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.

Telecom for Turbulent Times

Posted on 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 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 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 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 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).

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) bounced off its recent 52-week low (-6%) and is testing resistance along its declining 21-DMA. We recommend a cautious and patient approach. There is significant overhead resistance for major indices. However, it is encouraging to see the indices find support and avoid lower lows.
  • Hong Kong is in a Confirmed Uptrend. Indonesia is in an Uptrend Under Pressure. Thailand is in a Downtrend. Ten markets, including Japan, Australia, India, China, Taiwan and South Korea, are in a Rally Attempt and are positioned for follow-through days.
  • India and other countries have implemented a ban on wheat and other food exports, in a move to conserve domestic supply. This is resulting in rising prices for food products and will eventually contribute to rising inflation worldwide.
  • The Consumer Staple sector witnessed a sharp increase in momentum over the last few weeks and is back in the top right quadrant of the APAC Sector Rotation Chart. Refer to page 7. The leading industry groups in the current phase of improved momentum include Beverages-Non-Alcoholic, Cosmetics/Personal Care, Food-Grain & Related, Food-Packaged and Tobacco. Refer to pages 10 and 11 respectively for mini charts of ideas near pivot and that are extended.
  • Highlighted Focus List Idea: Varun Beverages (VB1.IN; VBL IN).

APAC Market Update

Posted on by Derek Higa

Key Points:

  • We downgraded Japan and India to a Downtrend from an Uptrend Under Pressure. We recommend a cautious and defensive approach. If possible, raise cash by continuing to reduce positions in lagging ideas, which have fallen from their resistance levels and are below support. Focus on defensive stocks with low beta and rising relative strength. Refer to page 3 for a list of near pivot defensive ideas.
  • The Nikkei declined 1.8% on higher volume and broke below its January low of 26,044. It is 16% off highs and has been living below its 200-DMA since January. Next support is along its March lows of 24,682 (-4%).
  • The Sensex declined 2.1% and is 15% off highs. It has declined below its key moving averages after facing stiff resistance along its 50- and 200-DMA (56,800-57,800). Next support is near March lows of 52,261.
  • After today’s market condition changes, eight out of 13 markets, including Japan, India, Taiwan, South Korea, Thailand, and Malaysia, are in a Downtrend. Four, including China, Hong Kong, and Australia, are in a Rally Attempt. Indonesia is in an Uptrend Under Pressure with a distribution day count of six.
  • Fous List Ideas that are holding up well above their 50- and 200-DMA include NTT (NTT.JP; 9432 JP), Sojitz (NIIW.JP; 2768 JP), Astellas Pharma (YP@N.JP; 4503 JP), Ono Pharm (PS@N.JP; 4528 JP), ITC (IT.IN; ITC IN), and Varun Beverages (VB1.IN; VBL 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) broke below March lows and made a new 52-week low. We continue to recommend a cautious and defensive approach. Indices could rally off lows in the near term. However, we would wait for volatility to settle.
  • Five markets, including Japan, India, and Indonesia, are in an Uptrend Under Pressure. Three markets, including Australia and China, are in a Rally Attempt. Hong Kong, Taiwan, South Korea, the Philippines and New Zealand are in a Downtrend.
  • Both the MSCI Asia Pacific Growth and Value indices have declined below their pre-pandemic peaks. Refer to page 7 for a five-year price comparison chart of MSCI Asia Pacific Growth and Value indices. Based on the median RS Rating, we see outperformance in low PE and high dividend yield stocks. We recommend investors stick with leading sectors for now, as we do not yet have evidence of a mean reversion in price performance. Refer to page 8 for list of low PE stocks (PE Ratio less than 25) trading near pivot.
  • All sectors are trading at a lower PE compared with the five-year average. Furthermore, they are trading at a discount compared with the median 12-month street price target. High dividend yield stocks, from lagging sectors such as Health Care and Consumer Staple, have underperformed significantly when compared with liquid stocks from these sectors.
  • Highlighted Focus List Idea: ITC (IT.IN; ITC 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) has gained in the last few sessions. However, it remains below all key moving averages. We recommend a cautious and defensive approach. Continue to reduce lagging ideas which have rallied from oversold levels into short-term moving averages, or logical resistance.
  • Indonesia is in a Confirmed Uptrend. Five markets are in an Uptrend Under Pressure, including India, South Korea, and Japan. Six are in a Rally Attempt, including China, Hong Kong, and Taiwan, while New Zealand is in a Downtrend.
  • Australia is among the best performing major markets based on year-to-date performance. A higher weighting in commodity sectors such as Basic Material and Energy have helped the market to outperform. Refer to page 6 for annotated chart of the ASX All Ordinary index.
  • Defensive sectors are currently leading in Australia. The Utility, Transportation, Energy, and Financial sectors are leading over the last four weeks. The Basic Material sector has pulled back over the last few sessions. However, a select number of stocks are still holding up in the sector. Refer to page 7 for the list of stocks trading near pivot in Australia.
  • Highlighted Focus List idea: Igo (IGO.AU)

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 declined for eight consecutive sessions and is near its 52-week low. We recommend a cautious and defensive approach. Focus on select ideas in leading or improving industry groups with rising relative strength.
  • Indonesia is in a Confirmed Uptrend. Five markets are in an Uptrend Under Pressure, including India, South Korea and Japan. Four are in a Downtrend, including China, Hong Kong and Taiwan. Three, including Australia, are in a Rally Attempt.
  • China is experiencing a surge in COVID infections which could translate to an economic slowdown. The IMF cut China’s 2022 GDP forecast to 4.4% from 4.8%. Prolonged lockdowns could have a ripple effect and impact the global economy.
  • The number of failed bases in the last one year have remained higher than the last ten-year trend, with a declining trend in stocks breaking out. Failed bases have increased sharply near either the market top or bottom, signaling a change in market direction. We have not had such a spike since April 2020. This leads us to believe the market has yet to bottom.
  • Defensive sectors, including Consumer Staple, Energy, Health Care and Utility continue to lead. Refer to pages 8 and 9 for a list of stocks with an RS line at a new 52-week high. These stocks have good defensive characteristics.
  • Highlighted Focus List Idea: Bharti Airtel (ART.IN; BHARTI IN). Refer to page 7 for an annotated chart.