APAC continues to be very weak with all 13 markets under their 200‐DMA. Broadly, the MSCI Asia has made new 52‐week lows.
Next support could be 3‐5% lower. As of Wednesday, Japan is still Under Pressure, but treading on thin ice as broad sector
weakness does not paint a positive picture. Our APAC Focus List is now at historical lows as technical deterioration has resulted in
constant removals since September. We remain extremely cautious and continue to recommend a defensive approach if raising
cash is not possible.
For a second consecutive week, we are providing low beta ideas with improving Relative Strength for those who must allocate
capital.
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
This week’s market action across APAC has left little to be encouraged about. Broadly, the MSCI Asia has reverted back to year
lows after rising on low volume over the past four days. China markets continue to decline and ‘A’ share markets seem to be
headed for further downside. The worst may yet to come as fears of forced margin calls are rising. Japan, which has held up
relatively better until recently, is also Under Pressure. We recommend continuing to play defense if raising cash is not an option.
With very few growth ideas working currently, we screened for low beta ideas with improving Relative Strength for those who
must allocate capital. Lastly, we provided a short case for former Focus List idea Kose ( OSEC.JP; 4922:JP ).
Global Technology/Cyclical Sector–Internet and Media
Some highlights from the report:
Consumer demand for online food delivery is growing. The Gross Merchandise Value (GMV) for online food delivery is expected to reach $147B, an 11% 2018–2022 CAGR.
There are two types of delivery models: aggregators and new delivery, both of which are expected to grow through 2022. Recently, aggregators have begun offering delivery services to complement their marketplace but at a higher cost to revenue.
As of June 2018, China contributes the most GMV for online food delivery globally, followed by the U.S., India, the U.K., and Germany.
China’s online food delivery market is almost twice the size of the U.S. market. Meituan holds the largest share.
The U.S. core addressable food delivery market is expected to reach +$200B by 2020, or 40% of total restaurant sales. Pizza delivery accounts for the majority of the TAM and nearly 50% are from phone orders, leaving plenty of room for online food delivery penetration.
In the U.S., Grubhub ( GRUB ), on our Focus List, is the leader with a market share of 34% in food delivery services as of July 2018.
Other publicly traded food delivery companies include Just Eat ( JE.GB ), Delivery Hero ( DHERX.DE ), Takeaway.com ( TKWY.NL ), and Meituan ( MEDI.HK ).
Lastly, given the current weak market conditions going into earnings season, we have provided annotated Datagraphs for several other U.S. ideas in the report, including support and resistance levels to keep in mind.
APAC Market Update
Following the downgrade of Hong Kong on Monday (October 8), we are also downgrading Mainland China markets to a Downtrend after a 4.8% loss in the CSI 300 and the undercut of prior lows made in September (see Datagraph). Similar to the Hang Seng, the 50-DMA continues to serve as consistent resistance. The sharpness of today’s loss could be indicative of the beginning of capitulation, where greater and more disorderly declines occur in the short term. Furthermore, with an increase in downside action globally, we have become more bearish on nearly all markets as the majority have shifted into correction recently. We continue to recommend a defensive approach if raising cash is not an option.
Both the Shanghai and Shenzhen Composites have already declined below 2016 lows with no clear near-term support until 2014 levels, suggesting 13% or more downside. We view support for the CSI 300 near 2016 lows (~2,800) with ~10% downside.
APAC Weekly Summary
Over the last three days we downgraded Hong Kong to a Downtrend as a second follow-through day failed. We also downgraded Australia and Taiwan to a Downtrend. With U.S. markets clearly displaying pressure (also downgraded to a Downtrend today), we have gotten more bearish on global market conditions overall. In APAC, major markets have declined quite orderly, unable to rally much above key moving averages (50- or 200-DMA) before breaking down further again. This seemingly systematic selling leaves markets at risk to capitulation. If this should occur, we expect selling to pick up sharply on heightened investor fears. Furthermore, along with market declines, the number of APAC Focus List removals has increased significantly since September.
Despite poor market conditions and increased caution, our team ran a PANARAY screen for ideas with improving relative strength, especially for investors who must put capital to work. We cut this list down to 34 ideas, provided below. Lastly, we highlighted small-cap idea, Bangkok Chain Hospital (BCHP.TH; BCH:TB).
APAC Weekly Summary
Hong Kong continues to be weak despite having a follow‐through day on September 21. Sector strength continues to be narrow,
limited to Energy, which has outperformed across APAC. Our conviction is still low on Chinese markets as we have seen very
little strength in price action this week. Mainland markets are on holiday, but judging by the Hang Seng’s weakness and in
anticipation of investor ‘catch up,’ our enthusiasm is quite low for a positive open when markets reopen next week.
