Emerging and international markets are holding their own as U.S. markets hit new highs in the wake of modest interest rate cuts by the Fed.
The emerging market index (EEM), a basket of 800 stocks, is trading at just 12 times forward earnings. The key to unlocking this value in a big way is probably a weaker U.S. dollar.
The pound is tumbling as markets have accepted that a “hard Brexit,” with the UK leaving the EU without any deal in place, is very likely.
Trade negotiators from the U.S. and China were back at it this week in Shanghai. China seems to be playing a waiting game.
The U.S. side is focused on getting commitment for agricultural purchases and has been careful to moderate its response to mass antigovernment protests in Hong Kong, over fear of rocking the boat with Beijing
China also launched its “New Nasdaq” for smaller more speculative private companies through the launch of 25 IPOs with stupendous results out of the box.
Portfolio Update
Alibaba (BABA) is year-to-date up almost 30% and about 10 points better than the S&P 500. It is important to note that this is five times better than the iShares China Large-Cap ETF (FXI).
Its expected IPO on the Hong Kong Stock Exchange will likely be a net positive for current shareholders though the arguments on both sides have merit.
Certainly, adding Chinese retail investors into the mix is positive but there will be dilution as well as the issue of what BABA will do with the $10 billion to $20 billion they expect to raise. Some expect that a significant acquisition is in the works.
In other news, BABA has recently become the exclusive seller of Salesforce’s cloud-based customer relationship management (CRM) software suite in the Greater China region.
BABA remains a great core China holding trading at an attractive valuation. BUY A FULL POSITION.
ICICI Bank (IBN) jumped 6% early this week on positive earnings and prospects. India’s second-largest private lender reported a quarterly profit compared with a loss a year earlier, helped by lower provisions and higher retail loan growth.
Net profit for the fiscal first quarter ended June 30 was 19.08 billion rupees ($277 million).
The bank’s corporate loan book grew at a pace of 13% in the quarter, while its retail loan book grew 22% and net non-performing assets (NPA) at the end of the June quarter were down 51% to $1.17 billion.
IBN is a solid India play in the wake of President Narendra Modi’s re-election and reform agenda. There are still 191 million Indians without a bank account, which means a lot of potential new customers.
This is a quality bank in a promising growth market. BUY A HALF.
Infineon Technologies (IFNNY) is a leading broad-based European chipmaker with exposure to secular growth drivers in the industrial and automotive chip sectors.
Infineon was founded when the company was divided from its Siemens parent in 1999.
While the company has spun off of its low-margin wireless baseband chip business to Intel, Infineon is in the process of acquiring Cypress Semiconductor (CY) with plenty of cross-selling opportunities for these complementary companies.
This is an excellent time to begin building a position in this stock given its recent uptrend during the last month after a sharp pullback over the last quarter. BUY A HALF POSITION.
LexinFintech (LX) shares, up 3% today, are pretty flat over the last month and should be performing better based on the company’s strong fundamentals.
The company owns and operates a thriving online shopping mall that also offers installment loans. LX acquired nearly 705,000 new active users in its last quarter while keeping its 90-day delinquency ratio at an ultra-low 1.42%.
The company has signed strategic cooperation agreements with more than 100 more national banks, insurance companies and consumer finance companies. Earnings per share soared 228% on a 95% increase in revenue in the most recent quarter.
LX enjoys a sizable 42% profit margin with a 72% return on equity. This high-growth fintech idea is currently trading at less than 10 times forward earnings projections and I encourage you to build a position if you have not yet done so. BUY A FULL POSITION.
Luckin Coffee (LK) shares got a jolt early in the week surging 15% to break $27 and are trading today at around $25. It is interesting that the stock seems to move on any good news from Starbucks.
Some big hitters have accumulated substantial ownership of LK. The American Funds mutual fund company Capital Group has a 15.6% stake, followed by Singapore’s sovereign wealth fund GIC with 13% and Qatar’s Investment Authority at 8.8%.
The company expects to announce its next quarter’s earnings on August 15th.
The company has launched more than ten tea products as it challenges Starbucks’ dominance of China’s coffee market with a leaner and faster strategy. It aims to attract the average millennial as opposed to Starbucks’ more-affluent upper middle class—with cheaper prices, heavy promotions, quick delivery and mobile ordering.
Since it was founded in 2017, the company has been expanding rapidly. As of March, Luckin had about 2,370 stores in 28 Chinese cities and is on track to surpass Starbucks by the end of 2019 as the largest coffee network in China by number of stores.
