A Timely Chinese Opportunity
The global economic expansion continues apace, albeit not without hiccups and setbacks focused around the PIIGS group of nations. There, we recently saw trouble manifest in Fitch Ratings Agency’s downgrade of Portuguese sovereign debt (from AA to AA-), an event that brought European bourses under pressure for all of three minutes, after which they continued to climb as before.
So, too, with the latest round of negotiations in the ongoing saga of Greece and her (relatively) unhealthy BBB+ sovereign debt rating. In the case of the Athenians, the European Central Bank appears willing to lower collateral standards to keep everyone happy. The markets apparently expected the move; they know all too well that no single party wants to be seen as responsible for destroying the nascent global recovery.
In short, the markets are shrugging off the bad and focusing on the better. Recent English consumer spending numbers, for instance, pushed the London exchange higher – and had a healthy influence on the Pound, too. This is an eventuality we’d addressed in recent missives. The selloff in European currencies against the dollar will inevitably retrace, and sooner rather than later, in our estimation. The Greek tragedy that was responsible for the Euro’s (and Pound’s) drubbing is turning out to be more farce than genuine drama.
Here’s the dollar of late:
From the chart, it’s clear that the dollar has begun a new leg up after a roughly two month stint at current levels. But don’t be surprised to see a breakdown in the weeks ahead that brings the buck down to the congestion area around 80 – and look, too, for the trendline (in green, above) to be broken. That break should mark first fan-line support. We’ll be looking for a new trendline to form in the weeks that follow. The reason for our suspicions about recent dollar and market strength is a certain whiff of confidence on Wall Street that smells like an interim top in the making.
That said, we don’t expect any real or lasting technical damage to be done on the dollar chart from the pullback. As you can see, RSI and MACD readings are solidly in the bullish sphere.
In short, the dollar’s strength is a harbinger of good things to come. As we’ve stressed ad infinitum:
The dollar’s rise entices global investors to purchase U.S. assets;
that includes stocks, bonds and, yes, even real estate.
And there’s reason to assume that the velocity of purchases is picking up – in stocks in particular. Not only has the stock market achieved new highs, but rising short term interest rates are also indicative of a move out of short term money into riskier assets. Here’s a chart of the one month U.S. T-Bill for the last six months. Note the rise since early February in particular.
The three and six month bill charts look identical. Folks appear to be finding faith.
But where that money ultimately heads is the all-important question.
And in our opinion, there’s one destination that will prove superior to all. China.
Look here:
This chart shows U.S. market cap as a percentage of global market cap since the March, 2009 bottom. U.S. markets did wonderfully since then, but until November of 2009 not as well as the rest of the world. But that has been changing since the dollar began to turn. And now that the dollar may be poised for a break, we look east.
But not quite so far east. New York, actually. That’s where the bulk of Chinese ADRs trade, and that’s where we’re focused. Look here:
Last August, the Shanghai market peaked and has been moving sideways ever since. But U.S. listed, Chinese ADRs never ceased their uptrend.
In short, the greatest upside appears to be offered in Chinese listed stocks that Americans have access to. That includes a variety of names in a select category of industries, including the ever growing, Shanghai-based internet search engine, Baidu (NYSE:BIDU), whose standing in the market was recently boosted by Google’s announcement that it would leave the China market.
BIDU’s gain may be somewhat overdone in the short term, but should continue to outperform. Shares of Hutchison Telecom (NYSE:HTX) and China Mobile (NYSE:CHL) look even more attractive from a number of fundamental and technical perspectives.
In upcoming issues we’ll look more deeply into Chinese opportunities and investigate some less well-known investment horizons currently offering outsized profit potential.
Until then,
Matt McAbby
Random Posts
The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
