Key Points:
We downgraded Japan and South Korea to an Uptrend Under Pressure. The Nikkei’s action this month
has been been erratic and volatile with two massive drawdowns on March 8 and 25. We see Japan’s late
follow‐through day and sharp declines as reasons for a cautious approach.
APAC distribution has risen to 3.5 days on average (versus 3.2 last week) but we believe the majority of
markets have taken the volatility in stride and are holding above support.
The number of Focus List ideas has steadily risen this year, so we remain optimistic. Should this trend
change, an increase in the number of removals could be a negative sign for market conditions, but this
has yet to happen.
We share our top Focus List picks in APAC, including our thoughts on each Datagraph™ ( IEI.IN, LASE.JP,
REL.IN, NAN.AU, XRO.AU, AGP.HK, HAIN.HK ).
Update on Haidilao ( HAIN.HK; 6862:HK ): look to add to positions on a breakout to all‐time highs.
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:
- India is back in a Confirmed Uptrend after briefly testing the 200-DMA. Distribution days have reset to zero as the Sensex has risen to year highs, making those in February irrelevant.
- The November 2 (2018) follow-through day remains intact. The next stop is likely ~39,000, also were we view next significant resistance.
- We continue to view India’s April/May elections as a significant catalyst to a sustainable uptrend.
- Year-to-date performance is improving but the breadth of breakouts are still low.
- In Sector Rotation, we highlight outperforming sectors Transportation ( VGA.IN ), Retail ( TIT.IN ), and Energy ( REL.IN ). The Financial sector ( HFC.IN, ICG.IN, KOK.IN ) looks most timely, with several India banks recently becoming actionable. Cyclical is still early.
- Several leaders among large cap ideas. For best-of-breed large-cap ideas, see our list here.
- For other stocks of interest and actionable ideas in India, see our list here.
- Highlighted Focus List idea: Kotak Mahindra Bank ( KOK.IN, KMB: IN ) is pivoting.
PVR Cinemas
Key points from the report:
On March 18, the stock broke out of a stage-one nine-week cup base on above average volume and is actionable.
The Company had three- and five-year EPS growth of 22% and 27%, respectively. Its EPS Rank is expected to improve, driven by double-digit EPS growth estimates for FY19 and FY20.
Excellent fundamental ratings: best-in-class Composite Rating of 99, EPS Rank of 90, SMR Rating of B.
Strong technical ratings: RS line is trending upward, RS Rating of 87, A/D Rating of B-.
APAC Weekly Summary
Key Points:
Several major markets pulled back on Friday, led by a drawdown in the China A‐shares market.
Despite this, China’s markets remain constructive. The CSI 300 is in consolidation and holding above support
(~3,600), with a low distribution day count ( two ).
We moved India back to a Confirmed Uptrend from an Uptrend Under Pressure. The Sensex is trading at year highs
again.
Japan triggered a follow‐through day (day 50 of a Rally Attempt) but volume was below average despite being
greater then the previous day. We remain skeptical due to the rarity of late follow‐through days and other factors.
Monthly volume is declining and breakouts are still historically low.
In Japan Sector Rotation, it is much of the same from a month ago but there is noticeable short‐term rotation in
Health Care, Technology, and Staples.
Highlighted Focus List Idea: Lasertec ( LASE.JP; 6920:JP ). It is extended but look for an opportunity to add to
positions at new highs.
New Media vs. Old Media
Key points
- Cord-cutting accelerated in Q4 2018: the top five pay-TV companies lost approximately 822,000 video subscribers, compared with 216,000 lost in Q4 2017.
- Connective TV ( CTV ) advertising is in its initial growth phase. Ad-supported video via over-the-top ( OTT ) platforms could drive U.S. programmatic TV ad spend to ~$4.7B (~7% of ad spend) in 2020, a 2018–2020 CAGR of 64%.
- 2019 notables: OTT competition, rising content spend, and password mooching.
APAC Weekly Summary
Key Points:
- Major APAC markets continue to act constructively but are due for consolidation in the near term in our view.
- Should this happen, we would look for support to hold above or at key moving averages (200-DMA).
