but we always evaluate companies on a long-term basis – taking a five-year view. Thus, we are in fact able to benefit from buying stocks at cheaper prices now.

Do you see any parallels between the market crash of 1998 in Russia and the one over the last year? Is there fear focused on this market that leads to sharper crashes than elsewhere? Did you learn anything in 1998 about Russia that helped you navigate this crisis?
No, because Russia and most other markets are in a much stronger position, financially and economically, than they were in 1998. Russia has built up strong foreign exchange reserves and trade surplus that have enabled it to withstand external shocks to its economy.

The Russian market was also affected by the correction in commodity prices due to its high exports of oil and other commodities, as opposed to any extraordinary fear focused on this market. However, we maintain the view that commodity prices will continue to increase in the long term due to greater demand from emerging markets and a relatively inelastic supply. This will thus benefit Russia in the future.

The most important lesson we’ve learnt from 1998 or any other crisis is that markets always recover – it’s just a matter of time. Thus one should always maintain a long-term and patient view with regard to investing.

Lastly, you have been investing in the emerging markets for the last four decades. Being an expert in investing in emerging markets, do you have any advice to share with investors during the current market situation?
It is very important for investors to remember some key principles: (1) diversify – it is important to diversify in order to minimize risk – this is why investing in a diversified mutual fund is best for investors, (2) look globally – no country has a monopoly on good opportunities so you must search globally – this is why we have global emerging-market funds, (3) be patient – don’t expect to obtain quick gains – the long-term investors do best, (4) don’t invest unless you understand the investment you are making – understanding will strengthen your confidence and enable you to make long-term investments.

Source: Mark Mobius

Asian markets won’t retest lows, says Chris Wood

Chris Wood, street smart Global Equity Strategist of CLSA, yesterday said in an interview on CNBC-TC18 that the US markets remained in a bear market rally while Asia and India were in a secular bull market.

He said the Indian and Asian rally was started by local money, which according to him was a big long-term positive. He added that Asia and emerging markets (EMs) would be the biggest beneficiary of the Fed’s monetary easing. He also said liquidity could lead to massive asset bubbles in Asia and EMs.

Q: What have you made of the markets’ move in the past few weeks?

A: I was expecting what I call a counter-trend rally, driven by a counter-trend rally in the S&P this year. The key point is that the S&P in the fourth quarter last calendar year went further below its 200 DMA, and at any point since 1932, in the midst of the Great Depression. So, it was almost inevitable that we were going to have a counter trend rally at some point in 2009. Actually, I thought it would start with the arrival of the new administration in January-February, but it didn’t start so much.

My guess as to how far this rally can go is 1000-1050 on the S&P, but I am viewing this as a counter-trend rally in a secular bear market for the US. I have a different view for Asia and India. I believe Asia and India remain in a secular bull market. So I have a fundamentally different view for the Western world and Asia.

Q: How would you describe what happened in 2008 then in India and other Asian markets like China? Deep cyclical correction? Over 10-15 months in an overall secular bull market?

A: I would describe that as a deep cyclical correction in Asia and EM driven by massive collective damage from what was going on in the Western financial system. That is why with my Absolute Return Portfolio I have been recommending to investors from the middle of 2007 only to own my recommended portfolio, by hedging the Western financial risk by being short on Western financial stocks. But in my view, the sell-off in Asian stocks last year was exacerbated by dramatic liquidation by foreign money, particularly by hedge funds and so-called funds of funds.

What is positive in the rally that began in Asia in October-November last year is that we’ve seen growing local investor participation in Asian market, so the people who bought earlier in this rally since late last year weren’t foreign fund managers but local investors throughout the region. That growing local investor participation is a long-term positive.

Q: So are you saying that the secular bull market has commenced again in India and other Asian markets?

A: Yes, I think it has recommenced. Two technical pieces of evidence support that view. First, Asian markets and EMs have been leading this rally ever since they bottomed last October-November. Second, when the S&P made a new low in March, the Asian markets and EMs did not make a new low. That is technical evidence to me that Asian markets and EMs have become the asset class of choice in global equities.

