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

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia Ex Japan index (AAXJ) pulled back from a multi-year high and breached its 21-DMA support. Look for Chinese markets to consolidate above short-term moving averages as pullbacks occur. Focus on stocks breaking out or those forming the right side of bases, with rising relative strength.
  • Eight markets, including Japan, Hong Kong and China, are in a Confirmed Uptrend. Five markets, including India and South Korea, are in an Uptrend Under Pressure.
  • We have prepared a presentation on current topics, themes and market trends. This includes improving breath in the APAC region, China stimulus history, Japan post-carry trade recovery, India under pressure, Korea Healthcare leadership, Taiwan Tech and Southeast Asia resurgence. For more detail, see our APAC Overview Presentation here.
  • Highlighted Focus List ideas: TSMC (TSM.TW), Advantest (AB@N.JP), ABB India (AB.IN), Hanwha Aerospace (SGA.KR), Trip.com (TRCG.HK) and Sino Biopharm (SBIO.HK). Refer to pages 7-12 for annotated charts.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia Ex Japan index (AAXJ) continued to gain above July highs, before pulling back in the last session. Continue a selective approach in markets where indices are struggling near 50- or 200-DMAs. Focus on stocks breaking out or those forming the right side of bases, with rising relative strength.
  • Eight markets, including Japan, Hong Kong and China, are in a Confirmed Uptrend. Five markets, including India and South Korea, are in an Uptrend Under Pressure. India was shifted to an Uptrend Under Pressure from a Confirmed Uptrend.
  • China and Hong Kong indices are pulling back from 52-week highs, after the stimulus announcement on October 8 disappointed investors. A near-term consolidation above short-term moving averages is considered healthy for the indices. The current stimulus package is at the lower end when compared with previous interventions.
  • Based on historical analysis, Hong Kong and China indices may not move in a similar trend post the stimulus announcement – the drawdown duration for Chinese indices tends to be shorter than for Hong Kong indices.
  • Health Care, Consumer Cyclical and Financial have outperformed in Hong Kong since the stimulus announcement. Retail underperformed other sectors during the pullback. Capital Equipment and Consumer Cyclical have outperformed in line with prior stimulus cycles, while Utility and Consumer Staple have underperformed. Refer to page 10 for a list of stocks in Hong Kong that remain constructive despite a pullback.
  • Highlighted Focus List Idea: Pop Mart (PMIG.HK; 9992 HK). Refer to page 7 for an annotated chart.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia Ex Japan index (AAXJ) broke above July highs and is trading at a multi-year high. Chinese markets have gained momentum and are trading near new 52-week highs. Avoid chasing extended ideas. Other major markets, including Japan, are near key moving averages. Continue to adopt a selective approach in markets where indices are struggling near their 50- or 200-DMAs.
  • Ten markets, including China, Hong Kong and Japan, are in a Confirmed Uptrend. Three markets are in an Uptrend Under Pressure.
  • Recently, the Hang Seng has risen sharply in a short span of time following the stimulus announcement by China. We looked at periods of economic stimulus cycles in China since 2008. In previous cycles, the Hang Seng rose 10-50% over a period of eight to 11 months. Refer to page 11 for a monthly annotated chart of the Hang Seng Index highlighting the economic stimulus cycles.
  • Select large cap stocks have been consistent outperformers in the previous economic stimulus cycles. Notable Focus List stocks include BYD (BYD.HK; 1211 HK) and Tencent (TCNT.HK; 700 HK). Look for these stocks to pull back or trade in a sideways range near short-term moving averages, before initiating or adding to positions.
  • Breadth in Hong Kong as improved significantly, and weekly breakouts have jumped to a 10-year high. Consumption-related sectors such as Consumer Staple, Consumer Cyclical and Retail, along with Health Care, have outperformed over the past week. Refer to pages 13 and 14 for a list of stocks in Hong Kong that could be beneficiaries of the economic stimulus.
  • Highlighted Focus List Idea: Trip.com (TRCG.HK; 9961 HK).

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia Ex Japan index (AAXJ) continued to gain above its 50- and 100-DMAs and made a new 52-week high. We recommend increasing risk in markets that are trading above key moving averages, and a gradual and selective approach in markets that are yet to retake key moving averages. Focus on stocks that are breaking out or forming the right side of bases, with rising relative strength.
  • Twelve of the thirteen APAC markets are in a Confirmed Uptrend. New Zealand is in an Uptrend Under Pressure. China and Japan were upgraded to a Confirmed Uptrend. Hong Kong and Taiwan were shifted back to a Confirmed Uptrend.
  • The interest rate cut by the U.S. Fed is likely to start an easing cycle in APAC markets. Except for Japan, which is expected to raise interest rates in coming months, other major APAC markets have reduced / kept interest rates steady. China, South Korea and India are expected to cut rates at least once in 2024.
  • Hong Kong turned more constructive following the economic stimulus announcements by China. Approximately 57% of liquid Hong Kong stocks gained more than 10% last week, and one in four large cap stocks made a 52-week high. Refer to pages 14 and 15 for a watchlist of Hong Kong stocks that are constructive with rising relative strength.
  • Southeast Asian markets became extended in the short-term and could consolidate in the near term. Refer to page 10 for a watchlist of Southeast Asian stocks.
  • Japan, South Korea and Taiwan are 7-11% off highs and face multiple levels of resistance. We will turn more constructive as these markets clear these resistance levels.
  • Highlighted Focus List Idea: Tencent Holdings (TCNT.HK; 700 HK)

