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 is trading near August 2019 resistance. The index’s higher lows indicate constructive action.
  • Yesterday, we shifted Australia and Japan to a Confirmed Uptrend from a Rally Attempt and an Uptrend Under Pressure, respectively. Refer to page 6 for ideas in these regions that are trading near pivot.
  • All APAC markets are back in a Confirmed Uptrend with an average of one distribution day and trading an average of 2% below the 10-WMA.
  • Consumer Staple is the second-best performing sector after Health Care. Refer to page 7 for top-rated ideas in the Consumer Staple sector.
  • Highlighted Focus List idea: Dabur (DAB.IN). Refer to page 5 for an annotated chart.
  • Refer to page 8 for APAC actionable ideas.

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.

 

  • Ten out of 13 markets are in a Confirmed Uptrend, Japan is an Uptrend Under Pressure, and Australia and New Zealand are in a Rally Attempt.
  • We recommend staying conservative in allocating capital, gradually increasing risk as markets strengthen and stocks break out or retrace to prior support levels.
  • Currently, Health Care is the only sector that is trading in the upper right quadrant of our Sector Rotation graph. The upper right quadrant indicates relative outperformance over the last 26 weeks and increasing momentum in the last four weeks.
  • Refer to page 6 for the rotation chart highlighting Health Care’s performance over the last few months. Refer to page 7 for a list of Health Care ideas.
  • Stocks with RS Rating above 80 eight weeks ago have outperformed in the last five sessions. We would like to see stocks with higher RS Ratings eight weeks ago break above key resistance along their 200-DMA, or previous support levels, to raise our conviction in a sustainable rally.
  • Refer to page 8 for actionable APAC ideas.
  • Highlighted Focus List Idea: Samsung Biologics (BCS.KR)

Will the Impact on Ad Spending Be Worse Than 2008-2009

Posted on by Derek Higa

Key points from this report:

 

  • Ad spend is directly correlated with GDP growth and has declined in a worsening trend in the last three instances when U.S. GDP declined ( 1991, 2008, and 2009 ).
  • Digital ad spend accounted for 50% of total ad spend in 2019, up from 14% in 2008.
  • Advertising companies, especially traditional channels such as OOH, radio, and print, will be affected the most due to slowing economic activity. We expect digital advertising to also be affected due to high exposure to small and medium-sized businesses.
  • Companies are suspending 2020 guidance amid the uncertainty. Advertising companies like WPP are suspending dividends and share buyback programs to preserve liquidity.
  • During 2008–2009, GOOGL shares corrected 67% from November 2007 highs to November 2008 lows, compared with 30% from February 2020 highs to March 2020 lows. Advertising companies’ shares declined 67% during the financial crisis but are trading an average of 43% from 52-week highs currently.
  • Among advertising stocks, we are still seeing deteriorating O’Neil Ratings and Rankings. In general, the current decline occurred at a much quicker pace, however the absolute decline during the 2008 financial crisis was more severe.
  • Technical ratings and rankings continue to be poor for TWTR, FB, YELP, WPP.GB, IPG, and OMC. Remain conservative.
  • Refer to page 8 for the ratings and rankings of other internet and advertising ideas.

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.

 

  • Despite the majority of APAC markets being in a Confirmed Uptrend, we remain cautious as 12 of 13 markets are still trading below their 21-DMA. Many markets have rebounded after becoming oversold in the short term, however they remain in bear territory.
  • Nine of 13 APAC markets are in a Confirmed Uptrend, two are in an Uptrend Under Pressure, and two are in a Rally Attempt.
  • Over the last 20 years, during normal corrections, MSCI Asia stocks reach a consolidation period before rallying again after bottoming. Only in extreme cases, such as the Great Recession, do the number of stocks trading above the 200-DMA worsen after an initial recovery.
  • China’s CSI 300 has outperformed in APAC markets, however the majority of U.S.-traded Chinese ADRs have declined significantly. Refer to page 4 for outlying Chinese ADRs that are still screening well.
  • Refer to page 6 for actionable Focus List ideas.
  • Highlighted Focus List idea: ZTO Express (ZTO)

APAC Market Update

Posted on by Derek Higa

Key points:

  • We are upgrading Hong Kong, India, Indonesia, and Singapore to a Confirmed Uptrend from a Rally Attempt.
  • Overall, APAC markets have rebounded after becoming oversold in the short term, however they remain in bear territory. We advise investors to remain cautious. Gradually allocate or incrementally add capital as markets rise above key resistance levels. For the majority of indices, the first key level is the 21-DMA.
  • Defensive sectors such as Health Care and Consumer Staple, and Retail (such as drug stores, supermarkets, convenience stores) continue to outperform.
  • After today’s status changes, 10 out of 13 APAC markets are in a Confirmed Uptrend, Thailand is in an Uptrend Under Pressure, and Australia and New Zealand are in a Rally Attempt.
  • Hong Kong Focus List ideas to consider buying include Shandong Weigao Group ( SDW.HK ), Wuxi Apptec ( WUXA.HK ), Wuxi Biologics ( WXBO.HK ), gaming stock Tencent ( TCNT.HK ), and cement manufacturer Anhui Conch Cement ( ANH.HK ).
  • Actionable India Focus List stocks displaying strength include consumer goods manufacturer Hindustan Unilever ( HDL.IN ) and retail store operator Avenue Supermarts ( AS.IN ). These stocks are trading above key moving average support levels with RS lines reaching new highs.
  • Chemical stocks Asian Paints ( API.IN ) and Pidilite Industries ( PID.IN ) and FMCG producer Dabur ( DAB.IN ) are testing resistance at the 200-DMA. Continue to hold.
  • For more ideas see page 2-3.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Over the last two days China, Japan, South Korea, Taiwan, Malaysia, and the Philippines have recorded follow-through days and have been upgraded to a Confirmed Uptrend.

