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Cabot Emerging Markets Investor Bi-weekly Update

WHAT TO DO NOW: The Emerging Markets Timer continues to flash a buy signal, as the iShares Emerging Markets Fund (EEM) remains above its lower 50-day moving average. We have no changes in the portfolio today.

Market Environment

Despite generally improving economic numbers, the Fed’s Open Market Committee voted unanimously yesterday to keep U.S. interest rates where they are for now. Fed watchers think this may reduce the number of anticipated rate hikes this year from three to two, but the effect on the market was minimal. Markets also appeared to discount the daily skirmishes being fought by the new U.S. administration. The S&P 500 and the Dow are flat on the ice while the growthier Nasdaq is still making progress. All in all it’s a more supportive atmosphere for stock pickers than for index investors.

The iShares Emerging Markets Fund (EEM) rally that began just before Christmas is in fine shape. It’s even possible the EEM may be setting up to break out above the resistance range that it occupied from August through October. The ETF’s older highs from 2014 and 2015 are likely no longer useful as resistance, so if EEM can top 38, it will be essentially trading clear.

It’s also worth noting that EEM has now been outperforming the Golden Dragon China ETF (PGJ) over the last month. But the most important point is that our buy signal is still very much in force.

Earnings season for emerging market stocks hasn’t yet kicked into high gear. TAL Education and Alibaba have reported and we have firm dates for NetEase (February 15, after the close) and Vale (February 23, before the open). We’ll let you know as additional official dates come out.

Markets were up and down today, but closed virtually unchanged, with the Dow down 6 points (0.03%) at the close, the S&P 500 up 1 points (0.05%) and the Nasdaq off 6 points (0.11%). The iShares MSCI Emerging Markets ETF (EEM) continued its bounce, gaining 0.16 points, a gain of 0.43%.

Recommended Stocks

Alibaba (BABA) made short work of analysts’ expectations in its January 24 earnings report, booking a 44% increase in revenue and a 30% jump in earnings. Investors approved, pushing BABA back over 100. We recommended buying the stock two days later and added it to the portfolio on Friday, January 27 at 102. BABA is still consolidating its gains, with 100 looking like short-term support. A buy close to 100 looks like a good entry point. BUY.

BeiGene (BGNE) has done everything we asked it to do, blasting above its old resistance and approaching its touchy November highs. But what’s worrying us now is that the stock’s trading volume is so low. During the stock’s January run, shares traded topped out below 140,000, but volume has fallen to around 20,000 shares during recent trading. We like BGNE’s price action, but don’t want to get involved until we get at least a hint of evidence that larger investors are getting on board. We’ll keep our Watch rating. WATCH.

China Lodging Group (HTHT) pushed back to its December highs last week, continuing the rally that followed the company’s preliminary operations report on January 16. This week the stock has rallied steadily to 55, which is a new all-time high. With the official Q4 numbers not due out until March, we’ll stay on Buy. BUY. (JD) has slipped lower by a point from its January high at 29, offering an attractive buy point. Earnings are likely out in the last half of February. We will keep the stock on Buy. BUY.

NetEase (NTES) made two surges higher in January, finally hitting resistance around 257. With earnings confirmed for February 15 after the close, it’s reasonable to expect the stock to trade sideways for a while as investors wait for hard data. We will hold our remaining shares until we see the reaction to earnings. HOLD.

Pampa Energia (PAM) experienced positive spikes in trading volume through much of January, and just staged a three-day surge higher. The company has made a successful acquisition (Petrobras Argentina) and executed a successful bond offering that will give it more ammunition for future activities. After a big rally like the one PAM has been in, it’s especially important to wait for a pullback of two or three points to initiate a position. We will keep the stock rated Buy. BUY.

TAL Education (TAL) gapped up nicely after its January 19 earnings report and has followed through to the upside, approaching new high ground. Look for a pullback of a point or two to get started. We will keep TAL rated Buy. BUY.

Vale (VALE) has dipped by a half a point since it came within a whisker of 11 last week. This looks like a normal correction and a good entry point if you don’t own any. We’ll keep it rated Buy. BUY.

VanEck Vectors Russia ETF (RSX) started showing increased volatility in January, dipping below its 25-day moving average for a while, then kiting to new highs last Friday. The ETF now looks to be riding its 25-day average higher, and touched 22 briefly today before giving a little back. We still regard 22 as the upside line in the sand; if the stock can get past 22, we will consider filling the position. For now, we’re happy to keep our Buy a Half recommendation. BUY A HALF.

ZTO Express (ZTO) has bounced for a few days, reinforcing our impression that 12 might represent durable support. We like the story, and we’re content to keep it on the Watch list. WATCH.

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