Japan Upgraded to a Confirmed Uptrend,
Hong Kong Shifted Back to a Confirmed Uptrend
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 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
Key points from this week’s report:
Please refer to the attached PDF for the full report.
- The MSCI Asia Ex Japan index (AAXJ) breached its 100-DMA support and is 6% off highs. We recommend a cautious and selective approach. Focus on stocks trading above key moving averages with rising relative strength. Continue to reduce lagging ideas with declining relative strength, which are failing to hold above logical support.
- Seven markets, including India, are in a Confirmed Uptrend. Hong Kong, Australia and Taiwan are in an Uptrend Under Pressure. Japan and South Korea are in a Rally Attempt. China is in a Downtrend.
- Japan’s Nikkei 225 continues to decline below its 200-DMA and is 16% off highs. Monetary Policy decisions in the U.S. and Japan will be a significant near-term catalyst for the market. The Yen continues to appreciate against the USD which is negative for export-oriented Japanese stocks, and increases the risk of further unwinding of the Yen carry trade. The Health Care, Retail, Consumer Staple and Utility sectors continue to lead in Japan. AI-related, Banks and Trading companies continue to lag.
- Emerging markets performance and U.S. Dollar performance tend to be negatively correlated. As the U.S. Fed starts to cut interest rates, the U.S. Dollar is expected to weaken, and capital flows into emerging markets to increase. Southeast Asian Markets are rallying on this expectation.
- All Southeast Asian markets are in a Confirmed Uptrend. Except for Thailand, all Southeast Asian markets are trading/testing their 52-week highs. Thailand emerged from a yearlong Downtrend. The Financial sector has outperformed over the last four to 13 weeks in Southeast Asia, while Basic Material underperformed. Refer to page 17 for constructive stocks with rising relative strength in Southeast Asia.
- Highlighted Focus List Idea: Xiaomi Corporation (XIAI.HK; 1810 HK).
APAC Weekly Summary
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
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
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).
APAC Market Update
Key Points:
- We upgraded Japan, Hong Kong, and South Korea to a Confirmed Uptrend as they staged a follow-through day. We recommend a gradual approach to increasing risk. Focus on stocks that are forming the right side or breaking out of sound bases with rising relative strength. Continue to trim positions in ideas that are unable to hold above their logical support levels and retake their key moving averages.
- The Nikkei 225 rose 3.9% on volume higher than the previous session and staged a Day 8 follow-through day. It has retaken its 21- and 200-DMA. Look for the index to hold above its 200-DMA and eventually trend higher to become more constructive. Refer to page 5 for annotated chart of Nikkei 225.
- The Hang Seng rose 1.9% on volume higher than the prior session and staged a Day 9 follow-through day. The index retook its 21- and 200-DMA (17,122). It is more than 10% off highs. Next resistance along its 50-DMA (17,600), a level it has not traded above since June. Refer to page 6 for an annotated chart of Hang Seng Index.
- The KOSPI rose 2.0% on higher d/d volume and staged a day-8 follow-through day. It retook its 21-DMA for the first time since mid-July. Yesterday, it cleared above its 200-DMA resistance (2,635), which should act as support going forward. Immediate resistance is along its 100-DMA (2,723). Refer to page 7 for an annotated chart of KOSPI.
- Refer to page 4 for a list of stocks trading near pivot with rising relative strength across Japan, Hong Kong, Taiwan, and South Korea.
Buy Ferrari RACE.IT; Exclusivity Strategy Continues to Drive Demand
Key Points:
- We reiterate our buy recommendation on Ferrari as the stock is breaking out of a stage-one 20-week flat base and is at an all-time high.
- The company is on track to achieve its 2026 financial targets. This would be driven by an exclusivity strategy to maintain strong demand for its cars and higher average selling price due to a change in product mix and personalization features. Ferrari is able to maintain demand for its cars through an exclusivity strategy, while other luxury good providers witnessed a decline in demand.
- It reported strong Q2 2024 results. Shipments grew 3% y/y to 3,484, in-line with estimates. Revenue increased 16% y/y to €1.7B, beating estimates by 6%. Adjusted EPS grew 25% y/y to €2.29, beating estimates by 13%. The company revised its FY24 guidance upward.
- Good fundamental profile: Strong EPS Rank 92 and SMR Rating of A. Consensus expects EPS to grow in double digits in 2024 and high single digits in 2025.
- Good technical profile: RS Rating of 88 and Acc/Dist Rating of C. The selling pressure has declined in the last one week and Up/Down Volume ratio improved to 1.
APAC Weekly Summary
Key points from this week’s report:
Please refer to the attached PDF for the full report.
- The MSCI Asia Ex Japan index (AAXJ) bounced off its 200-DMA support and retook its 100-DMA. Major markets are bouncing off lows and could be running into resistance along declining short-term moving averages. Wait for major markets to stage follow-through days before increasing risk. Focus on select ideas from improving industry groups with rising short-term relative strength.
- Three markets, including Taiwan, are in a Confirmed Uptrend. Three markets, including India, are in an Uptrend Under Pressure. Six markets, including Japan, Hong Kong and South Korea, are in a Rally Attempt. China is in a Downtrend.
- We shifted Taiwan to a Confirmed Uptrend after the TAIEX staged a day-4 follow-through day. Overall breath in Taiwan continues to remain low at 28%. Technology stocks in Taiwan are bouncing off their lows and face overhead resistance at their 50-DMAs.
- Japan’s Nikkei 225 bounced off its August 5 selloff and is yet to stage a follow-through day. We need the index to stage a follow-through day and quickly retake its 200-DMA to turn constructive. The Health Care sector continues to hold up well in Japan. Refer to page 11 for minicharts of iShares MSCI Japan ETF (EWJ) constituents that have bounced off lows and retaken key moving averages.
- India’s Sensex 30 has pulled back after becoming extended from a historical perspective. Health Care and Consumer Staple have outperformed other sectors based on median 3-month RS Rating. Refer to pages 13 and 14 for a list of leaders outside the APAC Focus List that remain constructive with high relative strength, and that are holding up relatively well despite the volatility in markets.
- Highlighted Focus List Idea: Cipla (CPL.IN; CIPLA IN).
APAC Weekly Summary
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 testing its 200-DMA. We recommend a defensive approach. Wait for volatility to settle. Indices could be running into resistance along declining short-term moving averages after becoming short-term oversold. Focus on select ideas from defensive industry groups with low betas and high dividend yields.
- Five markets, including India and Australia, are in an Uptrend Under Pressure. Eight markets, including Japan, Hong Kong and China, are in a Downtrend.
- The Japan market sold off sharply during the past five sessions. Last week’s rate hike by the Bank of Japan, along with weaker than expected macro data in U.S., led to the unwinding of carry trade positions by investors, which worsened the sell off. The number of Focus List removals across APAC has risen significantly, a cautionary sign from a historical perspective.
- The Nikkei 225 has fallen more than 20% from highs in less than six weeks. This is comparable to declines in 1987 and 2020. It is too soon to assume the index will quickly recover to all-time highs this time. We will wait for a follow-through day and the retaking of the 200-DMA before turning constructive. If leaders continue to make lower lows, it would be a signal the market is worsening.
- Breadth has declined across all market cap categories in Japan. By sector, Utility, followed by Energy and Health Care, are holding up relatively well. Refer to page 11 for a list of defensive ideas across APAC.
- Highlighted Focus List Idea: Jyothy Labs (JYL.IN; JYL IN).
