Morning Note: We’ll Take Brazil over Beijing Right Here…

As I record the year-to-date results of the world’s major equity markets (part of our weekly macro exercise), two areas have been jumping out at me for the past several months, Asia (China in particular) and Latin America.

From a pure price/trend (well, I should throw in valuation and dividend income as well) standpoint, history suggests that the next decade’s best equity market performance will not come from the U.S.. That and other factors has us positioning (while in no way abandoning U.S. equities entirely) for that outcome.

Asia and Latin America look especially attractive, especially from a return reversion standpoint.

Thing is, there’s China, whose major averages are now virtually flat on the year (and occupy 40% of our emerging markets index ETF [which makes up ~8% of our core allocation]) who’s just not getting along with the western world these days, and who, at the moment, is aggressively sticking it to its own tech and, now, for-profit education sectors. 

Notwithstanding our understanding that Chinese authorities have the power, and at times the will, to directly pump their equity market, we’re cutting our exposure a bit here and picking up more of what we view as a much more comfortable, and opportune, region of the emerging world (where, in total, 85% of the Earth’s people live — and, therefore, the greatest longer-term opportunities abound).

Clients (only! i.e., not advice for non-client subscribers), here’s from our internal notes:

7/26/2021: (CUTTING VWO IN ALL PORTFOLIOS BY 30%, PROCEEDS ALL GOING TO ILF (LATIN AM)… China finds itself on the global defensive and is aggressively imposing regs and penalties onto select targets within its own tech sector — while it appears it’s attempting to mitigate the damage via monetary easing — creating an uncomfortable risk in its equity markets. Latin Am holds among the cheapest opportunities globally and is uniquely positioned for growth going forward.

Asia struggled overnight, with all but 3 of the 16 markets we track closing lower.

Europe’s leaning slightly green this morning, with 11 of the 19 bourses we follow trading higher as I type.

U.S. stocks are mixed: Dow down 74 points (-0.21%), SP500 down 0.07%, SP500 Equal Weight up 0.08%, Nasdaq 100 up 0.05%, Nasdaq Comp up 0.17%, Russell 2000 up 0.94%.

The VIX (SP500 implied volatility) is up 6.92%. VXN (Nasdaq 100 i.v.) is up 7.92%.

Oil futures are down 0.10%, gold’s down 0.18%, silver’s up 0.09%, copper futures are up 4.10% and the ag complex is up 1.06%.

The 10-year treasury is up (yield down) and the dollar is down 0.31%.

Led by oil services stocks, KRBN (carbon credits), energy, Viacom and bank stocks — but dragged by emerging market equities, Asia-Pac equities, healthcare, staples and Verizon — our core portfolio is up 0.13% to start the session.

Well, you know I’m thinking about the Federal Reserve when I share today’s quote:

“…we are doing something as crazy as trying to keep the mountains and get rid of the valleys.”

–Alan Watts

Have a great day!


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