Wednesday, April 05, 2006

A tale of two countries (MTU, EWJ, ITF, FXI)

I’m referring to Japan and China. Japan is in a confirmed uptrend as it comes out of the “triple water fall” (see Don Coxe’s book linked to on the left) after the collapse of its own bubble in early 90’s. I probably should have taken a position earlier, although I’m happy with the way I employed my capital elsewhere. Given that it will probably be a decade before Japan’s aging demographics slows its productivity, now is still not too late to take a position. The obvious choice would have been an index ETF such as EWJ or ITF; however, this being where I’m supposed to demonstrate some stock-picking ability, I’m setting my sights on MTU (Mitsubishi – UFJ financial). A product of several mega-mergers, it’s one of the biggest, if not the biggest bank in the world. It’s thematic to use the banking sector for a leveraged exposure to a certain country – you may not like the bankers, but you have to respect their ability to make money. The point is well proven by the following chart on MTU, EWJ and ITF.

That said, I’m not rushing out to buy yet. It’s extended, gapped up and over the top of the Bollinger Band. I have a low-ball limit order in for several hundred shares as I believe any pull-backs are buyable.

Unlike the Dickensian contrast between London and Paris, the other country, China, is equally in an uptrend. FXI (iShares FTSE/Xinhua 25 index) remains my preferred vehicle here. I have given a big picture overview here. My second purchase was not as well timed as the break-out took place far above the 50 dma. But the uptrend is strong enough that minor inaccuracies in timing are inconsequential. As mentioned before, I pay a great deal of attention to the Shanghai Stock Exchange Composite as a pulse of the Chinese economy, however imperfect its system is. SSEC made a 16-month high by taking out the 1328.5 level two days ago which portends much higher levels in my view. The Shanghai stock exchange is not a model of capitalistic freedom: it has daily up and down limits on individual stocks. While this limitation hampers the market’s price discovery mechanism, it also prolongs any trend in place. I would consider adding here if I had more funds at disposal. FXI is extended right now, so it’s probably best to wait for a pull-back.

What we are seeing now is Japan and the rest of Asia on the upswing, so are most European markets, the upheaval in France notwithstanding. Does this bode well for the US or does it free up the Fed’s hands to keep tightening, knowing full well that a global synchronized recession is less likely? Will it be a case of “the best of times, and the worst of times”?

None of the above is intended as investment advice. I have disclosed buy and sell decisions in the past, but there is no guarantee I will continue to do so in the future. While the above information is believed to be accurate, mistakes can and do occur. The responsibility for any investment decisions you make are yours and yours alone.