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Cabot Emerging Markets Investor Bi-weekly Update

Trade war uncertainties have nipped our young buy signal in the bud, but the situation is highly fluid, so we’ll be making portfolio choices on a stock-by-stock basis.


Trade war uncertainties have nipped our young buy signal in the bud, but the situation is highly fluid, so we’ll be making portfolio choices on a stock-by-stock basis. The only change in the portfolio today is that I’m dropping Huya (HUYA) from the Watch list.

There’s no doubt that the trade war between the U.S. and China is still very much on investors’ minds. When the warring parties announced a 90-day cease-fire on Monday, investors pushed both emerging market and developed market stocks higher on increased volume. But the next day, remarks by the U.S. President threw cold water on investors’ hopes, and after markets resumed trading on Thursday (following the day of closure in honor of Bush 41), the sellers had a field day. The situation with both the MSCI Emerging Market ETF (EEM) and the Golden Dragon China ETF (PGJ), is about the same, with the bottom that started forming in late October still intact, but with both ETFs trading below their 25- and 50-day moving averages. It would only take a positive day or two for the green light to reappear, but we won’t second-guess the Timer.

The major U.S. were deep in the red during the morning session, but clawed their way back all afternoon, finishing mixed, with only fractional losses. At the close, the Dow was up down 79 points (0.32%), the S&P 500 lost 4 points (0.15%) and the Nasdaq was higher by 30 points (0.42%). The iShares MSCI Emerging Markets ETF (EEM) lost 0.38 points (0.90%) to finish at 40.64.

Alibaba (BABA), which we returned to the Buy list in last week’s issue, has taken a mild hit from the market’s volatility. The stock bounced nicely from 130 on October 30 to 169 on December 3, and hasn’t given up more than a third of those gains. Investors noted that the company signed a strategic partnership with Uxin Limited, China’s largest online used-car dealer, but that wasn’t enough to overcome the general trend of the market. With BABA still sitting above its moving averages, I’ll keep its Buy a Half rating. BUY A HALF.

Baidu (BIDU), which I used to describe as a core holding for anyone interested in emerging market stocks, has just about used up its ration of patience. BIDU ran from 175 on November 20 to 196 on December 3, but has fallen back below its down-trending 25-day moving average and hasn’t shown any inclination to head higher from the base it started in late October. I’ll give it another week, but any close under 175 will have it crossed off the watch list. WATCH.

Bilibili (BILI) hasn’t been able to follow through on its intraday move above 16 on December 3, but remains in the upward trading channel it has occupied since the middle of August. Sure it’s volatile, but its uptrend is intact and its November 20 leap higher on huge volume looks like a tipoff day. There aren’t many issues aimed as squarely at China’s Gen Z. I’ll keep it rated Buy. BUY.

Huya (HUYA) has shown exactly zero inclination toward a sustained rally of any kind. I’m going to drop it from the watch list, with the understanding that, if it can pull itself together, I’m always happy to take a second look. DROP.

MiX Telematics (MIXT) continues to hold tightly to the gains that followed its excellent earnings report, trading sideways with firm support at 17.5 and resistance at 18. The stock made a little run at that resistance on Monday, but has pulled back into its consolidation range. I’ll keep the recommendation to Buy a Half position, but a convincing move above 18 will likely lead to an upgrade. BUY A HALF.

NIO Inc. (NIO) has given back some of its strong November gains, but is still holding above its 25- and 50-day moving averages. (The stock is so young that it just got its 50-day average on November 20.) With its aim squarely on the high end Chinese consumer, NIO will remain a high-risk proposition, but also has high potential. I’m happy to have it on the Watch list. WATCH.

Petrobras (PBR) revealed plans on Wednesday to execute asset sales and partnerships that will raise nearly $27 billion by 2023. This is about what the market expected, and the reaction has been moderately negative, but hasn’t dropped PBR below its November lows. The global decline in oil prices hasn’t been helping either. I think keeping our half position in PBR rated Hold makes sense. HOLD A HALF.

Tencent Holdings (TCEHY) showed some power after its promotion last week to the buy list, but has weakened along with the market over the past couple of days. Tencent should be getting a nice revenue boost from the IPOs of companies like Meituan Dianping and Nio Inc. in which it’s an investor. The IPO of Tencent Music, another Tencent investment, should also bring in a healthy wad of cash. TCEHY popped from 32 to 42 in just a little over a month, and the market’s woes this week haven’t taken much of a bite. BUY A HALF.

Vale (VALE) narrowly escaped the axe last week when it fell below its 200-day moving average. The stock has recovered some, but I can’t call it strong. Investors are still worried about the global appetite for its iron ore (especially with China’s iffy economy), but so far VALE hasn’t tripped our loss limits. I changed it last week to a Hold, and that seems like the right rating here. HOLD.

WNS Holdings (WNS) has been pushed around by the market recently, rallying from the middle of October to the middle of November, then slipping back again. The business is steady, and support around 47 looks solid, so I’ll keep it on the Watch list. WATCH.