Reprinted
from MarketWatch.com:
Cabot remains bullish on China
Commentary: It’s out of the market for now, but says a bull run is coming
By Peter Brimelow, MarketWatch, December 7, 2008
NEW YORK (MarketWatch) — How are the mighty fallen. Well, not exactly fallen, but flummoxed for now.
For the past few years, Cabot’s China & Emerging Markets Report (CCEMR) has dominated the Hulbert Financial Digest’s performance rankings. I named it Letter of the Year in 2007. See Dec. 30, 2007 column on the newsletter of the year for 2007
That’s come to a screeching halt. Over the past 12 months through November, CCEMR is down 27.08% by Hulbert Financial Digest count.
Well...make that just a halt. CCEMR’s record is still better than the negative 36.68% scored by the dividend-reinvested Dow Jones Wilshire 5000.
And for perspective: over the past three years, the letter has still achieved an astonishing annualized 33.97% gain, vs. negative 8.89% annualized for the total return DJ-Wilshire 5000.
Over the past five years—roughly, since it began its China focus—the letter has achieved an 11.6% annualized gain, vs. negative 1.16%% annualized for the total return DJ-W 5000.
CCEMR was being cautious when I last looked. See July 2 column on Cabot bulls pulling in their horns Today it’s still cautious, out of the market and focused on building up its “watch list"—stocks it might buy if the market turns up.
CCEMR is notable for the portfolio discipline it applies to this most volatile market. It’s a moving average system—and there’s some evidence they work.
CCEMR wrote recently: “The simple fact is that the only way to be sure—investment sure—that the market is in a new bull phase is to wait until the trend turns up. The Cabot China-Timer doesn’t flash a buy signal until Chinese American Depositary Receipts (ADRs), whose performance it tracks, push its constituent index above the lower of its 25- or 50-day moving average. In other words, the only way to see a new buy signal is to look in the rear-view mirror.”
CCEMR cautioned: “While it may be tempting to try to anticipate the market’s next big upmove, the relentless linkage of risk and reward make it a bad idea. Our strategy is based on the twin pillars of letting winners run and cutting losses short, and a bet on a market based on a gut feeling that it may be near a bottom doesn’t have the odds on its side. By requiring that our market index top its moving averages before we get a new buy signal, we essentially require that investors put their money on the line with enough volume to indicate a real change of perception about the market. Ultimately, it’s that change of perception that will produce the next bull market, not a low P/E ratio or supportive economic statistic.”
Nevertheless, CCEMR remains bullish on China. It writes: “You should note three things. First, the Chinese market has endured an enormous drop in value, one that makes the decline in the U.S. market seem almost reasonable. Second, the Chinese government has enormous resources at its disposal to stimulate both the economy and the market, and the bureaucratic authority to deploy those resources at will. Third, the potential for domestic unrest in an economic slowdown is very threatening to the Chinese government. Given these factors, it seems likely that the Chinese government will take decisive action to stimulate both the Chinese economy and its domestic stock market. The 4 trillion yuan ($586 billion) stimulus package announced on Nov. 9 is just a down payment.”
As I’ve said before, I don’t think anyone really knows what’s happening in China.
But, still, CCEMR has (still) made money on it.
Link to article on MarketWatch.com
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