WHAT TO DO NOW: The iShares EM Fund (EEM) bounced strongly in early March, which returns the Emerging Markets Timer to a positive reading. Granted, it’s not the strongest signal we’ve ever seen, but it counts. Quarterly reports are winding up, and we’ll take the Timer’s advice and return one stock, Alibaba (BABA), to a Buy rating.
The iShares EM Fund (EEM) is still feeling the effects of its January 29–February 9 plunge, with its 25-day moving average below its 50-day. But EEM is trading above its lower (25-day) moving average, and that moving average has begun to advance, so we are getting a green light from the Cabot Emerging Markets Timer. The Golden Dragon ETF (PGJ) that tracks Chinese ADRs is in even better shape, so the relevant momentum indicators are both positive.
Markets have been pretty reactive since the January–February pullback, with the Nasdaq leading the way higher while the S&P and the Dow scramble to keep their perches atop their moving averages. Investors are nervous about how a rising rate environment might play out over time and positively anxious about a possible trade war being triggered by U.S. tariffs on steel and aluminum (and rumored tariffs on Chinese goods coming down the road). The nerves aren’t enough to deep-six the market, but they’re certainly keeping volatility high. And while investors are none too pleased about a change in Chinese law that will allow Xi Jinping to stay in office indefinitely, it hasn’t triggered any exit from that market.
Earnings season is just about over for the stocks in our portfolio. We still have Tencent Holdings’ report on March 21 to look forward to.
The markets were mixed today, up in the morning, but weaker in the afternoon session. At the close, the Dow was in positive territory, up 116 points (0.47%), the S&P 500 was virtually flat, off 2 points (0.08%) and the Nasdaq dropped 15 points (0.20%). The iShares MSCI Emerging Markets ETF (EEM) lost a scant 0.18 points (0.36%) to close at 49.32.
Alibaba (BABA) is enjoying a boost from a recent data release that shows a 37% increase in Chinese online retail sales in the first two months of 2018. During the same period, brick-and-mortar retail sales rose just 9.7%. Analysts see the strength of online sales growth as evidence that the company will likely meet its ambitious fiscal 2018 goals for gross merchandise value. BABA broke higher on the news, taking another run at 200 before slipping slightly. With this move, we think it’s safe to move BABA back to a Buy rating. BUY.
Autohome (ATHM), which ran into resistance at 86 in January and February, bounced off its 50-day moving average after its earnings report on March 7 and made a few intraday moves above 90 before pulling back a bit. With ATHM using its old resistance at 86 as support, the setup in ATHM looks technically sound. BUY.
Azul S.A. (AZUL) has executed three strong rallies since the year started, with the March version pushing the stock from 30 on March 2 to a close at 34 on March 13. The March advance was fueled by the company’s Q4 report on March 8 that showed positive news on passenger traffic (up 16.3% YOY in February), revenue (up 18%) and earnings (up a strong 750%). We will watch for a good entry point in AZUL. WATCH.
BeiGene (BGNE), which corrected briefly to as low as 138 after its earnings report on February 28, bounced back quickly on heavy volume and has been trading in an increasingly tight range under resistance at 156. The stock’s rising 25-day moving average is back at 145, and BGNE hasn’t closed below it since the first day of December. The tightening range in flat trading looks constructive and the company’s relationship with Big Pharma is a plus. BUY A HALF.
China Lodging Group (HTHT) is a casualty of earnings season, as the company’s quarterly report and 2018 guidance didn’t impress investors, missing on both revenue and earnings. The portfolio bought HTHT almost two years ago at 36 and we took partial profits at 108 at the end of November. We recommended selling the rest of our position yesterday in a Special Hotline and got a nice bounce today to sell into. As we noted yesterday, the long-term prospects for HTHT are positive, but a major gap down on heavy volume after a poorly received earnings report is likely to keep the stock under pressure for a while. If you haven’t already, it’s time to sell HTHT. SOLD.
Fibria Celulose (FBR) has been stair-stepping higher since December, and just staged a three-point rally after spending four weeks trading flat in January and February. The big news for FBR is that the company is now the subject of competing takeover proposals. One offer is from Paper Excellence, which is owned by Asia Pulp and Paper, and values Fibria at R$40 billion (about US$12.2 billion). The other offer is from Brazilian Suzano Papel e Celulose, and while we don’t have details of the offer, there is a definite possibility that competing bids might give us a quick profit. We’ll keep you posted. In the meantime, we will stick with our recommendation to Buy a Half position. BUY A HALF.
We thought that the quarterly report from GDS Holdings (GDS) before the market opened on March 13 would give a definite indication of the stock’s future. But GDS, which closed at 28.8 on March 12, closed at the identical price on March 13. Market weakness on March 14 pulled the stock a bit lower, but GDS, which actually strengthened by almost 5% today is just atop its 25- and 50-day moving averages and is smack in the middle of the trading range it has occupied since late January. We will keep watching GDS closely for any sign that today’s uptick in the stock is the start of a new uptrend. But until that happens, we will keep GDS rated Hold. HOLD.
Petrobras (PBR xx) sprang its quarterly results on the market today, releasing them at 2:00 pm, New York time. The results didn’t seem to affect investors much one way or the other. PBR opened the day at 14.27 and closed it right around 14, which keeps the stock within its three-week trading range. BUY A HALF.
TAL Education (TAL) has held onto the gains from its February–March rally, sitting just under its resistance at 39. We’re tempted to return the stock to a full Buy rating, but will let the chart make the decision for us; if TAL can break out above its resistance level, we will increase our stake. Until that happens, you can buy a half position, ideally on dips. BUY A HALF.
Tencent Holdings (TCEHY) remains volatile, with dips below its 50-day moving average in December, February and earlier this month. But the general trend remains up, with the stock back above its February highs and within a point of its January all-time highs. The stock remains a good buy on simple momentum grounds, but with the company’s quarterly report due before the open next Wednesday, we will keep our advice to buy just a half position until we see the reaction to earnings. BUY A HALF.
Vipshop Holdings (VIPS) reacted well to its February 12 earnings report, jumping to its highest level since November 2015. At this point, the company’s alliances with Tencent and JD.com are probably as important as its own results. With online retail thriving in China, Vipshop gives access to a nice niche in that industry. BUY.
Weibo (WB) has now spent a month under resistance at 140. But the stock, which punched briefly below its 50-day moving average in February, has found support at its 50-day MA early in March and is now riding its 25-day MA higher. There will always be a threat of government censorship (and possible sanctions for violations) in the background for WB, but the company’s 77% revenue growth and 88% earnings growth in its Q4 report tell a story of great performance and big potential. BUY.
