Last week, we upgraded both Mainland China and Japan to a Confirmed Uptrend as both staged a follow‐through day. Despite
this, we feel more confident about Japan’s market condition than China (more on this below). With the two upgrades, our APAC
market conditions have shifted more bullish, but 60% of markets are still trading below longer term moving averages, which gives
us a reason to remain a bit cautious. Additionally, the broader MSCI Asia ex Japan benchmark (Datagraph below) has yet to display
signs of positive momentum this week. A/D is still poor and it has traded flatly this week, weighed down by weak action in
heavier weighted names (e.g. Tencent).
Furthermore, we have yet to see significant rotation out of defensive sectors, although Health Care has pulled back recently. As
we mentioned in a previous note, Utilities continue to display momentum. We are keeping an eye on short‐term improvement in
Technology and noticing sharp underperformance from Materials, Transportation, and Energy. We provided names in these
sectors to keep on your radar for breakouts as well as those we believe are still vulnerable to further downside. Lastly, we
highlight two Technology names on our list, Samsung SDI ( SCT.KR; 006400:KS ) and L&F ( LAF.KR; 066970:KS ).
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 Market Update
Highlights from the report:
Along with Mainland China markets yesterday, we are upgrading Japan to a Confirmed Uptrend as the Nikkei 225 staged a Day 6 follow-through, gaining 1.8% on greater volume than the previous day. The index is now trading above both the 50-DMA and 200-DMA. The TOPIX gained 1.1% but remains below its moving averages. We recommend a gradual approach to buying actionable ideas.
APAC Market Update
Highlights from the report:
We are upgrading Mainland China markets to a Confirmed Uptrend as the CSI 300 staged a Day 5 follow-through, gaining more than 2% on greater than average daily volume. The Shanghai and Shenzhen Composites also gained strongly, rising 2% and 2.7%, respectively. We remain disciplined and recommend a gradual approach to buying actionable ideas.
APAC Weekly Summary
Many Asian markets have found support along with the MSCI Asia, holding last week’s lows. Moreover, several markets are now
in a Rally Attempt after finding support over the last four days, setting up for the possibility of a follow‐through day should lows
continue to hold. The majority of markets are still tilted bearish, so we recommend patience and waiting for confirmation. If a
follow‐through day occurs over the next few days, we recommend a gradual approach to buying stocks.
This week, we revisit the 2015‐2016 major correction in China’s A share market compared with what we see currently. The
Shanghai Composite could be reaching support near January 2016 lows. Despite weak conditions in China, there are still a few
outlying growth stocks that continue to act strongly. We screened for A share and Hong Kong names with the best RS near highs
with strong ratings (many in Health Care). These names continue to hold up well. Among them is small cap Focus List
idea Yihai International Holding (YIHA.HK; 1579: HK), which is near all‐time highs.
Maruti Suzuki
Maruti Suzuki is the largest passenger vehicle company in India, with about 50% market share by sales. June sales volume accelerated, rising 36% y/y. Shares are actionable at an aggressive entry after finding support along the 40-WMA. We recommend adding to positions above INR 9,350.
APAC Weekly Summary
Over the last two weeks, a majority of APAC markets have remained bearish with 60% (eight of 13) in a correction. Furthermore, the MSCI Asia has broken below prior support of the 200-DMA and has made new lows for the year. The index has the worst possible A/D Rating of E. Major markets continue to display downward pressure; on July 2, we downgraded Japan to a Downtrend. It joins other major markets, including Hong Kong, China, and South Korea, which were downgraded in late June. We are more cautious given market conditions and we believe a defensive approach is warranted. Nearly all APAC sectors have shifted downward in recent weeks. All that remains in the upper-right quadrant of our Sector Rotation Graph are defensive sectors, including Utilities, Staples, and Health Care.
This week the Utility sector has stood out and is among the few sectors in APAC that were positive through Thursday. We focus in on utility companies and provide those that look the best from our view. We highlight two on our Focus List, China Gas Holdings ( IWAI.HK; 384:HK ) and Enn Energy Holdings ( XINA.HK; 2688:HK ). Lastly, while markets are weakening, keep an eye on Focus List ideas that have RS near highs (listed at the bottom of every note). We look for these names to continue to lead the market should conditions turn around.
APAC Weekly Summary
We downgraded Mainland China, Hong Kong, and South Korea to a Downtrend this week ( see our note ). This shifts the majority of APAC market conditions bearish. It was an equally brutal week for the MSCI Asia, down 4% through Thursday and the farthest below its 200-DMA since 2016. The index’s momentum has clearly shifted to the downside as its A/D Rating has dropped to the worst possible (E). Furthermore, nearly all sectors are down over the last five trading days, with the worst performance coming from China and South Korea. Japan and India continue to hold up the best and top sectors in these markets were relatively the strongest this week.
In this week’s note, we reiterate our downgrade of China, Hong Kong, and South Korea and our increasing cautious outlook on APAC markets in general. We also highlight APAC’s strongest and weakest sectors this week. Last, we reiterate our bullish views on Page Industries ( PI1.IN ) and Kose ( OSEC.JP ).
Global Cyclical Sector – Automobiles
Some highlights from the report:
U.S.
U.S. auto manufacturers and components supplier groups continue to be in the bottom half of our Industry Group Rank percentiles.
Notable is Auto Manufacturers, which has improved mostly due to TSLA.
Auto Suppliers Long and Laggard Stocks of Interest
Long: LEA, GNTX, ALSN, CPS, MGA
Laggard: BWA, DAN, GT, CTB
U.S. RVs weak but trading at resistance: WGO, THO, LCII, REVG (removed from list)
EMEA
Focus List Names: CIE ( AFR.ES ) is clear leader, Plastic Omnium ( POM.FR ) consolidating, Stabilius ( STMX.DE ) consolidating.
Stocks of Interest: PGT.FR, RACE.IT
APAC
Majority of China ideas removed on technical weakness earlier in the year, still weak: GAG.HK, MINT.HK, NAGL.HK.
Only Chinese auto name on Focus List is Geely (MANR.HK), but it is under pressure.
In India, Maruti Suzuki (MUD.IN) is consolidating.
Stock of Interest – Mahindra & Mahindra (MAM.IN)
APAC Market Update
We are downgrading Mainland China, Hong Kong, and South Korea to a Downtrend and have provided our thoughts on each market in the attached note. Going forward, we recommend a defensive approach to buying stocks in these markets.
Asia Watch
Today’s must-reads in Asia, curated by O’Neil Research Analysts. Asia Watch. |
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| June 8, 2018 | Derek Higa 310.448.6910 |
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