Despite positive action recently, we advise investors to remain cautious as markets remain below key resistance levels. We recommend beginning to allocate capital gradually as markets strengthen.

Defensive ideas from Health Care, Consumer Staple, and Retail are still leading in the short term. Refer to page 6 for a list of defensive ideas (beta <1) trading above their 200-DMA. Outlying growth ideas in Technology are also outperforming. Refer to page 7 for a list of growth ideas that are holding up well.

In the last five trailing sessions, laggards have led gains. As leaders continue to underperform, we remain cautious despite follow-through days seen across APAC markets.

Highlighted Focus List Idea: Aspeed Technology (ASP.TW). Refer to page 8 for Focus List ideas with relative strength near highs.

APAC Overview

Posted on by Derek Higa

Key takeaways:

 

  • No clear support in sight for MSCI Asia in the near term.
  • All markets except China in bear market territory. Stay defensive.
  • Sharp decline in stocks above the 200-DMA: Historical precedent suggests that the market will worsen before a turnaround.
  • Staple, Health Care, and Utility stocks leading in near term, while Energy stocks are lagging.
  • APAC Focus List count is near yearly lows of 52 compared with January’s peak of 100. The number of stocks breaking out has also declined drastically in the last few weeks.
  • APAC Focus List removals: A pronounced indicator of inflection points in market cycle
  • We are overweight on China ( 37% of APAC FL ideas by geography ) and Technology ( 31% of APAC FL ideas by sector ).
  • China Case Study: Deviation from global trend.
  • Refer to slide 19 for themes working in China A-shares market.
  • Refer to slide 36 for APAC Focus List Ideas with RS Line reaching new high.
  • Refer to slide 37 and 38 for APAC defensive ideas with beta less than 1 and dividend yield greater than 1.5%.

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 is trading near three-year lows and had a strong bounce back from support at ~$54. Refer to pages 3-4 for a weekly and monthly chart.
  • We recommend that investors stay on the sidelines in this volatile environment and preserve their capital. Should there be a need to commit capital, we advise investors to look for defensive ideas. Refer to page 5 for low beta, high dividend yield defensive ideas in the APAC region.
  • All but one market is in a Downtrend. Thailand is in a Rally Attempt. We would like other markets to establish a new low for three days and then look for a FTD.
  • We advise investors to be cautious as FTDs are prone to failure in market recession environments.
  • The highest number of weekly removals occurred last week as we removed 23 ideas from our APAC Focus List.
  • Refer to our APAC Webinar deck for more details about the divergent performance of the China A-share market versus the S&P 500 and themes working in the APAC region.
  • See page 6 for APAC Focus List ideas that have RS Line reaching new high.

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 is testing support at October 2019 lows, with the next level at August 2019 lows of ~$62 (-7%).
  • Twelve out of 13 markets are in a Downtrend, with China being the only market in an Uptrend Under Pressure. All markets in a Downtrend could have a follow-through day on Friday except for India, Indonesia, South Korea, and Thailand.
  • China’s CSI 300 is trading constructively above its 200-DMA. It is currently trading 4% below 52-week highs compared with an average of 16% across APAC markets. We are overweight China on our Focus List.
  • Despite the sharp decline in the market over the last few sessions, we have not seen the worst in the number of removals from our Focus List. While our conviction in an imminent market rebound is low, removal capitulation could still signal an inflection point.
  • Currently, 31% of MSCI Asia stocks are trading above their 200-DMA, compared with a five- and 10-year average of 54% and 56%, respectively. During previous sharp declines, the index has worsened further before turning around.
  • Highlighted Focus List idea: Samsung Biologics ( BCS.KR ). Refer to page 6 for an annotated chart.
  • Refer to page 7 for APAC Actionable ideas.

APAC Market Update

Posted on by Derek Higa

Key Points:

 

  • We believe the severity and quickness of markets selling off over the recent weeks is unprecedented compared with recent corrections and could take much longer to bottom out.
  • If this is the case, the probability of several failed follow-through days is high.
  • Hong Kong’s brief follow-through day on March 5 has failed. Twelve of 13 APAC markets are in a Downtrend and no markets are in a Confirmed Uptrend. Only China remains Under Pressure.
  • We recommend raising cash if possible or maintaining a defensive approach across APAC as uncertainty remains high.
  • Among our Focus List ideas in APAC, Hansoh Pharmaceutical  (HANP.HK ), Shandong Weigao ( SDW.HK ), Samsung Biologics ( BCS.KR ), Hindustan Unilever ( HDL.IN ), Asian Paints ( API.IN ), and Pidilite Industries ( PID.IN ) remain resilient.
  • Refer to page 2 of the report for a list of defensive ideas.