Report
Dave Nicoski ...
  • Ross LaDuke

Int'l Insights: EM Strategy

Highlighted themes and actionable charts:

• Emerging markets (MSCI EM) versus Developed international (MSCI EAFE). Recent USD strength has weighed on EM's relative performance. Given (1) strength in commodity prices (sans precious metals), (2) the potential for some backing-and-filling of the USD, and (3) MSCI EM price and relative strength support levels continuing to hold, we see recent weakness as a buying opportunity... see below, left

• Actionable countries. The MSCI BRIC index has reasserted its leadership status (see below, right) thanks primarily to a resurgent China which accounts for ~61% of the index. In addition to China, fellow BRIC countries Brazil and India exhibit attractive setups, while Chile's IPSA also presents opportunities... see pages 2-3

• Sector strength. Technology's leadership status remains intact - add exposure/maintain overweight. Fueled by strength in oil and industrial metals prices, Energy and Materials are outperforming. Add exposure... see page 4

• Bottom-up ideas. Today's report includes a wide variety of bottom-up recommendations, spanning most sectors and all market capitalizations... see pages 5-17

• Various Services stocks are breaking out to new multi-year price and/or relative strength highs, providing attractive entry points. Business Services stocks: NICE Information Service Co. (030190-KR) and WNS (Holdings) Limited ADR (WNS-US). Consumer Services stocks: China Lodging Group Ltd. ADR (HTHT-US) and China Travel International Investment Hong Kong Limited (308-HK).

• We highlight Transportation stocks (rails, shipping, and airlines) which continue to outperform. Attractive stocks: Airports of Thailand Public Co. Ltd. (AOT-TH), Cosan Logistica SA (RLOG3-BR), Yinson Holdings Bhd. (7293-MY), and Rumo SA (RAIL3-BR).
Underlyings
Alexandria Mineral Oils

Alexandria Mineral Oils Co SAE (AMOC) is an Egypt-based company that operates in the petroleum industry. The Company specializes in the production of essential mineral oils, paraffin wax and its derivatives, naphtha and butane, as well as distributes and markets them in Egypt and abroad. Its manufacturing facilities are spread over 500,000 square meters in the Salina area in Alexandria, and consist of two complexes: the Lube and Special Oils complex, which manufactures neutral oils, paraffin waxes, soft/slack waxes and aromatics, and the Maximization of Gas Oil complex, which manufactures gas oil, naphtha and liquid petroleum gas (LPG) for local consumption, waxy distillates, heavy residue and black oil for blending with exported fuel oil, and biological sulfur. The Company also operates four laboratories, and performs chemical analysis.

Anhui Conch Cement Company Limited Class H

Asia Cement Corporation

Asia Cement is engaged in manufacturing and distributing cement, clinker, cement products, ready-mixed concrete and ready-mixed concrete admixtures; extracting, producing and distributing gravel and raw materials; producing and distributing slag powder and limestone powder; import and export businesses; warehousing and assembly; afforestation operations; property investment, development, management, sales and leasing; commodities categorizing and warehousing; consultancy on cement know-how, turnkey design and planning of cement-making equipment, and general business administration; and waste treatment industry.

Asian Paints Ltd.

Asian Paints is engaged in manufacturing of a range of decorative paints, varnishes, enamels, and black & synthetic resins. Co., through its subsidiaries, also manufactures specialty industrial chemicals and vinyl pyridine latex products which are used in the manufacture of rubber tires.

Baidu Inc Sponsored ADR Class A

Bosideng International Holdings Limited

Bosideng International Holdings is an apparel company in the People's Republic of China with four core down apparel brands, namely Bosideng, Snow Flying, Combo and Bengen. Co.'s key non-down apparel brands include Bosideng MAN, JESSIE ladies' wear and Mogao casual wear. Co. has three reportable segments: down apparels, which carries on the business of sourcing and distributing branded down apparels; original equipment manufacturer (OEM) management, which carries on the business of sourcing and distributing OEM products; and non-down apparel, which carries on the business of sourcing and distributing non-seasonal apparels, including branded apparels of menswear, ladieswear and casual wear.

Bradespar S/A Ord

CD Projekt S.A.

CD Projekt is a holding company of the CD PROJEKT Capital Group which conducts its operations in two activity segments: CD PROJEKT RED and GOG.com. CD PROJEKT RED's activities cover the creation and publication of videogames, licensing the associated distribution rights and manufacturing tie-in products which exploit the commercial appeal of brands owned by Co. The activities of GOG Ltd. involve digital distribution of videogames via Co.'s proprietary GOG.com distribution platform, on the basis of contracts signed by GOG Ltd. with producers, IPR holders and external publishers. The platform enables customers to purchase games, remit payment and download game files to their personal devices.

