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Cabot Emerging Markets Investor Bi-weekly Update

The Cabot Emerging Markets Timer is heading in the direction of a new buy signal, but isn’t there yet.


WHAT TO DO NOW: The Cabot Emerging Markets Timer is heading in the direction of a new buy signal, but isn’t there yet. Despite the lack of a formal buy signal, we’re going to put a small amount of our huge cash hoard to work and buy a half position in MiX Telematics (MIXT). There are no other changes tonight.

With earnings season and the U.S. mid-term elections in the books, the market may be ready to settle down. There’s still the trade war between the U.S. and China, of course, plus Brexit and the Fed to worry about, but having two major stressors out of the way may help investors buckle down and chart a course for the end of the year.

We’re suddenly just about at the end of earnings season for the third quarter, with just two companies left to report. Huya’s report will come after the market closes next Monday, November 12, and Bilibili’s is scheduled for November 20 after the close.

The major U.S. indexes were mixed today, with only the Dow managing a microscopic gain. At the close, the Dow was up by 11 points (0.04%), the S&P 500 lost 7 points (0.25%) and the Nasdaq 40 points (0.53%). The iShares MSCI Emerging Markets ETF (EEM) fell 1.05 points (2.52%) to finish at 40.58.

Alibaba (BABA) has booked a 19-week correction from the middle of June. But since its lowest close at 133 on October 29, the stock has bounced back to 150, which is a rally of about 15%. The company’s quarterly report on November 2 didn’t tell investors anything they didn’t already know, and there wasn’t any major response to the report. There’s plenty of news, including deals by Ant Financial (in which Alibaba has a 1/3 stake) and the announcement in September that Alibaba would buy back $6 billion of its stock over the next two years. The fundamentals are solid and the story is sound, and if the Chinese market can get some growth going, BABA should do fine. All eyes will be on Alibaba as it kicks off its annual Singles Day shopping extravaganza on November 11. Singles Day is the largest shopping day in the world, and investors will be watching both the absolute amount of buying and how the money is spent. We will wait for the chart to show us evidence that investors are coming around (and a new buy signal from the Emerging Markets Timer) before we start buying again, but we feel much better about our Hold a Half rating. HOLD A HALF.

Baidu (BIDU) showed a little power with its jump from 182 to 201 following its quarterly report on October 30. The stock has given back about a third of that rally, which is normal. The company’s issuance of $1.25 billion in senior debt has been treated like a non-story by the market, as the funds will just be used to improve its debt maturity profile. Like BABA, BIDU stock has a metric ton of overhead to get past as it tries to gather some momentum. There’s a line at 208 that provided support in February, August and September, and a rally past that area would be a positive. Any good macroeconomic news about the Chinese economy or U.S./China trade talks could provide a catalyst for buying. WATCH.

Bilibili (BILI) has actually shown signs of moving ahead from its September/October pause around 13. The company’s announcement of a joint venture with a Japanese mobile game company (Gree Inc.) made a positive impression on investors, who pushed the stock above 15 earlier this week. BILI is still a young stock (it came public in late March) and there’s plenty of volatility. But the Gree deal, plus the earlier cash infusion from Tencent Holdings, has given the stock a boost. We don’t favor buying this close to Bilibili’s earnings date—November 20 after the close—but a favorable reaction would make it a tempting target. Analysts are expecting revenue of around $147 million and a loss of seven cents per share. WATCH.

Ecopetrol (EC) has been under pressure since the beginning of October, and is now making its third attempt at arresting its decline. The company’s quarterly report on October 31 wasn’t particularly well received, but the stock has pulled up short of its 200-day moving average. The main reason for sticking with EC is the company’s plan to invest between $3 billion and $3.5 billion in 2019 to boost production and increase exploration efforts. If the stock can hold up until investors get the message, there’s good potential here. We moved our half position in the stock to a Hold rating a couple of weeks ago, and we’ll stick with it for now. HOLD A HALF.

Huya Inc. (HUYA) has an appealing business proposition—streaming video games, also known as Esports—and we’ve had it on the watch list since August 9. HUYA is down from 31 when we first starting following it to around 20 in recent trading. The stock’s decline has pretty much mirrored the downward trend of the Golden Dragon ETF, which puts it in a class with the bulk of Chinese ADRs. We’ll be watching the market’s reaction to next Monday’s (November 12) quarterly earnings report, which has the potential to determine the stock’s next big move. Analysts have set the bar at $177 million in revenue and four cents per share in earnings. WATCH.

MiX Telematics (MIXT) has been off like a shot since we featured it in last week’s regular issue. The stock had been in an uptrend since October 25, and the company’s estimate-beating quarterly report on November 1—a 15% jump in revenue and an 80% hike in earnings—added a boost of high-volume buying. This kind of strength while emerging markets are mostly under the weather is a great sign, and I now recommend taking half a position in MIXT. We have a heavy cash position and the stock’s momentum is excellent. BUY A HALF.

Petrobras (PBR) gapped up on October 8 on the strength of the Brazilian elections, and has been holding above that gap despite the lukewarm reaction to the company’s quarterly report on November 6. The potential benefit to the company from divestment of certain resources has so far outweighed the downside from fluctuations in oil prices. We’ll keep PBR on Buy, but only if you have a heavy cash position. BUY A HALF.

Vale (VALE) has been trading sideways on heavy volatility since late September. The stock dipped in mid-October, but rebounded in the last few trading days of the month and is holding up at its 25-day moving average. Since China is one of Vale’s biggest customers, there’s some economic sensitivity here. But the stock has been calming down and looks solid. With a 10 P/E and a 3.3% dividend yield, this is still a good bargain. BUY.

WNS Holdings (WNS) has been very choppy, but the general trend has been up since October 12, which includes a positive reaction to the company’s October 25 earnings report. There’s still a wad of overhead to chew through between 50 and 52, but the stock’s action has broken the downtrend that started in the middle of July. Ideally, WNS will trade sideways in a tightening range, building a base for further advances. We’ll keep it rated Watch for now. WATCH.