Bull Back in the China Shop

Stock markets around the world broke out to the upside last week, with the Dow Jones up 1.27% and the S&P 500 rising 1.56%. Significantly, global stock markets joined the rally with the MCSI Emerging Markets Index soaring 2.64%.

Big gainers in your Bull Market Alert portfolio included AutoNation (AN), soaring 5.90%; last week’s recommendation, Stratasys (SSYS), jumping 4.98%; the Bank of Ireland (IRE), rising 4.03%; and WellPoint, Inc. (WLP), climbing 3.23%.

This week’s Bull Market Alert recommendation takes us back into China, through the DB X-Trackers Harvest CSI 300 China A-Shares Fund (ASHR). This ETF tracks the performance of the CSI 300 Index, which is composed of the 300 largest and most liquid stocks in the China A-share market, trading on the Shanghai Stock Exchange and the Shenzhen Stock Exchange.

Here’s why I think this fund is set to soar over the next six weeks.

First, launched just last week with a record $108 million in seed capital, ASHR stakes out a unique position in the marketplace as the only way for investors to get direct exposure to China’s mainland A-shares. Up until now, foreigners have been unable to access Chinese shares, expect through exchange-traded funds (ETFs) like iShares China Large Cap ETF (FXI), which invest in shares listed in Hong Kong. I believe ASHRA’s current monopoly on this sector will make it unusually popular among investors, at least over the short term.

Second, last week’s meeting of China’s Communist party has promised to inject more market-style reforms into the country’s economy. Some analysts have said the planned changes represented “the biggest freeing up of China’s economic policy since the 1990s.” This news, combined with signs that the Chinese economy has stabilized, has injected new confidence into the market.

Finally, emerging markets and China tend to perform very well in the Q4 of any year. With emerging markets technically oversold until last week, the entire sector is due for a big bounce, as institutional investors make their investment allocations prior to start of the new year.

So buy DB X-Trackers Harvest CSI 300 China A-Shares Fund (ASHR) at market today, and place your stop at $20.00. But here’s a word of warning. As you’ve seen with your position in Trina Solar Limited (TSL), Chinese stocks can be extremely volatile, so strap yourself in for a wild ride.

There are no options on this brand-spanking new ETF, so I’m recommending the February $39.00 call options (FXI140222C00039000) on the more established iShares China Large Cap ETF (FXI).

Portfolio Update

Bank of Ireland (IRE) gained 4.03% last week. IRE appears to have broken out of its sideways trading pattern last week and is heading higher. Moody’s also upgraded Bank of Ireland’s covered mortgage bonds to a “Baa2” rating last Tuesday. IRE is a BUY.

WellPoint, Inc. (WLP) rose 3.23% last week on the “good news” that President Obama will let the millions of Americans who suffered Obamacare-induced cancellations keep their insurance policies. In a show of strength, WLP touched its $90 price level last Friday for the fourth time since late July. This resilience is a good indicator that WellPoint’s stock will very likely go higher. WLP is a BUY.

Google Inc. (GOOG) rose 1.73%. Many large hedge funds are posting their third-quarter “13F filings” as of late, revealing where these “masters of the universe” are investing their billions. Billionaire Daniel Loeb’s hedge fund, Third Point LLC, recently revealed a new 100,000-share position in Google. Google and investment partner KKR & Co. invested $350 million in a Sacramento-based solar project in late 2011. The companies are now involved in a second joint venture with plans to invest another $400 million in a California and Arizona solar power project. GOOG is a BUY.

AutoNation (AN) jumped 5.90% last week, continuing a picture-perfect turnaround from its 200-day moving average. AutoNation is currently testing a partnership with Avis Budget Group that will see AN retailing Avis’ used rental cars. The program currently involves 50 vehicles per month, but both companies intend to ramp up this process in the future. AN is moving swiftly upwards towards its 50-day moving average, but currently remains a HOLD.

iShares MSCI Spain Capped Index (EWP) closed the week flat. The latest economic data from the Bank of Spain reveals positive third-quarter growth for the first time in over two years, as well as a falling unemployment rate. Couple this positive economic news with a rapidly rising 50-day moving average and an oversold condition, and the prospects for EWP appear quite strong. EWP is a BUY.

Trina Solar Limited (TSL) gained 2.67% last week. TSL is in the enviable position of receiving accreditation from China’s Ministry of Science and Technology for its sprawling State Key Laboratory of Photovoltaic Science and Technology. This facility will serve as a government-blessed hub, driving advanced national solar technology research by many of China’s leading solar providers. TSL will report earnings on Nov. 19, before markets open. TSL is a BUY.

Stratasys (SSYS) rose 4.98% for its first week in your portfolio. Last week, I mentioned MakerBot, a Stratasys subsidiary and a recent acquisition. In the past week alone, MakerBot has announced the inclusion of its 3D-printer driver software in the newly released Windows 8.1 operating system, as well as a new initiative to place MakerBot “Replicator 2” 3D-printers into school classrooms across America. These are huge additions to Stratasys’ offerings, and make MakerBot a key part of the company’s future. SSYS is a BUY.

Latest Special Report

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