Vermilion Int'l Compass: Global Equity Strategy
Japan and Europe Holding Below ResistanceOur outlook remains neutral on global equities (MSCI ACWI) as of our August 8, 2024 Int'l Compass, after being bullish since early-November 2023. In late-July (7/25/24 Int'l Compass) we discussed expectations for a 1- to 4-month pullback/consolidation period on MSCI ACWI (ACWI-US), and we believe it seems likely to last closer to four months, and potentially 4- to 6-months from our selected 7/17/24 starting point, until the market decides which way this consolidation resolves. Broad global MSCI indexes (local currency) including the ACWI, ACWI ex-U.S., EAFE, and EM all remain below resistance from their YTD highs, making this an ideal time to reduce exposure or shift to defensives.
Remain Overweight the U.S. Our only country overweight is the U.S. (S&P 500).
Japan and Europe. Japan's TOPIX, Nikkei 225, and TOPIX Small indexes all look like they are topping. Broadly speaking, we would avoid broad exposure to Japan and sell on this rally as long as the TOPIX is below 2740-2820 resistance. Europe has continued to consolidate, and we would sell on rallies as long as the EURO STOXX 50, STOXX Europe 600, and STOXX Europe 50 all remain below their respective resistance levels. It is hard to get too excited about global equities (MSCI ACWI) when two of the largest weightings (Europe and Japan) are stuck in consolidation... see charts below and page 2.
China/Hong Kong Improvement. China and Hong Kong indexes show a sharp rally following recently-announced stimulus measures. With that said, the Hang Seng is already testing resistance at 19,706, and the Shanghai Composite and CSI 300 are still below their respective 200-day MAs. We need to see more signs of a reliable bottom before recommending China/Hong Kong more broadly.
Risk-Off Signals. WTI and Brent crude oil remain in multi-month downtrends and are below $72-$73 and $75-$76 resistances, respectively. Defensive Sectors continue to generally outperform; Utilities, Real Estate, and Telecommunications have emerged as our favorites as Health Care and Staples have recently pulled back in terms of relative strength.
Actionable Themes: Utilities, Real Estate, Consumer Discretionary, and Materials. We continue to recommend shifting exposure to global defensive Sectors, which has been our primary focus for the past three months. Defensive Sectors (Utilities, Telecommunications, Health Care, and Consumer Staples) remain our primary focus in terms of Sector and individual stock recommendations... see pages 3-21.
Canadian Utilities is an ATCO Ltd. company. The Structures and Logistics Business Unit provides workforce housing, modular facilities, construction, site support services, and logistics and operations management. The Electricity Business Unit provides power generation, electricity distribution and transmission, and related infrastructure services. The Pipelines and Liquids Business Unit provides complementary products and services that enable them to deliver natural gas transmission and distribution services, energy storage, and industrial water solutions to customers. ATCOenergy provides retail, commercial and industrial electricity and natural gas service in Alberta.
Fortis is principally an international electric and gas utility holding company. Co. also holds investments in non-regulated generation assets. Co.'s business segments are: Regulated Electric & Gas Utilities - United States; Regulated Gas Utility - Canadian; Regulated Electric Utilities - Canadian; Regulated Electric Utilities - Caribbean; Non-Regulated - Fortis Generation; Non-regulated - Non-Utility; and Corporate and Other. Its regulated utilities served more than 3.0 million customers across Canada and in New York State and the Caribbean. Co. also holds investments in non-regulated generation assets in Canada and Belize, through Fortis Generation.
Iberdrola is a holding company. Through its subsidiaries, Co. operates in four segments: network business, which includes all the energy transmission and distribution activities, and other regulated activity originated in Spain, the U.K., the U.S. and Brazil; deregulated business, which includes electricity generation and sales businesses as well as gas trading and storage businesses carried on by Co. in Spain, Portugal, the U.K. and North America; renewable business, with activities related to renewable energies in Spain, the U.K., the U.S. and the rest of the world; and other businesses, including the engineering and construction businesses and the non-power businesses.
Iren is a multiutility company in Italy. The segments in which Co. operates are: Generation and District Heating (hydroelectric energy, co-generation of electrical energy and heat, district heating network and production from renewable sources); Market (sale of electrical energy, gas, heat); Energy Infrastructures (electricity distribution networks, gas distribution networks, liqified and natural gas regasification plants); Integrated Water Service (sale and distribution of water, water treatment and sewerage); Waste Management (waste collection and disposal); and Other services (telecommunications, public lighting, global services and other minor services).
NTPC owns and operates power generation plants that supply power to state electricity boards throughout India. Co. also offers consultancy services related to infrastructure sector business such as: Fossil fuel based thermal power plants; Combined cycle power plants; Cogeneration plants; Water supply and treatment and Environment engineering and management. Co. runs a Power Management Institute (PMI), at NOIDA. PMI has over the years trained a number of professionals from Co., State Electricity Boards and other power utilities in the country. Also, participants in PMI programmes have come from various South Asian and Middle Eastern countries.
Pilgrims Pride is primarily engaged in the production, processing, marketing and distribution of fresh, frozen chicken products to retailers, distributors and foodservice operators. The company's primary product types are fresh chicken products, prepared chicken products and export chicken products. The company's fresh chicken products consist of refrigerated (nonfrozen) whole or cut-up chicken, either pre-marinated or non-marinated and prepackaged case-ready chicken. The company's case-ready chicken includes various combinations of freshly refrigerated, whole chickens and chicken parts in trays, bags or other consumer packs labeled and priced ready for the retail grocer's fresh meat counter.
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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