Since bottoming at the end of October, the MSCI Emerging Market Index (MXEA) and MSCI Asia Ex-Japan ...
Selling China Life to Raise Cash for Earnings Season Disappointment Buys
09/23/2014 5:04 pm EST
It looks like the Chinese economy is going to grow just weakly enough to prevent the market from staging a big rally,so MoneyShow's Jim Jubak is selling his shares of this Chinese life insurance provider as of today, September 23.
In the next week or so, I’m going to put some of the themes for this market that I’ve talked about in September together into a few sells and (later) a few opportunistic buys.
For those with failing memories or who missed one of the posts that laid out these themes, let me summarize where I think we are and where we might be going.
- The US dollar is likely to continue to gain against the currencies of its major trading partners (except for China, of course). That run is likely to continue until the Bank of Japan and the European Central Bank close the cycle gap with the Fed that has the US central bank looking to raise interest rates while the other two central banks look to cut rates.
- The US economy is likely to show faster growth for the next 12 months or more than the economies of the EuroZone or Japan.
- The relatively stronger US economy and currency is likely to lead to the continued outperformance of US stocks and bonds.
- That doesn’t mean the upward trend in the US stock market won’t be without pullbacks.
- With the US stock market indexes near all time highs, any nervousness is likely to lead to relatively greater selling in stocks that are perceived to be riskier, such as momentum plays, high-multiple growth plays, and smaller-cap names. The 6.4% decline in the small-cap Russell 2000 for the quarter to date is a good example of the effects of this preference for larger-cap stocks and perceived safety.
- Emerging market stocks are relatively cheap but the performance of that sector will be constrained by the effect of a strong US dollar, which will put these currencies, economies, and markets under stress.
- With nervousness where it is, with small caps out of favor, and with investors looking on momentum and high multiple small-caps with disfavor, I think we could see big drops in selected names during the earnings season that starts in two weeks when Alcoa (AA) reports on October 8.
I’d like to have some cash on hand to take advantage of any of those potential big drops in high multiple, high growth names.
The stocks I’d like to sell to free up cash for those potential buying opportunities are those that for one reason or another don’t look to be going anywhere in the near term.
For example, I added China Life Insurance to the Jubak’s Picks portfolio back on December 4, 2013 on the theory that, by the second half of 2014, the People’s Bank would have been forced by slowing growth to add cash to China’s economy. That would have set off a rally in Chinese stocks in general and in Chinese financial stocks in particular. In the last few weeks, though, it looks like the Chinese economy is going to grow just strongly enough to let the Beijing government avoid a big stimulus program and just weakly enough to prevent the market from staging a big rally.
In other words, I don’t think China Life is going anywhere for a while.
I’m selling the ADRs out of my Jubak’s Picks portfolio with a 13.3% loss since I added them on December 4, 2013.
Tomorrow, I’ll continue this repositioning by giving the names of some stocks I’d be happy to pick up on a drop—assuming they deliver earnings this quarter strong enough to keep the growth story intact—but not strong enough to prevent a market disappointment.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I managed, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund shut its doors at the end of May and my personal portfolio is now in cash. I anticipate putting those funds to work in the market over the next few months and when I do I’ll disclose my positions here.
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