In the very short term, because Asian markets and EMs have outperformed dramatically, there is some scope for the S&P to outperform. However, in the long run, in my view, the asset class of choice in which to remain fundamentally overweight is Asia and EMs.

In my view, the biggest beneficiary of the dramatic monetary easing, quantitative easing undertaken by the Western central banks led by the Fed, won’t be American/British consumers or American/British stock markets. The biggest beneficiaries will be Asia and EMs. In fact, the dramatic monetary easing could lead to massive asset bubbles in due course in Asia and EMs because the excess liquidity will flow to the best growth story and the best growth stories in the world are Asia and EMs. They have the best demographic dynamics and have the healthiest economies because, unlike the Western world, they do not have the structural leverage problems.

Q: Often, the measure of the restart of a bull market after a bear market is when the previous highs get taken out. How long is it before you think India and other Asian markets can take out their old bull market highs?

A: I don’t assume that happens quickly, because I am bearish on the Western world. If I wasn’t bearish on the Western world, then I would say very quickly, but I am. So in my view we are in a process here, we have commenced a process of incremental decoupling from Western markets. At the beginning of 2008 many investors in China and Indian equities believed in decoupling but by the end of 2008, after a dramatic collapse in Asian stock markets after the Lehman bankruptcy, investors stopped believing in decoupling and started believing in the absolute opposite.

The absolute opposite was an export-correlated train wreck with the US consumer. People became extremely negative on the most important EM story, which was not India but China. This year the Indian and Chinese economies have shown growth momentum; those very bearish concerns were misplaced. So we now have some empirical evidence that Chinese and Indian economies are able to decouple to a certain extent from the American economy, from the American consumer.

The American economy is not growing, so that is building confidence in asset classes. We have begun the process of incremental decoupling. But I think unfortunately when the S&P turns down again, when people realise that it is an L-shaped situation in the US, not an U-shaped or V-shaped recovery, you will get renewed correction. But my view is that next time the Western stock markets go down the Asian markets will prove much more resilient. But this process is incremental; it is not going to happen on a 12-month view.

Q: How bearish are you on the US markets?

A: I would expect a retest of the 660 level in due course in the US if the equities correct and it coincides with the new dollar rally because the dollar rally is on deleveraging. But if the dollar keeps declining, the lows on the S&P need not be so large because some of the downside will be taken on the dollar.

Q: Even if the S&P were to go for a retest you think none of the EMs, including India, will go for a test of their 2008 lows?

A: I don’t believe in a world where the S&P revisits the lows of March. I don’t think the Asian equity markets, India, will revisit the lows because the Indian economy has demonstrated its domestic demand-driven resilience this year. We are now getting people talking of 5.5-6% growth – a few months back the RBI had come out with statements that growth was going to be much slower than expected and it said that growth was going to be 6%.

Reality is that at the beginning of this year investors thought 6% was not attainable, but the data that have been coming out have been a positive surprise. The Indian economy is keeping its growth – not by artificial stimulus measures by the government – so basically the data have been a positive surprise this year and the government has been another positive surprise, which has been a clear mandate that should allow a more coherent policy that should allow for a renewed vigour in the infrastructure cycle now.

Q: How positive is the election?

A: I don’t want to over-dramatize it because of the Indian government’s history of disappointing on reform expectations. But I what I do think is positive is that most foreign investors were on the sidelines before the election as they knew the situation is inherently unpredictable. So because of the clarity and because you don’t have a weak coalition government, I think that was a major catalyst for foreigners to reinvest in India, and logically the sector that should benefit is the infrastructure sector. The other point is that it has removed the risk that the fiscal deficit in India could get out of control.

Q: What are you overweight on in India and China?

A: I am overweight both on India and China but in the last quarter more India, because I was more overweight China in the first quarter. But in my long only portfolio, I am 33% in India and my biggest weight is in Indian banking though I did add an infrastructure name after the election.

Q: Public sector units or private sector?

A: Both, but if I were making a new allocation it would be to a private sector bank.

