A Welcome Change in Climate

04/08/2010 3:26 pm EST

Focus: GLOBAL

Igor Greenwald

Chief Investment Strategist, MLP Profits

China and the US: good friends, or BFF. This wasn't exactly the question anyone was asking three weeks ago, when it seemed as if the world's most powerful nation and its biggest and fastest growing one might elevate their bickering to a whole new level of confrontation.

Google was packing its bags to escape Beijing's censorship, highlighting the difficulties of US multinationals competing against China's homegrown champions. And that was on top of disagreements over human rights, Taiwan and Tibet, mutual trade complaints and a renewed push in Congress to penalize China for tying its undervalued currency to the dollar.

Chinese leaders were talking tough, and congressional Democrats seemed to be spoiling for a pre-election fight, egged on by business leaders no longer so concerned about staying in Beijing's good graces. But a funny thing happened on the way to Cold War II: Both sides quickly came to their senses.

Google redirected its Chinese search page to an uncensored one in Hong Kong and lost some local partners as a result, but was not summarily kicked out of the country. Chinese President Hu Jintao decided to attend a nuclear nonproliferation summit in Washington, holding out the possibility of a deal on new sanctions against Iran. And the US Treasury secretary was summoned to Beijing, reportedly to discuss the imminent loosening of the currency peg.

It's hardly a second honeymoon; the parties remain estranged. But it's enough that they're talking rather than shouting again, and that China has chosen modest revaluation over a starring role in campaign ads this fall. With the global economy improving by the day, incentives to get along are outweighing mutual suspicions once again.

And meanwhile, for all the fears of a major dust up, along with jitters over Dubai and Greece, emerging markets are up 8% over the last three months after starting the year with a short, sharp correction. Chinese and Indian stocks have risen 10% over that span, while Hungary, Thailand, and Peru have seen their markets surge 18%. Developed markets have been keeping up: Over the same span, Greece is the only market in the red. US and UK stocks have also advanced more than 10% in 90 days.

Greg Weldon's warning that the Greek drama hasn't yet reached its climax proved on the mark, as Greece continues to look for help with rising interest costs and unavoidable austerity.

But as bad as all the deficits in the developed world can look after the deepest downturn in 50 years, corporate balance sheets are overflowing with cash. Carla Pasternak is recommending an Israeli telecom with a 9% dividend yield—and 17% counting a recent one-time top-up.

Meanwhile, Roger Conrad and David Dittman spotlight the strong prospects of Canada's top cinema chain. They give its shares two thumbs up. For the investors who missed the half-price matinee, it might be just the ticket.

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