With only a few APAC markets in a Confirmed Uptrend and the number of distribution days elevated, we remain cautious. However, outlying themes like India FMCG, HK Healthcare, and Thai Alt Energy are still working during this volatile period. In this week’s webinar, Director, Research Analyst Derek Higa will highlight current APAC themes, market conditions, and sector rotation. He will also be joined by other William O’Neil + Co. sector analysts for a discussion of themes and stock ideas you should be watching in the region.
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
Key points:
- APAC market conditions: Five out of 13 markets are in a Confirmed Uptrend. Average distribution is rising.
- We recommend a gradual approach to allocating capital; be selective of leading markets and outlying leadership.
- Our preferred markets are Japan, India, and Taiwan ( China A Shares ).
- MSCI Asia ex. Japan ( AAXJ ) testing resistance at the 200-DMA.
- Current Focus List exposure compared with end of last year:
By geography: China has the highest exposure, compared with India last year.
By sector: Technology has the highest exposure, compared with Financial last year.
- Study on five-year history of Focus List additions and removals.
- Highlighted key sector trends in Japan, India, Hong Kong, and China.
- Our thoughts on Japan value versus growth stocks.
- Corporate tax cut impact on Indian stocks and outperforming ideas.
- Highlighted themes:
Hong Kong Health Care: Wuxi Apptec ( WUXA.HK ), Jinxin Fertility Group ( JIFG.HK )
India FMCG: Colgate Palmolive ( COP.IN )
Thailand Renewable energy growth: Global Power Synergy ( GPS.TH )
Taiwan 5G/IOT Theme: Taiwan Semiconductor Manufacturing ( TSM.TW )
- Other high conviction Focus List ideas.
- Lagging stocks with negative alerts.
APAC Weekly Summary
Key points from this week’s report:
- We recommend investors take a gradual approach to allocating capital in APAC markets following trade talk progress.Japan:
- The Nikkei 225 remains in a Confirmed Uptrend with one distribution day. It has gained 12% year-to-date versus a 12% decline in 2018. However, the market remains in a choppy pattern since trade uncertainties began in May. Refer to page 8 for an annotated chart of the Nikkei 225.
- Retail and Basic Materials have been leading over the short and midterm. Technology has outperformed in the long term but lagged in the short term.
- Value stocks continue to outperform in the short term, but the recent gain, in our view, seems more like a rebound in relative strength rather than a long-term rotation into value stocks thus far.
- There has been an improvement in the number of stocks forming bases with a notable increase among growth stocks. Refer to page 9 for stocks near pivot in Japan.
- Refer to page 10 for actionable APAC ideas.
APAC Weekly Summary
Key points from this week’s report:
- We have turned more cautious on APAC as several major markets (Australia, India, Hong Kong) have shifted to an Uptrend Under Pressure and average distribution continues to rise in consecutive weeks.
- Five out of 13 markets are in a Confirmed Uptrend, four are in an Uptrend Under Pressure, two are in a Rally Attempt, and two are in a Downtrend.
- We shifted Australia and India to an Uptrend Under Pressure from a Confirmed Uptrend and downgraded Indonesia to a Downtrend.
- Despite an increase in volatility recently, the number of Focus List removals has not increased significantly. Resilience in China A Share ideas has contributed thus far.
- Highlighted Focus List ideas: Samsung Electronics ( SGL.KR ) and Taiwan Semiconductor Manufacturing ( TSM.TW ). Refer to pages 5 and 7 for annotated charts, respectively.
- Refer to page 8 for actionable ideas in APAC.
APAC Weekly Summary
Key points from this week’s report:
- Seven of 13 APAC markets are in a Confirmed Uptrend, three are in an Uptrend Under Pressure, two are in a Rally Attempt, and one is in a Downtrend. We remain cautious overall on APAC markets amid increasing volatility and the clustering of distribution.
- China is in a Confirmed Uptrend with an elevated five distribution days. Hong Kong is in an Uptrend Under Pressure with just one distribution day and is trading below its key moving averages. Refer to pages 6 and 7 for annotated charts of the CSI 300 and Hang Seng, respectively.
- Chinese ADR were under pressure last week following news of potential investment restrictions by the U.S. government. The KWEB ETF, which tracks Chinese internet companies, continues to weaken, exhibiting resistance at its 40-WMA. Refer to pages 8 and 9 for annotated charts and comparisons with the S&P 500, CSI 300, and Hang Seng. Page 10 has an annotated chart for Alibaba ( BABA ).
- Highlighted Focus List ADR: ZTO Express ( ZTO ). Annotated chart on page 5.
- Refer to page 11 for a list of Chinese ADR holding well above their 200-DMA as well as those with the highest negative alerts.
- See page 12 for actionable ideas in APAC.
