Report
Dave Nicoski ...
  • Ross LaDuke

Global Equity Strategy

Global equities (MSCI ACWI) are testing 52-week lows as prices have been consolidating over the last 1-2 months. Investors' primary sources of angst continue to revolve around concerns of (1) the global shift toward tighter monetary policy and the potential for perceived policy missteps, (2) trade and tariffs, and (3) the potential negative effects both (1) and (2) may have on global growth. Comments from Fed Chair Powell that interest rates are “just below” the neutral rate and the 90-day tariff ceasefire agreement between the U.S. and China have not been able to calm the markets. In Europe, Brexit uncertainty adds another layer of concern, causing the STOXX Europe 600 to break down below the critical 350 support level to 2-year lows.

Absent any real clarity on the aforementioned concerns, our outlook for global equities remains extremely cautious and we expect downward consolidation to continue. Equity prices will need to show signs of bottoming in order for this outlook to change.

In our December International Strategy, we explore various themes which lead to our cautious outlook, along with areas of the market where we see opportunity.

Themes leading to our cautious outlook:

• Most major indexes remain unattractive from a price perspective.

• The 10-2 year U.S. Treasury yield spread is moving toward inversion and U.S. high yield spreads over Treasuries are breaking out. Such developments have historically been precursors to recessions.

• Defensive Sectors remain leadership.

Areas of the market where we see opportunity:

• Defensive Sectors Consumer Staples, Communications, Health Care, and Utilities contain many attractive setups.

• China is showing early signs of bottoming, both in terms of price and RS. This is not something we would expect to see amid weak global markets.
Underlyings
Alibaba Group Holding Ltd. Sponsored ADR

As One Corp.

As One is mainly engaged in the wholesale of scientific equipment and apparatuses. Along with its subsidiaries, Co. operates in two business divisions: research and industrial equipment, and hospital and nursing care. Co. is involved in the wholesale of equipment and apparatuses used by researchers and technicians to scientific equipment dealers, the provision of product catalogs to dealers including the import and sale of laboratory apparatuses; and the wholesale of equipment and apparatuses used by nurses and nursing care professionals to medical and nursing care institutions.

AstraZeneca PLC

AstraZeneca is a holding company. Through its subsidiaries, Co. operates as a biopharmaceutical company engaged in discovering, developing, manufacturing and commercializing its pipeline of small molecule and biologic prescription medicines, including targeted business development through collaboration, in-licensing and acquisitions. Co. is focused on three main therapy areas: Oncology, Cardiovascular and Metabolic Diseases, and Respiratory. Co. is also selectively active in autoimmunity, infection and neuroscience. In addition, Co. works across small molecules, oligonucleotides and other drug platforms, as well as biologic medicines.

BCE Inc.

BCE is a telecommunications and media company providing wireless, wireline, Internet and television (TV) services to residential, business and wholesale customers in Canada. As of Dec 31 2017, Co. operated three segments: Bell Wireless, which provides wireless voice and data communications products and services; Bell Wireline, which provides data, Satellite TV service and connectivity, and includes Co.'s wholesale business, which buys and sells local telephone, long distance, data and other services from or to resellers and other carriers; and Bell Media, which provides conventional, specialty and pay TV, digital media and radio broadcasting services and out of home advertising services.

Belc

Belc is a food retailer engaged in the operation of supermarket chain stores mainly in Saitama prefectures and the Tokyo metropolitan area in Japan. As of Feb 28 2017, Co. operates 99 stores. Co. provides a wide variety of food products including perishables, such as vegetables, fruits, seafood and meat, processed food, deli products, baking goods, confectionery, as well as general merchandises. In addition, Co., through its subsidiaries, is engaged in the manufacture and sale of deli products to Co.'s supermarkets, the supply of materials and other products, and the provision of cleaning stores for its stores and related facilities.

BT Group plc

BT is a communications services company, delivering products and services with industry-specific communications solutions and consulting expertise. Co.'s principal activities include: networked IT services; local, national and international telecommunications services; broadband and internet products and services; and converged fixed/mobile products and services. Co. operates five lines of businesses: BT Global Services, BT Business, BT Consumer, BT Wholesale and Openreach, providing services to around 6,500 large corporate and public sector customers, in more than 170 countries worldwide.

China Merchants Bank Co. Ltd. Class H

China Mobile Limited

China Mobile and its subsidiaries are engaged in the provision of mobile telecommunications and related services principally using the Global System for Mobile Communications standard and the Time Division Synchronous Code Division Multiple Access standard. In addition, Co. provides its customers with internet access through wireless local area networks. Co. also develops and carries its 4G business based on the TDD mode long-term evolution technology. As of Dec 31 2013, Co. had approx. 767,200,000 customers in all 31 provinces, autonomous regions and directly-administered municipalities in the People's Republic of China as well as in Hong Kong.

