A Bullish Bet on the “Other China”

With a good dose of both bullish and bearish positions in your Global Bull Market Alert portfolio, you are well-positioned to profit from either outcome. This week’s Global Bull Market Alert pick — the iShares MSCI Taiwan Index (EWT) — adds to your set of bullish bets on the world economy.

Here’s why I think the Taiwanese ETF is poised to move sharply higher, assuming the bullish scenario continues to unfold.

First, if there is an economically bullish part of the world, it is mainland China. And although China’s economic growth has slowed to 6.1% in Q1, the government’s stimulus package may be helping to get the economy back on an even higher growth path. And with nearly 40% of its exports going to China, no other country’s economy benefits more from increased Chinese demand than Taiwan. Just recently, Taiwan Semiconductor, the world’s top contract chip maker, announced that it has started adding hundreds of staff at its research and development department and other manufacturing plants. Why? New demand is arising from China’s recent move to encourage spending on electronics in rural areas.

Second, just a few weeks ago, Taiwan’s voters gave a resounding victory to Ma Ying-jeou of the opposition Kuomintang (KMT) party in the island’s presidential election. This mark’s a big change. The KMT advocates a free-trade agreement and eventually a full-fledged common market with mainland China. Long-term investors like Jim Rogers are investing in Taiwan on expectations that a merger between mainland China and Taiwan is inevitable.

Third, while the bulls and bears in the United States debate the technical merits of “resistance” levels that would confirm whether we are in a bull market, the Taiwanese market has already burst through those levels like a knife through warm butter. That’s not to say its high-tech heavy index can’t go down. Indeed, the Taiwanese market has always been one of the most volatile markets on the planet. But it does indicate if the bull has arrived, he’s come through the “back door” in Taiwan.

So buy the iShares MSCI Taiwan Index (EWT) and place your stop at $7.30. For potentially even bigger gains, try the September $9.00 (EWTII.X) calls.

Portfolio Update

The iShares MSCI BRIC Index ETF (BKF) rose slightly last week, as the BRIC stock markets consolidated their gains. BKF is a BUY.

The Market Vectors Double Short Euro ETN (DRR) jumped another 2.3% this week as the euro continues to weaken. It is a BUY.

The iShares MSCI Chile Investable Mkt Idx (ECH) jumped a solid 3.9% in its first week in the portfolio. This emerging markets star remains a BUY.

The CurrencyShares British Pound Sterling Trust (FXB) fell sharply in this morning’s trading. I am keeping your short position in FXB at a HOLD.

With demand for safe-haven assets like the SPDR Gold Shares ETF (GLD) and the PowerShares DB Gold Double Long ETN (DGP) ebbing, I am keeping both of these positions at a HOLD.

Your position in the iShares iBoxx $ High Yield Corporate Bond (HYG) hit the $75.25 level on Friday. This is good news for HYG and the economy as a whole, as it is a sign of increasing risk appetite. HYG remains a BUY.

The iPath DJ AIG Copper TR Sub-Idx ETN (JJC) jumped another 4.9% last week. Tighten your stop to $24.50. Dr. Copper remains a BUY.

Your Rydex Inverse Government Long Bond Strategy Inverse (RYJUX) ended the week slightly up, penetrating the $14.11 level for the first time since March 17. Your bet against U.S. Treasuries remains a BUY.

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