U.S. stock market indexes rallied in January after a steep sell-off in late December:
Figure 1. The S&P 500 index partially recovered in January from the steep sell-off that started in October of 2018.
The major drivers for the weakness in equity markets, such as rising interest rates and a trade dispute between the U.S. and China, are still unresolved. Therefore, we think that volatility is likely to continue in Q1 2019.
In our view, the best investment opportunities right now are in emerging markets:
Figure 2. The chart of the Fidelity Emerging Markets Fund (FEMKX) shows a bullish “double bottom” price pattern.
We especially like the Southeast Asia region based on relative performance:
Figure 3. The Fidelity Southeast Asia Fund (FSEAX) shows improving relative performance, as measured by the ratio of FSEAX and the S&P 500 Index (bottom panel).
View fund rankings at FidelitySectorReport.com for more information.
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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