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 broke above $100 for the first time. Overall, broad and individual indices continue to trade positively on mostly light volume. Participation may continue to be light through most of next week due to the Lunar New Year.
  • We shifted Australia, China, and Japan to a Confirmed Uptrend last week. Four markets including India are now in a Confirmed Uptrend and nine are in an Uptrend Under Pressure. The average number of distribution days remains elevated at 5.2.
  • In Japan and South Korea, weaker stocks with low RS Ratings 13 weeks ago have outperformed with better three-month RS Ratings. In Australia, Hong Kong, India, and Taiwan, leaders have outperformed the broader market.
  • Refer to page 6 for leading stocks that have come under pressure and are trading below the 200-DMA.
  • Across the APAC region, Consumer Cyclical and Retail are leading, while Basic Material and Utility are lagging. Refer to page 7 for stocks in outperforming industry groups.
  • Refer to page 8 for stocks trading near pivot in APAC.

Match

Posted on by Derek Higa

Key points from this report:

 

  • Add to MTCH positions as the stock breaks out to a new high after announcing the acquisition of Hyperconnect. The acquisition will expand the company’s TAM, accelerate Asia expansion, and bring video chat expertise into Match’s app collection. The stock is actionable between $160 and $168.
  • After a pre-earnings shakeout, the stock has reclaimed its 50-DMA and has made an all-time high. Look for shares to continue to trend upward along its rising 50-DMA.
  • Good technical ratings: RS Rating of 78 and A/D Rating of B-.

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 found strong support at its 21-DMA after briefly trading below it. If volatility persists, we would prefer it consolidate near its 21-DMA, which would allow moving averages to catch up.
  • Given the rise in volatility, we recommend a patient approach. Allow markets to settle and gradually increase risk in quality ideas finding support or breaking out from sound bases. Continue to reduce risk in ideas trading below logical support levels.
  • Twelve of 13 markets are in an Uptrend Under Pressure. On Thursday and Friday last week, we shifted 11 markets to an Uptrend Under Pressure.
  • Today, we shifted India back to a Confirmed Uptrend as the Sensex quickly recovered to highs and closed above 50,000 for the first time.

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 near all-time highs and extended from its moving averages. First level of support is the 21-DMA (-5%). Continue to selectively increase risk. Avoid or trim extended ideas.
  • Twelve markets are in a Confirmed Uptrend. The average number of distribution days remains at an elevated level, increasing to 4.8 from 4.4 last week. A continued increase in distribution could be a cautionary sign going forward.
  • Hong Kong is the second-best performing market year-to-date aided by the Shanghai–Hong Kong stock connect program. Attractive valuation and increased IPOs have attracted investors in mainland China, which is reflected in increased southbound inflow. The Hang Seng Index has reached April 2019 resistance and could begin to consolidate. If it continues higher, next resistance is at all-time highs or +13% higher.
  • Refer to page 6 for a price performance chart of the Hang Seng China Enterprises and CSI 300 indices and pages 7 and 8 for an annotated chart of the Hang Seng Index and the Hang Seng Composite Index, respectively.
  • Stocks with high RS Ratings are leading the rally, while mid-cap stocks are driving up the Hang Seng Composite index. Energy, Technology, and Health Care are outperforming. Refer to page 4 for a Sector Heat Map.
  • Refer to page 11 for a list of extended Hong Kong ideas to trim.
  • Highlighted Focus List idea: JS Global Lifestyle. Refer to page 10 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 index is trading at all-time highs. Look for immediate support at the 21-DMA (-6%). Continue to selectively increase risk in quality ideas emerging out of sound bases.
  • All markets are in a Confirmed Uptrend. The average number of distribution days is at an elevated level of four.
  • The Nikkei 225’s performance has caught up with the Nikkei 500 over the past three months, mainly led by large-cap stocks. Refer to the charts on pages 4–6 of the price performance of large versus mid versus small caps, Nikkei 225 versus Nikkei 500 versus Mothers, and value versus growth.
  • In Japan, stocks from Energy, Basic Material, and Capital Equipment are leading, while Retail, Utility, and Health Care are lagging. Refer to page 2 for a sector heat map for Japan and a list of stocks in outperforming industry groups.

