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 index is trading above its 50-DMA after rebounding from the 100-DMA. We recommend that investors focus on quality ideas that are building the right side of a base or are holding within pivot. Trim ideas that are extended above or lagging below key moving averages.
  • Seven of 13 markets are in a Confirmed Uptrend, four are in an Uptrend Under Pressure, and two are in a Rally Attempt. We shifted the Philippines to a Confirmed Uptrend from a Rally Attempt after it had a follow-through day today.
  • The average number of distribution days has declined to 3.4 from 4.3 last week mainly due to expiration and is below an elevated level of four.
  • We are noticing early signs of rotation into Health Care. Momentum has improved over the trailing four weeks. Refer to page 6 for our sector rotation graph, which displays Health Care’s progress since August 2019.
  • Refer to page 7 for Health Care stocks that are building the right side of a base or trading near a pivot.
  • Highlighted Focus List idea: Jinxin Fertility (JIFG.HK). Refer to page 5 for an annotated chart.

Electric Vehicles

Posted on by Derek Higa

Key points from this report:

 

  • Beginning in H2 2020, OEMs have rallied after a multi-year decline. Many are trading at a higher valuation based on current PE ratio. However, valuation is comfortably below the five-year average based on 2021 and 2022 estimates.
  • Volkswagen, General Motors, and Hyundai are trading at a premium to their peers due to announcements and significant steps in electric vehicle (EV) manufacturing. However, it is only a slightly higher premium as it is difficult to determine winners at this early stage of EV adoption. We believe a significant rerating could still be in store for select companies.
  • Profits will remain under pressure until EVs achieve parity with internal combustion engine (ICE) vehicles. Therefore, we believe it is still early. It will take 10 years or more for EV adoption to overtake ICE despite the euphoria over the last year. By 2025, EV is estimated to be 10–15% of total auto sales. Battery cost reduction and dedicated platforms will be the key factors in reducing cost.

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 index is testing 100-DMA support and faces stiff resistance at the downward trending 50-DMA (+2%). Focus on fundamentally strong ideas with good technical ratings that are trading near pivot. Avoid extended names.
  • We upgraded China to a Confirmed Uptrend from a Rally Attempt on Monday. Refer to our China Market Update for more details.
  • Leading markets Australia, Singapore, South Korea, and Taiwan are trading at or near 52-week highs. They are extended and could be due for near-term consolidation.
  • Refer to pages 9 and 10 for near-pivot and extended ideas in Confirmed Uptrend markets.
  • Distribution days are rising in Japan and India as both remain in an Uptrend Under Pressure amid rising COVID-19 cases. The TOPIX has breached 50-DMA support for the first time since October 2020. Indian Financial stocks are dragging down the Sensex and Nifty.
  • In India, the Financial, Retail, and Consumer Cyclical sectors have underperformed over the last few weeks. Health Care, Basic Material, and Consumer Staple are holding up well.
  • Highlighted Focus List idea: PI Industries (PII.IN; PI 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 faces resistance at the 21-DMA and is testing support at the 100-DMA. Focus on quality ideas and avoid stocks extended or trading below key moving averages.
  • We have seen market sentiment improve over the last few weeks with the average number of distribution days declining each week. However, a surge in COVID-19 cases could become a concern. The number of cases in APAC has been accelerating since the end of March, mainly led by India.
  • In APAC, the Utility sector is leading over the long term with improving momentum. The Financial sector is also outperforming, moving into the top right quadrant of our Sector Rotation graph over the last two weeks.
  • Consumer Staple has been lagging over the last 52 weeks. The spread between it and the leading sector is the highest it been over the last six months. However, we are noticing improvement in shorter-term RS, which could be the beginning of a reversion in the near term. Many large-cap stocks in the sector are still forming a base. Look for these stocks to break out before turning constructive. Refer to pages 8 and 9 for notable stocks from the Consumer Staple, Financial, and Utility sectors.

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 reclaimed its 21-DMA. However, it continues to find resistance below its 50-DMA. We recommend looking for ideas with leadership characteristics and avoiding extended ideas.
  • Four markets are in a Confirmed Uptrend, five are in an Uptrend Under Pressure, and four are in a Rally Attempt. The average number of distribution days has declined to less than 5 and currently stands at 4.8.
  • Value stocks have outperformed since the spread between growth and value peaked in February. Refer to page 7 for a price comparison chart of the MSCI Asia growth versus value indices.

Kakao

Posted on by Derek Higa

Key points from this report:

 

  • Kakao is actionable as it breaks out of a stage-three, seven-week consolidation base on heavy volume. The stock gained 8% today on its expansion plans in the paid content business.
  • Strong technical ratings: RS Rating of 90 and A/D Rating of A+. Up/Down Volume has remained near 2 for the last nine weeks, indicating accumulation on higher volume.
  • Today, reports suggested that the company is in talks to acquire Radish for $360M. Radish is the fifth-largest online cartoon platform in the U.S. It is also trying to acquire a majority stake in Tapas, the third-largest webtoon platform in the U.S. The company is expanding its IP content business globally as it can use quality IP content to produce TV series and films.

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 faces resistance at its falling 21-DMA. The 50-DMA has begun to trend downward. Follow a selective approach with a focus on high RS stocks emerging out of consolidation and avoid extended ideas.
  • Four of 13 markets are in a Confirmed Uptrend, five are in an Uptrend Under Pressure, and four are in a Rally Attempt. Yesterday we shifted Taiwan to a Confirmed Uptrend from an Uptrend Under Pressure. Refer to page 7 for an annotated chart of the TAIEX.
  • Despite Technology’s underperformance in the medium term, we see pockets of strength in Semiconductor and Tech Services, mainly from Taiwan and India. These stocks have a stable or improving RS Rating over the past 13 weeks.

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 is consolidating below its 50-DMA. Next support is at the 100-DMA (-4%). We would like the index to reclaim its 50-DMA on good volume to turn positive.
  • In most APAC markets, Energy and Basic Material are now leading in the long term, taking the top spots from Retail and Technology. India and Japan are the exceptions, where the Technology sector is still leading over the trailing 52 weeks.
  • India, Japan, and Taiwan are the relative outperformers in the trailing eight weeks. Refer to pages 7–9 for an annotated chart of India’s Sensex, Japan’s Nikkei, and Taiwan’s TAIEX, respectively. Refer to page 10–12 for notable stocks from outperforming sectors in these markets.
  • Highlighted Focus List idea: Infosys (INE.IN; INFY:IN).