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:

  • 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.

APAC Market Update

Posted on by Derek Higa

Key Points:

  • We upgraded Hong Kong to a Confirmed Uptrend from a Rally Attempt after the Hang Seng staged a Day-5 follow-through day. The index rose 3.2% on volume higher than the prior session and cleared resistance above its 21-DMA. Refer to page 2 for the annotated chart of the Hang Seng index.
  • We advise investors to gradually allocate capital and increase risk in Hong Kong. Most stocks are bouncing off lows from oversold levels. Look for ideas to rise above their moving averages and form the right side of respective bases to turn constructive. Refer to page 3 for ideas with improving technical setups in Hong Kong.
  • Mega cap Tech stocks still need time to turn constructive. We recommend long term investors to stay patient and wait for a base formation. A breakout from a base could lead to a sustainable upward trend.
  • Five out of 13 APAC markets, including Hong Kong, Japan, India, and Taiwan, are in a Confirmed Uptrend. Three markets, including South Korea, are in an Uptrend Under Pressure. Five markets, including China, are in a Rally Attempt.

 

APAC Market Update

Posted on by Derek Higa

Key Points:

  • We upgraded Japan, India, and Taiwan to Confirmed Uptrend. We recommend investors to take a gradual approach to increasing risk in Japan, India, and Taiwan. To raise conviction, look for strength to broaden across markets and the number of breakouts to increase as indices retake and hold above key moving averages. Notable, this is the fourth follow-through day in Japan after three have failed since September 2021. Thus, there is reason to be patient should this just be another false positive in a bear market. Focus on stocks breaking out of sound bases with an upward trending RS line. Refer to pages 6, 7, and 8 for near pivot ideas in Japan, India, and Taiwan.
  • The Nikkei 225 gained 3.5% on higher volume, thereby staging a day-6 follow-through day. The Sensex rose 1.8% and staged a day-8 follow-through day. The TAIEX rose 3% and staged a day-7 follow-through day. Look for indices to hold and rise above key moving averages to be constructive.
  • Chinese markets are rebounding sharply off lows after taking heavy losses earlier in the week. However, both Hong Kong and China remain in a Downtrend. We recommend remaining patient and wait for a follow-through day before allocating risk. A follow-through day in China and Hong Kong could occur as early as Monday (March 21).
  • After today’s status change, four out of 13 APAC markets including Japan, India, and Taiwan are in a Confirmed Uptrend. Three markets including South Korea are in an Uptrend Under Pressure. Three are in a Downtrend, including China and Hong Kong. Three are in a Rally Attempt.

APAC Weekly Summary

Posted on by Derek Higa

Key points:

  • The MSCI Asia ex. Japan index (AAXJ) is trading at a 52-week low and is below all its key moving averages. We continue to maintain a  cautious view on the market and recommend a defensive approach while markets are under heavy distribution. Wait for volatility to  settle and further market confirmation (via a follow-through day) before reassessing risk. 
  • Indonesia is in a Confirmed Uptrend. Three markets including South Korea are in an Uptrend Under Pressure. Four markets, including  Hong Kong and China are in a Downtrend. Five markets including Japan, Taiwan, Australia, and India are in a Rally Attempt. 
  • Inflation remains within central banks’ target ranges in most APAC markets. Inflation in select markets, including Australia, Singapore,  and South Korea, is reaching multi-year highs, unlike the multi-decade highs seen in many western countries. 
  • The Hang Seng index is trading 32% below its 52-week high and declined below the 2016 low of 18,279 briefly yesterday. It recovered  most of its Monday and Tuesday losses with today’s 9.1% gain. We recommend investors remain patient and wait for a follow-through  day before allocating risk. Refer to page 11 for a list of stocks trading within 20% of their highs with strong relative strength. 
  • Alternative and Solar Energy stocks have come into focus over the last few weeks as the Russia-Ukraine conflict caused major countries  to rethink energy dependence. Stocks from these industry groups are under accumulation in the U.S. and Europe. However, this does  not appear to be happening in APAC. 
  • Highlighted Focus List Idea: Tata Power (TTP.IN; TPWR IN). See annotated chart on page 7.

APAC Weekly Summary

Posted on by Derek Higa

Key points:

  • The MSCI Asia ex. Japan index (AAXJ) is trading at a 52-week low and is below all its key moving averages. We continue to  maintain a cautious view on the market and recommend a defensive approach while markets are under heavy distribution. 
  • Indonesia is the only market in Confirmed Uptrend. Three markets, including South Korea, are in an Uptrend Under Pressure.  Eight markets, including Japan, Hong Kong, China, Taiwan, and India, are in a Downtrend. Australia is in a Rally Attempt. 
  • The bottom in the market may not be here yet based on our history of Focus List removals. The number of removals from our  Focus List has stayed elevated since December. However, we have not had an outsized increase in weekly removals like that seen in March 2020 or January 2021. 
  • Based on data since 2015, a capitulation has occurred either near the market peak or the bottom and acted as an indicator for  trend reversal. 
  • South-East Asia markets have held up better over the last few weeks as major markets declined significantly. Indonesia,  Malaysia, and Thailand are net exporters of export metals, coal, petroleum, palm oil, and other commodities. This would act in  favor of these countries’ markets as commodity prices reach multi-year highs. Refer to page 8 for a list of ideas from South-East  Asia with a strong technical profile screened through our O’Neil lens. 
  • Highlighted Focus List Idea: Merdeka Copper Gold (MDK.ID; MDKA IJ). Refer to page 7 for an annotated chart.

Kroger: Your Best Bet on Inflation

Posted on by Derek Higa

Attached is a note on Kroger by Ruhell Amin, Head of Retail Equity Research.

 

  • U.S. Focus List constituent Kroger has broken out of a stage-two base following a better-than-expected Q4 and an increase in FY guidance. Accumulate here.
  • We believe KR is a good play on inflation: its pricing power, economies of scale, and strong cash-flow generation position it well to weather a sustained bout of inflation. It should be a relative winner in the near term.
  • According to WON’s factor research, KR also formed a rare new five-year high factor event. Based on historical precedent analysis, we identified 67.3K occurrences of this event over a 27-year period. Our work shows a 60% probability of a 14.5% gain 63 days after this event and a 40% probability of a loss of -11.75%. Overall, the expected average return over the 63 days is 3.89%.