Q: This trait to tanking up to defensives, you think that trend is over?

A: Tactically, Asian markets have had a big rally and people were fortunate to be in the high-beta names and they should be thinking of moving to less-high-beta names now, 70-80 on the oil price, you should reduce the beta names. But I would reduce in the commodity-driven stocks, not banks.

Q: Do you find any discomfort with regard to valuations in India?

A: PEs look scary in India, especially infra, but India is a genuine domestic demand-driven growth story. So it deserves a high PE premium. On a price to book basis India looks undemanding. The whole risk in Asian valuations is in the potential negative correlation to the Western world.

Source:Prieur du Plessis

Most Overbought ETFs

With stocks rallying around the world, the many ETFs that track various equity markets have moved significantly above their 50-day moving averages.  Below we highlight the most overbought ETFs in relation to their 50-day moving averages. 

As shown, the Russian stock market ETF (RSX) is the most overbought, trading 36.17% above its 50-day.  India (INP) ranks second at 35.72%, followed by the steel ETF (SLX), emerging market Europe (GUR), metals and mining (XME), and Singapore (EWS).  The majority of the ETFs on this list track countries.  The rest are generally concentraded in the commodities area.

Source: Bespoken Research

Emerging Markets ETF – EMM

One of my best trades for 2009 has been a long position in EEM, the emerging markets ETF. The chart of the week below shows that emerging markets have been consistently outperforming the S&P 500 index since the beginning or January (see ratio study at top of chart) and was one of the first major equity groups to top its 200 day simple moving average (dotted green line) in late April. While the SPX has been going sideways during May, emerging markets have continued to tack on gains, bolstered by rising prices for commodities.

I would not be surprised to see EEM finding increasing resistance at several stages in the 34-40 range, but for now at least, I see no reason to exit EEM at least until its performance relative to the SPX begins to falter.

Source:Bill Luby

International Market Snapshot

Below we highlight our trading range charts of the major stock indices of 22 countries.  For each chart, the light blue shading represents between one standard deviation above and below the index’s 50-day moving average.  The red shading is between one and two standard deviations above the 50-day moving average, and moves into or above the red zone are considered overbought.  As shown by the charts, markets aren’t just rallying in the US.  In fact, equities have rallied more in most other countries than they have in the US since the March 9th lows.  As you’ll see below, every single country is trading in overbought territory, with Hong Kong, India, Taiwan, Singapore, Russia, and South Africa the most overbought.

Source: Bespoken Research

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Emerging Markets Continue to Surge in 2009

Russia’s RTS stock index was up another 3.2% today, while China was up 1.71% and India was up 2.3%.  The BRIC (Brazil, Russia, India, China) countries continue to surge higher in 2009, as they’ve far outpaced stock markets of so-called “developed’ countries.  Below we highlight their year to date performance compared to the S&P 500.  As shown, Russia is up a whopping 72.1% this year, followed by India at 51.6%, China at 44.6%, and Brazil at 39.7%.  The S&P 500 is up 0.22%.

Source: Bespoken Research

ETF, Up 100% – On Verge of Breakout

After getting absolutely crushed in 2008 and the first part of 2009, preferred stocks have made a nice comeback.  Below is a chart of the iShares S&P US Preferred Stock Index ETF (PFF).  Since bottoming in March, PFF is up 106.71% and is trying to break out from its January highs. 

Source: Bespoken Research

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Emerging Markets ETF

Exchange-traded funds of Asian, Latin and even some European countries have been significantly outperforming the Standard & Poor’s 500 lately.

MSCI emerging markets ETF  moved to a fresh new high last week . Compare that to the S&P 500 as it threatened to move below a near-term support.

Source: Michael Kanh

Learn how to diversify your portfolio with Exchange Traded Funds – it is as easy as trading stock.

Commodities and the Dollar

One of the market-moving stories of the week was a decision by Standard & Poor’s to lower their outlook for AAA-rated sovereign debt of the United Kingdom from stable to negative. This action caused ripples in the currency markets, with the dollar coming under pressure after investors such as Bill Gross of PIMCO expressed concerns about the mounting U.S. deficit and potential future risk to the AAA credit rating for U.S. debt.

