In Wake of Historic Summit, Do Asian Shares Look Attractive?
It actually happened. A current U.S. president shook hands with a North Korean leader, mugged for the cameras and then talked about ways to avoid war between the two nations.
The summit was reportedly short on substance and long on spectacle. Meaning, the "real" work of complex denuclearization negotiations begins now.
However, with the long history of broken promises and failed deals with North Korea, it’s tough to be overly optimistic.
You can get detailed geopolitical analysis, as well as astute commentary from others with far more diplomatic expertise than me, elsewhere. What I’m going to cover here is what I know best: the investment implications of this story.
More specifically, do our Weiss Ratings suggest any regional stocks look attractive in the wake of these talks?
Let’s start with the most important variable: the U.S. dollar.
The greenback has been on a tear. Some of it stems from the fact that our economic numbers have been strong lately. Some of it stems from the fact that our Federal Reserve is hiking interest rates earlier and more aggressively than any other major central bank in the world. (And it will likely do so again later today.)
Regardless of the cause, the effect is that it’s drawing capital out of emerging markets and in to ours.
This, in turn, is hurting the value of foreign currencies, bonds and stocks.
Just consider the year-to-date performance of benchmark ETFs that track major Asian markets. As you can see, every single ETF is trailing the SPDR S&P 500 ETF (SPY, Rated "C+"), which was recently up around 5%:
* The iShares MSCI Indonesia ETF (EIDO, Rated "C"): -11%
* The iShares MSCI South Korea Capped ETF (EWY, Rated "C+"): -1.1%
* The iShares Malaysia ETF (EWM, Rated "C"): +1.3%
* The iShares MSCI Japan ETF (EWJ, Rated "C"): +1.5%
* The iShares MSCI Singapore Capped ETF (EWS, Rated "C+"): +1.8%
* The iShares MSCI Hong Kong ETF (EWH, Rated "C"): +2.9%
* The iShares China Large-Cap ETF (FXI, Rated "C"): +4.2%
But to help you dig deeper and find some potential diamonds in the rough, I turned to the Weiss Stock Screener tool (something you have access to as a Weiss Platinum member. Specifically, I screened for any stocks that trade here in the U.S. but that are based in one of the seven aforementioned markets — South Korea, China, Hong Kong, Singapore, Japan, Malaysia or Indonesia.
I eliminated any companies rated "D+" (SELL) or lower, as well as those with market capitalizations of less than $500 million, closing prices below $5, and 30-day average trading volume below 50,000 shares. Then I further narrowed the list down to companies with year-to-date returns of between 0% and 20%.
The idea? Zero in on only liquid stocks. Then get rid of the highest of the high flyers, which might have made all the gains they’re going to make by now, as well as those which are still performing poorly almost halfway through the year.
Here’s the resulting list, sorted in descending order by year-to-date gains:
Data Date: June 12, 2018
You can see that regional energy giants like CNOOC Ltd. (CEO, Rated "C") and PetroChina (PTR, Rated "C-") topped my list. They’ve racked up solid double-digit returns thanks to the recent rise in oil prices.
Bottom line? If you’re feeling optimistic after the summit and looking for regional exposure, these are the kinds of more-highly rated stocks to consider.
Just don’t go overboard. A stronger U.S. dollar and greater volatility overall are two clear headwinds — to say nothing of the risk that the deal and any positive vibes it engendered could fall apart down the road.
Until next time,
P.S. Looking for OTHER ways to profit from a rising dollar? Or other conservative, higher-yielding investments that don't come with all that emerging market risk? Then check out my Weiss Ratings' Safe Money Report. I just sent the June issue to subscribers, complete with two hot-off-the-presses recommendations. Click here to get your hands on them.