WHAT TO DO NOW: The yellow flag is still out from the Cabot Emerging Markets Timer, but there has been a little bump of interest from buyers. There are no changes in today’s update.
Both iShares EM Fund (EEM) and the Golden Dragon ETF (PGJ) have enjoyed a three-day bounce. And while neither move has these ETFs above their 25- or 50-day moving averages, the move is solid and has some trading volume behind it. So, while the Cabot Emerging Market Timer remains in a cautionary mode, we have a good indication that there are buyers waiting to hit the Buy button if they get a little good news to work with.
One bit of good news is that the Chinese electric car startup company Nio (NIO) came public on the New York Stock Exchange on Wednesday. While the IPO didn’t meet its ambitious $1.8 billion target, this Tencent-backed automaker is the first chance we’ve had to participate directly in a Chinese car manufacturer. It will be good to watch.
The problem with emerging markets right now is actually a perfect storm of loosely linked factors that are all pulling investors in the same direction. So, for instance, the rising interest rate environment in the U.S. is attracting capital. And the rising strength of the U.S. dollar is causing trouble for countries like Turkey and Argentina that have large amounts of debt that must be paid in foreign currencies. And, of course, there’s the very real (and escalating) trade war between the U.S. and China and many other countries as well. Taken together these factors have been causing a rotation out of emerging markets and into U.S. equities.
We are now in the third day of a rebound in emerging market stocks, at least partially in response to reports of renewed trade talks between the U.S. and China. If this turns into a rally, we will be ready to jump on it, but not before. Fingers crossed.
It’s not easy to brag during a period of wretched market performance, but I’m willing to risk it. The portfolio’s 75% cash position is protecting us from the worst effects of the current downturn. It’s not a lot of fun, unless you are sophisticated enough to enjoy a negative accomplishment, but we’ve preserved the majority of our capital. The current pullback will present us with a tasty menu of bargains when the bottom arrives and we start to see some attractive setups. This kind of decisive caution is exactly what’s needed to play on the emerging markets end of the field, and we’re well positioned.
The major U.S. indexes were up modestly at the open and stayed that way all day despite some wobbling. At the close, the Dow was 147 points higher (0.57%), the S&P 500 gained 15 points (0.53%) and the Nasdaq tacked on a stronger 59 points (0.75%). The iShares MSCI Emerging Markets ETF (EEM) had a good day, up 0.54 points (1.30%) to finish at 41.98.
From its open at 153 on September 11, Alibaba (BABA) has made a strong run to the mid 160s. This is a welcome move, but not necessarily a convincing one. The stock still has a ton of overhead, with potential resistance nodes extending all the way up to its June high around 210. Alibaba is one of the biggest China stories around, and if the recovery in EM stocks continues, there will be an opportunity here. But with BABA still below all three of its significant moving averages, (25- 50- and 200-day), I will keep it rated Hold. HOLD.
BeiGene (BGNE) continues to roller coaster along, but its trading pattern is now showing clear signs of narrowing, with lower highs since the stock’s June 8 pop to 220 and higher lows since its dip to 145 on June 28. The stock has experienced three crosses of its 25- and 50-day moving averages during this period, and is now sitting right on its 25-day. I like that BGNE trades independently of the general EM population, and I’ll keep the rating of our half position at Buy. BUY A HALF.
Bilibili (BILI) has done a good job of holding up against the downtrend in emerging market stocks. From its low near 9 on August 15, the stock popped as high as 14 after a well-received earnings report on August 27. A correction to 11 earlier this month has now given way to the uptick in EM stocks in the last three days, pushing BILI back to above 13 again. The company announced on Wednesday that it has taken a minority equity stake in Fun-Media, a Japanese animation company, that will improve Bilibili’s offerings in TV programming, original video animations and films. I’ll keep BILI rated Watch, but if you’re heavily in cash and want to take a nibble … WATCH.
Ecopetrol (EC) made a monster move higher on September 12, soaring from 22.5 at Tuesday’s close to 25 on Wednesday. The reason appears to be simple: oil prices are higher. And increases in oil prices raise enterprise value without adding expenses. EC gave back a little of that 12% jump today, but not much. It won’t take much for us to recommend buying EC, but until emerging markets actually get their momentum back, the potential headwinds are just too strong. WATCH.
Huya Inc. (HUYA), which is still a very young stock, has had a couple of up days after finding support at 24.5, the same price that provided a floor on August 15. This isn’t a major move for HUYA, but it’s certainly positive. I’ve certainly got my eye on Huya because its e-sports business is (along with Bilibili) uniquely appealing to the youth cohort of China. If HUYA can generate some momentum (and we get the market behind us), this could be a good setup. But we’re not jumping the gun, so we’ll keep HUYA on the Watch list. WATCH.
iQIYI (IQ) is following the same general path as HUYA, but it actually found support more than a full point above its August 15 low, a small plus. The company announced a deal with Eros International that will bring over 5,000 Bollywood movies into iQIYI’s streaming service. It’s not a blockbuster deal, but it’s always good to see a streaming company enriching its offerings. We’ll keep our half position on Hold. HOLD A HALF.
It’s not a powerful trend, but RYB Education (RYB) has been etching higher lows ever so slightly during its nearly five weeks of base-building over support at 19.5. And today’s advance of half a point may be the start of a move. That would be good, because the stock had very little lasting reaction to the earnings report on August 27. RYB is still outperforming the giant Chinese education stocks like TAL Education and New Oriental Education. I’ll keep RYB rated Buy a Half. BUY A HALF.
WNS Holdings (WNS) continues to build a basing structure following its July dip on volume. The stock found support in the last few days above its late-July lows and has levitated back above its 25- and 50-day moving averages. It’s a positive move, and if we get the market behind us, we will be ready to add this Indian stock to the portfolio. WATCH.