By the end of the week the dollar was at a four month low against the euro and commodities were up sharply, partly because commodities are seen as an effective hedge against inflation.

In the chart of the week below, I have captured a chart of the Rogers International Commodity Total Return Index ETF (RJI) versus the U.S. dollar. The chart shows that the dollar peaked in mid-December and has declined steadily to a current level that is comparable to where the dollar was trading in mid-September.

The drop in the dollar has helped to lift prices of dollar-denominated commodities and provided some assistance to commodities as they formed a bottom in mid-February. During the course of the past three months, commodities have had two up trending periods, each of which was followed by a consolidation period. With the dollar breaking down and falling below support at the end of the week, commodities could be preparing for another upward leg soon.

source: StockCharts

Emerging Markets: Russia’s Market Has Surged

MOSCOW – Despite continuing weakness in the Russian economy, the stock exchange here has surged to become the best performing in the world, after being the worst last fall.

Dmitry Astakhov, via Reuters/RIA Novosti, via Kremlin
With an economy heavily skewed toward energy, Russia saw its stock market rebound to become one of the world’s best performers after falling the most last fall. Here, President Dmitry Medvedev, center, visits an oil refinery in the city of Khabarovsk.
After the sell-off last year pushed the valuations of Russian companies to record lows, rising energy prices in recent months have drawn investors back into the market, traders said, even as the government has twice downgraded its expectations for growth this year.Other big emerging markets, including China, India and Brazil, have rebounded sharply in recent months on signs that the fractured global economy may be beginning to heal, but none have been more buoyant than Russia.

When the authorities reported this month that industrial output declined 16.9 percent in April, the stock market still continued a five-day streak.

“Investors are not analyzing macroeconomics when deciding whether to invest in Russia,” the chief economist in Moscow for Merrill Lynch, Yulia Tseplayeva, said.

“They look at oil prices, and believe that when oil prices rise so will the Russian market,” she said. “And that is true.”

Officials now expect a contraction of more than 6 percent in the Russian economy before it begins to improve. Yet investors who braved the yo-yo bounce in the Russian market have profited handsomely.

The Micex index of major Russian company shares, for example, is up 105 percent after bottoming out on Oct. 27. It rose 19.66 points, or 1.9 percent, on Friday to close at 1,054.03.

For some investors, the very air of dismal news hanging over the country inspired contrarian bets in February and March that shares were oversold.

“It seemed a consensus emerged generally that Eastern Europe was going to hell,” Ian Hague, a partner at Firebird Capital Management, a New York hedge fund that focuses on the former Soviet Union, said by telephone. “When you see that, it is very bullish. Because the reality is never as bad as people’s fears.”

Firebird, after selling Russian shares in the second half of 2008, reinvested in February, he said.

But for all Moscow’s effort to diversify the economy, the rise in Russian equity values has closely tracked the price of oil, by far its largest export commodity – much as the market plunge last fall coincided with the collapse of oil prices.

Money is trickling back into Russian investments. For now, the inflow has not balanced the outflow of capital as companies repay foreign banks for loans that are not being rolled over. But the new money coming in was very nearly equal to the outflow in April, according to an estimate by Merrill Lynch.

In that month, the central bank reported a net loss of $2 billion of capital. Since roughly $10 billion in loan payments came due in April, the investor inflow probably was about $8 billion for the month, the bank said.

And the Russian stock market bounce came in spite of looming troubles in the real economy that analysts say make it look tenuous.

But given Russia’s dependence on the boom-and-bust commodity price cycles, a lack of so-called long money investing in the economy and a good deal of jitters about political stability and relations with the West, Russia’s stock market probably will remain highly volatile.

In fact, since its inception after the collapse of the Soviet Union, the Russian stock market has been either in the top five performing markets in the world or the bottom five in every year except one, according to Renaissance Capital, a Moscow brokerage.

