Don’t Be Spooked by Market Volatility-Opportunity Is Still Knocking!

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  • countries this week were Russia and Brazil. Both increased key rates in order to address their struggling economies and currencies. In Russia, the central bank raised the key rate to 9.5 percent, above analyst estimates. Brazil’s central bank policy makers voted five to three to raise the benchmark lending rate by 25 basis points to 11.25 percent. The MICEX Index closed up 7.83 percent this week, while the Ibovespa Brasil Sao Paulo Stock Exchange Index rose 5.17 percent this week.
  • China was one of the best-performing countries in Asia this week, as its central government stressed policy support for consumption and property, as President Xi Jinping hinted on potential expansion of free trade zones to other parts of the country beyond Shanghai.
  • Turkish stocks continued to rally this week as falling oil prices and synchronized global stimulus boosted the country’s economic outlook. The Borsa Istanbul 100 Index rallied 1.46 percent, making this the third-straight weekly increase.

Weaknesses

  • Greek stocks suffered this week after the Minister of Administrative Reform, Kyriakos Mitsotakis, said there will be a climate of uncertainty until February’s elections. Yields on Greek 10-year bonds jumped 73 basis points to over 8 percent this week. The Athens Stock Exchange closed down 7.62 percent.
  • The South Korean won was among the worst-performing currencies in Asia this week, after the U.S. Federal Reserve officially ended its quantitative easing (QE) program and the Bank of Japan unexpectedly decided to accelerate the expansion of its monetary base to mitigate the impact of higher sales taxes to reflate the economy.
  • Depressed commodity prices, particularly oil and industrial metals, have led investors to maintain a sour outlook on commodity-sensitive emerging markets. Slowing growth in China and Europe has led to significant outflows from exporting emerging markets and their currencies for the past few weeks.

Opportunities

  • Brazil’s recent rate hike creates a significant opportunity in one of the world’s largest emerging markets. The country’s economy, currently in recession, has been dealing with a depreciating currency and inflation pressures. Tighter monetary policy should help strengthen the real and subdue inflation, providing a boost to Brazil’s future growth.
  • Upcoming third-quarter earnings reports for China’s Internet and e-commerce bellwethers, along with the peak online shopping season, should refocus investor attention to the secular growth potential of mobile Internet in China enabled by a lifestyle change with rising smartphone penetration.  China already represents 35 percent of global e-commerce sales as of 2013, and rising adoption by small businesses and the rural population could bring China’s share to 50 percent by 2018, according to Morgan Stanley.

Volatility
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  • Lower oil prices, while detrimental to exporting emerging markets, has been a tailwind for oil-consuming emerging markets. With oil prices continuing on a downward trend, it appears this tailwind will still be in effect in the near future.

Threats

  • A direct contrast to the situation in Brazil, the rate hike in Russia will likely harm the country’s economy. This is the fourth time this year that Russia has raised rates in order to defend the crumbling ruble. Despite positive reactions in the equities market, the currencies market was less understanding. The ruble slid to record lows this week in spite of the rate increase. Therefore, the policy move seems to be rather ineffective for the time being. Furthermore, current borrowing costs in Russia are unsustainably high and are strangling economic growth. The economic environment in Russia is only becoming more concerning.

Volatility
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  • The recent push from the Chinese government to promote breastfeeding, through educational programs and initiatives, has added more lactation rooms in public buildings. This move could dampen investor sentiment toward infant formula makers.
  • The implementation and expansion of monetary stimulus in the eurozone and Japan will likely push up the U.S. dollar, which climbed to new highs on Friday. A further rise in the dollar will continue to be a threat to emerging markets.

Leaders and Laggards

The tables show the weekly, monthly and quarterly performance statistics of major equity and commodity market benchmarks of our family of funds.

Weekly Performance
Index Close Weekly
Change($)
Weekly
Change(%)
Natural Gas Futures 3.87 +0.25 +6.87%
Russell 2000 1,173.50 +54.67 +4.89%
DJIA 17,390.52 +585.11 +3.48%
Nasdaq 4,630.74 +147.03 +3.28%
Hang Seng Composite Index 3,285.21 +88.94 +2.78%
S&P 500 2,018.05 +53.47 +2.72%
10-Yr Treasury Bond 2.33 +0.06 +2.64%
S&P Energy 641.32 +13.09 +2.08%
Korean KOSPI Index 1,964.43 +38.74 +2.01%
S&P Basic Materials 304.39 +0.54 +0.18%
Oil Futures 80.70 -0.31 -0.38%
Gold Futures 1,171.40 -60.40 -4.90%
XAU 64.88 -11.05 -14.55%
S&P/TSX Canadian Gold Index 134.58 -24.87 -15.60%
Monthly Performance
Index Close Monthly
Change($)
Monthly
Change(%)
Russell 2000 1,173.50 +88.09 +8.12%
Nasdaq 4,630.74 +208.66 +4.72%
S&P 500 2,018.05 +71.89 +3.69%
DJIA 17,390.52 +585.81 +3.49%
S&P Basic Materials 304.39 -1.01 -0.33%
S&P Energy 641.32 -7.39 -1.14%
Korean KOSPI Index 1,964.43 -27.11 -1.36%
10-Yr Treasury Bond 2.33 -0.06 -2.39%
Gold Futures 1,171.40 -44.10 -3.63%
Natural Gas Futures 3.87 -0.15 -3.75%
Oil Futures 80.70 -10.03 -11.05%
Hang Seng Composite Index 3,285.21 -332.01 -14.83%
S&P/TSX Canadian Gold Index 134.58 -32.11 -19.26%
XAU 64.88 -16.13 -19.91%
Quarterly Performance
Index Close Quarterly
Change($)
Quarterly
Change(%)
Nasdaq 4,630.74 +278.10 +6.39%
DJIA 17,390.52 +897.15 +5.44%
Russell 2000 1,173.50 +58.64 +5.26%
S&P 500 2,018.05 +92.90 +4.83%
Natural Gas Futures 3.87 +0.07 +1.95%
S&P Basic Materials 304.39 -2.96 -0.96%
Hang Seng Composite Index 3,285.21 -66.97 -2.00%
Korean KOSPI Index 1,964.43 -108.67 -5.24%
10-Yr Treasury Bond 2.33 -0.16 -6.58%
S&P Energy 641.32 -56.55 -8.10%
Gold Futures 1,171.40 -123.40 -9.53%
Oil Futures 80.70 -17.18 -17.55%
S&P/TSX Canadian Gold Index 134.58 -63.94 -32.21%
XAU 64.88 -34.61 -34.79%

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

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