The fallout from the Brexit vote last month has created some very interesting opportunities. One area of interest are the Asian exporting countries, specifically Taiwan (EWT), Indonesia (EIDO), and Thailand (THD). Our view is that the global economic climate favors countries like these over the near term. Landing on this group of countries was more of a logical process of elimination than anything else.
- First, the strengthening of the dollar and yen because of the Brexit vote will likely put additional pressure on the already low-growth economies of the United States and Japan. So those are out.
- The situation in Europe is still sensitive and uncertain. Some analysts and commentators see the Brexit vote as the first domino in a series of events that could take place over many years, including the breakup of the European Union, the dissolution of the Euro currency, and sovereign debt defaults among the weaker European countries. None of these things are immediate threats, but they are on the forefront of the minds of many investors and make the region unattractive to us at this time.
- There are many emerging market economies whose success or downfall depends heavily on the price of oil. Because the price of oil has already had a big run up from its low and because the dollar has been strengthening, we prefer to avoid markets like Russia, Brazil, and others that depend on energy related commodities.
These factors leave exporting countries that are not sensitive to oil or in Europe as our favorite play this month. In such countries, their exports could stand to benefit from the strong dollar and yen while mostly avoiding the exposure to Europe or oil that could derail things.
From a technical perspective, all three of these countries’ charts look great. In the last few days all three have been breaking out above March highs after putting in an inverted head-and-shoulders pattern (EWT, THD) or a cup-and-handle pattern (EIDO). One additional area of interest to us is Base Metals (DBB), which has a lot of momentum lately. Similar to Thailand and Taiwan, it also recently broke out of a bullish inverted head-and-shoulders pattern.
The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.