|Dow||+56.22 to 17,958.73|
|S&P 500||+9.28 to 2,091.18|
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|10-YR Yield||+.063 to 1.958%|
|Gold||-$8.50 to $1,194.60|
|Crude Oil||+$0.34 to $50.76|
The dot-com bubble? That’s sooooo 1999. Today, it’s Chinese and Hong Kong shares that are trading like Pets.com!
Consider: The Hang Seng Index surged 6.4 percent overnight — in the first few minutes of trading!
The benchmark index ended up, gaining “only” 2.7 percent by the close. But that move came on the heels of the prior day’s 3.8 percent rally, which pushed the Hang Seng to a seven-year high.
It’s not just prices, either. Trading volume exploded to 291.5 billion Hong Kong dollars — the most in history. That was also triple the average over the past month.
|What’s behind the surge in Chinese stocks?|
So what’s behind the surge?
First, China’s central bank has been cutting interest rates and reserve requirements in order to bolster the country’s flagging economy. Fiscal authorities are launching other measures as well, including a so-called “Silk Road” project that will boost investment and trade links with countries elsewhere in Asia, Europe, and Africa.
Optimism about those measures has led to a major surge in China’s domestic Shanghai market. It’s up 23 percent so far in 2015 and almost 90 percent in the past year. That makes it the best-performing index in the world.
Second, the Chinese government is increasing the links behind the Hong Kong market that tends to attract foreign investors and the Shanghai exchange that’s dominated by domestic Chinese traders and investors. That’s dramatically boosting demand for the Hong Kong shares of dual-listed companies, in large part because they trade at discounts of as much as 35 percent than their Shanghai versions.
All of this begs an obvious question: Can you … as a U.S. investor … join the party? And even if you can, should you?
Well, the iShares China Large-Cap ETF (FXI) tracks the biggest Chinese stocks that trade on the Hong Kong exchange. And the iShares MSCI Hong Kong ETF (EWH) tracks Hong Kong companies that trade there as well.
Both exploded higher in the past few days, leaving FXI up more than 15 percent year-to-date through yesterday’s close and EWH up almost 10 percent. It’s hard not to notice the massive chart breakouts those moves created.
Still, we know from history that moves of this magnitude in a short period of time smack of past bubbles. That makes chasing the moves now relatively dangerous for all but the most nimble of traders.
One exception might be large Chinese energy companies that trade here in the U.S. They haven’t rallied as much as their counterparts in other sectors, and could benefit from the rally overseas and a rebound in energy prices overall. I’ve owned one of them in one of my active trading services for a little while now, and my subscribers are seeing nice gains as a result.
|“I took a contrarian position or two in Russia and Brazil recently.”|
I’ve also suggested looking at other emerging markets outside of China for a while. I took a contrarian position or two in Russia and Brazil recently, even as most of the talking heads proclaimed those markets DOA. Now, we’ve just seen the biggest rally in the beaten-down Brazilian currency in three years and the Russian currency just hit a five-plus-month high! Result: More profits.
So if you haven’t already considered investing some of your money in super-cheap emerging market assets (outside of China), I’d recommend you explore them in more detail and start buying on pullbacks. But be prepared for the volatility and sharper swings that are part and parcel with investing in foreign markets!
Okay, that’s enough from me. What do you think? Are you chasing Chinese shares? Do you think this is another mania, or a move that says something more constructive about China’s longer-term outlook? What other emerging markets, if any, have you been investing in or considering? Make sure you weigh in at the Money and Markets website!
|Our Readers Speak|
Yesterday’s mega-merger in the energy sector got a lot of chins wagging over at the website, so let me recap some of the most interesting comments here.
Reader H.C.B. asked if the company formerly known as British Petroleum and now just BP Plc (BP, Weiss Ratings: C-) could be the next to be acquired. His comments:
“Is it a candidate for acquisition and who, if anybody, would attempt to buy the whole company? I see BP as a company that got too big to manage and it fell apart in July 2010 after the Gulf Oil well fiasco.
“It has been selling off bits and pieces ever since (refining, pipelines, etc.) It’s definitely a somewhat leaner company, based on assets but still has more staff (overhead costs) compared to its peers. Do you think it might be acquired and who might be large enough to handle it, if anybody?”
Reader Jim responded by saying he thinks BP is definitely a potential target. His view: “BP would be a major coup for a great management team. It’s a strong buy in my book. Ten times earnings and a 6 percent dividend? It doesn’t get much better.”
As for buying the energy sector in general, he added: “It may have another leg down, but what if it doesn’t? You will have missed the sale of the century. It will bottom and it will rebound. Playing the majors is the most prudent way to do it. They will certainly weather the leg down and pay their generous dividends while we wait.”
Thanks for weighing in. BP is pretty large considering its market cap of $124 billion. But that’s a lot smaller than ExxonMobil’s (XOM, Weiss Ratings: C) $353 billion, or Chevron’s (CVX, Weiss Ratings: C) $201 billion. So it’s possible we could see another super-major tie-up.
But I personally believe it’s the smaller-cap and mid-cap names that are the most attractive. Those are the ones likely to get bought up by majors looking to bulk up on reserves and acreage at cheap prices!
Meanwhile, in the wake of the historic deal, Reader Tom W. asked: “I already own shares of Royal Dutch Shell (RDS/A, Weiss Ratings: C). What does this merger mean to me?”
Tom, the stock took a short-term hit because many analysts believe RDS overpaid. It looks to me like they could have paid less as well. But let’s face it. If energy prices rebound over time, as I expect, opinions will shift — and investors will be kicking themselves for their initial skepticism!
Anything else you’d like to add on energy stocks? Oil prices? The possibility of more mega-deals in the space? Then here’s the link where you can add your comments.
|Other Developments of the Day|
Aluminum producer Alcoa (AA, Weiss Ratings: C) kicked off the first-quarter earnings season, reporting that net income climbed to $195 million, or 14 cent per share, in the period. That was a big swing from the year-ago loss of $178 million, or 16 cents per share.
If you exclude special items, you see the company beat analyst estimates by three cents. But the stock pulled back in part because revenue missed targets.
Greece managed to avoid defaulting … for a few more days anyway. The country made a 459 million euro payment to the International Monetary Fund (IMF) today, and managed to raise 1.1 billion euros through a short-term debt sale yesterday. But it will still need to convince its European creditors to release more than 7 billion euros in aid that’s being withheld in order to make its next round of payments.
Lots of bombs continue to fall on Houthi fighters. But it doesn’t appear to be stopping their advance in Yemen. Reuters reports that the Shiite Houthis took over an eastern Yemeni town in the heart of Sunni territory. The new advance will likely lead to more fighting with Al Qaeda in the Arabian Peninsula (AQAP).
The next hot beach vacation spot could be in … Antarctica?? Maybe, considering temperatures at two bases on the continent’s Antarctic Peninsula hit a record 63 degrees in late March.
Scientists say the unusually balmy temperatures have more to do with the interaction of winds and local geography than climate change. But either way, I hope those scientists have their sunscreen and bathing suits handy!
Any comments on these stories? Concerned that I missed other important ones? Want to tell me about it? Then use the website to let me have it!
Until next time,