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 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%.

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 its recent January low of $77.9 and made a new 52-week low. We maintain a  cautious view on APAC markets. Wait for further market confirmation (via a follow-through day) before reassessing risk. Look for an increase in breadth or a rise in the number of stock breakouts to turn constructive. 
  • Three markets are in a Confirmed Uptrend. Three markets, including Singapore and Taiwan, are in an Uptrend Under Pressure. Six  markets, including Japan, Australia, India, China, and South Korea, are in a Rally Attempt. Hong Kong is in a Downtrend. 

      • The MSCI Asia Pacific growth index has underperformed the value index over the last 52 weeks, and the outperformance of value                  over growth is near a 52-week high. Longer term outperformance for growth peaked in January 2021, and there has been a steady              decline in the spread since then. The spread is now reverting to pre-pandemic levels.

APAC Market Conditions Worsen Broadly

Posted on by Derek Higa

Key points from this report:

  • The Sensex declined 4.7% today and closed below its 200-DMA on 2X the average volume. It has breached its 200- DMA for the first time since the pandemic-induced decline in 2020. The index also undercut its December 2021 support  (55,133). The next logical support level could be near 53,200 (-2%). Refer to page xx for an annotated chart of Sensex. 
  • We would like the index to establish a new low and hold above this level for at least three days. Following this, we would  look for a follow-through day to shift the market to a Confirmed Uptrend. 
  • We advise investors to take a defensive approach. Avoid or trim positions in ideas that have broken their logical levels of  support on heavy volume. Let market volatility settle before reassessing risk. Monitor ideas holding above their key levels of  support with rising relative strength.

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) pulled back after facing resistance along its declining 50-DMA. Markets are reacting to heightened geopolitical tensions, making the short-term trend vulnerable. We continue to maintain a cautious and patient approach. Focus on ideas with rising relative strength in leading industry groups.
  • Five markets, including Singapore, are in a Confirmed Uptrend. Japan, Hong Kong, India, and Taiwan are in an Uptrend Under Pressure. Four markets, including Australia, China, and South Korea, are in a Rally Attempt.
  • Eight of the 12 APAC markets (excluding China) have COVID-19 cases near highs. Among major markets, Australia, India, and Taiwan have significantly fewer cases compared with their recent peaks. Eight of the 12 APAC countries have reached more than 70% vaccination, which is higher than the U.S. (65%).

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) reclaimed its 21-DMA and is currently testing its declining 50-DMA resistance. Continue to avoid weak ideas which are trading below key moving averages. Focus on ideas with rising relative strength.
  • Five markets, including Singapore, are in a Confirmed Uptrend. We shifted Japan to an Uptrend Under Pressure. Hong Kong, India, and Taiwan are also under pressure. Four markets, including Australia, China, and South Korea, are in a Rally Attempt.
  • Oil (Light Sweet Crude) has cleared resistance at ~$85 and is currently testing resistance at ~$93. It faces its next resistance at the psychological level of $100 (+9%). The Oil & Gas Exploration and Production Industry Group continues to outperform within the Energy sector.

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 52-week lows and is testing resistance along its declining 21-DMA. We continue to recommend a cautious and patient approach. Trim positions in former leading ideas which have risen off lows and are testing resistance along their key moving averages.
  • Five markets including Japan are in a Confirmed Uptrend. Four markets including Hong Kong, India, and Taiwan are in an Uptrend Under Pressure. South Korea, Australia, and New Zealand are in a Rally Attempt, while China is in a Downtrend.
  • Indonesia (0JAKCOMP), Singapore (0SNGPORI), Thailand (0BNGKSET), and The Philippines (0PSECOMP) are trading at 52-week highs despite declines in other APAC markets in the last few weeks. China’s stimulus, easing lockdown restrictions, higher weight towards cyclical sectors, and favorable valuations are contributing to outperformance. Refer to page 11 for a list of outperforming ideas from these markets.