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.

APAC Weekly Summary

Posted on July 20, 2022July 20, 2022 by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

Six markets, including Japan and South Korea, are in a Confirmed Uptrend. Three markets, including Hong Kong and China, are in an Uptrend Under Pressure. Four markets are in a Rally Attempt, including India and Taiwan. Follow-through days in Japan and South Korea are encouraging. However, we expect markets to remain volatile before the FOMC decision next week, as well as the ongoing earnings season. We recommend gradually increasing risk and focusing on quality ideas with rising relative strength.
We upgraded Japan to a Confirmed Uptrend from a Rally Attempt, after the Nikkei 225 staged a day-21 follow-through day. Over the past four to eight weeks, the Health Care and Retail sectors have outperformed, while Energy and Basic Material have lagged.
The Sensex has outperformed other major APAC markets over the last 52-weeks, with ~4% gain during this period. The Indian Rupee has had better than average performance this year compared with peers. Outperformance of the Sensex, combined with the relative stability of the currency, makes the Indian market stand out compared with other APAC peers.
Outperformance of the Sensex can be attributed to India’s strong GDP growth estimates among major economies. There has also been a slowdown in institutional selling this month, after intense selling over the last nine months. The Capital Equipment, Consumer Staple and Consumer Cyclical sectors lead in India. Refer to page 12 for stocks of interest in India.
Highlighted Focus List Idea: Tube Investments (TF.IN; TF: IN).

APAC Weekly Summary

Posted on July 13, 2022July 13, 2022 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 after facing resistance along its 50-DMA and broke below June lows. We continue to be cautious on APAC markets. We expect markets to be choppy heading into the earnings season and release of key macro data.
Two markets are in a Confirmed Uptrend. Four markets, including Hong Kong and China, are in an Uptrend Under Pressure. Five markets are in a Rally Attempt, including South Korea, Japan and India. Taiwan and Malaysia are in a Downtrend.
Taiwan was the worst performer among major APAC markets over the last three months. It has underperformed due to macro-economic uncertainty and geopolitical tension. Today, the index gained 2.7% as Taiwan announced that it will activate a $17B market stabilization fund to support the falling market. We recommend investors stay patient and gradually increase risk, with a follow-through day.
Breadth remains low across APAC with only 30% of liquid stocks trading above their 200-DMA, compared with 38% four weeks ago. Among the 12 markets, only India saw improvement in breadth during this period. There was improvement in stocks above their 200-DMA in the Consumer Staple, Health Care and Retail sectors over the last four weeks. Refer to page 11 for stocks of interest within these three sectors. On the flip side, there is a sharp decline in momentum of the Energy, Utility and Transportation sectors.
Highlighted Focus List Idea: Siemens (SIM.IN; SIEM IN).

APAC Weekly Summary

Posted on July 6, 2022July 7, 2022 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 in a tight range below its 50-DMA. We continue to be cautious on APAC markets. We expect markets to remain volatile in the near term due to uncertainty regarding Q2 results and key macro data.
Four markets, including Hong Kong and China, are in a Confirmed Uptrend. Australia and Indonesia are in an Uptrend Under Pressure. Four markets, including Taiwan, South Korea and Thailand, are in a Downtrend. Three markets, including Japan and India, are in a Rally Attempt.
Breadth across Hong Kong market is improving, based on stocks trading above their 200-DMA. The percentage of stocks trading above their 200-DMA is the highest it has been for 26 weeks.
In Hong Kong, previously leading sectors, such as Energy, Transportation and Utility, have underperformed over the last four weeks. Retail, HealthCare and Consumer Cyclical were lagging sectors over the last 52-weeks, but have gained momentum in the last few weeks. There has not been significant momentum in the Technology sector compared with other lagging sectors.
Highlighted Focus List Idea: Xtep International (XREP.HK; 1368 HK).

