WHAT TO DO NOW: The iShares EM Fund (EEM) has been trending up, keeping the Cabot Emerging Markets Timer a bright green. Our stocks are generally doing well, and we have no changes to the portfolio tonight.
There’s been a lot of news and noise from Washington, D.C., but very little of it is actually new, and investors are taking the chaos in stride so far. The Fed, Brexit, North Korea and natural disasters are all known quantities at this point. That means that the market’s bets on the probabilities and outcomes are priced into our stocks. Like everyone, we will continue to monitor the headlines with controlled apprehension.
The front page of today’s Wall Street Journal reported that the Chinese government was looking to take small stakes (about 1%) in Chinese tech companies. These small positions, called “special management shares,” will give the government a seat on the board of any company selected for this treatment. So far, it’s just a couple of smaller online news sites, but if the Xi regime decides to go after the biggies like Tencent, Baidu and Weibo, it could be an expensive proposition. Nobody outside the Xi administration likes this idea, but it could have a chilling effect or be a nothingburger. As always, we’ll reserve our reactions for the actuality, rather than the possibility.
The onset of earnings season will likely be the next big influence on the performance of individual stocks, with U.S. companies reporting this month and emerging market companies about four to six weeks from now. The iShares emerging markets ETF (EEM) has bounced back from its late-September swoon, keeping the Cabot Emerging Markets Timer solidly positive.
The markets tried to rally at midday, but were down slightly today. At the close, the Dow was off 32 points (0.14%), the S&P 500 fell 4 points (0.17%) and the Nasdaq lost 12 points (0.18%). The iShares MSCI Emerging Markets ETF (EEM) was virtually flat, off 0.015 points (-0.03%), to finish at 46.25.
Alibaba (BABA) is committing $15 billion (with a “B”) to additional R&D efforts aimed at artificial intelligence, including machine learning, visual computing and natural language processing. The idea appears to be to keep pace with big western tech companies in the race to self-driving cars and other applications of AI. This more than doubling of the R&D budget just confirms Alibaba’s global aspirations. BABA, which moved to new all-time highs on Wednesday, had little reaction to the news. We’ll stay on Buy, and you should use any slight pullback as a chance to get started. BUY.
Autohome (ATHM), which hit an air pocket on September 28 after its president and CFO both resigned, has been choppy, but hasn’t broken down. ATHM recovered to its rising 50-day moving average on October 4 and followed that average higher until today’s dip. The stock has picked up one upgrade (from UBS) and one downgrade (by Credit Agricole) in the past week. We will be keeping a close eye on support at 57. HOLD.
Baidu (BIDU) is taking a quick break after a three-day rally from 245 to 263. That move coincided with (although it may not have been caused by) news on October 6 that Baidu was opening a second Silicon Valley research facility focused on driverless vehicles and other artificial intelligence projects. Whatever the reason, BIDU’s August base and three-week pause in September are giving way to a strong rally. Baidu is usually the first of the major Chinese ADRs to report quarterly earnings, and Q3 results are estimated to come out late this month. Look to buy on dips of a couple of points. BUY.
China Lodging Group (HTHT) has made an astonishing record of gains, but the stock hasn’t had a month all year that didn’t feature at least one pause or pullback. That pattern of repeated pullbacks and consolidation may account for part of the stock’s longevity. So the stock’s pullback from its 148 high on Monday to 126 today isn’t especially alarming. HTHT is still nicely above its 25-day moving average (which it hasn’t dipped below since July) and volume has been dropping during this three-day correction. This looks like a good buying opportunity. BUY.
Grupo Supervielle (SUPV) has been acting just fine, pausing under resistance at 24 in September and using 24 as support this week. Since its breakout from a long base in August, the stock has tracked higher, consistently outrunning its 25-day moving average. You can buy on one of the stock’s down days. BUY.
HDFC Bank (HDB) has been worrisome, but continues to respect its support at 92–93. This is likely to be one of the first of our stocks to report quarterly results—probably on October 24—and we will likely keep it rated Hold until that report is out. The India story is powerful, but it’s also politically sensitive. HOLD.
Sina.com (SINA), our newest stock, has been working on a new base since the middle of September, with support at 110 and generally calm trading. With advances on Tuesday and Wednesday, the stock is back at our original buy price and back in touch with its 25-day moving average. It looks fine here. BUY.
Sociedad Quimica y Minera (SQM) dipped from 64 on September 20 to 53on September 26. Since that correction, the stock has rebounded to above 60, then drifted lower to around 57 in recent trading. We know that the lithium story is a big one, and that volatility is likely to be high as in any hot commodity. We’re happy to hold our half position, as the stock is still safely atop its 25-day moving average. Ideally, SQM will tighten up in the 50s for a while before making another move higher. HOLD A HALF.
Stock splits often mark at least a temporary high for growth stocks, but since TAL Education (TAL) executed its long-scheduled six-for-one stock split on August 16, the stock has continued to act very well. The stock dipped once to its 25-day moving average in August and once in September. But it’s been grinding higher all week. BUY A HALF.
Tencent Holdings (TCEHY) reached a new high at 45.5 a week ago and has been marking time since the beginning of the month. This is perfectly in character for TCEHY. The company has been making quiet headlines as an investor in the Indian internet and an Indian taxi service. It looks like a good buy right here. BUY.
YY Inc. (YY) traded flat through much of August and September, then surged to new highs in early October. YY has traded fairly flat for the last seven trading sessions, but is creeping higher and may register a new high closing price today. We think it looks like a fine Buy right here. BUY.