- To remain constructive, leading ideas (RS Rating > 80) should also hold support while indices pull back.
- Large caps have largely underperformed over several weeks but this week, we are noticing more rotation into quality large-cap growth ideas globally.
- RS Ratings for technology stocks have improved the most over the last four weeks.
APAC Weekly Summary
Key Points:
- The majority of APAC markets are in a Confirmed Uptrend. Taiwan and Malaysia were upgraded last week.
- China’s markets are leading the year-to-date performance, with A-share markets as clear standouts. The CSI 300 has gained nearly 23% year-to-date but is due for a pause or pullback.
- Moreover, A-share breakouts have been impressive thus far. The number has risen to multi-year highs.
- India, on the other hand, has been disappointing. Geopolitical tensions and upcoming elections are pulling focus from the market.
- Keep an eye on China infrastructure plays.
- Focus List Idea: China Railway Construction (CRC.CN; 601186: CH) is approaching an entry point.
Will APAC Markets Lead Higher or Lower? with Derek Higa and Dean Kim — February 21, 2019
As of mid-February, the iShares MSCI Asia ex. Japan and the S&P 500 have comparable performance, gaining 8-10% year-to-date. In late October 2018, the AAXJ found support near 22-month lows, two months prior to the S&P 500. APAC markets have now climbed back to an inflection point near the 200-DMA. In this webinar, William O’Neil + Co. Director, Research Analyst Derek Higa will review similarities to the 2016 global correction and evaluate what’s necessary to become more bullish or bearish. He will also discuss ideas to keep on your radar. Lastly, Executive Director, Research Analyst Dean Kim will join him to touch on themes and top Focus List ideas.
APAC Weekly Summary
Key Points:
There was no change in the MSCI Asia or market conditions through Wednesday. The MSCI is consolidating near resistance while the majority of APAC remains in a Confirmed Uptrend. As of Thursday (February 7), we added nine new ideas to our APAC Focus List. We continue to notice constructive price action across sectors. The number of stocks above the 200‐DMA is rising. This is encouraging. Japan is in a Rally Attempt and we are still waiting for an official follow‐through day. The Nikkei is in its twenty‐ninth trading session without one, despite rising ~12% above December lows.
Looking back at Rally Attempt days over the past 10 years, it is rare that the Nikkei not have a strong follow‐through day.
The longest Rally Attempt most recently was from March to May 2018. The number of stocks breaking out or in pivot is still low historically. Currently, the most improvement in stocks with RS Ratings greater than 80 are among mid‐cap Japanese stocks ($2B to $10B market cap). Japan’s Sector Graph shows short‐term rotation into Technology and Cap Equipment. Although they are still lagging longer term, we are noticing early signs of improvement. We provided an Interest list of Japanese ideas with both strong fundamental growth and improving technical ratings. In our Focus List, we highlighted Lasertec (LASE.JP; 6920: JP).
APAC Weekly Summary
Key Points:
APAC strength continues to broaden with the rest of global markets. The MSCI Asia ex. Japan is on its fifth straight week of gains, rising nearly every week in 2019. The index is now right at the 200-DMA, where healthy resistance could be.
Market conditions continue to improve. On February 5, we upgraded Australia to a Confirmed Uptrend. Keeping our eyes on the APAC Sector Heat Map, strength across sectors continues to broaden, with every sector up in the trailing four weeks. The top sectors are Technology, Energy, and Financial. Defensive sectors with the highest average RS Rating are Utilities and Consumer Staple, consistently for several weeks now. Furthermore, Staple stocks have the most improvement in RS in the trailing four weeks.
Consumer Staples also have the highest average EPS Rank. Highlighting the Financials sector, 47% of those stocks are now trading above the 200-DMA (second behind Utilities with 55%). Constructive action is broadening within the sector. Within Financials, REITs stand out, especially in Hong Kong, where several have weathered the volatility and are now approaching pivots. See our list for ideas. In our Focus List we highlighted Kotak Mahindra Bank ( KOK.IN; KMB: IN ) and new addition Bajaj Finance ( BJF.IN, BAF: IN ).
