Report
Dave Nicoski
EUR 220.94 For Business Accounts Only

Int'l Macro Vision: Global Equity Strategy

Big-Picture Themes:

You can't keep a good rally down. Punctuating an otherwise bullish narrative, negative headlines have had little impact on the global advance, producing sell-offs with short half-lives: corruption in Brazil?—the Bovespa has snapped back, now on the doorstep of multi-year highs; a second-half slowdown in China?—the Shanghai composite continues to plod higher, to say nothing of the vertical rallies in US- and Hong Kong-listed shares; threat of nuclear escalations with North Korea?—South Korea's largest, publicly-traded bank breaks out to multi-year highs. The response of equities is telling.

With that bullish backdrop in mind, one big-picture theme stands out: rotation into emerging markets. While Europe, the media's darling trade, crowds headlines, EM is topping the YTD leader board, producing a transition in leadership, from developed international to emerging. Exhibit A: the emerging/developed ratio (MSCI EM/EAFE; below). This ratio is breaking out from a bottoming pattern topside a 19-year trendline. Accordingly, we (still) recommend an EM overweight.

And what's good for EM is good for global materials stocks. The sector's relative strength trend agrees, producing a bullish inflection of its own, largely a product of improving mining stocks. Over the past ten years, this relative strength trend has shared a strong, positive correlation with the above-mentioned EM/developed ratio (corr. coefficient: 0.88). Further tailwinds are visible in: (1) China's improving technicals; (2) snap-back rallies in Brazil; (3) breakouts in base metals; and (4) bottoms in commodity currencies. In the following pages we expand upon this theme, highlighting actionable names.

In short, top-down and bottom-up technicals continue to articulate a bullish outlook. Stay the course.

Actionable Highlights:

• Materials Sector: An emerging leader. Led by a recovery in mining stocks, the global materials sector is strengthening, and a number of tailwinds support a bullish outlook, ranging from bottoms in commodity currencies to breakouts in base metals. Chemicals are another pocket of leadership.

• Tech Sector: Tech's tenure as a global leader remains intact. Though many trends are uncomfortably extended, the sector has revealed no signs of weakening. Stick with this trend.

• Financial Sector: Short-term weakness is providing widespread pullback opportunities in global financial stocks, especially in the U.S., EM, and Europe. In the latter, we particularly like French banks, where names like Credit Agricole (ACA-FR) and BNP Paribas (BNP-FR) are breaking out from 9-year base patterns. One exception to this sector's strength: Japanese banks, which continue to churn sideways.

In the attached strategy document we expand upon these three themes and highlight developments in EM, Europe, and Japan.

For a trial to Vermilion Technical Research call (952) 922-7500, or visit our website at: www.vermilioncap.com
Underlying
Alcoa Corporation

Alcoa is a vertically integrated aluminum company comprised of bauxite mining, alumina refining, aluminum production (smelting, casting, and rolling), and energy generation. Through direct and indirect ownership, the company has 30 operating locations in nine countries around the world, situated primarily in Australia, Brazil, Canada, Iceland, Norway, Spain, and United States.

Provider
Vermilion Research
Vermilion Research

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.

Analysts
Dave Nicoski

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