China Lodging Group ADS (N Shares)

China Travel International Investment Hong Kong Limited

China Travel International Investment Hong Kong is an investment holding company. Co.'s segments include: travel agency and related, which provides travel agency and related services; tourist attraction, which includes theme parks, scenic spots, cable car systems, skiing facilities and resorts hotel; hotel, which provides hotel accommodation, food and beverage services; passenger transportation, which provides cross-border transportation services, vehicle rental and charter operations; golf club, which provides facilities to members of its golf club; arts performance, which engages in arts performances; and power generation, which engages in the generation of electricity.

CNOOC Limited

Cnooc is an investment holding company. Through its subsidiaries, Co. is principally engaged in the exploration, development, production and sale of crude oil, natural gas and other petroleum products in offsore of the People's Republic of China. Co.'s core operation areas are Bohai, Western South China Sea, Eastern South China Sea and East China Sea in offshore China. Co. has oil and gas assets in Asia, Africa, North America, South America, Oceania and Europe. As of Dec 31 2016, net proved reserves for oil, gas, and synthetic oil were 2,015.4 million barrels, 7,486.1 billion cubic feet, and 7,486.1 million barrels, respectively.

Cosan Logistica SA

Cosan Logistica SA, also known as Cosan, is a Brazil-based company engaged in the rail transport business sector. The Company's portfolio includes businesses in logistics, distribution of gas and fuels, energy cogeneration, production of sugar and ethanol, production and distribution of lubricants and base oils, and land management. The Company offers freight trucks transporting cargo at the clients' plants, owns plants producing sugar, ethanol and electricity from biomass, which is sold via the sea freight. Sugar and ethanol for exportation reach port terminals by trucks, pipes and railway. Cosan has numerous subsidiaries from contracts with the Brazilian National Development Bank (BNDES).

Edelweiss Financial Services

Edelweiss Financial Services Limited. Edelweiss Financial Services Limited is a holding company. The Company is engaged in providing investment banking and advisory services, and holding activities/investments. The Company's segments include Agency business, Capital based business and Life Insurance. Its Agency business segment is engaged in providing broking, advisory, product distribution and other fee-based services. Its Capital based business segment includes income from treasury, investment income and financing. Its Life Insurance segment represents results of Edelweiss Tokio Life Insurance Company Limited, a subsidiary of the Company. The Company classifies its business into three groups: credit, non-credit and insurance. Its credit business includes structured collateralized credit, distressed assets credit, real estate finance, mortgages, and small and medium-sized enterprises (SME) and agri financing. Its non-credit business consists of wealth management, asset management and capital markets.

Empresas Copec S.A.

Empresas COPEC SA is a Chile-based holding company engaged, through its subsidiaries, in the energy and natural resources sectors. The Company's operations are structured into four business sectors: the Forestry Business. Fuels Business, Fishing Business and Other Investments. The Company operates in the forestry business through its affiliate Arauco, which produces wood pulp, panel and sawn lumber. The Company's fuel business is focused on the liquefied fuels, lubricants, and liquefied petroleum gas and natural gas markets. The Company operates in the fishing business through its affiliate Pesquera Iquique - Guanaye, which produces fishmeal, fish oil, canned and frozen seafood for human consumption. The Company has productive platforms in Argentina, Brazil, Canada, Colombia, the United States and Uruguay. On April 11, 2014, the Company with Inversiones Ultraterra Ltd sold their total stake in Empresa Electrica Guacolda to AES Gener.

Enauta Participacoes SA

QGEP Participacoes SA, formerly known as Latina Participacoes SA, is a Brazil-based company principally engaged in the oil and gas industry. The Company operates through single segment: Oil and gas exploration and production, which focuses on the exploration, production, industrial processing and marketing of crude oil, natural gas and its derivatives. The Company holds interests in exploration and production concessions located in the offshore Brazilian continental margin. Its asset localizations include various basins, such as Santos, Espirito Santo, Camamu-Almada, Camamu-Almada, Pernambuco-Paraiba, Ceara and Foz do Amazonas. The Company operates through Queiroz Galvao Exploracao e Producao SA and QGEP Internacional GmbH, among others. The Company is a subsidiary of Queiroz Galvao SA.

Eregli Demir ye celik Fabrikalari T.A.S.

