International Markets in Turmoil – Part 2

October 1, 2015


  • The German equity market is in a downtrend with negative impact for Europe
  • The bear market in natural resources continues to pressure Latin American and Asian markets
  • In our opinion, international markets will continue to decline and should be avoided in the near term

In our June blog post we warned about the rise of geopolitical risks and their impact on international markets. In the summer, one of the main concerns was the potential exit of Greece from the Euro Zone. While the exit did not happen, the continued weakness of the Greek equity market (GREK) shows that Greece is not yet in a better shape than before, and it is likely that the question will have to be addressed again in 2016.


Our current concern is the weakness of the German market, which is the largest and strongest economy of Europe. To illustrate the concern, lets take a look at two German bellwether stocks, Volkswagen (VLKAY) and Deutsche Bank (DB).

The chart below shows that the highly publicized “Dieselgate” emissions scandal has caused a more than 50% drop for the Volkswagen stock so far. With litigations just starting up and the recall for the diesel cars still not available, we see the weakness to continue for the near term. The chart of Deutsche Bank is also very bearish with a recent technical breakdown below the support level.



The chart of the German equity market shows a similar negative pattern:


Besides the weakness of the German market, Europe has two additional problems that will have to be resolved before we can turn bullish again. The first is the concern about the effectiveness of the quantitative easing program with the ECB starting to hint again at the need for a new round of money printing. The second concern is the economic impact of the flood of immigrants and the political tensions it created in the Euro Zone.


Our second topic is the impact of the bear market in natural resources, such as oil, on emerging markets that are net exporters of raw materials. The chart of the Fidelity Natural Resources Fund (FNARX) shows that the bear market resumed in late summer and downside volatility is very high:


It is not surprising to see that equity markets in Latin America and in Asia are also in a steep decline:



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International Markets in Turmoil

July 8, 2015

Geopolitical risks are on the rise again with weakness in European markets due to the intense negotiations around the potential exit of Greece from the European monetary union. The negative performance of the Greek stock market reflects the uncertainty about the outcome of the negotiations:


In addition to Greece, the sudden and dramatic selloff of Chinese stocks has the potential to destabilize international markets. A-shares, which are traded in Mainland China at the Shanghai and the Shenzhen Stock Exchanges, are impacted the most, while shares in Hong Kong are holding up relatively well:



As the result, most Fidelity mutual funds that invest in international markets are no longer trending higher. Examples include the Southeast Asia Fund (FSEAX), the Emerging Markets Fund (FEMKX) and the Diversified International Fund (FDIVX):




In our previous article we wrote about the potential of the natural resources sector to further rally and to provide market-leading results in 2015. Unfortunately the selloff in the Chinese market, which is a major consumer of commodities, caused an unexpected reversal. The chart of the Select Natural Resources Fund (FNARX) shows the sudden reversal of the emerging bullish trend:


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5 Top Fidelity Mutual Funds to Watch in 2015

April 16, 2015


  • A technical screen of Fidelity mutual funds shows that new investment areas emerged in 2015 to lead the market
  • The natural resources sector, which includes energy, has the potential to provide market-beating returns. On the other hand, investors shouldn’t expect low volatility, because commodity prices can fluctuate in a wide range
  • International markets, most notably Asia and Europe, may outperform U.S. equities this year

From time-to-time, it is important to take a broad view of the market, so we can better understand the changing conditions and dynamics. Five month ago, back in November 2014, our momentum screen showed that the top 10 Fidelity mutual funds were all equity funds representing the consumer, health care and transportation sectors of the U.S. economy (see article).

While equity funds continue to outperform bond funds, the picture is very different now. Mutual funds investing in energy and other natural resources, and international markets are the market leaders. At the same time, select U.S. sectors, such as utilities, are lagging:


Speculation about bottoming oil and commodity prices have caused an impressive rally in the natural resources sector. A great way to participate in the potentially long-term bullish trend in this sector is via the Fidelity Select Natural Resources Fund (FNARX).


The Fidelity China Region fund (FHKCX) is now the best year-to-date performer of all Fidelity mutual funds with a 20.97% gain.


