Portfolio Shifts in the Face of 'New' Risks

by: Soos Global Capital

What a way to start the week. Just consider the following back-to-back headlines in the weekend and early Monday morning press:

  • North Korea reveals new uranium facility//Nuclear Fears Grow

  • South Korea reconsiders US nuclear weapons

  • US banks face$100bn Basel 3 Shortfall

  • Pessimistic Fed to slash growth forecasts

  • Irish Bailout Gets Lukewarm Welcome

  • Irish Government Thrown into Turmoil

  • US in Vast Insider Trading Probe

  • Artsy Sag Harbor is Up in Arms About a Long, Shapely Pair of Legs

Ok, scratch the last one, but all the others are certainly food for bears to feast on and cause for bulls to head back to the stables. Monday’s lower opening reflects the pall over the markets from the collective market-unfriendly news in those headlines. Readers of my recent articles will note that while I’ve not exactly been ready to race the Bulls of Pamplona as they charge ahead and push aside or crush anything in their way, I have been becoming less patient in deploying cash and in extending my equity exposure, focusing on global companies who are in strong financial condition and who are benefiting from emerging and emerged country infrastructure buildup around the world.

Monday’s market negativity, in my opinion, is providing another opportunity to nibble on some of these companies. To be sure, the ‘risk-ometer’ was swinging more wildly yesterday than it was last week, but most of what is feared in the headlines above are manifestations of risks that were already out there and should have been part of investor “what if” analysis already.

To be clear, I’m not dismissing any of the critical issues above as anything less than extremely meaningful for markets and the world at large, but, for example, to be ‘stunned’ that North Korea is this far along in the nuclear quests strikes me as either somewhat naïve or ill-informed. Likewise, to think that Ireland could go through the kind of fiscal upheaval without some kind of political machinations that disrupt or crater the existing coalition, likewise is shallow in its analysis. How about bank capital? We’ve been dissecting bank balance sheets for months in search of comfort that Basel 3 demands (and other regulatory capital requirements) will be met, and as recently as last week we heard from Citi’s Vikram Pandit that Basel 3 proposals had gone too far and were at risk of exacerbating problems that led to the financial crisis.

Again, there’s no “polly-anna” at the keyboard on this article, and each of the issues above needs to be monitored closely for specific market reaction and collateral damage that could hit other areas in the markets. But, all of this should be weighed in the balance of the overall issues, many of which continue to point to good reason to broaden equity exposure.

The following is a summary of some recent portfolio moves I’ve made (or am considering) based on my relatively cautious yet optimistic view on global equity markets. As always, each investor has to opine and decide for themselves as to what is appropriate for their unique financial profile, risk tolerance and portfolio goals, and should only take the comments made in this article as thought-provoking ideas that they may use in their overall decision process. From my perch, as I indicated last week in an article entitled “Energized for the Energy Sector”, I’m on the hunt for more exposure in the energy space, looking in particular at Schlumberger (NYSE:SLB) and Devon Energy (NYSE:DVN). I’m also, shifting the balance between Consumer Staples and cyclical sectors by adding more to Consumer Discretionary names such as Lowes (NYSE:LOW) and Stanley Black & Decker (NYSE:SWK).

In the global arena, I still like Australia and have added to the country ETF (NYSEARCA:EWA) and to Telstra (OTCPK:TLSYY) (I wrote about Telstra issues recently: "Is this Down Under Telecom Over the Top?"). This past weekend’s news about North Korea is exactly to the kind of risk that I mentioned some time ago in an article about Posco (NYSE:PKX), the South Korean steel company. I added recently to this name as it flirted with the $100 level, and am watching closely how it reacts to the North Korean headlines.

I’m still generally disenamored with the financial sector overall, though I continue to have a meaningful position in Citi (NYSE:C), as I would expect the Government’s ‘sale program‘ to be progressing nicely with the stock well above $4 in recent weeks. In addition, Citi continues to shed non-core assets, and their global footprint positions them well for the kind of economic expansion and middle-class evolution that is happening in many emerging countries around the world. That said, this position warrants extra attention as Citi too will continue to be under the weight of the global and regional regulatory oversight and capital requirement regimes that continue to evolve, and as their CEO effectively said, this remains a concern.

In the Industrial sector, I’ve added GE, MMM and United Technologies (NYSE:UTX) recently…all three have iconic brand name businesses that are penetrating emerging and emerged economies around the globe. Finally, I’m watching Telefonica (NYSE:TEF) quite closely. I’ve owned TEF for some time and recently it has been hit hard by the Eurozone jitters. That’s understandable. But what’s worth considering is just how much of TEF’s earnings come from the UK, Germany and various countries in Latin America. At some point, I believe, TEF might be tagged too hard for its Spanish presence and would be worth a look.

Bear in mind, these are just some of the portfolio moves that I’ve made or am considering in the context of the overall global view that growth around the world will continue, the US will likely move forward on tax cut issues, the US economic data has shown recent signs of bottoming, and China’s anti-bubble policies will slow but not stop the engine of growth from Asia.

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Disclosure: Long SLB, DVN, LOW, SWK, TLSYY, EWA, PKX, C, GE, MMM, UTX, TEF, EWG and FXI