Oil prices spiking higher was the big news of the week, though the upside might be limited by considerable oversupply. Although the mainland Chinese stock markets were closed for a holiday, the continuing enthusiasm was expressed via Hong Kong, the Hang Seng being up around 8% since Monday. This helped Asian markets as a whole, with even the average Asia ex Japan fund up 5%. I will return in a moment to how you might play events in China.
Over the week all major world stock markets were lower, bar China and Asia ex Japan. Nothing terrible, with the worst being towards 3% in Continental Europe and India. Nonetheless, as I noted last week, “most Western markets are still hesitating around levels which remain consistent with an impending sharp break lower”. That is not a prediction. It simply means that there is notable vulnerability at the moment, and you need to be ready to apply your stop-losses.
A quick aside on stop-losses as there are a few new readers this week. Do familiarise yourself with why these are a must in Adapt And Survive and “Stop-losses and Momentum Don’t Work”. Let’s Look At The Evidence. And then do use our unique Stop-Loss tool.
Returning to the action, our What’s Hot fund analysis is inevitably dominated by China funds in the last month, with some gains exceeding 20%. Asia and emerging market funds have also been pulled higher, as you see in the latter and this month’s sector analysis.
The other common feature is drifting lower by UK funds and sectors, notably ahead of the UK Budget later this month, which has been encouraged by negative briefings by the Labour administration let alone the Tory press. But it is not just a UK problem. As you will see in the sector analysis, Europe as a whole has drifted lower with the encouragement of a rudderless France and recessionary Germany.
Turning to commodities, also a hot topic of late, gold had a quiet week, down a touch. It was oil which caught fire, up in excess of 10%. For those who prefer a bit less excitement, there are decent generic commodity funds, the old granddaddy being JPM Natural Resources, up a respectable 3%+.
The Dynamic Commodities Portfolio was one of four up for review this month, and it is the standout performer. Not for the faint-hearted, it is up over 13% in three months thanks mainly to gold hitting new highs. Even more impressive is its long-term numbers, up an incredible 44x the index since inception in 2009.
Meanwhile the Bonkers 3-Month Portfolio continues to live up to its name with a staggering 4,800% return since 1999 despite a quiet last three months. It's now shifting focus to China following the staggering performance seen in that market over the past fortnight.
The other portfolios under review include Dynamic Global and Dynamic UK Smaller Companies. With the UK Budget approaching, it will be interesting to see how the latter fares in the coming weeks, and also the Global portfolio, which features two new UK funds.
Last but not least, I return to China. First, if you are in China funds, or thinking about it, I strongly recommend that you re-read last weeks Friday Note. There I set out the anatomy of the early stages of a new bull market:
“The first wave upwards can be sharp, with substantial gains. But early bird investors will be quick to take profits e.g. the Hong Kong index went up more than 50% in 3 months from November 2022, and most of that was lost in the following 11 months… So it might make sense to trade this initial uptrend…”
What does “trade” mean? Sell after a short sharp gain. If the average long-term gain from stock markets is 10% (with income reinvested), making 10% in a week or 20% in a month is a huge uplift on that average, which is less than 0.2% per week. This does raise other questions such as: Surely we should let profits run? Is this consistent with our long-term asset allocation? I will answer those over the next couple of weeks.
In the meantime I am comfortable in the knowledge that you never get poor by taking a profit… especially a quick one that fits with our broader analysis on unfolding events.