Playing the Bounce

Your current Global Bull Market Alert portfolio is positioned very defensively — with short positions in the euro through the UltraShort Euro ProShares (EUO), a bet on the U.S. dollar through the PowerShares DB US Dollar Index Bullish ETF (UUP) and on the Japanese yen through the CurrencyShares Japanese Yen Trust (FXY). 

With sentiment improving slightly in global markets, this week’s Global Bull Market Alert pick recommends that you dip your toe back into global stock markets with a bet on the world’s best-performing stock market of 2010, Indonesia, through the Market Vectors Indonesia ETF (IDX).

Few markets in the world — except for maybe Brazil — have enjoyed as much of a turnaround in investor sentiment as Indonesia. As the world’s fourth-largest country with a population of 225 million, Indonesia boasts a young-and-growing population with Jakarta, the nation’s capital, expected to be the largest city in the world within two decades. Once the sick man of South Asia, economic reforms initiated in 2004 have helped make it official Indonesian policy to add another “I” to the “BRIC” (Brazil, Russia, India, and China) acronym.

In addition to its vast natural resources, Indonesia has other advantages. Unlike typical export-driven Asian economies, domestic consumption makes up two-thirds of the economy. That has helped shelter Indonesia from the effects of the Great Recession that rocked Asia’s more export-dependent nations.

The International Monetary Fund (IMF) has forecast that Indonesia will grow 6% this year, up from 4.5% in 2009. The chairman of Indonesia’s Investment Coordinating Board claims 6% to 7% growth is “pretty much in the pocket." The economy is certainly off to a strong start in 2010. GDP grew at a rate of 5.7% in the three months to March 31 from a year earlier — the fastest pace in more than a year in Q1 as record-low interest rates boosted consumer spending and exports and investment recovered. Exports, which account for 26% of gross domestic product, rose 19.6% in the first quarter from a year earlier. Low inflation has allowed the central bank to keep rates at a record low of 6.5%.

It’s no surprise then that Indonesia is the single-best performing global market of 2010 — up around 11.3% in U.S. dollar terms. It is also only one of two global markets that I still have exposure to in my client accounts at my investment firm Global Guru Capital.

So buy the Market Vectors Indonesia ETF (IDX) at market today, and set your initial stop $59.00. There are no options on this one.

Portfolio Update

UltraShort Euro ProShares (EUO) hit yet another record high of $26.39 a week ago, but ended the week lower as the euro rose slightly. Although the euro may experience a short-term bounce, it’s hard to imagine the European currency trading substantially higher. As long as the trend is down, EUO remains a BUY.

iShares FTSE/Xinhua China 25 Index (FXI) crawled back over the $40 level last week as Asian markets strengthened. With the Chinese real estate bubble popping, your bet against China remains a SELL SHORT.

CurrencyShares Japanese Yen Trust (FXY) was flat as a pancake during the past week, true to its defensive nature. As long as global markets remain edgy, FXY remains a defensive BUY.

PowerShares DB US Dollar Index Bullish ETF (UUP) hit a yearly high of $25.83 last Monday, before dropping back slightly. The U.S. dollar remains a safe haven during uncertain times. UUP remains a defensive BUY.

P.S. If you want to keep up with my latest insights on developments in fast-paced global markets, you can now follow me on Twitter on @NickVardy or on my new blog, NickVardy.com.