China Railway Construction Corporation Limited Class A

China Railway Construction and its subsidiaries are engaged in the construction of infrastructure; the provision of survey, design and consultancy services; the design, research and development, production and sale of large track maintenance machineries and components for railway construction; the real estate development; and the provision of logistics services. Co.'s business covers the 32 provinces (cities), autonomous regions, Special Administrative Regions in China (excluding Taiwan) as well as 45 foreign countries and regions in the world.Hubei Wanjia Real Estate Development Limited40Other Business Operations

China State Construction Engineering Corp. Ltd. Class A

China State Construction Engineering Corporation Limited is a China-based company principally engaged in the engineering contracting businesses. The Company's main businesses include the construction contracting of buildings, infrastructure construction and investment, real estate development and investment, electricity, energy exploitation, survey and design, as well the municipal utility design services. The Company mainly operates its businesses in domestic and overseas markets.

Deutsche Telekom AG

Deutsche Telekom is engaged in the telecommunications services and information technology sectors. Co. operates as an integrated telecommunications provider. It is organized into four operating segments: Germany, Europe, and the United States; and Systems Solutions, as well as Group Headquarters and Shared Services. Co. provides fixed-network lines, broadband lines and mobile communications. Co. also provides customized Information and Communication Technology (ICT) solutions for corporate customers under the T-Systems brand. The Group Headquarters and Shared Services segment comprises cross-segment management functions, real estate services, and mobility solutions, among others.

Electricite de France SA

Electricite de France is an integrated energy company with a presence in a range of electricity-related businesses: nuclear, renewable and fossil-fuel fired energy production, transmission, distribution, marketing as well as energy management and efficiency services, along with energy trading. Co. is an integrated energy company engaged in all aspects of the energy business: generation, transmission, distribution, supply and trading of energies. Co. is an electricity operator in France and abroad. The breakdown used by Co. for its activities is as follows: France; United Kingdom; Italy; Other International; and Other activities.

Fuji Oil Holdings Inc.

FUJI OIL HOLDINGS INC. is mainly engaged in the oil and fat business, among others. The Company operates in three segments. The Oil and Fat segment provides purified oil based on coconut oil, palm oil and palm kernel oil, as well as oil and fat for chocolate. The Confectionery and Baking segment provides chocolates, cream, shortening, and processed dairy products. The Soy Protein segment provides soy protein products, processed soy protein food products and soymilk.

Guangdong Investment Limited

Guangdong Investment is engaged in investment holding, water resources, property holding and investment, hotel ownership and operation, hotel management, department store operations and investments in infrastructure and energy projects. Co. segments include: property investment and development, department stores, water resources, electric power generation, hotel operations, toll roads and bridges, and others.

J-Oil Mills Inc.

J-Oil Mills Inc is a Japan-based company mainly engaged in the manufacture and sale of edible oils and fats. The Fats and Oils segment mainly manufactures, processes and sells fats and oils and meals. The Processed Fats and Oils segment manufactures, processes, and sells margarine and powdered fats and oils. The Food and Fine Products segment mainly manufactures, processes and sells starch and chemicals. The Company is also involved in the provision of services include real estate leasing.

Kikkoman Corporation

Kikkoman is a holding company engaged in the manufacture and sale of soy sauce and food products. Domestic Foods Manufacturing and Sales segment manufactures soy sauce, foods products, beverages and liquor including soy sauce, Tsuyu (soy sauce soup base), seasoning mixes, Del Monte seasonings and beverages, soy milk beverages and wines in the domestic market. Domestic Others segment is engaged in the biochemical, chemical and logistics businesses. Overseas Foods Manufacturing and Sales segment offers soy sauce, Del Monte products and healthy foods in overseas markets. Overseas Foods Wholesales segment is engaged in the purchase and sale of oriental foods in domestic and overseas markets.

Kyushu Electric Power Company Incorporated

Kyushu Electric Power is an electric company engaged in the generation, transmission and distribution of electric power mainly in the Kyushu Region with 78,619 million kWh of electricity sales as of Mar 31 2017. Co. is also engaged in the research, design, construction and supervision of electric and civil engineering construction work, the environment protection for power plants; the sale of electric machine tools, natural uranium, gas and LNG; the new energy generation and heat supply businesses; the data communication, broadband, fixed phone and IT related businesses; the environmental, recycling, real estate, housing and nursing care businesses.

Muyuan Foods Co. Ltd. Class A

Muyuan Foods Co.,Ltd. is a China-based company principally engaged in the breeding and distribution of pigs. The Company's main products consist of piglets, boars and commodity pigs. The Company operates its business mainly through feedstuff processing, hog breeding, boar breeding and commodity pig feeding. The Company operates its business in domestic market.

Novartis AG

Novartis is a multinational healthcare group based in Switzerland. Co. provides healthcare solutions that address the evolving needs of patients and societies worldwide. Co.'s broad portfolio includes innovative medicines, eye care products and cost-saving generic pharmaceuticals. Co.'s operations are organized along three operating divisions: Innovative Medicines Division; Sandoz Division; and Alcon Division. Co.'s operations are supported by the Novartis Institutes for BioMedical Research and Novartis Business Services.

