WHAT TO DO NOW: Emerging market stocks have had a volatile week, with the iShares EM Fund (EEM) popping above its 25- and 50-day moving averages on Wednesday, but slipping back to the 50-day today. We have one move in the portfolio today: we’re selling PagSeguro (PAGS), which is being dragged down by weakness in Brazilian stocks.
While the wave of distressing and mystifying headlines continues unabated, markets seem to have developed a thicker skin over the last month or so. Swirls of rumors about a trade war are apparently being discounted heavily by growth investors, although good news seems to have a little more traction than negative news.
The iShares EM Fund (EEM) started a six-session rally on May 30 that floated EEM above both its moving averages on Wednesday. But today’s substantial selloff (led by continued weakness in Brazil) has EEM right smack on top of its lower (50-day) moving average. As it stands now, EEM has booked a series of five lower highs since its peak in late January. The Fund may have found support between 45 and 46, but it’s certainly no pillar of strength.
The Golden Dragon ETF (PGJ) continues to outperform EEM by a wide margin, rallying from 44 in late April to just below 60 yesterday. Today’s 1% pullback leaves PGJ well above its rising 25-day moving average (which is also back atop its 50-day MA), which is hopeful. While we regard PGJ as a useful source of insight when it comes to stock selection, we continue to rely on EEM as the data behind the Cabot Emerging Markets Timer, so the Timer remains Neutral/Negative for the time being. As always, while we look to the Timer for real help in buying decisions, we will manage the portfolio on a stock-by-stock basis.
The markets were mixed today, with the Dow up by 95 points (0.38%), the S&P 500 virtually flat, down just two points (0.07%) and the Nasdaq off 54 points (0.70%) and losses in many growth stocks. The iShares MSCI Emerging Markets ETF (EEM) slipped lower by about three-quarters of a point (1.53%) to close at 46.42.
51Job (JOBS) was dragged down by the selling that has dented both U.S. and emerging-market stocks today. The pullback in JOBS has been fairly harsh, but following the recent advance, this two-day correction still leaves the stock safely above its 25-day moving average. As with many of our holdings, our profit cushion makes it easier to hold through this kind of correction, but I’m reluctant to let that kind of thinking keep me in a stock longer than is prudent. I’ll keep JOBS rated Buy a Half, but if the correction brings it close to its 50-day moving average, I’ll rethink that quickly. BUY A HALF.
58.com (WUBA) made a nice rebound run from May 30 to June 4, but has given back about half of its gains from that rally. This leaves WUBA right in the heart of the trading range it’s been in since the start of the year. With the rally above 80, the stock is sitting well above its price support in the high 70s, so we’ll hold on for now. But the clock is ticking on WUBA. HOLD A HALF.
Alibaba (BABA) finally punched through its resistance at 200 with a two-day rally last Friday and Monday that also cleared its old January high. The stock spent some time trading above 210, but couldn’t quite manage to close up there. A three-day correction now has the stock trading around 203, with today’s drop caused by both the weak market for growth stocks and news that Altaba (formerly Yahoo!) will exchange some of its hoard of BABA shares in order to buy back its own stock. Even so, that seems more like a short-term weight on BABA, and the stock’s overall pattern looks constructive. Alibaba continues to make aggressive investment and joint venture moves and, fundamentally, looks healthy as a horse. We’ll stay on Buy. BUY.
Starting with its rally in January, Autohome (ATHM) has executed six stair-step moves higher, a rally followed by a correction that stops short of the previous low and gives way to another upmove. So, while ATHM’s two-day pullback from its all-time high close at 118 on Tuesday is a little steeper than normal, the pattern still holds. ATHM is still well above its 25-day moving average and is off just 6% from that high. We’ll stay on Buy. BUY.
BeiGene (BGNE) stormed past 200 on May 31 and traded to an intraday high of 219 yesterday before relaxing back to 205 in today’s generally negative market. With no specific news about the company’s many clinical trials, the stock looks buyable here, with a recommendation to keep your initial buy to a half position. BUY A HALF.
GDS Holdings (GDS) has been holding on well to its April/May gains, with a slight dip at the end of May matched by a slight rally at the beginning of June. Thus, investors seem to have shaken off any negative effects of the recent offering of convertible notes. Today’s dip below 40 looks like a good buying opportunity. BUY.
iQIYI (IQ) made another big move higher last Friday (June 1) and is knocking on the door of resistance at 30. Everything about IQ is extreme, and we don’t rule out the possibility of a big correction if there’s a piece of negative news. But for now, with the “Netflix of China” nickname gaining traction, subscriber growth healthy and good earnings on the books, I see no obvious potholes. BUY A HALF.
Noah Holdings (NOAH) broke out of a three-month tightening base in late April and ran from 49 on April 20 to near 70 on May 21. The stock gave back some of that gain in the run-up to its quarterly earnings report on May 29. The reaction to earnings pulled NOAH briefly below 60, but the stock bounced off its 25-day moving average and has been in an uptrend since. On the same day earnings were released, Noah Holdings was reprimanded and fined by the Hong Kong stock exchange for unspecified “regulatory breaches,” and while the fine was less than $1 million, that may have contributed to the stock’s weakness. But with NOAH rebounding, we’ll keep it rated Watch. WATCH.
PagSeguro (PAGS) reported its latest results on May 29, and the results were objectively strong; revenue was up 98% and earnings rose by 133%. There were some quibbles about how big a bite of each transaction the company was taking, but the negative reaction (an intraday dip from 33 to 29) was largely neutralized by a wave of buying that left the stock slightly up at the close. PAGS continued to trade sideways between 32 and 35, the range it has occupied since late April, until today’s big selloff pulled it below 30. The general weakness in the Brazil market is too much to overcome for now. We will sell our half position with the understanding that this story may have legs once the crisis in Brazil passes. SELL.
TAL Education (TAL) has been using its late-May trading range between 42 and 44 as support for a couple of days, which is a very positive sign. The stock’s rebound from its March correction has now given way to a couple of calm, small advances, which is positive. You can buy a half position on any normal weakness of a point or two. BUY A HALF.
ZTO Express (ZTO), our newest recommendation, was in a strong uptrend even before the May 29 announcement of Alibaba’s $1.4 billion investment. This cash infusion is a clear move by Alibaba to integrate ZTO, already a preferred delivery partner, into its Cainiao logistics arm. Investors loved the move, gapping ZTO up from 19 on May 25 to 21 on a huge spike in volume. ZTO dipped to support at 20.5 for a week or so, but is now back above 21. ZTO was trading at 15 on April 11, so this rally has been a momentous event and may need some time to digest. You can still buy a half position in ZTO, but look for small pullbacks. BUY A HALF.
