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Why the struggle isn’t over for emerging markets, what shorts are doing on the TSX, and a crazy but simple and successful investment strategy

With the U.S. Federal Reserve still boosting interest rates and U.S. President Donald Trump still raising tariff threats, the bottom for emerging markets remains some way away, market players say.

The selloffs in developing-nation currencies and stocks are likely to continue in the second half of 2018, a survey of 20 investors, traders and strategists by Bloomberg shows. It’s not all doom and gloom, though – bonds may fare better for their relative safety, and some particular markets might see gains, according to the June 26-July 4 poll.

The allure of riskier assets is starting to fade amid escalating U.S.-China trade frictions and the Fed’s continuing quantitative tightening. Currencies and equities completed their worst quarter since the worries about a China hard landing back in 2015. A Bloomberg Barclays index of emerging-market local-currency debt posted its first three-month drop since 2016 as investors became more selective. All three measures have made little headway so far in July.

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“Investors aren’t done worrying about the outlook for emerging markets, as we expect the environment for a stronger dollar to continue,” said Hideaki Kuriki, chief fund manager in Tokyo at Sumitomo Mitsui Trust Asset Management Co., which oversaw the equivalent of US$90-billion as of March. “The U.S. economy is strong on a relative basis and the dollar and yields there are also high – and that’s why emerging markets will continue to struggle.”

--Bloomberg News

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Stocks to Ponder

Blue Apron Holdings Inc. (APRN-N). Blue Apron may have found the right ingredients, but analysts are hesitant to take a bite. Shares of the subscription meal kit company have more than doubled since hitting a record low in April, and reached a five-month intraday high on Friday. Sentiment on the company has improved as it cleared up a distribution overhang and announced partnerships to attract consumers, such as a tie-in with social media influencer Chrissy Teigen. Hank Tucker from Bloomberg News reports (for subscribers).

The Rundown

U.S. bank stocks are sinking on disappointing results. Here’s what analysts are saying

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U.S. bank stocks are hurting after disappointing second-quarter results from Wells Fargo and Citigroup, and as JPMorgan’s earnings beat wasn’t enough to boost investor confidence. Analysts are zeroing in on sliding loans and deposits, while Wells Fargo was also hurt by the Federal Reserve’s asset cap. The KBW bank index is down as much as 1.9 percent, the most intraday since June 25, led by a decline of as much as 3.3 percent in Citigroup, the most since May 29, and a slide of as much as 4.3 percent in Wells Fargo, the most since March 22. JPMorgan was little changed after dropping as much as 1.6 percent. Bank of America and Goldman Sachs -- which report next week -- are also down. From Bloomberg News.

Short sales on the TSX: What bearish investors are betting against

In July, short sellers continued to retreat from a relentless bull market, led by substantially lower short positions in the shares of First Majestic Silver Corp., Badger Daylighting Ltd. and Canopy Growth Corp. Partially offsetting this move to the sidelines was a ratcheting up of bearish bets on several other companies, notably Baytex Energy Corp., Maxar Technologies Ltd., Alaris Royalty Corp. and Sleep Country Canada Inc. Larry MacDonald reports (For subscribers).

Why I’m becoming much more defensive in my investment calls

David Rosenberg explains why he’s become more defensive and why no one knows where the global trade war is going to lead. (For subscribers).

Uncertainty about trade policy could bolster U.S. defensive stock sectors

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As the United States ramps up import tariffs and long-date U.S Treasury debt yields remain low, stocks in so-called defensive sectors may have room to run higher in price, even though expectations for the currently quarterly earnings seasons are high. Stocks in defensive sectors, which generally pay steady dividends and have steady earnings, languished for the first months of 2018. Utilities, real estate, telecommunications and consumer staples all saw their stocks fall into early June even as the U.S. benchmark S&P 500 index rose more than 4 per cent. From Bloomberg News. (For everyone)

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Ask Globe Investor

Question: Both my wife and I have personal RRSPs and TFSAs. I have a LIRA and my wife also has a spousal RRSP along with a joint non-registered account. If one of us dies before starting to cash registered accounts (or any account for that matter) are the accounts transferred to the surviving spouse tax free? Would the same be true if one or both of us were already drawing on our registered accounts?

Answer: In the case of registered accounts, the law is clear if one spouse dies. The assets in such accounts may pass to the survivor tax-free. This is true even if both are drawing income from the accounts.

Non-registered accounts are a different matter, however, and there is no guarantee that such an account would not form part of a deceased’s estate. There is a useful article on this subject by Donald J. Dochyko at http://www.advisor.ca/tax/estate-planning/joint-accounts-and-survivorship-rights-10630.

As you’ll see when you read it, you may wish to consult a tax accountant about your specific situation.

--Gordon Pape

Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.

What’s up in the days ahead

Does the Brexit mess translate into the perfect buying opportunity for British stocks? Ian McGugan will share his thoughts. And Rob Carrick points out some of the danger signals that arise from fee-based advisers cutting their costs.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Gillian Livingston

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