Today’s must-reads in Asia, curated by O’Neil Research Analysts. Asia Watch. |
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| August 31, 2018 | Derek Higa 310.448.6910 |
Retail/Consumer CyclicalEMPLOYED BY CHINA (CNN) The New Thing in Hong Kong’s Public Schools: White Students (NYtimes) Ford kills plan to import Chinese-made car in wake of tariffs (Scmp) Exclusive: LVMH-owned Hennessy Signs New Deal with Alibaba (Jingdaily) TechnologyToo Many Chinese Children Need Glasses. Beijing Blames Video Games (NYtimes) In brief: Line launches its own cryptocurrency (Linecorp) Customers Died. Will That Be a Wake-Up Call for China’s Tech Scene? (Nytimes) Consumer StaplesHow Chinese tea-drink brand Heytea saves millions in marketing costs thanks to its millennial customers (Scmp) ‘Please leave at once’: Chinese city installs facial recognition cameras to stop children from drowning (Scmp) MacroeconomicChina tax cut finalised but leaves many unimpressed (Scmp) China cracks down on bureaucracy. ‘paralysed by fear’ (Scmp) China sends further signal on end to family size limits with revised civil code (Scmp) Chinese banking sector warned it faces day of reckoning as decade of easy money ends (Scmp) |
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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
Highlights:
Both mainland China and Hong Kong markets had a follow‐through day on Monday, August 27 and were upgraded to a Confirmed Uptrend. We are following our disciplined approach, but our conviction remains low as both remain below 50‐DMA resistance. We anticipate volatility will continue in the near term, especially as markets seem news driven and China/U.S. trade talks are ongoing. We recommend staying patient and waiting for additional signs of strength before being aggressive.
This week, we turn our focus to India, which has been one of the strongest markets this year. It is the best performing market in APAC and has been on an impressive streak since breaking out to all‐time highs in July. Considering how extended it has gotten, we recommend trimming profits, especially on stocks that are very extended (see list below). Lastly, we highlight two actionable Health Care names in India, Sun Pharmaceutical ( TIC.IN; SUNP:IN ) and Divis Laboratories ( DVL.IN; DIVI:IN ).
Global Technology/Cyclical Sector
Some highlights from the report:
U.S.
Still Bearish on most Old Media groups, neutral on U.S. Media-Diversified
More on Disney’s OTT strategy, Hulu
NFLX removal – Rising Competition in 2019
Revisiting FB Removal and Timeline
Prefer GOOGL over FB
Thoughts on SNAP and TWTR
GRUB leading U.S. market share
New FL addition: MTCH
Stocks of Interest: YELP and ROKU
EMEA
APAC
Chinese internet stocks far from actionable
Removed from FL: WUBA, ENJP.JP, and WB
APAC Market Update
Highlights:
We are upgrading both mainland China and Hong Kong to a Confirmed Uptrend as the CSI 300 and Hang Seng staged a Day 6 and Day 7 follow-through, respectively. Each gained more than 2% today on greater than average daily volume. We continue to follow our disciplined approach. 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.
Each index remains below its respective 50-DMA, where resistance has been consistent. Thus, we remain patient until markets can prove they can rise and hold above this level. Should this happen, our conviction would increase. We also note that mainland China markets remain in bear territory, thus follow-through days have a higher probability of failure. This is the second follow-through day attempt for mainland markets since July.
APAC Weekly Summary
Considering bounces in both China and Hong Kong markets recently and the possibility of a follow-through day, many of our clients have asked our take on market bottoms and how to avoid missing out on a rally should a reverse in sentiment occur. In general, our answer remains consistent with the O’Neil Methodology and its guidelines. Should our sentiment shift with a follow-through day over the coming days, we would focus our attention on leading growth ideas, with top- and bottom-line growth intact, strong O’Neil Ratings and Rankings, and constructive price action.
