The MSCI Asia ex. Japan rose approximately 2.5% through Wednesday this week. The index failed to hold above its 50‐DMA on
two previous attempts since November 2018. The tone of APAC markets has shifted to be more optimistic as midlevel U.S./China
trade talks ended and investors look for a trade deal by the end of January ( March 2 deadline ). The next resistance for the MSCI
index is 2% higher ( 100‐DMA ); it has not traded above this level since June 2018, prior to the index’s correction. Relative strength
compared with the S&P 500 has been in an uptrend since November despite a recent pullback due to U.S. strength (we upgraded
the U.S. to a Confirmed Uptrend on January 4). Among smaller Southeast Asian markets, the Philippines has stood out since
bottoming in November. The PSEi is trading at eight‐month highs and is among the few markets above both its 50‐DMA and 200‐
DMA. See our note for the best liquid ideas to keep on your radar.
In the major markets, it is still unclear whether this shift in mood is enough to begin a prolonged rally. Over the last four weeks,
Utilities has joined the top performing sectors in Japan, Hong Kong, India, and South Korea. See our note for Utility ideas and
highlighted idea China Resources Power Holdings ( CREP.HK; 836:HK ). Overall, we have yet to see a strong shift to risk‐on
sectors. We believe any rally is still in the very early innings at best and markets have more to prove to warrant getting more
aggressive. The bottom line is that we continue to lean toward being defensive, keeping an eye on base development, and
staying selective based on market conditions. Lastly, we added Titan ( TIT.IN; TTAN:IN ) back to our Focus List.
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
APAC performance in 2018 was difficult, to say the least. Nearly all markets closed with losses for the year and only two (India and
New Zealand) had gains. Day one of 2019 was a poor start, as nearly all markets closed with losses. The MSCI Asia ex. Japan
index continues to be under pressure, failing to hold above the 50‐DMA since its mid‐June 2018 decline. The correction remains
intact and the index has been unable to shift course thus far. Overall, we remain cautious and continue to recommend a
defensive and selective approach to buying APAC stocks.
APAC Weekly Summary
We are taking time off from our note this week but will back next week for 2019.
From the O’Neil APAC team, we wish everyone a Happy New Year and safe Holiday. We appreciate your support.
In 2019, we are planning several improvements to our Weekly Summaries. Stay tuned.
APAC Weekly Summary
Today we downgraded Japan to a Downtrend and upgraded India to a Confirmed Uptrend. We have become increasingly concerned by the action in Japan as the Nikkei undercut its October low and distribution has risen to an elevated level.
Furthermore, we believe there are technical signs that suggest further declines in the near term. We recommend being
underweight Japan or shifting to a more defensive approach. On the bullish end, we continue to favor India and upgraded
its market to a Confirmed Uptrend from an Uptrend Under Pressure. The Sensex is now trading near October highs and has risen above its 100‐DMA.
Since November we have added nine Indian ideas to our Focus List. India now comprises 50% of our APAC list and 54% of our
Emerging Markets list. Looking at our Sector Rotation Graph in India, we are noticing short‐term momentum from Consumer
Staples, Financial, and Retail. Moreover, seven of the nine ideas we added recently are in Staples and Financials. In our note, we also include 15 ideas to keep on your radar. Lastly, we highlight our new Focus List addition Marico ( MRC.IN; MRCO:IN ).
Global Technology/Cyclical Sector–Internet and Media
Key Points
After worsening in the first half of 2018, all Old Media industry groups recovered in the second half of the year, and now rank among the top 30 positions in our 197 Industry Groups (IG).
The Media-Radio/Tv (IG Rank 7) and Telecom Svcs-Cable/Satl (IG Rank 15) are now in the top 20 in our IG ranking.
The New Media value chain continues to evolve. Netflix still leads the way in OTT streaming, but the upcoming launches of comparable platforms such as Disney+ in late 2019 will change the competitive landscape.
Internet stocks continue to be under pressure, led by FB (March 20 removal) and GOOGL (November 19 removal). Other Internet names, including YELP, MTCH, GRUB, and ROKU, declined sharply following disappointing earnings results or guidance.
Stocks detailed in this report include: DIS, CMCSA, VZ, NFLX, FB, TWTR, and RCI/B.CA (the latter is on our Focus List). In Asia, Info Edge (
), PVR (
), Studio Dragon (
), and VGI Global Media (
).