Source: ANDREW E. KRAMER

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Recent Performance of Key ETFs

For those interested in a quick snapshot of how various ETFs across all asset classes have performed recently, below we highlight their 1-day, 5-day, and 1-month performance.  As far as equities go, there was lots of red today, but there’s still lots of green over the last month.

Source: Bespoken Research

Equities, Gold, Silver and Oil – Active Trader Report

The broad market has been moving higher with great force the past 2 months. I have been expecting a top for the past 2-3 weeks. It looks like the market is starting to come in (sell off).

Few quick points which I think are interesting:

• Gold started to sell off about 10 days before equities rallied as money was pulled from the golden safe haven and rotated back into stocks. Now gold is moving higher and the broad market is starting to roll over.
• I find the broad market moves in 6-8 week cycles and it looks like the market peaked last week (week 8).
• Looks like we had some capitulation volume during the top last week and big selling again today as equities tested the high.
• Trading inverse etf funds I find are the best way to take advantage of this possible setup. Members will be able to profit from the lowest risk setup I can find.

The Gold Sector

Gold had a nice move higher today with fears of inflation, the broad market correcting and the USD which is dropping like a rock. I have provided a few charts to help you get a better view of what’s happening and how I see things.

The Bullish Percent Index of Gold Miner Stocks

This chart tells us the percentage of gold mining stocks which are currently on a point and figure buy signal. Currently 80% of gold stocks are in a bullish chart pattern and the good news is that we can still see this chart move to the 90 and even 100 level.

I like to watch this chart for short term over bought or over sold levels which occurs when this chart is in the Wave Top or Wave Bottom Zones. This allows me to tighten my stops to lock in short term profits.

Gold Stocks Price Action

As you can see from the chart below, gold stocks broke out of their trend channel this week. It will be exciting to watch and see what happens over the next few days. This type of price action is what the broad market did in March and April. As prices break through the top trend line we could very well see a jump in prices as investors panic and buy into gold stocks so they do not miss the next move.

Gold GLD Active Trading Chart

Gold looks like it wants to run higher but it will find resistance at the upper channel trend line. If this price level is breached then I think we will see gold surge much higher.

Weekly View of Gold

Here is a quick look at the weekly chart of gold. It shows that prices may take a few months for gold to retest the $1000 level if the trend continues higher. The large reverse head and shoulders pattern looks very promising for higher prices as well.

Weekly Silver Active Trading Chart

This chart clearly shows the potential that silver has over the next few months.

Crude Oil Active Trading – Weekly Chart

Crude oil made a new 6 month high this week. Money has been flowing into commodities the past couple weeks as traders and investors try to protect them selves from the over bought equities market. This weekly chart and really most weekly charts generate clean buy and sell breakout signals.

TheGoldAndOilGuy Trading Conclusion:

I think gold and silver will do very well over the next couple weeks. Depending on how strong the pullback is for equities it will play a roll in the price of precious metals. If we get a really strong reversal and rally then I don’t think gold and silver will do as well.

Looking at oil it’s more difficult to say what could happen. If the equities market drops fast then I think it will pull oil with it as investors lose confidence and oil demand will continue to decrease.

We have some very exciting opportunities ahead of us and its important that we keep our risk low while taking advantage of current market swings using stocks, etf’s and commodities. My focus is to keep overall risk under 3% for all my trades and to add to winning position and cut losses quickly.

Source: Chris Vermeulen

Time for a New Strategy? ETFs are Becoming very popular.

IF the last 18 months have taught Americans anything, it’s that market collapses don’t discriminate. Even the most sophisticated and affluent investors lost big chunks of their fortunes. Access to the most exclusive hedge funds did not always limit the damage, as many participants had hoped it would.

As a result, a new mentality has emerged among some investors, who are rethinking the traditional approach to asset allocation. The upheaval in the markets and in the broader economy has led them to question long-honored principles of investing and to sound a death knell, at least for now, for the buy-and-hold mind-set.Moving away from the conventional mix of stocks, bonds and cash, many affluent investors and their advisers are turning to alternative investments – like managed futures and Exchange Traded Funds .

