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August 12, 2005

IIF premium is a warning flag, Fri., August 12, 2005, 6:25 AM

I'm going to forecast that the closed-end Morgan Stanley India Investment Fund (NYSE: IIF) has reached a peak, and will now either decline or sidetrack for many months from this point. I think the enthusiasm has been overdone.

Dennis has given us the answer:

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Bill, I think something is out-of-whack when a closed-end-fund like IIF trades at such a high premium. A discount is more normal because of lack of liquidity of the underlying (foreign) asset. I merely wanted to point out that hot money chasing these stocks is bidding the premium up and down, and therefore the unusual volatility. For example, there are at least four opportunities in the last 12 months to buy IIF at near net asset value.
http://www.etfconnect.com/select/fundPages/global.asp?MFID=10541

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One look at the IIF chart at ETFConnect.com shows what happened to the stock price at the start of 2005 when the premium also reached extremes.

Do you recall that the Talking Heads of Wall Street were so impressed that Mom & Pop had returned to the market in December 2004? Well, they can see that in the public order flow to their firms, and they trade against it in what must be life's biggest hypocrisy;You know, the one where your trusted financial advisor sells you something, and then trades against your positions.

In any event, the public can see for themselves when they start chasing stocks beyond reasonable prices. It's when premiums start showing up in the universe of closed-end funds. That's a red flag for traders who have been bullish.

Traders who are interested in India should have a look at the top ten holdings of the IIF fund, which are published by ETFConnect at the link above.

Posted by Posted by Bill Cara on August 12, 2005 06:25:58 AM | Category: Funds , India

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