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Emerging Investment Opportunities in International Markets

April 12, 2015

Quantitative Easing in Europe and in Japan has started to make a positive impact on equity prices in developing markets. In our view, one of the best ways to participate in this long-term trend is by investing in the Fidelity Diversified International Fund (FDIVX). FidelitySignal issued a BUY signal for the fund on February 8 and the fund was included in our Diversified Model Portfolio, as of that date.


The potentially stabilizing U.S. dollar and commodity prices, and the prospect of world-wide economic recovery in 2016 are making emerging market investments attractive again to investors seeking growth.

The Fidelity Southeast Asia Fund (FSEAX) provides a solid way to participate in the Chinese and other Southeast Asian markets. FidelitySignal issued a BUY signal for the fund on January 23 and the fund was included in our Aggressive Growth Model Portfolio, as of that date.


For investors seeking broad diversification across emerging markets including Southeast Asia, Eastern Europe and Latin America, the Fidelity Emerging Markets Fund (FEMKX) is our top rated choice. FidelitySignal issued a BUY signal for the fund on April 7 and the fund was included in our Megatrends Model Portfolio, as of that date.


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Capital Gains Distributions for Fidelity Funds are Available

April 11, 2015

Several Fidelity funds experienced large drops of their net asset values (NAVs) on Friday. The explanation is that Friday was the ex-dividend date for many Fidelity funds. The pay date for the funds is Monday, April 13. For investors who chose to reinvest the distributions automatically, the value of their holdings will be adjusted on Monday. For investors who chose not to reinvest, their investment account will be credited by the distribution amounts.

The full list of funds receiving dividends and capital gains distributions is available here:

Here are a few examples of Fidelity funds with large capital gains distributions:




How can an Aggressive Growth Strategy Beat the Market in 2015 (continued)

April 1, 2015


  • We continue to track the performance of the FidelitySignal Aggressive Growth strategy (see details in previous article) in a difficult investment environment
  • Increased market volatility resulted in a sell signal for the materials sector fund, while the other components of the strategy continue to advance
  • As the next earnings season approaches, the economic effect of the strengthening dollar may cause additional volatility

The FidelitySignal Aggressive Growth strategy continues to outperform the market in 2015. The current asset allocation is as follows:

FidelitySignal -asset allocationFidelitySignal - performance chart

Increased volatility in the materials sector resulted in a sell signal for the Fidelity Select Materials Fund (FSDPX) and the fund was removed from the portfolio:


The other portfolio components, such as the Fidelity Southeast Asia Fund (FSEAX), the Fidelity Construction and Housing Fund (FSHOX), the Fidelity Select Medical Delivery Fund (FSMEX) and the Fidelity Select Consumer Staples Fund (FSDAX) have contributed to the strong performance of the strategy in 2015:





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Global Equity Markets in Turmoil Due to Fears About Rising U.S. Interest Rates; Best and Worst Investments in a Highly Volatile Market

March 10, 2015

Long-term U.S. Treasury yields have been rising in the last four weeks, as traders anticipate the Fed to raise rates possibly as early as June. In addition, the dollar has continued to make impressive gains against all major currencies, as quantitative easing in Europe and Japan is under way.



The potential for rising interest rates in the U.S. and the steep rise of the dollar has led to a sell off of equities, bonds and commodities around the globe.

The S&P 500 index has retreated from its recent high and now in negative territory for the year. In spite of rising volatility, the chart of the benchmark Fidelity Spartan U.S. Equity Index Fund (FUSEX) shows that the long-term trend for U.S. equities is still bullish:


Another important development is that commodities and oil continue to deflate, reversing the short-lived rally in January:




In light of the rising dollar, the bear market in commodities and weak economic conditions in international markets, it is not surprising to see the Fidelity Select Energy Services Fund (FSESX), the Fidelity Select Gold Fund (FSAGX) and the Fidelity Latin America Fund (FLATX) amongst the weakest performers year-to-date:




The few sweet spots in the current market are sectors that are not sensitive to interest rates and rely on innovation to create growth. Perhaps the most notable is the health care sector, including biotechnology stocks:


The dynamic interplay of equities, bonds, currencies and commodities is shifting market conditions again. We continue to favor a conservative, risk averse investment approach in 2015.

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