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 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.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

  • The MSCI Asia ex. Japan index (AAXJ) continues to make lower highs and has declined below its key moving averages. We recommend a cautious and selective approach to adding risk. Focus on select ideas in leading or improving industry groups with rising relative strength.
  • Indonesia is in a Confirmed Uptrend. Eight markets, including India, South Korea, China, Hong Kong, Japan and Taiwan, are in an Uptrend Under Pressure. Four, including Australia, are in a Rally Attempt.
  • Along with market performance, currency has become an equally important factor for equity markets over the last 52 weeks. The increasing interest differential between the U.S. and Japan has led the Japanese Yen to depreciate to a multi-year high.
  • The World Bank and the IMF revised 2022 and 2023 growth projections down for APAC and other regions, due to the impact of the Russia-Ukraine war. Indices for markets with higher growth projections and lower downward revisions have outperformed year-to-date (except for China).
  • The breadth of actionable stocks across APAC remains narrow. We see outperformance in defensive sectors such as Energy, Basic Material and Utility in the short term. Refer to page 7 for stocks near their pivot in these sectors.
  • Highlighted Focus List Idea: Igo (IGO.AU; IGO AU).

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

• The MSCI Asia ex. Japan index (AAXJ) breached its 21-DMA support after facing resistance along its 50-DMA. It is still
trading 24% off highs.
• India and Indonesia are in a Confirmed Uptrend. Seven markets, including South Korea, China, Hong Kong, Japan and
Taiwan, are in an Uptrend Under Pressure. Four markets, including Australia, are in a Rally Attempt.
• The MSCI Asia Pacific growth index has underperformed the value index over the last 52-weeks. The spread between
growth and value hit a 52-week low in March, before it increased in late-March when major indices were bouncing off
lows. However, the spread is pulling back to March lows, which is near pre-pandemic levels.
• We are yet to see evidence for an improvement in quality growth names over value names. Over the past month, quality
growth stocks outperformed value as they had a strong bounce from oversold levels. However, over the past week, growth
stocks have pulled back harder compared with value stocks. We recommend investors remain patient and avoid buying
dips.
• Highlighted Focus List Idea: Astellas Pharma (YP@N.JP; 4503 JP).

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

  • The MSCI Asia ex. Japan index (AAXJ) is testing resistance along its declining 50-DMA. We continue to recommend a gradual approach to increasing risk. Continue to focus on ideas which have traded constructively, are building the right side of bases, and have rising relative strength.
  • Hong Kong, Japan, China, Taiwan, South Korea, India, and Indonesia are in a Confirmed Uptrend. Two markets are in an Uptrend Under Pressure. Four are in a Rally Attempt.
  • India has significantly outperformed other APAC markets since July 2021, which has been driven by the Basic Material and Energy sectors. Refer to page 9 for a one-year price comparison chart. The number of stocks breaking out has improved over the past four weeks. Refer to page 10 for the list of stocks trading near pivot in India.
  • Large cap stocks in India are performing better than mid and small cap stocks based on their median percentage above 50- and 200-DMA. Furthermore, less liquid stocks have pulled back significantly from their 52-week highs.
  • India currently represents 42% of our APAC Focus List weight, which is near three-year highs. This can be better understood by the spread between AAXJ and Sensex performance, which is at a three-year high. Utility, Transportation, Basic Material, and Consumer Cyclical sectors are leading in India over the last four weeks.
  •  Highlighted Focus List Idea: Reliance Industries (REL.IN; RIL:IN). Refer to page 7 for an annotated chart.

APAC Weekly Summary

Posted on by Derek Higa

Key points:
• The MSCI Asia ex. Japan index (AAXJ) has held above its 21-DMA and has immediate resistance along its declining 50-DMA. We
recommend a gradual approach to increasing risk. Markets continue to hover around key resistance levels. A break above these
levels could signal the resumption of a move higher.
• Hong Kong, Japan, China, Taiwan, India, and Indonesia are in a Confirmed Uptrend. Three markets are in an Uptrend Under
Pressure, including South Korea. Four are in a Rally Attempt.
• The MSCI Asia Pacific value index is leading the growth index over the last 52-weeks. Both indices have gained over the last few
sessions. The value index has recovered to a recent high made at the beginning of March. However, the growth index is trading
~3% below its March highs.
• Low PE stocks (<25) have consistently outperformed high PE stocks over the last 52-weeks. Low PE stocks continued to outperform
over the recent four week period. However, high PE stocks have performed slightly better than low PE stocks in the last five sessions.
This is as a result of recovery from oversold levels. These stocks still have significant overhead and might rollover after facing
resistance. Look for stocks which are breaking out of a sound base. Refer to page 7 for the list of stocks which are trading near
pivot.
• Highlighted Focus List Idea: Indian Hotels (INH.IN; IH IN).

APAC Weekly Summary

Posted on by Derek Higa

Key points:
• The MSCI Asia ex. Japan index (AAXJ) found strong support off its recent low and has retaken its 21-DMA. Next resistance is along its
declining 50-DMA. We recommend a gradual approach to increasing risk. Markets continue to rally off lows. To remain constructive,
look for indices to hold above or near key moving averages, should a pullback occur.
• Hong Kong, Japan, Taiwan, India, and Indonesia are in a Confirmed Uptrend. Three markets are in an Uptrend Under Pressure including
South Korea. Five including China are in a Rally Attempt.
• Japan had a follow-through day last week. We recommend a gradual approach to increasing risk as the probability of a failed followthrough day remains high. Three follow-through days have failed in Japan since September 2021.
• The Central Bank of Japan has maintained an accommodative monetary policy compared with tightening in western markets. The
interest rate differential with the fed funds rate has led to a depreciation of the yen to a multi-year low. While depreciation helps
export oriented companies, it will also slow down consumer spending.
• Breadth or the number of stocks breaking out remains low in Japan. We would like to see this increase to raise our conviction for a
sustainable rally. Recent outperformers are lagging stocksthat have risen from oversold levels. Several past leaders continue to remain
weak. Refer to page 9 and 10 for lagging and constructive ideas which were leading 26 weeks ago.
• Highlighted Focus List Idea: Sojitz (NIIW.JP; 2768 JP). Refer to page 6 for an annotated chart.