Good morning,

Markets are called to open lower this morning. This is what's moving the markets today:

  • The markets are opening again after being closed since Good Friday. On Friday the job report came out in the US which was worse than expected. Non-farm payrolls for March increased by 120,000 jobs compared to an expected increase of 220,000 jobs;
  • Earning seasons kicks in today in the US;
  • Bank of Japan kept its monetary policy unchanged;
  • China reported an unexpected trade surplus;
  • Elections will take place in France in less than 2 weeks;
  • 10-year Italian debt yielding 5.45%, 10-year Spanish debt yielding 5.757% and 10-year Portuguese debt yielding 12.236%
  • Brent is trading at $122.24/barrel;
  • Despite the US markets were down over 1% yesterday, Apple and Priceline showed a gain at close of trade. Apple closed at $636.23 and Priceline closed at $764.75.

The markets in Europe start trading again today after a long holiday. The jobs data for March came in worse than expect in the US. The market expected that 220,000 jobs would be created for March when in actual fact only 120,000 were created. Federal Reserve Chairman Ben S. Bernanke said in a speech yesterday that the U.S. economy was still far from having fully recovered from the financial crisis. The jobs report together with Bernanke's speech increase the probability of further quantitative easing in the United States.

On the other hand, China reported a trade surplus due to lower imports. In China there is a higher probability of further monetary policy easing than in the US because it has much more tools to carry out expansionary policies than the US. Morgan Stanley, Nomura and Deutsche Bank all came out with a report showing that their expectations for Chinese growth in 2012 is above the 8% level compared to the streets estimates of 7.5%.

In Europe the situation remains the same. Spain and Portugal remain a threat to the stability in the Eurozone. Plus the worries of contagion with respect to Italy are increasing as we see the 10-year yield now trading above the 5% level.

My opinion is to take advantage of the weakness in the markets to buy value and growth stocks in the US and emerging markets particularly China. Regarding China I think it's just a matter of time before the Chinese governments carries out further expansionary monetary policy to make up for the lower exports caused by a lower demand for Europe. With respect to emerging markets I think the following ETFs would generate alpha to a portfolio in 2012:

  • iShares MSCI Emerging Markets Index Fund (EEM US EQUITY)
  • iShares MSCI China Index Fund (MCHI US EQUITY)
  • SPDR S&P Emerging Markets ETF (GMM US EQUITY)

I would not be investing in Brazil at this point in time. I think Brazil's growth rate is too low (below the 3% level). With unemployment around 6% and a trade deficit, I would rather place my bet on China. Both India and Russia are a better alternative to Brazil. I prefer Russia to India because of its resources and higher educated workforce. On the other hand I prefer India to Brazil because despite its drawbacks it is still growing at above 7%.

Another country an investor should be exposed to is Indonesia. Check out iShares MSCI Indonesia Investable Market Index Fund (EIDO US EQUITY). Indonesia is one of the success stories which emerged after the Asia crisis in the mid 90s. Indonesia is growing at a rate of c6.5% p.a. and its growth is independent of how the global economy is performing.

Regarding the US I would be exposed to blue chips which have been growing at a decent rate and which should continue to show an improvement in margins going forward. Stocks I like in USD are as follows:

  • Apple
  • Corn Products Intl Inc
  • Cummins
  • Dick's Sporting Goods
  • Footlocker
  • Mattel
  • Microsoft
  • Intel
  • MHP SA
  • Time Warner

I am underweight Europe and would rather seek alpha in the US, China and Indonesia. I would not be adding on to position in the banking sector in Europe. I would stay away from financials at this point in time because we still have to wait and see how the situation of Portugal and Spain will evolve.

I remain overweight the Dollar compared to the Euro and see signs of further strength in the Dollar as things improve at a slow pace in the US though are not improving in Europe.

Stock to watch: Monsanto (Price $76.59, PT $90)

Monsanto guided to the high end of its '12 EPS range ($3.44, +17%) due to a strong US order book (ahead of last year). With '12 acreage targets on track for reduced-refuge corn (22-24MM) and RR2Y soybeans (27-30MM), US corn and soybean volume and share gains likely in '12, a record 14 biotech projects advancing phases in '12, high-teens EPS growth in '12-'13E and valuation a fair 21.7x C'12E EPS, we believe Monsanto is a low-risk way to play the strong, and recession-resistant, global ag cycle. Buy.

For further information on Monsanto or other stocks we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli