Author: Derek Higa

Derek Higa is a senior equity analyst and a lead for the APAC region and the Consumer Cyclical sector. He serves on the Global Focus List Committee, which approves all equity recommendations for developed, emerging, and frontier markets, and compiles Asia Watch, a weekly recap of regional investing news. Since joining William O’Neil + Company in 2005, he has lent his market expertise to alpha capture, product development, and historical studies on outperforming stocks. Derek graduated summa cum laude from California State University Los Angeles with a B.S. in Finance and Information Systems. He holds a Series 65 securities license.

Buy RACE.IT; All-Time High Post Strong Q

Posted on by Derek Higa

Key points:

 

  • We reiterate our buy recommendation on Ferrari as the stock broke out of a stage-one, 15-week flat base on above-average volume after strong Q3 results.
  • Q3 shipments increased 8.5% to 3,459 units. Revenue increased 23% to €1.5B, beating estimates by 5%. EPS of €1.82 (+46% y/y) topped estimates of €1.61 by 13%.
  • The company is on track to achieve its revenue and EPS CAGR of 7% and 10.5%, respectively, over the next four years. This would be achieved by an exclusivity strategy to maintain strong demand for its cars and improve the average selling price by changing product mix and personalization features.
  • Good fundamental ratings: Good EPS Rank 84 and SMR Rating of A. Consensus expects double-digit EPS growth for 2023 and 2024.
  • Good technical ratings: RS line is at a 52-week high, with a RS Rating of 88 and an A/D Rating of B+.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia Ex Japan index (AAXJ) has made lower lows since August and is trading at a YTD low. We continue to recommend a cautious and defensive approach. Pay attention to ideas which have held support, are trading near pivot and have rising relative strength.
  • Japan is in an Uptrend Under Pressure. Eight markets, including China, Hong Kong and India, are in a Rally Attempt. Four markets, including Taiwan and South Korea, are in a Downtrend.
  • The Nikkei 225 retook its 21-DMA after the Bank of Japan left its short-term lending rate unchanged at -0.1% and made its yield curve control policy more flexible. Key resistance for the Nikkei is near its 50-DMA (32,000).
  • The TOPIX’s outperformance over the Nikkei 225, on a three-month rolling return basis, is pulling back from the most extended levels seen over a 10-year period. Based on history, we expect the TOPIX’s outperformance to revert even further. This is despite value stocks holding up relatively better than growth stocks, since the Nikkei peaked in early September.
  • Breadth has weakened across Japanese sectors over the past eight weeks. Weekly stocks near pivot have sharply declined and the number of failed breakouts is on the rise. Reduce exposure to lagging stocks or those breaking below key support. The Consumer Staple and Financial sectors have improved the most over an eight-week period based on median RS Rating. Refer to page 12 for stocks of interest in Japan.

 

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia Ex Japan index (AAXJ) declined below recent lows of ~$62. Breadth across APAC is weak.
  • Japan is in an Uptrend Under Pressure. Three markets are in a Rally Attempt. Nine markets, including Hong Kong, India, China and Taiwan, are in a Downtrend. We shifted Hong Kong to a Downtrend from an Uptrend Under Pressure.
  • We downgraded India to a Downtrend from an Uptrend Under Pressure. The Sensex has breached its 100-DMA support for the first time since April. Breadth has weakened significantly over the past week. We see weakness across market cap classifications, with SMID stocks pulling back the most.
  • Indian markets have seen strong money inflows from institutions since February 2023. However, institutions have turned net sellers in September and October. Failed bases in India are increasing and the number of stocks near pivot has seen a sharp decline over the last week. We advise a cautious and defensive approach. Reduce exposure to lagging stocks or those breaking below key support levels. Refer to page 10 for a list of defensive stocks across APAC.
  • Highlighted Focus List Idea: Creditaccess Grameen Ltd (CRG.IN; CREDAG IN).

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia Ex Japan index (AAXJ) retook its 21-DMA resistance. The index has been living below its 50- and 200-DMAs since August.
  • India is in an Uptrend Under Pressure. Ten markets, including Japan, Hong Kong and Taiwan, are in a Rally Attempt. China and South Korea are in a Downtrend.
  • Breadth across APAC has weakened over the past four weeks. The Technology, Consumer Cyclical and Capital Equipment sectors have seen a large decline in stocks trading above their 200-DMA over the past 13 weeks. All major markets except India have seen a decline in breadth. We recommend a cautious approach. Be patient and wait for follow-through days to occur before gradually allocating capital.
  • The Energy sector has been performing well across markets over the last 13 weeks due to an increase in crude oil prices. Much of the sector’s outperformance in APAC is driven by stocks in India, Japan and Australia. The Oil & Gas Exploration and Production and Coal industry groups have outperformed over the last 13 weeks. Refer to page 8 for mini charts of stocks of interest from the Energy sector.
  •  Highlighted Focus List Idea: NHPC (NHD.IN; NHPC IN).

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia ex Japan index (AAXJ) is trading below all key moving averages and is at 10-month low. We recommend a cautious or defensive approach. Trim or reduce risk in ideas that are extended, or that are failing to hold above logical support levels.
  • India is the only market in an Uptrend Under Pressure. Six markets, including China and Taiwan, are in a Rally Attempt. Six markets, including Australia, Hong Kong, Japan, South Korea and Thailand, are in a Downtrend.
  • This week we downgraded Japan to a Downtrend from an Uptrend Under Pressure. This is the most extended the TOPIX has outperformed the Nikkei 225 on a three-month rolling return basis over the last 10-years. In the short term, we expect this to revert.
  • Year-to-date, low P/S stocks continue to outperform in Japan. Large-cap stocks have also led. However, these two groups have significantly underperformed over the last two weeks. We continue to recommend trimming positions in extended stocks or those breaking support levels. Refer to pages 8 and 9 for mini charts of extended stocks. The stocks that are holding up well in Japan are listed on page 10.
  • Highlighted Focus List idea: Resona Holdings (DBHI.JP; 8308 JP).

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia Ex Japan index (AAXJ) breached support along March lows of $63.4 and is 14% off highs. We recommend a cautious or defensive approach. If you must allocate capital, focus on ideas with an improving RS Rating or a high 3-month RS Rating.
  • Three markets, including Japan and India, are in an Uptrend Under Pressure. Seven markets, including China and Taiwan, are in a Rally Attempt. Hong Kong, South Korea and Thailand are in a Downtrend.
  • Major APAC markets, except Japan, have seen an increase in failed bases over the past month, compared with the one-year average. Fewer stocks are forming bases. Noticeably, the number of stocks forming bases in Hong Kong is near a seven-year low.
  • The Hang Seng undercut prior lows and was downgraded to a Downtrend. It is more than 20% off 52-week highs and continues to live below the 50- and 200-DMAs. Refer to page 8 for an annotated chart of the Hang Seng. We recommend investors trim positions in stocks breaking below logical support. Refer to page 10 for minicharts of shortable Chinese ADRs.
  • Breadth in Hong Kong remains low across sectors. However, we have identified a few pockets of resilience in selected Industry Groups. We recommend investors focus on constructive stocks trading above key moving averages with rising relative strength. Refer to page 12 for a list of constructive setups for stocks in Hong Kong, Taiwan and South Korea.
  • Highlighted Focus List Idea: PDD Holdings (PDD).

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia Ex Japan index (AAXJ) is consolidating below its 50- and 200-DMAs. We recommend a patient approach. Continue to let markets settle and prove they can break out or hold above key levels before allocating capital.
  • India and Japan are in a Confirmed Uptrend. Three markets, including Australia and Hong Kong, are in an Uptrend Under Pressure. Six markets, including South Korea and Taiwan, are in a Rally Attempt. New Zealand and the Philippines are in a Downtrend.
  • The TOPIX has become extended from a historical perspective. While the Nikkei 225 is trading within consolidation and is 2% below its June and 52-week high, the TOPIX has broken above June highs and has made a new 52-week high. It is also trading near historically extended levels above its 40-WMA.
  • In Japan, Energy and Utility are among the most extended sectors. Most other sectors, except Health Care and Consumer Staple, are trading more than 10% above their 200-DMA. Refer to pages 10 and 11 for minicharts of extended names in Japan.
  • The Consumer Cyclical, Capital Equipment, Technology and Financial sectors are responsible for 80% of the YTD performance of all liquid stocks in Japan. Given the extended nature of some areas of the market, we recommend a disciplined approach. Avoid or trim extended ideas. Instead, focus on stocks trading near pivot off constructive bases. Refer to page 12 for a list of stocks trading near pivot in Japan.
  • Highlighted Focus List Idea: NTT (NTT.JP; 9432 JP).

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia ex. Japan index (AAXJ) is consolidating below its 50- and 200-DMAs. We recommend a patient approach. Let markets settle and find support before allocating meaningful capital. Focus on ideas trading constructively above key moving averages with rising relative strength.
  • Indian small- and mid-cap (SMID) stocks are extended from a historical perspective and are overdue for consolidation. We recommend investors avoid chasing extended Indian small- and mid-cap stocks. The Nifty Midcap 100 index has outperformed the Nifty 50 in recent months, and the price spread between the two indices is at an all-time high. The current spread is close to Jan 2018 levels, when the Nifty midcap index peaked and consolidated for the next two years, while the Nifty 50 index outperformed. Based on historical performance, we expect the spread between the indices to narrow going forward.
  • In India, cumulative domestic institutional buying has slowed over the last five months, and foreign investors have continued to be cumulative net sellers. We believe that the recent rally in SMID stocks has been primarily driven by retail investors. In contrast, large-cap stocks are less extended and multiple ideas are breaking out. Refer to page 8 for a list of constructive large-cap stocks.
  • Highlighted Focus List Idea: Maruti Suzuki India (MUD.IN; MSIL IN). Refer to page 7 for an annotated chart.