Still No Consensus on Global Outlook

 

Investors still lack consensus about where global economies are headed. The Fed seems pretty certain to begin raising interest rates in December, but very little else is assured. We are due for a flood of economic data and early next week we will have preliminary results from Black Friday and Cyber Monday. But when you factor in the anticipated year-end adjustments to institutional portfolios (which usually means bulking up on the stocks that have been winners for the year), the strategy of highly selective buying looks better and better.

The iShares MSCI Emerging Markets ETF (EEM) traded under resistance just above 36 for most of October, then dipped below its moving averages earlier this month. Fortunately, EEM has recovered to just above its lower (50-day) moving average, keeping our buy signal intact. PowerShares Golden Dragon (PGJ), which tracks Chinese ADRs on U.S. exchanges, continues to perform much better, rallying strongly through October and the first week on November, then correcting just to its rising 25-day moving average before bouncing to multi-month highs. The great relative strength of Chinese ADRs reinforces our opinion that our country-neutral stock picking is pointing us in the right direction.

The only big news about China is the inclusion of 14 tech-oriented Chinese ADRs to the MSCI Emerging Markets ETF. These stocks will be added to EEM in two stages, half on November 30 and the remaining half of May 2016. The addition of these stocks to a major index will result in significant support as institutions who use the MSCI Index as a benchmark for their Chinese mutual funds adjust their holdings. The stocks are: Alibaba, Baidu, 58.com, Ctrip.com, JD.com, NetEase, New Oriental Education, Qihoo 360 Technology, Qunar, SouFun Holdings, TAL Education, VipShop, Youku Tudou and YY.


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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Paul Goodwin can be found on Google Plus.

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