Selloff Tech Centered, Not China Centered

by Paul Goodwin on April 17, 2014

This is an excerpt from Cabot China & Emerging Markets Report, which seeks to capitalize on the big boom in China and other emerging market countries. Editor Paul Goodwin, Cabot’s international investing guru, provides your passport to profits.

The high-speed moves in the PowerShares Golden Dragon Halter USX China ETF (PGJ) are still happening, although there are signs that the volatility may be dampening. The ETF is showing some sideways movement, something that has been lacking in the recent volatile action. The situation may have been helped by a Chinese GDP growth figure of 7.4% for the first quarter that slightly bettered the expected 7.3% rate. It may be, too, that investors have done enough selling to get their nerves under control.

There are no guarantees, but with emerging markets stocks gaining in March while Chinese stocks declined, the consensus may be that there are better bargains in other markets. The selloff in Chinese stocks has mirrored the chart of the Nasdaq since the beginning of March, so this selloff may be centered more on tech stocks than on Chinese issues per se.

The Cabot Emerging Markets Timer remains below its moving averages, signaling caution. Our cash position remains at 55%, which represents a significantly defensive stance. When the markets get back on their feet and the new leaders emerge, we will shape the portfolio to match the market’s mood and its taste in stocks. For now, keep your personal stops tight and follow the rules.

U.S. markets advanced for much of the day, but fell late in the session to close mixed. At the close, the S&P 500 was up 2 points (0.14%) and the Dow fell 16 points (0.10%). The Nasdaq advanced 9 points (0.23%). The PowerShares Golden Dragon Halter USX China ETF (PGJ) gained 0.21 points (0.72%) to finish at 29.36.

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