Netflix

Posted on by Derek Higa

Key points from this report:

 

  • We recommend adding to positions as Netflix breaks out of a stage-two, 28-week consolidation. The stock gapped up intraday following strong Q4 subscriber growth. Netflix’s story is shifting from sub growth to profitability and positive free cash flow.
  • It has an EPS Rank of 89, Composite Rating of 89, and SMR Rating of A. Relative strength is improving.
  • The company beat Q4 subscriber add expectations, driven by additions in the EMEA region. It had record global subscriber additions for 2020.
  • Free cash flow was positive in 2020 due to non-recurring savings, however, management expects FCF to break even in 2021.
  • Operating margins expanded in 2020, and 2021 guidance was revised to 20% from 19%.
  • In FY21 and FY22, consensus expects EPS growth of 50% and 37%, respectively.

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 trading at 52-week highs and is currently trading 25% above its 200-DMA, the most extended it has been in more than 10 years. We remain positive on APAC. However, markets are extended and we expect consolidation in the near term. Follow a patient and selective approach and avoid chasing extended ideas.
  • Refer to page 11 to 17 for major themes to watch in 2021. There are 111 names across 22 themes. More than fifty are from our Focus List, while the rest are watch list ideas.
  • India, South Korea, and Taiwan are trading 25% above their 200-DMA. They have remained above the 10-DMA since the first week of November in all except two sessions. Consolidation at this level will be a healthy sign for these markets as they have run parabolically since November.
  • The KOSPI is trading 37% above its 200-DMA. The index was this extended only in 1999 and 2002. The rally is being driven by mega caps. Seven of the 10 largest stocks are trading 20% and 40% above their 50- and 200-DMA. We recommend a cautious approach to Korean equities and avoid chasing stocks that are extended from initial entry points given the extended nature of the market.

Kakao

Posted on by Derek Higa

Key points from this report:

 

  • We recommend adding to positions as Kakao (DUM.KR; 035720 KS) breaks out of a stage-two, 18-week cup-with-handle base. The stock found support along its 100-DMA in October and is now at an entry point.
  • The stock has a RS Rating of 84 and A/D Rating of B+. A/D Rating has improved in consecutive weeks.
  • Kakao is the leading instant messaging service in Korea and a key beneficiary of Korea’s growing digital advertising market.
  • Advertisers for its new product, Biz Board is tracking ahead of management targets rising to 12,000 (+41% q/q) in September versus the 10,000 target for 2020. Talk Biz revenue has grown +50% y/y.
  • Monetization and cost reduction in its New Biz segment is contributing to expanding operating margins (10.9% in Q3) since 2019.
  • Kakao Pay, Bank, and Page are expected to IPO in 2021, estimated at a valuation of $6B-9B.
  • In FY20, the company expects +50 y/y growth in Talk Biz revenue (26% of total revenue) and a double-digit margin. Consensus expects 2020 revenue and EPS growth of 34% and 239%, respectively.

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) is at all-time highs, along with other broader indices including the EEMA and IPAC. Indices are extended and we expect consolidation in the near term.
  • All 13 markets are in a Confirmed Uptrend. The average number of distribution days is 4.2. If no new distribution is added, 11 distribution days will expire across nine markets in the next five sessions.
  • 2020 has been a remarkable year for emerging markets led by South Korea, China, India, and Taiwan. Refer to page 3 for mini charts of these indices.
  • The EEMA has been outperforming while the U.S. Dollar index has declined as investors increased their risk appetite. Refer to page 4 for EEMA and the U.S. Dollar index charts. We continue to favor emerging markets in the new year.

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 is at 52-week highs after briefly testing 21-DMA support. All markets except Thailand remain in a Confirmed Uptrend. The number of distribution days is hovering above an elevated level of four on average. We remain positive as markets continue to hold support with no clustering of distribution.
  • We recommend investors follow a patient and selective approach and buy ideas breaking out of sound bases with rising relative strength. Avoid and trim ideas that are extended.
  • The Health Care and Technology sectors have been showing strength over the last four weeks after underperformance in November. Refer to pages 6 and 7 for outperforming industry groups within these two sectors with a few notable names.
  • Refer to pages 8 and 9 for stocks near pivot in the Health Care and Technology sectors.