Tag Archives: vietnam

Tactical Allocation: The Best Asset Categories Now

Summary Tactical allocation strategies use relative strength rankings to select asset categories. They often have a filter excluding those which are technically in a bear market. Here is the list of asset categories passing such a filter now. Tactical allocation strategies aim at selecting assets based on a relative strength ranking. They can easily be implemented with ETFs. The set of assets may be global (main asset classes), focused on a specific asset class, on a geographical classification in equities (regions, countries), or on sectors. The relative strength ranking is generally based on price action and technical indicators (momentum, risk-adjusted performance, volatility). Tactical quantitative models are most of the time designed to detect and follow the trends. They often have a better risk-adjusted performance when they include market-timing rules excluding the assets that are in a bear market. All is about the definition of what a “bear market” is. Practically, we use moving averages. A bearish signal is posted when the price falls below a long-term moving average (for example 200 days, 10 months, 1 year), or when a short-term moving average (for example 1 week, 1 month, 50 days) falls below a long-term moving average. For some models, the signal must be confirmed during a number of days to limit the risk of whipsaw. I run several models of this kind. Here is the list of ETFs that still pass a double filter: last closing price and the 50-day moving average must be both above the 200-day moving average (date: 9/15 on close ). This double filter, named hereafter “no-bear” filter, is an example that does not correspond exactly to what I am using in the models, and global timing rules may also exclude all long equity ETFs in the list at some times. Moreover, models keep only the top-ranked ETFs regarding the relative strength factor. Global Assets model Possible Holdings: Dollar Index (NYSEARCA: UUP ), 7-10 year US T-bonds (NYSEARCA: IEF ), 20+ year US T-bonds (NYSEARCA: TLT ), emerging market bonds ((NYSEARCA: PCY ), (NYSEARCA: EMB )), international sovereign bonds ex-U.S. (NYSEARCA: WIP ), the U.S. stock market (NYSEARCA: SPY ), developed countries stock markets ex-U.S. and Canada (NYSEARCA: EFA ), Latin America stock markets (NYSEARCA: ILF ), Pacific region stock markets ex-Japan (NYSEARCA: EPP ), U.S. real estate (NYSEARCA: ICF ), commodities (NYSEARCA: DBC ). Passing the “no-bear” filter: none Equities by Countries model Possible Holdings: U.S., Canada (NYSEARCA: EWC ), Russia (NYSEARCA: RSX ), Japan (NYSEARCA: EWJ ) China (NYSEARCA: FXI ), Europe (NYSEARCA: IEV ), Sweden (NYSEARCA: EWD ), Germany (NYSEARCA: EWG ), Hong-Kong (NYSEARCA: EWH ), South Africa (NYSEARCA: EZA ), Indonesia (NYSEARCA: IDX ), Thailand (NYSEARCA: THD ), South Korea (NYSEARCA: EWY ), Taiwan (NYSEARCA: EWT ), Malaysia (NYSEARCA: EWM ), Vietnam (NYSEARCA: VNM ), Brazil (NYSEARCA: EWZ ), Mexico (NYSEARCA: EWW ), Chile (NYSEARCA: ECH ), Colombia (NYSEARCA: GXG ), Peru (NYSEARCA: EPU ). Not all countries ETFs are included in the model for various reasons (liquidity, correlations). Passing the “no-bear” filter: none. U.S. Sectors and Industries Possible Holdings: Utilities (NYSEARCA: XLU ), Energy (NYSEARCA: XLE ), oil & gas exploration and production (NYSEARCA: XOP ), Financials (NYSEARCA: XLF ), healthcare (NYSEARCA: XLV ), Industrials (NYSEARCA: XLI ), technology (NYSEARCA: XLK ), Consumer staples (NYSEARCA: XLP ), home construction (NYSEARCA: ITB ), biotechnology (NASDAQ: IBB ), REITs , retail (NYSEARCA: RTH ), semi-conductors (NYSEARCA: SMH ), MLPs (NYSEARCA: AMLP ), internet (NYSEARCA: FDN ), solar energy (NYSEARCA: TAN ). Not all industry ETFs are included in the model because of liquidity filters, redundancy or other reasons. Passing the “no-bear” filter: FDN (internet), IBB (biotechnology), RTH (retail), ITB (home construction). Bond model Possible Holdings: core U.S. aggregate (NYSEARCA: AGG ), PIMCO total return (NYSEARCA: BOND ), Convertibles (NYSEARCA: CWB ), high yield (NYSEARCA: JNK ), 1-3 year T-bonds (NYSEARCA: SHY ), 3-7 year T-bonds (NYSEARCA: IEI ), 7-10 year T-bonds , 10-20 year T-bonds (NYSEARCA: TLH ), 1-5 years corporate bonds (NASDAQ: VCSH ). Passing the “no-bear” filter: ( SHY ), ( IEI ) (1-7 year T-bonds), ( VCSH ) (1-5 years corporate bonds). Conclusion The asset categories that still look good now from a tactical allocation point of view are short-term bonds (U.S. government and corporate, under 7 years of maturity) and equities in a few U.S. industries: internet, biotechnology, retail, home construction. Please note that these tactical allocation models are not a part of my subscription service , which is focused on a 20-stock defensive portfolio with hedging tactics based on a systemic risk indicator. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: I short the S&P 500 for hedging purposes.