However, we remain bullish on Japan as we continue to notice broadening sector strength. We believe Health Care should be
a focus as many ideas remain actionable in the sector. We have provided several ideas to keep on your radar and reiterated our
view on Focus List‐idea Asahi Intecc ( AS@H.JP; 7747:JP ).
APAC Weekly Summary
We are noticing a shift in APAC market leadership. India, which has been a leader for most of 2018, is now pulling back
significantly from highs. We downgraded India to a Downtrend on Monday, September 24. On the other end, we are more bullish
on Japan, which was flat for much of the year but has outperformed in recent weeks. With a FTD in Hong Kong last Friday
(September 21), both Chinese markets are back in a Confirmed Uptrend, but conviction that a true bottom is behind us remains
low. With China’s National holiday next week, we expect volume to remain low for the rest of the week.
In this week’s note, we go over our recent market condition changes in Hong Kong and India and reiterate our bullish view on
Japan. More Japanese stocks are breaking out recently, which is an encouraging sign. The majority of emerging markets are still
below their 40‐WMA with significant resistance, but we have provided EM ideas (excluding China/HK) with solid O’Neil Ratings
and Rankings for our mandated clients. Among our Focus List ideas, we highlighted high conviction EM ideas: Samsung SDI
( SCT.KR; 006400:KS ) and Koh Young Tech ( KYX.KR; 098460:KS ).
APAC Market Update
We are upgrading Hong Kong to a Confirmed Uptrend as the Hang Seng staged
a day seven follow-through day. The index gained 1.7% on volume greater than
the previous day and above average daily volume. This is the second follow-through day, after one failed on August 27.
Furthermore, the Hang Seng is now trading slightly above its 50-DMA (~28,830), which we see acting as support going
forward. We recommend gradually buying actionable growth ideas as they break out from sound bases or
looking for aggressive entries on high conviction names as they break through their 50- or 200-DMA.
Both Mainland China and Hong Kong indices are now in a Confirmed Uptrend but still trading near bear market
territory, thus, markets may continue to be volatile as a bottoming-out occurs. Looking ahead, we would like indices
to hold above their respective 50-DMA or continue momentum higher in the coming weeks to maintain our conviction.
However, a quick downside reversal similar to August’s failed follow-through day would be viewed as bearish.
APAC Weekly Summary
Following mostly improving market action over the recent week, we wanted to review our thoughts on several market conditions. Mainland China had another follow-through day, Hong Kong remains in a Rally Attempt, distribution days are rising in India, and Japan is breaking out above key resistance. Due to the Nikkei’s recent action, we are getting more bullish on Japan, but are still cautious on nearly all other APAC markets, as the majority (especially emerging APAC markets) are still below their respective 40-WMA.
Japan’s leading sectors remain largely defensive with Energy still leading, but we are paying attention to rotation into other sectors, including Financials, Capital Equipment, and Cyclicals. In this note, we have provided several Japanese ideas from outside our Focus List that are screening well and highlighted four Focus List stocks, Asahi Intecc ( AS@H.JP; 7747:JP ), GMO Payments ( GMOP.JP; 3769:JP ), Pigeon ( PIGC.JP; 7956:JP ), and TDK ( TD@N.JP; 6762:JP ).
APAC Weekly Summary
On Friday, August 31, we quickly shifted mainland China and Hong Kong markets to an Uptrend Under Pressure following increasing volatility. Furthermore, we believe there is a high probability that the August 27 follow-through day will fail. We are noticing distribution rising in other APAC markets. Today (September 5), eight indices recorded distribution and, over recent weeks, distribution (among those in a Confirmed Uptrend) has reached elevated levels. The MSCI Asia is once again trading below the 50-DMA, unable to find support. The majority of indices are still struggling to stay above their respective 200-DMA. The leading market, India, is also beginning to pull back from highs (see last week’s note). Overall, there are enough reasons to stay patient and be more cautious in APAC.
This week, we reiterate our optimism on Japan, which continues to trade constructively despite overall APAC volatility. In APAC Sector Rotation, Energy is the only sector displaying short-term strength. We provided Energy ideas to keep on your radar. Last, we highlight two actionable Japanese Focus List ideas, Fast Retailing ( RETA.JP; 9983:JP ) and GMO Payments ( GMOP.JP; 3769:JP ).
