Can You Trust North Korea ... or Asian Stocks ... Here?

Do you trust Kim Jong-un?

That’s what investors have to ask themselves in the wake of this week’s Singapore summit between the North Korean leader and President Trump. While it’s stunning and unprecedented that a sitting U.S. president met, shook hands, and negotiated face-to-face with a North Korean leader, that was mostly stagecraft.

The real work of negotiating how and when denuclearization of the Korean peninsula will take place starts now. Experts predict it could take months, if not years, to hammer that stuff out.

Of course, I’m no geopolitical or diplomatic expert. You can get much more detailed and informed analysis of that type elsewhere. My job is to look at potential investment angles to things like this, so let’s talk about what our Weiss Ratings suggest about the prospects for Asian stocks. Or more specifically, can you trust investing in them post-summit?

One of the most important variables, frankly, is the U.S. dollar. The greenback has been on a tear.

Some of it stems from the fact that our economic numbers have been strong lately. Some of it stems from the fact that our Federal Reserve is hiking interest rates earlier and more aggressively than any other major central bank in the world. As you probably know, it just did so again yesterday, pushing the federal funds rate up to a range of 1.75% to 2%.

Regardless of the cause, the effect of those hikes is to draw capital out of emerging markets and in to ours. This, in turn, is hurting the value of foreign currencies, bonds and stocks.

Just consider the year-to-date performance of benchmark ETFs that track major Asian markets. As you can see, every single ETF is trailing the SPDR S&P 500 ETF (SPY, Rated “C+”), which was recently up around 5%:

* The iShares MSCI Indonesia ETF (EIDO, Rated “C”): -11%

* The iShares MSCI South Korea Capped ETF (EWY, Rated “C+”): -1.1%

* The iShares Malaysia ETF (EWM, Rated “C”): +1.3%

* The iShares MSCI Japan ETF (EWJ, Rated “C”): +1.5%

* The iShares MSCI Singapore Capped ETF (EWS, Rated “C+”): +1.8%

* The iShares MSCI Hong Kong ETF (EWH, Rated “C”): +2.9%

* The iShares China Large-Cap ETF (FXI, Rated “C”): +4.2%

But to help you dig deeper and find some potential diamonds in the rough, I turned to the Weiss Stock Screener tool (something you have access to as a Weiss Platinum member. Specifically, I screened for any stocks that trade here in the U.S. but that are based in one of the seven aforementioned markets — South Korea, China, Hong Kong, Singapore, Japan, Malaysia or Indonesia.

I eliminated any companies rated “D+” (SELL) or lower, as well as those with market capitalizations of less than $500 million, closing prices below $5, and 30-day average trading volume below 50,000 shares. Then I further narrowed the list down to companies with year-to-date returns of between 0% and 20%.

The idea? Zero in on only liquid stocks. Then get rid of the highest of the high flyers, which might have made all the gains they’re going to make by now, as well as those which are still performing poorly almost halfway through the year.

Here’s the resulting list, sorted in descending order by year-to-date gains:

You can see that regional energy giants like CNOOC Ltd. (CEO, Rated “C”) and PetroChina (PTR, Rated “C-“) topped my list. They’ve racked up solid double-digit returns thanks to the recent rise in oil prices.

Chinese ecommerce and technology companies like Alibaba (BABA, Rated “B”) and Baidu (BIDU, Rated “C”) are also performing well, with gains of 12% and 11.3%, respectively.

Bottom line? Trump sure sounds optimistic that he was able to look into the eyes of the North Korean leader, and convince him to join the international community. If you share his optimism and are looking for regional exposure, these are the kinds of more-highly rated stocks to consider.

Just don’t go overboard. A stronger U.S. dollar and greater volatility overall are two clear headwinds — to say nothing of the risk that the deal and any positive vibes it engendered could fall apart down the road.

Until next time,

Mike Larson

P.S. Looking for OTHER ways to profit from a rising dollar? Or other conservative, higher-yielding investments that don’t come with all that emerging market risk? Then check out my Weiss Ratings’ Safe Money Report. I just sent the June issue to subscribers, complete with two hot-off-the-presses recommendations. Click here to get your hands on them.