Alpha Think Tank 1st-Quarter Recap

May 05, 2014

Roundup of first-quarter views from our Alpha Think Tank experts.

It’s time to recap some of the most popular investment themes from our panel of global macro strategists. We interviewed 12 strategists in the first quarter of 2014. Here are the Q1 highlights, along with ETF.com’s picks.

China

China was by far the most-talked-about theme. While some strategists were not outright bullish on the overall economy, they still had a favorable view on Chinese equities because they’re trading at such depressed levels. Famed contrarian investor Marc Faber noted, “Chinese stocks may not go necessarily much lower, but I doubt that they’ll go up substantially.”

One thing was very clear: Not one of the strategists favored China’s mainland A-share market. Instead, they prefer to invest in “offshore” China.

Jim Rogers: “I invest in B-shares. I invest in H-shares. I invest in S-shares, ADRs and European shares. I’ve never bought an A-share that I can remember.” He added, “If the Chinese government is going to put some money in some areas of the Chinese economy, I probably should put some money there too.” 

Brendan Fitzsimmons: “You’ll probably still see major opportunities in the consumer sector, and major challenges in things like housing. You’re going to see more liberalization and consumer development of the economy.” 

Ed Yardeni: “I think the Chinese are going to, at some point, get it right and make this transition to consumer-led growth.”

Marc Faber: “If you believe that China is bottoming out and going up, I would own some Hong Kong shares, as I do.” By “Hong Kong shares,” he means both H.K.-listed Chinese firms and Hong Kong-based companies. 

ETF.com Picks

iShares MSCI China (MCHI | B-41) & iShares MSCI Hong Kong (EWH | B-96): For “total” H.K. market exposure, Dr. Faber’s preferred way of playing a Chinese recovery.

SPDR S&P China (GXC | B-40): To play a resurgent China through all investable shares.

Global X China Consumer (CHIQ | B-38): For a pure play of mid- and small-cap Chinese consumer companies poised to benefit from China’s transformation.

Spain

We also heard several bullish calls on Spanish equities. Don Luskin said he was “very, very bullish” on Spain, and specifically mentioned Spain’s supply-side reforms and its manufacturing potential. Nouriel Roubini focused on the “depressed” P/Es in the eurozone: “Some peripheral countries have done more in the way of economic reforms than others, and Spain looks to be on a better track than Italy so far.”

So is Spain overbought, with the iShares MSCI Spain Capped ETF (EWP | B-94) returning closed to 100 percent since the end of July 2012? 

Not yet, according to Tom Dorsey. At the time of his interview on March 10, according to his technical models, Spain still ranked near the top.

ETF.com Picks

iShares MSCI Spain Capped (EWP | B-94): For the continued rotation back into Spain, the “best of the European periphery” that’s poised to rebound.

 

Japan

Rogers likes Japanese blue chips, saying, “Normally, when people start investing in these tax-free kinds of accounts, they invest in blue chips, because that’s what they know.” He added, “The combination of what he’s [Prime Minster Abe] doing [Abenomics] and this new tax incentive means, in my view, Japan is a place where you might make some money.”

George Friedman on Japan: “Our view of Japan is that this is a country that is going to be moving forward over the next five, 10 years fairly impressively.” Friedman especially likes Japan’s robotics industry, adding, “We have declining populations around the world, and the Japanese are the most advanced robotics manufacturers.”

ETF.com Picks

Maxis Nikkei 225 (NKY | B-56): For unhedged exposure to Japanese blue chips

iShares MSCI Japan (EWJ | B-96): To ride Japan’s advancing trend over the coming five to 10 years

Robo-Stox Global Robotics and Automation (ROBO | D-19): For exposure to Japan’s robotics industry

India

Nouriel Roubini likes India’s new central bank governor, and said the following about the elections and the Bharatiya Janata Party’s Narendra Modi: “If he wins and starts doing the right thing, we could actually have a surprise policywise and even a significant rally in India in equities.”

David Kotok also sees positive reforms in India, which he considers the best of the BRICs. However, Kotok stressed that any surprises stemming from the current elections could alter his view.

ETF.com Picks

iShares MSCI India (INDA | C-97): To capitalize on the ongoing reforms in India

Mexico
Brendan Fitzsimmons: “We see positives for Mexico, and you’re seeing a big rotation of investor focus from Brazil to Mexico.”

Friedman likes Mexico’s diversity, referring to both its advanced industries and low-wage manufacturing: “It’s the 13th-largest economy in the world now. I’m fairly confident it’ll be in the top 10 within six, seven years.”

ETF.com Picks

iShares MSCI Mexico Capped (EWW | B-97): For a Latin American investor rotation from Brazil to Mexico, and to play Mexico’s rise to global economic leaderboard

US Dollar And QE Outlook
We heard some very differing views on the U.S. dollar. Folks skeptical about the Fed’s ability to complete its QE tapering were the most bearish on the dollar. 

Highlights:

Jim Rogers: “The Fed will continue to taper, and at some point, the market will get scared and go down. At that point, the Fed will loosen up again and tell everyone that they will save them.” He said he owns the dollar because he expects turmoil, and “when there is turmoil, people flee to the U.S. dollar.”

Peter Schiff: “Janet Yellen is going to slow down and then reverse the taper, crank the presses back up and launch a whole new round of QE, ending up buying more than $100 billion a month in Treasurys and mortgage-backed securities to try to blow air back in to the deflating bubble.” Regarding currencies, he avoids the yen, the pound and the euro, and favors the Norwegian krone, New Zealand, Singapore, Australian, Canadian and Hong Kong dollars. 

Axel Merk: “If I look at the weakness in the housing market, I just don’t see how we’re going to have a tough Fed.” Merk likes the euro and contends that in a rising-rate scenario, global investors tend to shun the dollar because they buy fewer Treasurys. But, he added, “I like to short the yen. We think the yen cannot survive the policies that are being pursued.” 

Fitzsimmons favors the dollar because he expects the U.S. economic recovery to continue strengthening. 

Meanwhile, Ed Yardeni added, “I think the dollar is going to undoubtedly strengthen, relative to currencies around the world, particularly emerging market currencies.”

Finally Marc Faber, a.k.a. “Dr. Doom,” said investors should hold at least 25 percent of their assets in cash in case of an ’87-style market crash in the coming year or two. Regarding currencies, he said, “I would rate the Singapore dollar as a less ugly currency than others, probably the U.S. dollar, at the present depressed level.”

ETF.com Picks

WisdomTree Bloomberg US Dollar Bullish (USDU): To hold cash in the least “ugly” currency in the event of a stock market crash

CurrencyShares Australian Dollar (FXA | A-99) & CurrencyShares Canadian Dollar (FXC | A-99): To diversify out of the U.S. dollar into currencies of countries with competent central banks

CurrencyShares Euro (FXE | A-98): To play the EUR/USD cross, likely to benefit from incorrect perceptions about the Fed and ECB’s next moves.

CurrencyShares Japanese Yen (FXY | A-99) (short sale): For a quick and cost-efficient way to capitalize on the depreciating yen when the Bank of Japan is forced to “double down” on its stimulus

 

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