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.
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.
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 ).
APAC Weekly Summary
Key Points:
We are are noticing broadening strength in APAC markets. As of Wednesday, the MSCI Asia ex. Japan is trading above December 2018 highs, continuing its strength from the backend of last week and breaking through the upper end of the downward channel. We now expect the index to test resistance near the 200-DMA (2% upside from Wednesday’s close).
We upgraded both South Korea (January 24) and Hong Kong (January 25) to a Confirmed Uptrend from an Uptrend Under Pressure. In the same fashion as the MSCI, the Hang Seng is rising to the 200-DMA (~27,800), which we view as the next resistance. The index has not traded above this level since June 2018 and a rise above this level on above average volume would be a significant bullish sign in our view.
Continuing from last week’s discussion, APAC sector strength is broadening to more risk-on sectors. We are noticing strength return to the Technology and Financial sectors, particularly this week. Both sectors are leading over a five-day and four-week period.
In a 13-week period, Utilities continue to lead, but the breadth of strength is widening noticeably. Overall, we believe this is an encouraging sign for a sustained rally.
This week, we focus on Technology, providing ideas from both ends of the spectrum. We revisit our negative outlook on Nintendo (removed from the Focus List in June 2018). The Company reports on January 31.
Other highlighted ideas include short idea Autohome ( ATHM ), and stock of interest ( ICGI.HK, 799:HK )
APAC Weekly Summary
MSCI Asia ex. Japan is at 100-DMA resistance. This is the second attempt since pulling back in December. It remains in a downward channel since the 50-DMA fell below the 200-DMA in June 2018.
Overall, the index remains constructive as long as it holds above the 50-DMA (~$65 for the AAXJ). The higher low in October was an encouraging sign of bottoming.
In similar fashion, major APAC markets have also risen to resistance levels. Distribution days are currently low. To remain bullish, support levels (generally the 50-DMA) must hold should distribution rise again in the short term.
Taking a look at our APAC Sector Heat Map, we focus in on Consumer Discretionary Sectors (Cyclical and Retail). In the past four weeks, Cyclical ideas are among the top performing while Retail ideas are among the weakest.
Although Cyclical and Retail hold the lowest percent of stocks above the 200-DMA, those trading above it have the highest RS Ratings and in Retail, the highest RS Ratings and EPS Rankings among sectors.
We provided the best Consumer Discretionary Ideas to keep on radar.
APAC Weekly Summary
On January 15, we upgraded Mainland China markets to a Confirmed Uptrend as the CSI 300 had another follow‐through day. This is the seventh attempt as six have failed since 2018. In our note, we compare this current bear market trend to the last three in China’s history. It is not uncommon for the index to have several failed follow‐through days in a bear market (13 occured from 2009–2013). Now down 33% from January 2018 highs, the index is not even close to its worst correction of 73% from 2007–2008. Moreover, it is still below its average of 56% peak‐to‐trough. Since 2007, a bear market has lasted 325 days on average. Today, it is slightly higher, at 343 days.
Although we only look at a small sample of recent market cycles in China, it does provide perspective on how conditions could
worsen. On the bright side, the peak‐to‐trough duration is long from a historical perspective. This suggests, at the very least, a
bottom getting closer, assuming a 2009–2013 cycle is not in the works. Nonetheless and disregarding our skeptical feelings, the
follow‐through day is a sign of a turn in overall trend we want to highlight for clients. We continue to look for more signs of
improvment in indicies and the price action of growth stocks, which would increase our conviction.
We are more constructive on the Hang Seng Index that, unlike the CSI 300, avoided making new lows in January. The Hong Kong market remains in an Uptrend Under Pressure, but it is encouraging that distribution days declined in recent weeks. We
are waiting to see if the index can rise about ~27,300 to shift the market back to a Confirmed Uptrend.
Looking at Sector Rotation, Utilities have lost momentum recently while Capital Equipment and Financial sectors are
now improving in the short term and outperforming over the last 26 weeks. We provided several ideas to keep on radar, many
within REIT and infrastructure groups. Lastly, we highlight two stocks of interest, Logan Property (LPTY.HK, 3380: HK) and BOC Aviation (BOCA.HK, 2588: HK).
