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Cabot Emerging Markets Investor Bi-weekly Update

The iShares EM Fund (EEM) has raced past its 25-day (upper) moving average, giving us a solid buy signal from the Cabot Emerging Markets Timer that is supported by similarly strong performance from the Golden Dragon ETF.


WHAT TO DO NOW: The iShares EM Fund (EEM) has raced past its 25-day (upper) moving average, giving us a solid buy signal from the Cabot Emerging Markets Timer that is supported by similarly strong performance from the Golden Dragon ETF. We have no changes to the portfolio tonight.

The New Year is off to a great start, with U.S. equities reaching new highs on enthusiastic trading. The old worries—North Korea, Brexit, debt—are being more than counterbalanced by optimism about corporate earnings generated by the new U.S. tax bill. Other concerns will appear, of course, and a new earnings season will start this month, but we won’t overthink things. It’s a bull market, and we should be taking advantage of it.

The iShares MSCI Emerging Markets ETF (EEM) dipped to support at 45 for a third time on December 7, then recovered to atop its 25-day moving average in the middle of the month. One more dip below the 25-day gave way to a strong rally on December 22 that cleared EEM’s old November highs in short order. With PowerShares Golden Dragon ETF (PGJ) showing similar strength, the Buy signal from the Cabot Emerging Markets Timer is strong.

The markets continued their 2018 rally, with the major indexes all finishing well on the upside. At the close, the Dow was up 151 points (0.61%), the S&P 500 gained 11 points (0.40%) and the Nasdaq lagging a little with a gain of 12 points (0.18%). The iShares MSCI Emerging Markets ETF (EEM) was up a healthy 0.24 points (0.50%) at 48.71. (WUBA) came out of its December consolidation with a bang as trading for the year began on January 2. WUBA has enjoyed three days of advances and looks like it’s ready to make a run at its old November high at 80. BUY A HALF.

While a U.S. government agency has blocked the merger of MoneyGram International with Alibaba (BABA), Alibaba’s stock didn’t seem to notice. BABA hit new highs in November, but made no net progress since August as it traded flat through December. The new year has given the stock a burst of energy, lifting it from 172 where it closed the year to 185 in three days of good trading. I want to see the stock get back above 190 before I put it back on Buy, but I wouldn’t object if you jumped the gun a little. HOLD.

Baidu (BIDU) has been trading under resistance at 250 since late October, which isn’t a good thing for a growth stock. I’ll keep BIDU on Hold for a while longer, thinking that a strong appetite for Chinese stocks will eventually lift it to new highs. But another rebuff at resistance at 250 would be a definite weight on the sell side of the scales. I’ll hold for now, thinking that Q4 results will likely set the stock’s course when they’re released. HOLD.

China Lodging Group (HTHT) started a rally on the last day of November that blasted the stock to new highs on the last trading day of 2017. We weathered a tedious correction that had pulled HTHT from its October high at 143 to 103 in late November, causing us to book half our profit and shift the stock to Hold. Our decision to put our half position back on Buy has paid off, and we’ll keep it there for now. BUY A HALF.

GDS Holdings (GDS) broke out in the middle of December, including a tip-off day with more than double its usual trading volume on December 15. GDS Holdings has been forming partnerships with Chinese telecoms for data center developments in expanding Chinese markets and its stock has been making higher lows as it tightens up under resistance at 24. BUY.

Grupo Supervielle (SUPV) looks fine, with its November shakeout just a memory. SUPV has been trading under resistance at 30.5 since December 20, which marks a reasonable pause for consolidation. BUY.

While our position in Jupai Holdings (JP) was sold in November 29, the stock’s unique position in the Chinese wealth management business still intrigues us. JP has bounced back from its dip below 15 in early December and has enjoyed a mild rally in 2018. We’re still not interested in buying it back, but I’ll keep you updated. KEEP AN EYE ON.

Melco Resorts and Entertainment (MLCO) has caught a bit of a downdraft after the December numbers for Macau gambling fell just short of analysts’ expectations. But the news was tempered by an analysis showing the December’s numbers were simply the result of a run of luck by high-rolling gamblers. For its part, MLCO picked up a higher stock price target from one analyst. The stock’s reaction looks normal. We’ll stay on Buy. BUY.

At least in stock terms, TAL Education (TAL) has been fighting with rival New Oriental Education (EDU) for investors’ support. While EDU has come out of a three-month correction with a strong rally, TAL looks to be taking off in pursuit as it has filled its October gap down and broken out from a tight December consolidation. I would like to see a little more evidence of gains before I put our half position back on Buy. HOLD A HALF.

Tencent Holdings (TCEHY) is showing signs that it’s serious about challenging Alibaba in the Chinese online retail arena. Tencent just announced that it was buying a $604 million equity stake (7% of premium stock) in online flash sale retailer Vipshop Holdings. This follows a $259 million investment in Vipshop by Vipshop is a major player in the flash sale niche, one area that Alibaba doesn’t dominate. Vipshop’s stock (VIPS) has responded by jumping from 8 to 12 and TCEHY has bounced back from its late-November-early December correction from 56 to 47 with a strong rally. Look for a dip of a point or two to get started. BUY.

Like several of our Chinese stocks, Weibo (WB) tightened into a flat consolidation in December. And like many of those stocks, it has rallied strongly since 2018 began. After closing 2017 at 103, the stock has popped to 116 today. I’m tempted to return it to a Buy rating, but there’s an old high at 123 that I’d like to see it challenge first. HOLD.

YY Inc. (YY) has been exceptional, with a big November spurt from 89 to 123 followed by a rapid return to its upward trend line. YY traded at 126 shortly after the open today before giving back most of its gains as the session wore on. Despite the occasional bump higher or lower, YY’s consistency has made it easy to keep on Buy. BUY.

ZTO Express (ZTO) remains young and volatile, and hasn’t established a real trend. It’s a strong story, so I’m happy to be patient with it as long as it doesn’t trip our mental stop. HOLD A HALF.