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia Ex Japan index (AAXJ) reclaimed its 50- and 100-DMAs. We recommend a cautious and selective approach. Focus on stocks trading above key moving averages with rising relative strength.
  • Eight markets, including India and South Korea, are in a Confirmed Uptrend. Hong Kong, Australia and Taiwan are in an Uptrend Under Pressure. Japan is in a Rally Attempt and China is in a Downtrend.
  • China’s CSI 300 has been making lower lows, while Hong Kong’s Hang Seng is holding up relatively well. Southbound flows into Hong Kong have been positive year-to-date, and could be contributing to the divergence between the Hang Seng and the CSI 300.
  • Focusing on stocks that have continued to be leaders since the initial February follow-through day has led to outperformance in Hong Kong, despite the difficult market environment. This includes rotating out of prior leaders that are failing to hold above key support levels. Refer to page 9 for a list of stocks in Hong Kong that have been consistent leaders over the past 26 weeks.
  • Breadth in Hong Kong is relatively healthier across large-cap stocks. However, overall, stocks near pivot are at a 52-week low. In terms of sectors, we see improvement in Financial, Consumer Staple and Transportation. Refer to page 10 for a list of constructive leaders (RS greater than 70) in Hong Kong.
  • Highlighted Focus List Idea: Pop Mart (PMIG.HK; 9992 HK).

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia Ex Japan index (AAXJ) failed to hold above its 50-DMA. We recommend a selective and disciplined approach to increasing risk. Focus on stocks above key moving averages with rising relative strength. Reduce those failing to hold above support.
  • Six markets, including Hong Kong and India, are in a Confirmed Uptrend. Four markets, including Japan and Taiwan, are in an Uptrend Under Pressure. Two markets are in a Rally Attempt and China is in a Downtrend.
  • India was shifted back to a Confirmed Uptrend from an Uptrend Under Pressure after the Sensex made a new all-time high. India has been trading constructively and has been less volatile through most of 2024, and is among the outperforming markets in APAC. This is well supported by good money inflows, with institutional investors being net buyers over the past seven months.
  • Based on history, the probability of consolidation for the Sensex is still high as the market is extended from its 40-WMA. There are a higher proportion of stocks trading in late-stage bases. Avoid chasing ideas extended from late-stage bases.
  • Since late-July, Indian Health Care, Consumer Staple and Retail have gained significant momentum, and are currently in the top-right quadrant of sector rotation. Technology is also gaining momentum. Refer to page 8 for a list of watchlist stocks in India that are constructive.
  • Highlighted Focus List Idea: Poly Medicure (POE.IN; PLM IN).

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia Ex Japan index (AAXJ) is consolidating above all its key moving averages and is 3% off highs. We recommend a gradual, disciplined approach to increasing risk. Focus on stocks trading above key moving averages with rising relative strength. Continue to reduce lagging ideas that are not participating in the rally, and failing to retake key moving averages.
  • Eight markets, including Japan, Hong Kong and South Korea, are in a Confirmed Uptrend. India and Australia are in an Uptrend Under Pressure. Two markets are in a Rally Attempt. China is in a Downtrend, and was shifted to a Downtrend from a Rally Attempt.
  • Nvidia (NVDA) is set to release its Q2 FY25 results today, after the market closes. The results are expected to set the direction for heavily AI-exposed markets, such as Taiwan, Japan and South Korea. These three markets are 7-10% off highs and face resistance at their respective 50-DMAs.
  • Within Technology, Semi-Conductor- and Hardware-related Industry Groups (IGs) continued to lag other IGs over the last four to 13 weeks. During this period, the Computer Software-Desktop and Telecom-Infrastructure IGs, followed by Computer-Tech Services, outperformed. Refer to page 10 for minicharts of constructive large-cap hardware / semi-conductor ideas from Japan, Taiwan and South Korea.
  • Health Care and Retail are moving towards the top-right quadrant (Outperform/Improve) of the APAC sector rotation graph. Utility, along with lagging sectors such as Basic Material, Consumer Staple and Transportation, are Improving. Refer to page 13 for a list of near-pivot ideas from improving sectors.
  • Highlighted Focus List Idea: Bikaji Foods International (BFI.IN; BIKAJI IN).

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia Ex Japan index (AAXJ) reclaimed its 50-DMA and is 4% off highs. We recommend a gradual and disciplined approach to increasing risk. Focus on stocks forming the right side or breaking out of sound bases, with rising relative strength.
  • Eight markets, including Japan, Hong Kong and South Korea, are in a Confirmed Uptrend. India and Australia are in an Uptrend Under Pressure. Three markets, including China, are in a Rally Attempt.
  • The Bank of Japan (BOJ) is now taking a cautious approach to hiking interest rates given the market instability. The JPY has appreciated ~10% against the USD from its low in July due to BOJ intervention. Appreciation of the JPY, along with weak macroeconomic data in the U.S. that points to the increasing likelihood of a recession or a hard landing, could lead to further unwinding of JPY carry trades.
  • Compared to previous steep sell offs, the Nikkei’s current decline is an outlier in terms of both price action and duration. The Nikkei has retaken its 200-DMA in less than two weeks, which is unlike the sell offs in 1987 and 2020, when the index took 10-15 weeks to retake its 200-DMA. Holding above its rising 50-DMA support is a key precursor to the index making a new high. Look for further improvement in breadth and a rise in the number of near-pivot setups for the Nikkei to turn more constructive.
  • Across APAC, the Health Care sector has gained momentum over the past four weeks. Refer to page 11 for a list of Health Care leaders. On the flipside, Technology is losing momentum due to the pullback in Semiconductor-related stocks. However, Telecom and IT Services / Software-related industry groups are holding up well relatively.
  • Highlighted Focus List Idea: SK Biopharmaceuticals (SBP.KR; 326030 KS).