If you have not invested in Luckin, which is an aggressive idea that won’t be posting profits for some time, I encourage you to do so starting small up to a half position with a 20% trailing stop loss in place. BUY A HALF.
MakeMyTrip Limited (MMYT), a play on India’s travel industry as well as digital payments and marketing, was up for the week. It is expected to report earnings on July 30th.
Founded in 2000 to serve the travel needs of the U.S.-based Indian community, MakeMyTrip has evolved into a leading travel company as India evolves into a digital marketplace by providing a comprehensive range of travel services.
MakeMyTrip has made key acquisitions and strategic partnerships and a key alliance is with Ctrip, China’s largest online travel group.
If you have not yet done so, I encourage you to take a half position in this India growth stock. BUY A HALF.
Sea Limited (SE) again advanced nicely this past week as the stock has more than tripled so far in 2019. Its ‘Free Fire’ survival game is a star performer in Asia. The company plans to announce its second quarter 2019 on August 20th.
SE’s e-commerce platform is doing well as JP Morgan reports that some of their Shopee Mall’s platforms have raised their seller commissions from 1% to 5%.
SE benefits from high-growth target markets outside of China in gaming, e-commerce and digital payments, primarily in seven Southeast Asian markets. Its gaming segment is the key driver and the other is e-commerce, which is equally robust.
Depending on your entry point, feel free to take some profits off the table. Longer-term investors should continue to buy. BUY A HALF.
Tencent (TCEHY) shares are up 17% since turning upward in early June but a surge in the stock price probably requires regulators in China to further ease up on gaming restrictions (40% of revenue).
This week, Qualcomm, the largest maker of processors that power smart phones signed an agreement with Tencent to work on mobile gaming devices that will use Qualcomm’s Snapdragon chips.
As one of the largest tech companies in the world, Tencent is primarily known for its app WeChat. WeChat is used for basically everything: communicating with friends and family, ordering a cab, doing payments.
Its operating revenue comes primarily from gaming and its social networks. More and more, however, the company has been investing into other tech companies and is evolving into a diversified tech fund.
This is a strong and dominant company. I encourage you to buy a half position at these levels if you have not yet done so. BUY A HALF.
Van Eck Rare Earths/Strategic Metals (REMX) shares were flat this week.
A basket of rare metal and rare earth stocks, this ETF offers us an 11% plus dividend yield and a hedge on U.S.-China tensions, as China may withhold these critical materials from U.S. companies.
China’s dominance of these strategic materials is again headline news and this position is worth buying up to 20. BUY A HALF.
ZTO Express (ZTO) is up 15% since early June but has not done much for us in the last month. I urge some patience as we await earnings.
Based in Shanghai, ZTO is one of the largest express delivery companies, not just in China but globally.
It offers services to millions of traditional merchants, e-commerce sites, and online sellers using a proprietary tracking system, a state-of-the-art transportation management system, and more than 4,500 trucks, as well as hundreds of business partners. And ZTO serves foreign customers through partnerships with many international express delivery companies.
Finally, revenue was up significantly year over year, to $682 million and ZTO maintains a leading 17% market position in China. Any visible progress on U.S.-China trade talks should lead to this stock moving upward. BUY A HALF.
Speculative Recommendations
Largo Resources (LGORF) shares climbed 7% this week and the company recently announced that it is now debt free after paying over its convertible bonds. It now trades at less than five times earnings.
Rare metals are once again in the media spotlight as China threatens to keep more of these key materials at home and potentially deny access to international companies.
Please keep in mind that this is a speculative play on vanadium, which is used to strengthen steel, and is a key ingredient for large-scale grid electrical energy storage batteries. BUY A HALF.
NIO (NIO) had a down and up week finishing about where it started though its share price is up sharply since we added it back to the portfolio about a month ago.
NIO is a speculative, aggressive recommendation and traders should feel free to take some profits off the table.
Automobile sales in China rose 4.9% in June, according to preliminary figures from the China Passenger Car Association. The monthly gain broke a streak of 12 straight months of lower auto sales in the nation.
NIO is a speculative stock and will likely be a bit volatile but I sense an upside as well given that the Chinese government is firmly behind electric vehicles. BUY A SMALL POSITION.
Watch List
Baidu (BIDU) is down 27% so far in 2019 and seems to be building a bottom in the $112- $115 range and is trading at less than 12 times forward earnings. Baidu’s net cash as well as stakes in iQIYI and Ctrip.com represent more than half its market capitalization.
Stock prices are as of 1:00 p.m, August 1.