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 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.

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 breached 21-DMA support on Monday on above average volume. Distribution is rising across markets and is now above elevated levels of four after being muted for several months. We recommend that investors remain patient in allocating capital and look for leaders to hold logical support levels in case of a pullback.
  • Twelve of 13 markets are in a Confirmed Uptrend and Thailand is in an Uptrend Under Pressure.
  • Southeast Asian markets have bounced back in the later part of the year. Malaysia is the leading market in the region with a 3% YTD gain. In terms of gains since a follow-through day, the Philippines PSE Composite index has gained 43%.
  • The number of stocks breaking out in SE Asia is at multi-year highs but still below the levels seen in 2011 and 2013. Basic Material, Capital Equipment, Consumer Cyclical, and Energy are leading over the past eight to 13 weeks across SE Asia. Refer to pages 6 and 9 for outperforming industry groups and stocks near pivot in the region.
  • Highlighted Focus List idea: Bank Mandiri (BKM.ID; BMRI: IJ). Refer to page 8 for an annotated chart.

 

Chegg

Posted on by Derek Higa

Key points from this report:

 

  • Chegg (CHGG) shares broke out to all-time highs yesterday. RS is also near highs and A/D has improved over the several weeks. The company has leading fundamental ratings. We recommend adding to positions as it breaks out above $90 today.
  • Strong fundamental profile: EPS Rank of 90, SMR Rating of A, and Composite Rating 98.
  • RS line is trending upward with a strong RS Rating of 89 and A/D Rating of B+. Up/Down Volume ratio is strong at 1.5, indicating money inflow.
  • Chegg is the leader in the fragmented U.S. tutoring market of ~$10B with ~4% market share.
  • Subscribers grew to 3.7M or 69% y/y in Q3. Management targets 10M subs over the longer term.
  • Chegg Study pack was recently rolled out in 2020. Management expects 30-50% of subs to come from study pack and this will increase ARPU.
  • Internationally, Chegg is focusing on 15 markets. Only 10% of subscribers are international currently but management expects it to be larger than the U.S over 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 rebounded from its 21-DMA and is trading 5% and 20% above its 50- and 200-DMA, respectively. We remain positive as it trades above its 21-DMA. We recommend investors follow a selective approach and avoid chasing extended ideas.
  • All 13 markets are in a Confirmed Uptrend. The average number of distribution days increased to 3.6 from 2.8 last week.
  • Japan’s Nikkei is a leading developed market in Asia and has outperformed the IPAC index. On the other hand, broader indices like the Mothers index and the Nikkei 500 have outperformed the Nikkei 225. Refer to page 5 for an annotated chart of the Nikkei 225 and page 6 for a price comparison chart of these indices.

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 continues to trade at all-time highs. We remind investors to stay disciplined and avoid chasing extended ideas and to look for leaders breaking out of bases.
  • All 13 markets remain in a Confirmed Uptrend. The average number of distribution days declined to 2.8 from 3.6 last week and remains below the elevated level of four.
  • South Korea and Taiwan are the first and third best performing markets since their follow-through day on March 25. Refer to pages 6–7 for an annotated chart of the KOSPI and TAIEX index.
  • The Health Care and Consumer Cyclical sectors are leading in South Korea, while Technology and Transportation are leading in Taiwan. Refer to pages 4 and 5 for ideas in outperforming industry groups.
  • Refer to pages 10 and 11 for stocks trading near pivot in South Korea and Taiwan, respectively, and page 12 for extended ideas to trim or avoid.

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 consolidating near all-time highs. We remain positive as it trades above 21-DMA support. We remind investors to stay disciplined. Avoid chasing extended ideas and look for leaders building the right side of sound bases or breaking out before adding to positions.
  • All 13 markets are in a Confirmed Uptrend. The average number of distribution days increased to 3.6 from 3.1 last week but is still below elevated levels of four.
  • Highlighting leading APAC markets: India is the second-best performing market after South Korea since its follow-through day on March 31. Refer to page 4 for an annotated chart of the Sensex.
  • In line with the trend across APAC, laggards are leading gains in the trailing four weeks, while leaders continue consolidating. In terms of sectors, Financial and Utility are leading, while long-term leading sectors like Health Care, Retail, and Technology have taken a backseat.
  • Refer to page 5 for Indian ideas in outperforming industry groups, including Auto and Tires, Consumer Loans, Metal/Steel Producers, and Gas Distribution. Refer to page 9 for Indian ideas trading near pivot.
  • Highlighted Focus List idea: Infosys (INE.IN). Refer to page 8 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 gained 1.3% yesterday on above average volume and broke above January 2018 highs. The index is now trading at all-time highs. Overall, we still recommend a selective approach in APAC, however, as stocks trade higher, we recommend trimming ideas that are becoming the most extended from a historical perspective on a stock-by-stock basis. Refer to pages 11 and 12 for extended stocks trading 10% above the 21-DMA.
  • All 13 markets are in a Confirmed Uptrend. Australia, China, and Hong Kong have four or more distribution days. The average number of distribution days has been declining as days expire and markets are trending upward. The average currently stands at 3.1, less than the elevated level of 4.
  • 73% and 78% of liquid stocks are trading above the 50- and 200-DMA, respectively. They are also trading at a median of 5% and 11% above their 50- and 200-DMA, respectively. We expect consolidation in the short term as the moving averages catch up.
  • India, Japan, South Korea, and Taiwan are trading at multi-year highs following a strong rally this month. Indices from these markets are trading at least 15% above their 40-WMA. Historically, all four indices tend to pull back following a sharp gain above the 40-WMA. Refer to pages 7, 8, 9, and 10 for Nikkei, Sensex, KOSPI, and TAIEX annotated monthly charts highlighting instances when they were extended more than 15%.