This abbreviated update is coming to you before Noon on Wednesday because the Cabot Wealth Summit kicks off today and runs through Friday, which will make it impossible to adhere to the usual schedule.
WHAT TO DO NOW: Our Buy signal from the Cabot Emerging Markets Timer has turned decidedly negative and most of our stocks are under selling pressure. We have four moves in the portfolio this week, as the negative implications of the trade war continue to vex investors. Today we are selling Autohome (ATHM) and our half position in ZTO Express (ZTO) and putting our half positions in iQIYI (IQ) and JD.com (JD) on Hold.
The iShares EM Fund (EEM) had been doing pretty well until last Friday. That’s the day EEM gapped down from its Thursday close at 44.13 to 43.19 and lost contact with its 25- and 50-day moving averages. And the action in subsequent days has been equally negative, with EEM dropping below 41.5 in Wednesday’s action. This puts EEM in sync with the Golden Dragon ETF (PGJ) that follows China ADRs, which has been in free fall since July 27. The sellers are clearly in control.
Our heavy cash position has been insulating us somewhat from the stampede of investors out of emerging markets, but that’s not going to make us complacent.
We now have just three remaining dates for Q2 earnings reports for the stocks in our portfolio:
JD.com (JD)—August 16 before the open
Alibaba (BABA)—August 23 before the open
RYB Education (RYB) —August 27 before the open
The markets were off sharply in the morning session, with the Dow off 243 points (0.91%), the S&P 500 down 28 points (1.00%) and the Nasdaq off 115 points (1.47%). The iShares MSCI Emerging Markets ETF (EEM) was off to another negative day, down 1.44 (3.36%) to sit at 41.32.
Alibaba (BABA) is priced almost exactly where it was trading a year ago. The stock has traded as low as 166 and as high as 212 since August 2017. The company itself remains fundamentally sound, and the stock’s long-term trading range looks like more of a judgment on Chinese stocks as a group than on BABA specifically. We will be patient while we wait for the weather to change. HOLD.
Investors have apparently concluded that Autohome (ATHM) is just too vulnerable to any damage the trade war might inflict on the Chinese economy. I have been very patient with our position, maybe a little too patient, but it’s clearly time to sell, take the small loss and hold the cash until the sun comes up again on EM stocks. SELL.
BeiGene (BGNE) has bent a little to the selling pressures on Chinese stocks, but is holding above the stock’s late-June support at 150. We will leave BGNE rated Hold a Half until the next catalyst occurs. HOLD A HALF.
Huya Inc. (HUYA) reported its quarterly results on Monday after the close, and the stock fell by about 16% on Tuesday. It’s hard to say how much was a judgement on the quality of the numbers and how much was rotation out of Chinese stocks. In either case, we’re glad we have HUYA on the Watch list. WATCH.
iQIYI (IQ) has been holding up reasonably well, trading between 28 and 30 since August 2, but it has weakened over the past couple of days. We still have a tidy profit in the stock and selling volume isn’t huge. But it’s just not a good time to be buying Chinese stocks. I will put our half position on Hold. HOLD A HALF.
JD.com (JD) was holding above support at 35 until yesterday, when it tumbled to 34 on heavy volume. Today’s dip below 32 confirms the shift in investors’ thinking about the stock. With earnings coming up tomorrow (August 16) before the open, the risk of further declines is just too great, as the upside potential of even a strong quarterly report is greatly reduced in this environment. I’ll put our half position on Hold, with a tight mental stop just below 31. HOLD A HALF.
RYB Education (RYB) has been jumpy, but it has maintained its contact with its 50-day moving average, which is quite an accomplishment these days. I’ll leave our half position on Buy, as the company’s quarterly report isn’t due until August 27 after the close. BUY A HALF.
WNS Holdings (WNS) is enjoying its position as a non-Chinese stock. WNS has been edging higher since the start of the month, although it still has some damage to repair from its late-July slide. Another good day or two will put WNS back on top of its moving averages, and will likely earn it a promotion. For now, I’ll keep it on Watch. WATCH.
ZTO Express (ZTO) has had two terrible days on August 14 and 15, with Wednesday’s action pulling it below its old support at 19 and below its June/July trading range. If we had any prospect of a quick resumption of normal conditions in Chinese stocks, I would keep ZTO around. But the situation is negative enough to make selling stocks that show aberrant selling the right choice. We’ll sell our half position in ZTO. SELL.