And some of the wealthiest investors are beginning to shed the bunker mentality, at least long enough to exploit shorter-term opportunities.

“In an environment of extraordinary uncertainty, the traditional role of asset allocation and long-term investing is far more difficult,” said Michael Sonnenfeldt, chief executive of Tiger 21, a forum for wealthy investors who meet monthly to discuss financial matters. “Many of our members believe we are in a trader’s market where long-term investing should be shunned but trading opportunities should be seized.”

Indeed, many investors are reluctant to place longer term bets and cling to larger cash allocations, anticipating continued volatility.

“The landscape going forward is extremely uncertain,” said Hans Olsen, chief investment officer at J.P. Morgan’s private wealth management unit. “There are many possible outcomes. You need to have a portfolio structured to reflect many possible futures. It comes down to the first principles of diversification.”

But how you define diversification is evolving.

“In a bull market, we don’t tend to care that our portfolio investments seem to behave the same, but I believe this bear market has uncovered a long-term problem,” said Jerry Verseput, a financial planner in El Dorado Hills, Calif., noting that technology and globalization have diluted the effectiveness of diversification based on company size and location. So he has embraced a new approach, using a portfolio of exchange-traded funds, or E.T.F.’s, that track different sectors of the economy, like energy and health care.

Below, several investment professionals describe how their philosophies have changed and how they are reallocating their portfolios. And one stalwart traditionalist explains why he thinks all of this is a lousy idea.
PASSIVE NO MORE

Cathy Pareto, a fee-only adviser in Coral Gables, Fla., came from the passive school of investing, where you invest your portfolio in a diversified basket of index funds. But in today’s world, she says, you can be too passive.

“Buy-and-hold was the mantra, but in light of recent events and a dramatically different world, those tenets may not always apply,” Ms. Pareto said.

She now dedicates 5 to 10 percent of her clients’ portfolios to more tactical moves. Currently, those include sector E.T.F.’s, like consumer staples, global materials and technology, as well as an E.T.F. that bets against real estate investment trusts. “That has been a radical change for me,” she said.

One thing she likes about E.T.F.’s is their trading flexibility. Unlike mutual funds, E.T.F.’s can be traded just like stocks.
A PASSION FOR CASH
Paul Speargas, a senior client adviser at WMS Partners, a family office and wealth advisory firm in Towson, Md., is looking in some unlikely spots for investments – notably those that do not move in line with the market.

His firm has purchased streams of cash – or discounted cash flows – from people who have been awarded large sums of money, like lottery winnings or court settlements, but receive them as annuities.

A TRADITIONALIST STANDS FIRM
Rick Ferri, founder of Portfolio Solutions, remains a die-hard buy-and-hold investor, scoffing at many notions that some other advisers now subscribe to.

Investors can achieve adequate diversification with a handful of index funds and E.T.F.’s, he said, though he is quick to acknowledge that the current market is a rough one. But it has not altered his view on asset allocation, and his investment philosophy remains intact: Don’t take more risk than you need to achieve your financial goals, and calibrate those needs with what your stomach can handle.

Source: Tara Siegel Bernard

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Year to Date Country Returns; US Lags

With global equity markets still in rally mode, below we highlight the year to date performance of the major indices for 83 countries around the world.  After nearly every country was down earlier in the year, 62 out of the 83 are now up in 2009.  Peru is up the most at 72.92%, while Costa Rica is down the most at -39.94%.  And the BRIC (Brazil, Russia, India, China) countries are significantly outperforming the developed G-7 countries.  Russia, India, and China rank 2nd, 3rd, and 4th in terms of year to date performance, and Brazil isn’t far behind in 10th place.  Canada has been the best performing G-7 country with a gain of 12.62% in 2009, but it ranks 35th out of 83.  The rest of the G-7 countries are bunched up in the 0%-5% range, which is closer to the bottom of the list than the top.  And the US is the worst of the seven with gains of less than 1%.  While the markets here in the states have rallied nicely off of their March lows, most other countries have bounced back even more 2009.

Source: Bespoken Research