Ideas for Latecomers

03/23/2010 10:55 am EST


David Fuller

Global Strategist and Producer, Fullermoney

China, Vietnam, Japan, and the big European industrials have lagged the gains elsewhere and now look attractive, writes David Fuller of Fullermoney.

I remain hopeful for 2010. Consequently I am looking for laggards which have at least cyclical catch-up potential. A drawback to this approach is that markets often lag for a good reason, which needs to change if investment demand is to increase sufficiently to produce relative performance.

I could top up one of my two China funds, which are the relaunched and US dollar-denominated Atlantis New China Fortune Fund (Dublin: 3576036) and the sterling-denominated iShares FTSE Xinhua China tracker (London: 0094), because China has lagged in recent months. This is not without reason, as we know, because from last July, China encountered heavy supply from initial public offerings at a time when the government was reining in credit.

However, the IPOs have slowed and credit tightening is mainly to prevent a property bubble, while keeping the dynamic long-term growth outlook on track. I would rather buy China when people are worried about it than when it is a stock market performance leader.
I could also top up our small position in the DB FTSE Vietnam ETF (London: XVTD). Vietnam has lagged because it has an inflation problem and the currency was devalued. Nevertheless, I think the long-term outlook is compelling. Incidentally, if I paid up for an Asian growth fund it would be the Aberdeen New Dawn Investment Trust (London: ABD). The performance has been superb and I really should add to this position on a setback.

Among developed country markets, Japan is currently interesting. Most of us older stagers have a love/hate relationship with Japan's stock market and with a couple of exceptions, hate has been ascendant since 1990. I maintain that a weaker yen is crucial to a successful stock market recovery for Japan. Were it to weaken, I think we would gain much more in the equity performance for this export-oriented economy than we stand to lose via the yen. With Japan I would opt for a fund, such as the dollar-denominated Atlantis Japan Growth Investment Trust (London: AJG) which currently sells at a 15% discount to net asset value, according to Bloomberg. 

The euro's weakness [is] creating a more positive environment for Euroland's exporters to the rest of the world, as it would boost their consolidated earnings. Siemens AG (NYSE: SI) and ArcelorMittal (NYSE: MT) [are] candidates that I [am] considering for a trade. Both have good chart patterns and Siemens could run following a breakout from its large trading range. Both have been firm recently. I opened a number of long trades in ArcelorMittal last year and continue to regard it as a buy on setbacks, provided it remains on the left side of the rising moving average. [US ETFs comparable to the London-traded iShares FTSE/Xinhua China and DB FTSE Vietnam are the iShares FTSE/Xinhua China 25 (NYSE: FXI) and the Market Vectors Vietnam ETF (NYSE: VNM)—Editor.]

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