Best Ideas in Media with Derek Higa – December 13, 2018
Will Old Media outperform New Media in 2019? Old Media ideas like DIS and CMCSA have recovered versus new media names like FB, GOOGL, and NFLX in the second half of 2018. In 2019, the launch of peer platforms like Disney+ and Warner Media will change the competitive landscape.
In this week’s webinar, William O’Neil + Co. Senior Equity Analyst Derek Higa reviewed big-cap New Media stocks as well as Old Media names that are setting up constructively. He also discussed ideas in Asia that should be on your radar, especially as emerging markets display improving relative strength.
APAC Weekly Summary
On Tuesday, both Emerging Markets ( EEM ) and MSCI Asia ex. Japan ( AAXJ ) indices pulled back following a sharp decline in the U.S. Despite this, both remain in a short‐term uptrend since bottoming in late October. Indices could very well be on the verge of consolidation in the near term, but we believe action could remain healthy should the 50‐DMA hold. Furthermore, we continue to believe that this is early innings should a bottom begin, and there will be time to get more aggressive should markets stay constructive. A gradual approach to allocating capital is still recommended.
In emerging Asian markets, we recommend focusing on India. We believe the BSE Sensex continues to be one of the most
constructive indices in APAC. Looking back at recent corrections from 2015 to present, the most recent correction in India does not seem out of the ordinary, that is, if the index continues to hold above its 40‐WMA going forward. If it does, this could be a good time to add to or initiate positions. Since November, we’ve added seven Indian ideas to our Focus List. In Health Care, generic drugs remain a theme to overweight. Actionable ideas include Dr. Reddy’s ( DRR.IN; DRRD:IN ) and Torrent ( TRR.IN; TRP:IN ).
APAC Weekly Summary
Over recent weeks, both the MSCI Emerging Index ( EEM ) and the MSCI Asia ex. Japan Index ( AAXJ ) have held above October lows and risen above their 50-DMA. This is after both indices reached extreme levels of underperformance relative to the S&P 500. This begs the question of whether we have finally seen a bottom in Emerging and Asian markets. Although we remain encouraged by recent general market action, it is still early. Thus we think there is time to be more aggressive should the markets remain constructive. Our recommendation is a gradual approach in allocating capital, as most stocks are still in early consolidation or building the right side of bases. We will increase our conviction if stocks and market action remain constructive.
On November 15, we upgraded Hong Kong to Confirmed Uptrend. With the Hang Seng now trading above the 50-DMA, we screened again for leading stocks setting up the best entry points. We also reiterated our patient view on Tencent ( TCNT.HK, 700: HK ). Lastly, we highlighted a new addition to our Focus List, Vitasoy International ( VITA.HK, 345: HK ).
FAANG Capitulation
Highlights:
We recommend continuing to reduce exposure to all FAANG stocks (FB, AAPL, AMZN, NFLX, GOOGL) as we believe risk of further share price decline is still high.
The First Trust DJ Internet Index (
), which includes all FAANG names except Apple, is living below the 40-WMA for the first time since 2016. The index is trading more than 20% off 52-week highs and in bear territory. If ~$115 support is undercut, the next price support is unclear.
Additionally, all FAANG stocks are trading below their 40-WMA for the first time.
We believe the FAANG selloff could worsen due to capitulation of passive investments in the near term.
See Datagraphs in our note for next price support levels.
APAC Weekly Summary
APAC markets have retested resistance levels in recent weeks, but none have displayed any progress. For many, including the MSCI Asia, the 50-DMA continues to be impenetrable. Several major markets ( Japan, South Korea, China, India ) had follow-through days recently, which could be an initial indication of a trend change. However, many have failed before, and in recent days, distribution has picked up. Overall, until we see a break above resistance, our conviction will remain low. Our recommendation is to still lean on the side of caution and be selective in allocating capital, focusing on ideas that have already developed constructive technical bases.
This week we look at Hong Kong’s Hang Seng Index, which remains in a Rally Attempt and in bear territory. Although we are still waiting for an official follow-through day, accumulation volume in early November was encouraging. In sector rotation, it is still unclear and possibly too early to get aggressive in our view, as defensive sectors in Hong Kong continue to stand out. On a stock level, we are looking for ideas that have developed constructive stage one bases, in search of nascent leadership. Unfortunately, many stocks are still from defensive areas. We also share our thoughts on Tencent ( TCNT.HK; 700:HK ) following Q3 earnings results and circle back to Asahi Intec ( AS@H.JP; 7747:JP ), which is actionable after reporting a strong Q1.
