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Looking for Alpha through Beta

January 27th, 2008 Michael McDonough
We still believe there are a lot of good values out there on the Global EQ markets. We are anticipating that China will continue to outperform the US, and India may even outperform China. Looking to take advantage of these markets we found the following two ETFs IFN & FXI, for India and China, respectively. Of course the major risk being here any slight decline in the US market will be exacerbated in these markets do to their high betas. Although at times this can be used for your advantage. Take for example last week when the Indian market dropped something like 15% on Monday and Tuesday, this would imply a substantial loss (probably near 5%) for the SP500. Now when the markets opened IFN dropped from trading at around 55 to 48, to catch up with the Indian markets, but when the 5% loss to the SP500 did not materialize (mostly because of the 75bp cut announced before markets opened) the ETF went back to trading around 54. After the Fed announced the 75bp rate cut (the Fed usually makes these surprise announcements at 8:15 am) the US EQ futures market recovered from what was setting up to be a very negative open(-5%). Since the Indian markets were already closed and had experience a devastating loss over the prior two days the ETF, accordingly, opened significantly lower, but since the loss in the US markets didn’t substantiate the kind of loss seen in India, it quickly recovered. Meaning if this trade were executed you could have seen gains of over 10% within a couple of hours and in our view with limited risk.
As we have said continually we do not believe the US is going to move into a recession, meaning these markets should continue to outperform. We are also looking into the outlook of the Las Vegas Sands (LVS) before their Feb 4th earnings report, we believe the price has been unjustifiably depressed and earnings could surprise to the upside. This is in no way an investment recommendation, but please feel free to look into the data yourself.
*Sorry for the delay in posts we were in the process of relocating to a nicer space.
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