This week, we go over our thoughts on Chinese markets, now that both Mainland and Hong Kong are in a Rally Attempt. We also review sector rotation in Hong Kong and provide Hong Kong Stocks of Interest. Last, we highlight China Everbright Greentech ( CE
APAC Weekly Summary
Mainland China and Hong Kong markets continue to display weakness, either very close to or at year‐to‐date lows. We fear the
worst has yet to come (low beta Hong Kong ideas below) and Tencent’s (TCNT.HK; 700: HK) poor Q2 earnings results did not help.
We also shifted Japan to an Uptrend Under Pressure last Friday as the Nikkei broke below its 200‐DMA. We are looking for the
index to hold above July lows to remain tilted bullish. All but three of 13 APAC markets are now below their respective 40‐WMA.
On the bright side, we continue to believe India is the best APAC market to be overweight in. Lastly, we highlight Recruit Holdings
(RHCL.JP; 6098: JP), which broke out post Q1 results.
APAC Weekly Summary
We continue to be cautious on overall APAC markets, as the MSCI Asia remains 3% above year lows and in a flat trend below its
50‐DMA. Chinese markets continue to be a major concern. Mainland China markets are still in a Downtrend, while Hong Kong is
back in a Rally Attempt after rebounding over the past four days. We are not confident in a Hong Kong follow‐through day, but we
are not ruling out the possibility under our guidelines.
Looking beyond our China concerns, we believe Japan is still constructive. We continue to look for the Nikkei to break out to
increase our conviction. Defensive sectors still lead in Japan, but we are noticing a rotation out of Staples (mostly cosmetics)
and into the Energy and Technology sectors. Focus List‐idea TDK (TD@N.JP, 6762: JP) is currently actionable.
APAC Weekly Summary
We downgraded both China and Hong Kong today as geopolitical tension surrounding U.S.‐China tariffs are heating up again and
causing markets to trend lower. Both markets are testing or below year‐to‐date lows. Furthermore, they are the worst performing
year‐to‐date in their respective emerging and developed markets. Major APAC markets are shifting more bearish again. It has
been back and forth all year as they have struggled to maintain positive momentum. Also, the majority of APAC markets have yet
to hold above their respective 200‐DMA. We are becoming more cautious in general and recommend a conservative approach in
more bearish markets.
This week we review our Hong Kong and China downgrades. We also review our thoughts on Tencent ( TCNT.HK, 700: HK ), which
we removed from our Focus List today. Elsewhere, we are more positive on India with the BSE SENSEX still near all‐time highs. We
are overweight Indian Financials with seven ideas currently on our Focus List. Our Financial sector analyst shares his thoughts on
India’s rising interest rate environment, highlighting Yes Bank ( YEB.IN; YES: IN ) and Indusind Bank ( IBK.IN; IIB: IN ) as
beneficiaries.
Highlights from the report:
We recommend reducing positions as we believe shares will continue struggling to outperform the market.
Moreover, we believe FB shares will take longer to consolidate to be constructive again.
Shares are now trading below the 200-DMA (~$181) after declining on significantly high volume.
We believe there could be short-term support near April highs at ~$174. If support is not found here, we believe shares will trend back to July lows (~$150).
On March 20, 2018 we removed FB from our Focus List (see our March reiteration note here).
APAC Weekly Summary
The majority of APAC market conditions are tilted bullish, but 60% are trading below the 40-WMA. This gives us reason to remain a bit cautious as many are testing shorter-term (10-WMA) resistance levels. In our view, it would not be surprising to see markets pause and for volatility to pick up again. What is important is how indices handle resistance in the near term. An example is Mainland China, which we are watching closely.
In this week’s note, we explain what we are looking for in China’s market to remain constructive. We also review India. The SENSEX is at 52-week highs but is driven by only a handful of stocks. Since large-cap ideas are currently working in India, we have provide names on and off our Focus List that are screening well from an O’Neil perspective. Lastly, we highlight recent Focus List addition Yes Bank ( YEB.IN; YES: IN ).