3 Country ETFs Impacted By China’s Currency Devaluation

Wise were those analysts who had foreseen the start of a currency war post China’s yuan devaluation story. China shook the global markets on August 11 when its policymakers devalued the country’s currency by 2% against the greenback to boost its sagging exports. This resulted in the largest single-day decline since the historical devaluation in 1994 . Though the Chinese central bank defended its currency intervention ‘as a free-market reform’, global experts’ apprehensions of a currency war in the near future, especially among its Asian neighbors, are turning into a reality. Most export-centric economies will likely be forced to depreciate their currencies to stave off competition and rev up their exports. And analysts were not wrong at all, as this currency war is already underway. Let’s take a look at the country ETFs which were hit hard by the yuan devaluation. Vietnam To fight against the dark impact on its exports, Vietnam weakened its currency, dong, on August 19. This was the third time that the country devalued its currency this year and the second time in a week. The trading band has now has been widened to 3% from 2%, per Reuters. Like China, Vietnam also acts as a low-cost producer and earned some edge over China in recent times, as Chinese wages are on the rise. With a stronger currency, Vietnam would lose this competitive advantage. Not only exports, Vietnam is unable to sell products to domestic consumers due to the surge in cheaper Chinese imports, resulting in a widening trade deficit. In the first seven months of 2015, deficit in trade with China was $19.33 billion, worse than $14.88 billion of deficit in the year-ago period, according to Reuters . Following the latest depreciation in currency, dong fell 4.5% in interbank on August 18. In the last one month, the greenback gained 2.3% against dong. The Market Vectors Vietnam ETF (NYSEARCA: VNM ) – the pure play on Vietnam – lost about 5% in the last five trading sessions. Malaysia The Malaysian equity market has been an impacted area post the yuan devaluation. Also, a falling oil price marred the stocks of oil-rich Malaysia, which happens to be one of the largest Asian crude exporters. Political crisis is another cause of concern for Malaysia. On the other hand, China’s currency devaluation hurt its competiveness as an exporter. This, coupled with a strong U.S. dollar amid the looming Fed rate hike, recently sent Malaysia’s currency, ringgit, to a 17-year low. This resulted in the depletion of Malaysia’s foreign exchange reserves, and in turn soured investors’ mood toward Malaysian investing. Ringgit fell over 7% in the last one month against the U.S. dollar. Pure play-Malaysia ETF, the iShares MSCI Malaysia ETF (NYSEARCA: EWM ), was off 17.9% in the last one month (as of August 20, 2015). Indonesia Following the yuan move on August 11, Indonesia’s currency, rupiah, tumbled the most in 2015. This currency also touched a 17-year low after the yuan episode. Rupiah was the second worst-performing Asian currency this year. The country was already grappling with weak exports and a five-year low GDP growth. Indonesia ETF, the iShares MSCI Indonesia ETF (NYSEARCA: EIDO ), was down over 14% in the last one month. Original Post

Ding Dong: Currency Devaluation Plagues Vietnam ETF

2015 marks the fourth year in the past six that the Southeast Asian nation has intentionally weakened the dong. VNM, the lone ETF dedicated to Vietnamese stocks, is down 5.4 percent in the past week, 11.5 percent over the past month. Although VNM is not large in terms of number of holdings (it holds just 30 stocks), the ETF is levered to the Vietnamese export story. By Todd Shriber, ETF Professor China is not the only Asian country that has recently devalued its currency nor are China exchange traded funds the only ones tracking countries in the region that have been slammed by the extreme currency interventions. Vietnam, previously a prolific devaluer of its currency, the dong, is back at it again. In fact, 2015 marks the fourth year in the past six that the Southeast Asian nation has intentionally weakened the dong and was the case following prior instances of dong devaluation , the Market Vectors Vietnam ETF (NYSEARCA: VNM ) is feeling the pain. Ding Dong VNM, the lone ETF dedicated to Vietnamese stocks, is down 5.4 percent in the past week, 11.5 percent over the past month and if the support area the ETF is currently flirting with, a return to the 2013 lows is likely. Not surprisingly, VNM’s lowest levels of 2013 were seen less than 90 days after, a dong devaluation. This time around, market observers see the dong devaluation as a response to China’s similar move. The theory makes sense as a Vietnam is also an export-driven economy and central banks in such economies, particularly in Asia, will take drastic moves to defend their countries’ exporters. “The State Bank of Vietnam (SBV) devalued the dong (VND) by 1 percent against the dollar on Wednesday-its third adjustment so far this year-and simultaneously widened the trading band to 3 percent from 2 percent previously, the second increase in six days,” according to CNBC . Although VNM is not large in terms of number of holdings (it holds just 30 stocks), the ETF is levered to the Vietnamese export story because it allocates over a quarter of its weight to consumer sectors and 44.1 percent to financial services firms, the companies that are lending to other parts of the Vietnamese economy. “Having debuted in August of 2009, the fund recently celebrated its five year anniversary trading live, and as one may expect the underlying index being based on the domestic equity market of Vietnam is not incredibly deep to the limitations of the country still being on the fringe of Frontier/Emerging markets territory,” said Street One Financial Vice President Paul Weisbruch in a recent note. Intended or not, Weisbruch’s comments about Vietnam’s market status are well-timed if not prescient because the country has not been shy about its desire to earn a coveted promotion from frontier to emerging markets status from index provider MSCI. The problems with that promotion are threefold for Vietnam. First, Vietnam is not even on the list of countries MSCI is considering for such an upgrade. Second, it can takes to earn the promotion after being added to the list. Just look at Qatar and United Arab Emirates. Third, Vietnam’s heavy-handed approach to managing its currency is probably not something index providers look favorably upon. Vietnam is currently the ninth-largest country weight in the iShares MSCI Frontier 100 ETF (NYSEARCA: FM ) at a weight of almost 3.5 percent. Home to heavy weights to two OPEC members, Kuwait and Nigeria, and several other major oil producers, FM is off almost 10 percent this year. That is to say further weakness from Vietnamese equities will not be welcomed by this ETF, either. VNM had a P/E ratio of just over 15 at the end of July , which is a slight discount to FM and a noticeable premium to the MSCI Emerging Markets Index. Disclaimer: Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.