MarketWatch on Cabot's China Outlook: "More Upside for the Middle Kingdom"

In his MarketWatch column, Peter Brimelow wrote about Cabot China & Emerging Markets Report's Paul Goodwin outlook for China in "China's Cookie Uncrumbling? China Bull Sees more upside for Middle Kingdom."  Calling the Cabot China Report "unquestionably one of the most remarkable records we’ve seen in 30 years of Hulbert Financial Digest monitoring, Brimelow quotes from a recent issue, writing that the Cabot China Timer has broken through to new highs...and "following nearly a full year of base building, the odds favor this uptrend having legs, so that any consolidation or weakness should lead to higher prices.”

Reprinted from MarketWatch:

China’s cookie uncrumbling?

Commentary: China bull sees more upside for Middle Kingdom

By Peter Brimelow, MarketWatch October 27, 2010

NEW YORK (MarketWatch) —The Obama Administration seems to have failed to get China to revalue. Maybe that’s why a long-time China bull is so cheerful.

When I last checked in with Cabot’s China & Emerging Markets Report (CCEMR), it seemed finally conceding that China was, if not a bubble, at least mortal. (See May 20 column.)

That has been arguably reflected in CCEMR’s results. Over the year to date through September, CCEMR is down 16.4% by Hulbert Financial Digest count vs. a 5% appreciation for the dividend-reinvested Wilshire 5000 Total Stock Market Index.

But before this year, CCEMR, after changing its focus to China in 2004, has outperformed the market dramatically. Over the past five years, the letter is up 18.76% annualized against 1.11% annualized for the total return Wilshire 5000.

This is unquestionably one of the most remarkable records we’ve seen in 30 years of HFD monitoring. I named CCEMR Letter of the Year in 2007. (See Dec. 30, 2007, column.)

In its most recent issue, CCEMR’s doubts seem to have dissolved. Exchange-rate mercantilism may be bad for the U.S., and for the world, but it does spur growth in China.

CCEMR says the moving-average system it calls its China Timer has broken through to new highs and has been “like smoke in a chimney. … Obviously, at some point a pullback (possibly a scary one) will come as profit-taking sets in following this massive advance. But following nearly a full year of base building, the odds favor this uptrend having legs, so that any consolidation or weakness should lead to higher prices.”

CCEMR is now 95% invested. Most stocks in its small portfolio are Chinese, but CCEMR tries valiantly to diversify and recently added MakeMyTrip Ltd. (MMYT), an Indian online travel agent.

CCEMR’s impressively disciplined system has strict sell rules for underperforming stocks — it recently sold Solarfun Power Holdings Co. (SOLF).
A side note: CCEMR recently carried this approving comment on the 2002 Sarbanes-Oxley legislation, which among other things, made public company executives personally liable for accurate accounting.

CCEMR comments: “One side effect of the new reporting regime is that insider trading has been reduced nearly to extinction. Gone forever are the days when a brother, aunt or friendly financial institution could use some lunch-table conversation to get down a profitable bet before earnings come out. The SEC’s computers are ever wary of unexplained blips in trading patterns, and insiders are now pretty tight-lipped about results.

However, CCEMR adds: “On the downside, this has eliminated the little tells that used to give close observers an inside edge on earnings from watching a stock’s chart. That’s because in the days before computers monitored everything, a little discrete insider trading was winked at. So a stock that edged down in the week before the earnings call was a signal for the wary to lighten up on that issue.”

“No more. For better or for worse, we’re all in the earnings minefield together now.”

This seems to me to support the libertarian case for ignoring insider trading — it actually improves the market’s efficiently by sending price signals. As it is, signals sent by the legal versions of insider trading are the basis of letters like Insider Insights.

But CCEMR is not interested in this theoretical issue. It apparently just thinks Sarbanes-Oxley has improved accounting standards for foreign stocks traded in the U.S.

Link to full story

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