E On MFMIX, FANUY And More

Today's publication of two contrasting purchasing managers' indexes (PMIs) may mark a major market shift. On the one hand, the HSBC March 'flash' survey of Chinese manufacturing outlook came up with a prediction of further decline. The index, which means slowdown if it is below 50, was well below consensus forecasts of 48.7. It was at 48.1, so domestic production is likely to fall by 4%. As this means China will probably take policy measures to boost, the Chinese stock index rose on the news.

Meanwhile, in the Olde World, of all countries, France, reported a surprise jump in its Markit March PMI, to 51.9 vs economists' forecasts that it would merely match February's level of 49.7. As a result of the surprising growth (and the gains of the far-right Front National in the weekend elections) the CAC 40 Paris stock index fell 1.3% aujourd'hui, and 4 out of 5 listed French companies went into the red.

Wall Street fell on the China gauge because nobody has any time for France except as tourists.

One of the top performing stocks in the past week was Japan's Fanuc Corp., a share your editor bought mainly for more control and liquidity than we get with the smaller stocks written up by Chris Loew, our Japan correspondent. JP:8954 is a robotics company I got to know when it opened a subsidiary there when I lived in Paris, to supply French auto-makers. It is an indirect way to own a car. Despite its high price I finally bought it as the yen declined. It rose over 3.2% more in Japan trading today. (Because I already had the yen in my account from a share sale, I bought in Japan although there is also an American Depositary Receipt, FANUY. Although the Japanese currency has fallen since I bought in Jan. 2012, the Japanese stock is up 35% from my purchase price and the ADR up 20%. Plus there's a 1%/yr dividend.

Another investment not in the model portfolio has also had banner returns, the Morgan Stanley Institutional Frontier Markets Fund, MFMIX, owned via conversion from a closed-end fund. My newsletter doesn't have the resources to cover the thousands of open-end mutual funds so we dropped coverage especially since new investments were unwelcome. MFMIX, bought for $8 a year ago, is now $19.77.

Recounting this history leads to today's revised forecasts for 2014 based on recent trends. Not only is China to be down-weighted and France (and Euroland) raised. We also need to rethink our overweight in biotechs and pharma, and in big emerging markets (like 4 of the 5 BRICS--Brazil, Russia, India, China, and South Africa.) Both sectors are under pressure now. I will continue to look for stocks investing in emerging Africa, Asia, and the Middle East --- places like Ethiopia, Jordan or the 'Stans. I remain a pushover for funds and REITs investing in markets like Mongolia, Myanmar, and Mexico, Russia, and frontier Africa. I also retain my taste for emerging markets debt as we move into the taper.

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