APAC Weekly Summary

Posted on June 29, 2022June 29, 2022 by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

Five Markets, including Hong Kong and China, are in an Uptrend. Eight markets are in a Rally Attempt. We continue to be cautious on APAC markets. Indices are expected to consolidate ahead of the earnings season and decide a more definitive direction afterward.
Bear markets in Hong Kong were longer and frequent in the last two decades. Hong Kong has entered a bear market eight times in the last 20 years, compared with three in the U.S. Bear market length has also been longer in Hong Kong, with the Hang Seng index remaining in the bear market territory in 20% of the sessions, compared with just 6% in the U.S during.
The S&P 500 and Hang Seng have closed differently in most sessions over the last 20 years. Both indices closed either positive or negative together in only ~22% of the sessions. However, it has increased to 34% this year. This has only been previously observed between 2007 and 2011.
The spread between the 52-week off-highs of the S&P 500 and Hang Seng indices increased above 10% during ten different periods in the last two decades. There were four major diversions including the current period, when the spread remained above 10% for more than a year. The spread reversed to zero or became negative in the three to six months following the decline below 10%. Going forward, we believe the Hang Seng index’s relative performance to be favorable compared to the U.S market barring any unforeseen event.
Over the past four to eight weeks, momentum has strengthened in the Health Care, Retail and Consumer Cyclical sectors. Refer to page 9 for watchlist ideas to keep on radar from these sectors.
Highlighted Focus List Idea: Olympus (OLYC.JP; 7733 JP).

APAC Weekly Summary

Posted on June 22, 2022June 22, 2022 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 attempting to form a higher low as compared with May levels of $65.40. It has immediate resistance along its 50-DMA. We continue to be cautious on APAC markets. Indices are trading below short-term support levels. We recommend being patient and waiting for volatility to settle before allocating risk.
Hong Kong and China are in a Confirmed Uptrend. Indonesia is in an Uptrend Under Pressure. Three markets, including India and Singapore, are in a Rally Attempt. Seven markets, including Japan, Taiwan and South Korea, are in a Downtrend. The Hang Seng continues to trade above its 50-DMA support. Refer to page 10 for a list of outperforming stocks in Hong Kong.
The APAC Focus List count has declined more than 50% year-to-date. The Consumer Cyclical and Health Care sectors have the highest weight among our Focus List names. Removals have been relatively lower y/y in developed markets, but have increased in emerging markets, particularly in India. However, India continues to have the highest share of stocks on our Focus List, followed by China.
Based on data since November 2015, capitulation has occurred either near the market peak or the bottom and has acted as an indicator for a trend reversal. We believe a capitulation is unlikely in near-term as our Focus List count remains low (36 at present). Alternatively, we can look for an increase in Focus List additions to provide an indication of improving market sentiment.
Highlighted Focus List Idea: Yadea (YADE.HK; 1585 HK).

Telecom for Turbulent Times

Posted on June 21, 2022June 22, 2022 by Derek Higa

Attached is a note on telecom stocks from Director, Research Analyst Derek Higa and William O’Neil India Analyst Pavan Kumar HK.

Key points from the note:

• In general, stocks with high dividend yields and stable earnings are outperforming globally.

• The spread between the rolling three-month returns of the MSCI World Telecom index and the S&P 500 has been near ten-year highs since last February.

• Telecom services, including Foreign, Integrated, and Wireless, are among the top 15 outperforming industry groups with defensive industry groups (IG).

• Most outperforming telecom stocks have the following key characteristics:

• Low debt (Net Debt/EBITDA below 3x)

• Higher dividend yield (above 3%)

• Good SMR Rating (Either A or B)

• EV/EBITDA could partially explain stocks’ price performance. However, picking a stock solely on a valuation metric is not straightforward: Many outperforming stocks are trading at a slight premium to peers. Leaders such as America Movil, Telefonica Deutschland, and Nippon Telecom are trading at a discount to their peers despite their outperformance over the last 52 weeks.

• Stocks of Interest: T-Mobile (TMUS), Nippon Telephone and Telegraph (NTT.JP), Elisa (ELIS.FI), and KT Corp (KTL.KR).

APAC Weekly Summary

Posted on June 15, 2022June 15, 2022 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) failed to hold above its 50- and 21-DMA support. Next support is near recent lows of $65.4 (-5%). We are cautious on APAC markets. Reduce risk in lagging ideas that are trading below key moving averages or logical support. Also, consider trimming extended ideas.
Hong Kong and China are in a Confirmed Uptrend. Three markets, including Japan and Taiwan, are in an Uptrend Under Pressure. Seven markets, including Australia, India and South Korea, are in a Downtrend. Thailand is in a Rally Attempt.
Indonesia is the only market that has gained YTD, while all other markets are down. Singapore, Thailand and Malaysia are the other outperforming markets and have declined less than 5% YTD. In contrast, India, Australia, Taiwan, China and South Korea are lagging and are down more than 10% YTD. Refer to page 7 for a price comparison chart of APAC indices.
Hong Kong and China are still more than 20% off highs and remain in bear territory. However, over the past eight to 13-weeks, we have noticed relative improvement in these markets.
The Consumer Cyclical, Energy and Retail sectors are showing improved momentum in the short-term, while Energy is outperforming over the long-term. We recommend investors trim positions in energy stocks that are significantly extended above their moving averages. The Basic Material and Financial sectors have come under pressure recently.
Highlighted Focus List Idea: KT Corp (KTL.KR; 030200 KS).