APAC Market Update
Key points:
- We are upgrading India to a Confirmed Uptrend from a Rally Attempt today after the index staged a day-five follow-through day. The index gained 1% on higher volume than the previous session and almost 20% higher than average. Since the corporate tax rate cuts were announced on Friday, September 20, the index has rallied ~8% on strong volume and is trading 3% off highs. The average volume for the past five sessions is 60% greater than the last 50 trading days’ average volume. We believe investor sentiment has turned constructive following Friday’s 5% gain, the largest single-day gain in almost a decade.
- We recommend selectively allocating capital to growth ideas that are at entry points and not chasing extended ideas. Look for entries along pullbacks to moving averages or near-term price support.
- See our note for growth ideas in India with high EPS growth, high ROE, and tax rates greater than 30% in the previous fiscal year.
APAC Weekly Summary
Key points from this week’s report:
Please refer to the attached PDF for the full report.
- Six out of 13 markets are in a Confirmed Uptrend, three are in an Uptrend Under Pressure, and four are in a Rally Attempt.
- Today we shifted Hong Kong to an Uptrend Under Pressure from a Confirmed Uptrend. Yesterday we shifted India to a Rally Attempt from a Downtrend.
- We remain bullish on India’s growth stocks following the corporate tax rate reduction.
- Refer to page 3 for our view on the tax impact by sector.
- Refer to page 8 for more Indian growth ideas with high EPS growth and ROE. See Base Status column for our take.
- Highlighted ideas: Focus List Kotak Mahindra Bank (KOK.IN) and removal of Tata Consultancy Services (TSE.IN). Refer to pages 5 and 7 for annotated charts.
- Refer to page 9 for APAC actionable ideas.
APAC Weekly Summary
Key points from this week’s report:
Please refer to the attached PDF for the full report.
- Out of 13 APAC markets, seven are in a Confirmed Uptrend, two are in an Uptrend Under Pressure, and four remain in a Rally Attempt.
- South Korea was moved to a Confirmed Uptrend from a Rally Attempt on August 30. The KOSPI has gained 5.2% since the follow-through day and it has reclaimed its 50- and 100-DMA. It is trading 1.5% below its 200-DMA. Historically, it has faced consistent resistance along its 200-DMA. We recommend staying patient and selective until the market reclaims its 200-DMA on higher volume.
- Refer to page 7 for a detailed Datagraph of the KOSPI and page 8 for a comparison graph of the KOSPI, the S&P 500, and the Nikkei.
- In South Korea, value stocks are leading over the last four weeks, similar to Japan.
- Strength has yet to broaden in South Korea as only 34% of liquid stocks are trading above their 50- and 200-DMA. In the last four weeks, Health Care stocks have gained significantly, while Technology stocks have lagged.
- Refer to page 9 for stocks near pivot in South Korea.
- Refer to page 10 for actionable Focus List ideas.
- Refer to pages 5–6 for recent addition Interglobe Aviation (VGA.IN).
APAC Weekly Summary
Key points from this week’s report:
Please refer to the attached PDF for the full report.
- Seven out of 13 markets are in a Confirmed Uptrend, two are in an Uptrend Under Pressure, and four are in a Rally Attempt.
- Japan is in a Confirmed Uptrend and is trading above 200-DMA support. Despite a recent follow-through day, we advise investors to allocate capital gradually as the market has yet to broaden. Refer to the annotated chart of the Nikkei 225 on page 6.
- In Japan, Consumer Cyclical and Financial stocks are showing improvement in the short term. Refer to the Sector Rotation Graph on page 7.
- In Japan, value stocks are outperforming over the last four weeks compared to growth stocks. The number of value stocks trading above their 50-DMA have gradually increased in the past six months, while the number of stocks above their 200-DMA have remained fairly unchanged. Refer to page 8 for top value and growth ideas in Japan.
- Highlighted Focus List idea: Jinxin Fertility Group (JIFG.HK). Refer to page 5 for annotated chart.
- Refer to page 9 for Actionable Focus List ideas.
APAC Market Update
Key points:
- We upgraded Japan to a Confirmed Uptrend as the Nikkei 225 staged a day 22 follow-through after gaining 2.3% on volume higher than the previous day’s. The index closed just above 50-DMA support and has immediate resistance at its 100-DMA, followed by its 200-DMA.
- We would like the index to hold above 50-DMA (~21,000) support to boost our conviction, as it failed to do so after its last follow-through day on March 12.
- Despite a follow-through day, we remain cautious on the market as long as it trades below its 200-DMA. We advise a gradual approach to allocating capital to growth ideas as the market strengthens and stocks break out from sound bases while finding support or breaking back above their 50-DMA.
- See our attached note for a list of ideas (market cap >$1B, ADV >$3M) trading near pivot in a stage-one base.
