Reprinted from MarketWatch
China canary still chirping
Commentary: But Cabot may be picking up signs of trouble
By Peter Brimelow, MarketWatch March 30, 2011
NEW YORK (MarketWatch)—A top-performing letter I’ve suggested may be a canary in the Chinese coal mine is still chirpy, despite the correction. But its money is not quite where its beak is.
Cabot’s China and Emerging Markets Reporter (CCEMR) has had one of the most brilliant records ever tracked by the Hulbert Financial Digest. I named it letter of the Year in 2007. (See Dec. 30, 2007 column.)
But more recently, CCEMR has run into trouble, causing me to speculate that it may be picking up subtle signs of stress in China’s incredible boom, much like the canaries that coal miners took underground with them because they were so sensitive to poisonous gas.
CCEMR’s crunch continues. Over the year to date through February, the letter was down 5.1% by Hulbert Financial Digest count vs. a 5.8% gain for the dividend-reinvested Wilshire 5000 Total Stock Market Index. Over the past 12 months through February, Cabot was up just 0.01% vs. 24.18% for the total-return Wilshire.
On the face of it, CCEMR seems to be responding with more China cheerleading. It wrote recently: “We have always believed that the growth of national economies is a necessary prerequisite for stock-market advances. And that’s why we are not surprised, even though we don’t have any country bias in our stock-selection process, that most of our stocks are either from China, or dependent on China’s economic engine.”
“Recent news only reinforces our impression that the Chinese economy will continue to outpace the rest of the world. China officially adopted its 12th Five Year Plan earlier this month. … [It] details a plan to build 36 million low-cost homes, encourage the continued urbanization of its population, develop green industries, and keep the annual growth of GDP below 8% per year. The plan is a show of strength by a country with excellent prospects. The obstacles, including inflation, pollution, corruption and the possibility of civil unrest, are substantial. But the smart money is on China.”
This irritates me, because of my long-held suspicion that no one really knows what’s going on in China’s economy—which, of course, has not stopped people from making money off of it . (See Nov. 18, 2010, column.)
However, what really distinguishes CCEMR is its disciplined method, combining a moving average timing system—its “China-Timer”—with shrewd stock-picking based on fundamentals. It almost doesn’t need to know what’s happening in China at all.
Recently, CCEMR wrote: “The Cabot China-Timer is still negative, but just barely. Another couple of positive days will likely produce another buy signal. But for now, we’re sticking to our negative rating. Our stocks are performing well, and emerging-market stocks may be shaking off the doldrums that began in January.”
CCEMR continued: “The Halter USX China Index (HXC) has been through a significant correction, and last week retested its support just below 6,000 … since the next couple of days will see the index scrub off the Feb. 22 plunge (and the negative day on either side), a new buy signal is possible in the near future, unless things turn sour again.”
The HSX stood at 6,312 on Tuesday.
CCEMR’s system had it down to only 50% invested, which may well prove to have stood it in good stead when the HFD’s post-correction monitoring through March 31 is released next week.
In CCEMR’s monthly letter dated March 17, it enthused about Youku.com Inc. (YOKU), the so-called “Chinese YouTube,” but added that “with the Cabot China-Timer solidly negative, we don’t advise buying YOKU right now. … We think it will be a good addition to your Watch List as we wait out this rough patch.”
Late last week, it decided that the rough patch had smoothed enough to return Cnooc Ltd. (CEO), an old favorite, to its buy list.Link to full story
Link to MarketWatch story
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