Eregli Demir Ve Celik Fabrikalari is engaged in the production of iron and steel rolled products, alloyed and non-alloyed iron, steel and pig iron castings, cast and pressed products, coke and their by-products.

Fang Holdings Limited Sponsored ADR Class A

Far Eastern New Century Corporation

Far Eastern New Century is engaged in manufactures and sells polyester materials, semi-finished products and finished goods such as cotton, synthetic or blended fabrics, towels and bed sheets, and woven and knitted garments; PET (polyethylene terephthalate) bottles and PET sheets; and natural, synthetic or blended yarns and polyester textured yarns. Co. is also engaged in yarn, silk and cloth printing and dyeing as well as manufactures wide-view film, antiglare film, antireflection film and other optical films. Co. operates principally in five segments: polyester, spinning, weaving and dyeing and apparels; real estate development; investment; telecommunications; and construction.

Fibria Celulose S.A.

Fibria Celulose is a pulp and paper products company and a producer of wood-free printing and writing papers and specialty papers. Co. produces bleached eucalyptus kraft pulp (BEKP), which is a variety of hardwood pulp. Co. sells BEKP to both the Brazilian domestic and export markets. In addition to selling its pulp production to third parties, Co. uses its pulp production internally to manufacture a range of printing and writing paper products, including coated and uncoated printing and writing papers, thermal papers, carbonless papers and other specialty papers.

Formosa Chemicals & Fibre Corporation

Formosa Chemicals & Fibre is engaged in the manufacture and sales of petrochemical products including purified terephthalic acid, polystyrene, butadiene, stryene monomer ("SM"), SM polymer, benzene, toulene, p-xylene, o-xylene, nylon fiber and rayon staple fiber. Through its subsidiaries, Co. is also engaged in the manufacture and sales of rayon-grade wood pulp, machinery for chemical fibers, other industrial-grade chemical products and processed goods; spinning, weaving, dyeing and finishing of chemical fibers; water treatment; cable and machine installation; and import and export of aforementioned products and materials.

Gerdau Ord

HEG
HEG

HEG Limited is engaged in manufacturing of graphite electrodes, which are used by manufacturers of steel. The Company's segments include Graphite, Power and Unallocable items/others. The Company operates single site plant of Graphite Electrodes with a production capacity of approximately 80,000 metric tons (MT) per annum. The Company offers High Power and Ultra High power electrodes. Its graphite division has facilities for production of Graphite Electrodes and Graphite Specialties, and the plant is located at Mandideep near Bhopal (Madhya Pradesh). The Company also operates approximately three power generation facilities with a total rated capacity of over 77 megawatt (MW). Its power plants are located in Tawanagar, District Hoshangabad, Madhya Pradesh, and it also operates approximately 12.8-MW waste heat recovery power plant in District Durg, Chhattisgarh. The Company also offers carbon specialties, such as Activated Carbon Fabric (ACF), Carbon Blocks and Graphite Specialities.

Hexaware Technologies

Hexaware is a global provider of IT and Process outsourcing services. Co. focuses on maximizing client returns from outsourcing and off-shoring. Co. manages IT applications in real time as well as providing high value services around packaged enterprise applications such as SAP and PeopleSoft. Co. maintains operations in business process outsourcing arena. Co.'s solutions aim to provide value by optimising cost of ownership of technology investments for customers. Co. maintains a client base comprising several Global 1000 organizations. Co.'s global operations are located in North America, Europe and Asia Pacific.

Hong Kong Exchanges & Clearing Ltd.

Hong Kong Exchanges and Clearing is an exchange controller under the Securities and Futures Ordinance. Co. operates recognised stock and futures markets in Hong Kong. Co. also operates Hong Kong Securities Clearing Company Limited (HKSCC), HKFE Clearing Corporation Limited (HKCC), The SEHK Options Clearing House Limited (SEOCH) and OTC Clearing Hong Kong Limited (OTC Clear). HKSCC, HKCC and SEOCH provide clearing and settlement services, while OTC Clear provides OTC interest rate derivatives and non-deliverable forwards clearing and settlement services. Co.'s operating segment include: cash, equity & financial derivatives, commodities, clearing, and platform & infrastructure.