Orsted

Orsted is a renewable energy company based in Denmark. Co. is engaged in developing a renewables portfolio based on competences in offshore wind, bioenergy, and energy solutions. Co. is active in deploying offshore wind and converting existing coal- and gas-fired power stations to sustainable biomass, providing a heat and power supply which is both green and flexible. Co. divides its operations into four businesses: Wind Power, Bioenergy & Thermal Power, and Distribution & Customer Solutions. The Bioenergy & Thermal Power and Distribution & Customer Solutions businesses jointly constitute Co.'s Danish utility business. Co. maintains activities primarily in Northwestern Europe.

Rogers Communications Inc. Cl A

Sanofi

Sanofi is an integrated, global healthcare company focused on patient needs and engaged in the research, development, manufacture and marketing of healthcare products. Two segments make up Co.'s business: Pharmaceuticals and Vaccines. The Pharmaceuticals segment covers research, development, production and marketing of medicines, consisting of flagship products, plus a broad range of prescription medicines, generic medicines, and consumer health products. The Vaccines segment includes research, development, production and marketing of vaccines in five areas: pediatric vaccines, influenza vaccines, adult and adolescent booster vaccines, meningitis vaccines, and travel and endemic vaccines.

Shandong Xiantan (A)

Shandong Xiantan Co., Ltd. is a China-based company principally engaged in cultivation, slaughtering, processing, and sale of broilers. The main activities include cultivation of parent generation breeding hens, the hatching of chicks, the production of feed, the cultivation and slaughtering of commercial generation broilers, as well as chicken processing and sale. The main products of the Company contain commercial generation broilers as well as chicken products including drumsticks, chicken breasts, chicken wings, and chicken dogmeats, among others. The Company distributes its products in China market.

Tencent Holdings Ltd.

Tencent Holdings Limited is an investment holding company principally involved in the provision of value-added services (VAS) and online advertising services. The Company operates through three main segments. The VAS segment is mainly involved in provision of online/mobile games, community value-added services and applications across various Internet and mobile platforms. The Online Advertising segment is mainly engaged in display based and performance based advertisements. The Others segment is mainly involved in provision of payment related services, cloud services and other services.

Terna S.p.A.

Trasmissione Elettricita Rete Nazionale is a grid operator for energy transmission. Co. manages electricity transmission in Italy. Co. owns the concession relating to electricity dispatching and transmission, and maintains ownership of the capital assets and responsibility for defining the NTG Development Plan and the Defence Plan.

Toho Holdings Co. Ltd.

Toho Holdings is a holding company mainly engaged in the wholesale distribution of pharmaceuticals. Co. operates in four major business segments: pharmaceutical wholesale, dispensing pharmacies, site management organization ("SMO") and information equipment sales. Co. is engaged in the sale of prescription pharmaceuticals, reagents and medical devices to hospitals, clinics and dispensing pharmacies; the management and operation of health insurance dispensing pharmacies; the SMO business firmly assists a variety of medical establishments and provides pharmaceutical development services commissioned by pharmaceutical manufactures; and the planning and sale of information processing equipment.

Tohoku Electric Power Company Incorporated

Tohoku Electric Power is an electric company mainly engaged in the generation, transmission and distribution of electric power principally in the Tohoku region. Co.'s principal business segments are electric, construction, and others. In addition, Co., through its subsidiaries, is involved in the wholesale of power service; the provision of electricity, telecommunications, civil engineering, construction works and real estate leasing services; the construction, improvement, repair and maintenance of generation and transmission facilities; the purchase, receipt, gasification, sales and delivery of LNG; and consulting, development and operation of information systems and networks.

Yaoko Co. Ltd.

Yaoko is principally engaged in the food retail business. Co. operates supermarkets that mainly sell perishable foods, general food products and miscellaneous daily goods. As of Mar 31 2017, Co. maintains 154 stores mainly in Saitama Prefecture as well as in Chiba, Gunma, Ibaraki, Tochigi, Tokyo and Kanagawa Prefectures. Co. also sells its own private-label products. In addition, it is engaged in the manufacture, processing and sale of prepared foods, sushi and bakery.

Zhejiang Dingli Machinery Co. Ltd. Class A

Zhejiang Dingli Machinery Co Ltd. ZHEJIANG DINGLI MACHINERY CO.,LTD is a China-based company principally engaged in the research and development, manufacture, sales and provision of services of aerial work platforms. The Company's main products include three types of aerial work platforms, which include scissor type, arm type and mast type. The Company's products are applied in various industries, such as aircraft and ship building and maintenance, building construction and installation, highway and bridge construction, municipal engineering projects, warehousing and supermarket.

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

Other Reports on these Companies
Other Reports from Vermilion Research

ResearchPool Subscriptions

Get the most out of your insights

Get in touch