China Market is Beating Them All


The Cabot Emerging Markets Timer has turned decisively negative, signaling that caution is now the order of the day.

There hasn’t been much significant news about emerging markets and their stocks. Politics, terrorist attacks and the progress of the U.S. holiday shopping season are the top headlines. Energy stocks remain weak after this week’s OPEC meeting, as there is no end in sight for falling commodity prices. Much of the action in stocks is coming from year-end trading patterns and bets being placed on the result of the Fed’s meeting on December 15 and 16.

The iShares MSCI Emerging Markets ETF (EEM) dipped below its 25-and 50-day moving averages on November 27 and has continued to slide lower since then. That’s not really surprising given the torpid state of the U.S. market since early November. (All three major U.S. indexes are down since the broad rally ended on November 3.)

Surprisingly, PowerShares Golden Dragon (PGJ), which tracks most Chinese ADRs that trade on U.S. exchanges, continues to beat them all. PGJ is still sitting atop its moving averages, maintaining the rally that began in late September. Picking and choosing among the strongest Chinese issues continues to look like the best strategy, as many are holding onto the high-volume gains that accompanied the announcement of the inclusion of 14 China tech stocks to the MSCI Emerging Markets ETF (EEM). That announcement hasn’t helped EEM, but it has certainly supported the named Chinese ADRs.

The major indexes were all up day, but sold off during the late afternoon session to finish with modest gains. At the close, the Dow was up 82 points (0.5%), the S&P 500 up 5 points (0.2%), and the Nasdaq higher by 22 points (0.4%). The iShares MSCI Emerging Markets ETF (EEM) fell 22 cents (0.7%).

This is an excerpt from Cabot Emerging Markets Investor, which seeks to capitalize on the enormous potential in emerging market countries. Chief Analyst Paul Goodwin has been a researcher and writer for over 30 years and a member of the Cabot investment team since 2005.

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