JSW Steel Limited

JSW Steel Limited is a holding company. The Company is engaged in the business of production and distribution of iron and steel products. Its segments include Steel; Power (used mainly for captive consumption), and Others, which includes cement, mining and construction activities. Its product portfolio in flat and long steel products includes hot rolled (HR) coils, sheets and plates; cold rolled coils and sheets; galvanized products; galvalume products; non-grain oriented electrical steel (CRNGO); pre-painted galvanized products (color coated sheets/coils); pre-painted galvalume products; wire rods; special steel bars/wires; rounds and blooms, and angles. Its color coated products include JSW Pragati, JSW Colouron and JSW Colouron+. Its galvanized products include JSW Vishwas and GALVOS. It has plants in over six locations in India, including Vijayanagar in Karnataka, Salem in Tamil Nadu, and Tarapur, Vasind, Kalmeshwar and Dolvi in Maharashtra.

KEI Industries

Kei Industries is a cable and stainless steel wire manufacturing company based in India. Co.'s operations are organized along two business lines: the Cables business line, which is engaged in the manufacturing of cables for diverse applications such as power, control, instrumentation, Thermocouple, winding cables, etc.; and the Stainless Steel Wires business line which is engaged in the production of stainless steel wire in various gages for use in industries such as Engineering, Chemical, and Construction with applications such as Weaving & Braiding, Knitting Wire, Cold Heading, Scrubber Wire, Spring Wire and others.

Metalurgica Gerdau S/A Ord

Multiexport Foods

Multiexport Foods is engaged in the investment in all types of business and activities related to aquiculture, the sale, marketing, distribution, import and export of hydro-biological species and the business related to the management and consulting services of aquiculture activities.

Novolipetsk Steel

Novolipetsk Steel is a vertically integrated steel manufacturing and production group based in Russia. Co. specializes in the manufacturing of high-quality hot and cold rolled steel in a variety of grades and sizes. Co. is also engaged in production and sales of flat steel products including slabs, hot rolled and cold rolled sheet, electrical steel, galvanized steel, cold rolled sheet with polymeric coatings. In addition, Co.'s areas of manufacturing include sintering, coke production, blast furnace production, steel-making, hot and cold-rolled flat steel production, galvanized and prepainted steel production. Co. exports its products to 70 countries around the world.

PETRONAS Chemicals Group Bhd.

Petronas Chemicals Group is an investment holding company, engaged in producing and marketing a range of chemical products. Co.'s products include olefins, glycols and derivatives, polymers, aromatics and methyl tertiary butyl ether, methanol, and ammonia and fertilizer. Co.'s segments comprised of: Olefins and Derivatives, which manufactures and markets olefin and polymer products, used as basic feedstock for other products, to intermediate products including basic and high performance chemicals; Fertilizers and Methanol, which manufactures and markets methanol and a range of nitrogen, phosphate and compound fertilizers; and Others, which supports the petrochemicals' business operations.

PPC Ltd

PPC operates cement, lime, aggregates and readymix and other. Co.'s core activities comprised of: Exploration, which is involved in source and secure limestone deposits; Procurement, which is involved in other input materials, consumables and equipment; Mining, which is involved in extracting limestone and deliver to factory; Manufacturing, which is involved in converting limestone into cement/lime; Distribution, which is involved in facilitating transport of cement to customers in bulk and bag format; Sales, which is involved in executing customer orders; and Marketing, which is involved in building brand value.

PT Bukit Asam Tbk

PT Bukit Asam (Persero) is engaged in coal mining activities, including general surveying, exploration, exploitation, processing, refining, transportation and trading; maintenance of coal port facilities for internal and external needs; operation of steam power plants for internal and external needs and providing consulting services related to the coal mining industry as well as its derivative products, and plantations development. Co. also has other business segments, which are briquette processing, palm plantation, and palm processing.

PT Indah Kiat Pulp & Paper Tbk

Indah Kiat Pulp and Paper Tbk PT. PT Indah Kiat Pulp & Paper Tbk is an Indonesia-based company operating in the pulp and paper industry. The Company's major business activities are categorized into two segments, namely Paper and pulp products and Packaging products. The Paper and pulp products segment consists of generic paper products and pulp, while the Packaging products segment comprises linerboard, corrugating medium, corrugated shipping containers and boxboards, together with related chemical byproducts. The Company operates production facilities in Perawang in Riau Province, as well as in Serang and Tangerang in Banten Province, Indonesia. Its products are distributed in both domestic and various foreign markets in Asia, Europe, the Middle East, America, Africa and Australia. Some of PT Indah Kiat Pulp & Paper Tbk's subsidiaries are PT Graha Kemasindo Indah, PT Paramitra Abadimas Cemerlang, PT Paramitra Gunakarya Cemerlang and PT Indah Kiat Global Ventura.

