Vermilion Int'l Compass: Global Equity Strategy
Sticking With Value; Buying Materials & IndustrialsMarket dynamics remain largely constructive and we are now seeing meaningful improvement within emerging markets (EEM-US) as the Hang Seng index displays bullish price and relative strength (RS) reversals. Meanwhile, Brent and WTI crude oil are hitting 8-year highs, base metals are bullishly inflecting, and critical supports are holding on the broad global indexes. Therefore, our global outlook remains neutral yet constructive, as we continue to expect more consolidation and mixed markets ahead.
Index Overview. Key support levels that we have been focusing on for months continue to hold. Important support levels we are watching include $54 on MSCI ACWI ex-US (ACWX-US), $76.50 on MSCI EAFE (EFA-US), and $99 on MSCI ACWI (ACWI-US). We will stay neutral overall until there is a breakout or breakdown in these indexes, at which point our outlook will go with the direction of the break.
Commodities, Emerging Markets/Hang Seng. Brent and WTI crude oil are hitting 8-year highs while base metals such as aluminum and copper are bullishly inflecting; this bodes well for the Materials Sector (more on this below). Additionally, last week (1/13) we pointed out that emerging market equities (EEM-US) display a bullish RS reversal relative to MSCI ACWI; there is now more evidence that EM is bottoming as the Hang Seng index displays bullish price and RS reversals -- add exposure. These are all important risk-on signals for global equities... see pages 2-3.
Buying Equities For Rising Rates: Materials & Industrials/Manufacturing. Sticking with the theme from last week when we recommended Energy and Financials, two more Sectors that stand to benefit from rising rates include Materials and Industrials/Manufacturing. We recommend adding exposure to these Sectors as we see a shift in favor of value Sectors... see chart below and pages 4-12 for individual stock recommendations.
Aalberts Industries is a technology company. As of Dec 31 2015, Co. is organized into four businesses: building installations, which produces and sells connection systems and valves to distribute and control water or gas in heating, cooling, drinking water, gas and sprinkler installations in residential, commercial and industrial buildings; climate control, which develops and produces complete hydronic systems-from source to emitter- for heating and cooling systems; industrial controls, which develops and produces regulation and control systems for selected niche markets; and industrial services, which provides a combination of material technology know-how and manufacturing capabilities.
Imerys is engaged in the production and the processing of minerals. Co.'s operations can be divided into four business groups: Minerals for Ceramics, Refractories, Abrasives and Foundry (minerals mainly for floor tiles, sanitaryware, porcelain, mobile energy as well as high-temperature and abrasive industries); Performance and Filtration Minerals (plastics, rubber, coatings, sealants and adhesives, health, beauty and filtration of nutrition liquids); Pigments for Paper (filler and coating products for paper) and Materials and Monolithics (construction materials in clay and slate and monolithic products and solutions for high-temperature industries).
Norsk Hydro is an aluminium group based in Norway. Co. is engaged in the supply of aluminium and aluminium products. Co. supplies casthouse products, such as extrusion ingots, sheet ingots and foundry alloys. Co's customers are active in sectors such as the packaging, lithographic, building, automotive and transport sectors. In addition, Co. is engaged in the production of power in Norway. Its business is divided into six operating segments: Bauxite & Alumina, Primary Metal, Metal Markets, Rolled Products, and Energy and Other and Eliminations.
Vermilion Research delivers timely, actionable, and unique research inputs to professional investors. Our research strategists highlight securities which we believe are at major inflection points, based on our various proprietary technical indicators, and offer asymmetric risk/return profiles. We believe our research methodology, which is not limited by industry sector or market capitalization, enables us to deliver superior investment recommendations.
Our process begins by organizing all actively traded stocks into coherent sectors, then into logical industry groups. We then apply our proprietary relative strength tools to identify developing price trends. Once attractive trends are identified within a selected sectors or groups, we screen for individual stocks which we believe offer the best risk/reward profile. Vermilion offers U.S. and global equity market research products. Vermilion’s research team, which has received numerous awards and accolades, has a combined 70 year of experience in the analysis of investment securities.
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