APAC Weekly Summary

Posted on June 8, 2022June 8, 2022 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 50-DMA. Next resistance is along its 100-DMA (+4%). We continue to recommend a patient and selective approach. Gradually allocate capital to select ideas with high relative strength.
Six out of 13 APAC markets, including Japan, Hong Kong, Taiwan, South Korea and China, are in a Confirmed Uptrend. Indonesia is in an Uptrend Under Pressure. Six markets, including India and Australia, are in a Rally Attempt.
The Hang Seng has moved above its 50-DMA, indicating improving sentiment towards the market. It is currently trading at its 100-DMA. Holding the moving average would be the next step for the market to climb out of bear territory. We believe that the 200-DMA (+6%) could act as a strong level of resistance.
The proportion of Hong Kong stocks trading above their 50-DMA has improved significantly over the last four weeks. However, the proportion trading above their 200-DMA has not improved much compared to eight weeks ago.
Momentum has improved for the Technology and Retail sectors over the last few weeks. We would look for stocks to begin forming bases above their respective 200-DMA to remain constructive. If market conditions remain favorable, gradually increase risk in stocks retaking their 200-DMA.
Refer to page 9 for Hong Kong ideas with high 3-month RS Ratings, that are trading near their 200-DMA and have favorable Accumulation/Distribution ratings.

APAC Weekly Summary

Posted on June 1, 2022June 2, 2022 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 and is currently testing resistance along its 50-DMA. We recommend a patient and selective approach. We are encouraged by the follow-through days in China, Hong Kong, Japan and Taiwan. However, Indices must hold above their moving averages to raise conviction in a continued rally.
Six out of 13 APAC markets, including Japan, Hong Kong, Taiwan, South Korea and China, are in a Confirmed Uptrend. Indonesia is in an Uptrend Under Pressure. Six markets, including India and Australia, are in a Rally Attempt.
We upgraded Japan and Taiwan to a Confirmed Uptrend from a Rally Attempt, after the indices staged a follow-through day. We recommend investors take a gradual approach to increasing risk. We would like to see strength broaden across markets and an increase in the number of breakouts to raise conviction in the rally. Refer to pages 11 and 12 for the list of stocks trading near pivot in markets which are in a Confirmed Uptrend.
Lagging stocks are bouncing off lows and outperforming over the past week. This is particularly evident in the Technology and Consumer Cyclical sectors. Strength remains narrow across APAC, with the Energy, Transportation and Utility sectors outperforming.
Highlighted Focus List Idea: Astellas Pharma (YP@N.JP; 4503 JP). Refer to page 6 for an annotated chart.

APAC Weekly Summary

Posted on May 25, 2022May 25, 2022 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) failed to retake its 21-DMA ($69). Next support is along its recent 52-week low of $65.40. We recommend a cautious and patient approach. Markets across APAC are range-bound. Continue to trim profits in extended ideas. Sell lagging ideas, which have risen off oversold levels into logical resistance. Refer to page 10 for the list stocks near pivot.
Hong Kong, China, and South Korea are in a Confirmed Uptrend. Indonesia is an Uptrend Under Pressure. Malaysia is in a Downtrend. Eight markets, including Japan, India, and Taiwan, are in a Rally Attempt.
We recommend a gradual approach to the Hong Kong market, despite a follow-through day. Look for a second follow-through day, preferably above the 50-DMA (~20,875), to be an indicator of a meaningful change in character. Currently, 19% of the Hang Seng Composite 470 members are trading above their 200-DMA. However, this has declined below previous levels. The number of stocks, breaking out from their weekly base, has yet to improve and stocks near pivot are near multi-year lows.
The Energy sector has outperforming over the last 26 weeks and its momentum has improved over the last four weeks. Outperformance of the sector was driven by the coal and oil refining and marketing industry groups. The sector is near highs when compared with previous cycles. Upside is limited in the near term, unless this is the beginning of commodity super cycle, similar to that in 2003. We recommend investors trim positions in Energy stocks, which are extended from their moving averages.
Highlighted Focus List Idea: Bumrungrad Hospital (BHOT.TH; BH TB).