Rumo SA

Rumo SA, formerly ALL America Latina Logistica SA, is a Brazil-based company primarily engaged in the transport and logistics sector. The Company's activities are divided into three business segments: North operations, which includes railway concessions hold by ALL Malha Norte and ALL Malha Paulista; South operations, which comprises railway concessions hold by ALL Malha Sul and ALL Malha Oeste, and Container operations, which focuses on the railway freight transportation of containers. The Company offers transportation of agricultural commodities, fuel and final goods, intermodal freight transport, integrated warehousing services, port operations and handling of merchandises, among others. In addition, it develops logistics projects for newly created businesses in the industrial and agricultural commodities industry.

Samsung Electro-Mechanics Co. Ltd

Samsung Electro-Mechanics manufactures, markets and distributes devices, parts and components. These are parts and components for mobile communications, computer components and peripherals, materials, general and industrial use, optical/thin film and audio and video. Co.'s products consists of flyback transformers, radio frequency modulators, low noise block-down converters, VCR drums, VCR heads, VCR drum motors, electronic tuners, multi-layer ceramic capacitors, deflection yokes, RF-units, high voltage capacitors, speakers, decks, keyboards, switching mode power supplies, floppy disc drives, CD-decks, and broadcasting satellite receivers.

Sunny Optical Technology (Group) Co. Ltd.

Sunny Optical Technology Group is an optical manufacturing group based in Hong Kong. Co. is engaged in the design, research and development, manufacture and sales of optical and optical-related products. These products include optical components (such as glass spherical and aspherical lenses, plane products, handset lens sets, vehicle lens sets and other lens sets), optoelectronic products (such as handset camera modules, smart television video modules, security surveillance cameras and other optoelectronic modules) and optical instruments (such as microscopes, optical measuring instruments and various optical analytical instruments).

Taiwan Union Technology

Taiwan Union Technology Corporation is a Taiwan-based company mainly engaged in the production and distribution of materials of printed circuit boards (PCBs). The Company mainly operates through two business segments, including Taiwan Union Technology Corporation segment, as well as Mainland China and Subsidiaries segment. The Company mainly provides copper clad laminates (CCLs), prepregs, mass laminates and others. The Company distributes its products primarily within the domestic market and to overseas markets, including the rest of Asia and other areas.

TATNEFT PJSC

Tatneft PJSC and its subsidiaries are engaged in crude oil exploration, development and production principally in the Republic of Tatarstan, Russia. Co. is a holding structure, which incorporates oil and gas production boards, crude oil and gas refining companies, as well as enterprises and servicing works selling the crude oil and also the products of crude oil and gas refining and petrochemical products. In addition to this, Co. is also participating in the banking and insurance activities. Co.'s operations are divided into the following main segments: Exploration and Production; Refining and Marketing; and Petrochemicals.

Want Want China Holdings Limited

Want Want China Holdings is an investment holding company. Through its subsidiaries, Co. is engaged in the manufacturing, distribution and sale of rice crackers, dairy products and beverages, snack foods and other products. Co.'s activities are primarily conducted in the People's Republic of China, Taiwan, Japan, Singapore and Hong Kong. Co. produces and markets its products under the Want Want brand. As of Dec 31 2014, Co.'s operations are mainly organized into four business segments, including manufacturing and sale of: rice crackers, dairy products and beverages, snack foods and other products.

WEG S.A.

Weg is a holding company. Through its subsidiaries, Co. is engaged in the production and trade of capital goods such as electric motors, generators and transformers; gear units and geared motors; frequency converters; motor starters and maneuver devices (circuit breakers); control and protection of electric circuits and industrial automation; electric traction solutions (land and sea); solutions for the generation of renewable and distributed energy; no-breaks and alternators for groups of generators; electric substations; industrial electrical and electronic equipment systems; and industrial paint and varnish. Co. operates in three segments: industry, energy, and foreign.

WNS (Holdings) Limited Sponsored ADR

Xinyi Solar Holdings Ltd.

Xinyi Solar Holdings is an investment holding company. Through its subsidiaries, Co. is principally engaged in the production and sale of solar glass products, which are carried out internationally, through the production complexes located in the People's Republic of China (the "PRC"). In addition, Co. is also engaged in the development and operation of solar farms and the provision of engineering, procurement and construction services in the PRC. Co.'s solar glass products mainly include ultra-clear PV raw glass and other PV processed glass such as ultra-clear PV tempered glass, ultra-clear PV anti-reflective coating glass, back glass and others.

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

Ross LaDuke

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