Report
Dave Nicoski ...
  • Ross LaDuke
EUR 239.73 For Business Accounts Only

Vermilion Int'l Compass: Global Equity Strategy

Dollar Surge Further Aggravates Equity Markets

Support levels have meant little more than talking points as indexes are slicing through them like butter. The truth remains that no one knows how low we will go, and the trend is still down for global equities. At the same time, every week where the MSCI ACWI loses ~10%, it gets that much closer to finding a bottom. Below we provide updates on several indicators we are watching as to clues of a bottom.

· US Dollar Surging. The US dollar (DXY) has surged to new highs and is breaking above 100 resistance. This flight to safety is likely due to a combination of global credit crunch concerns as well as a vicious selloff in risk assets, including commodities such as crude oil and copper. Even traditional safe havens such as gold and Treasuries are selling off. Overall we view this DXY surge as further aggravating equity markets, and we can add a weakening dollar to our wish list below of things we would like to see in order for equities to bottom.

· Watching For Clues Of A Bottom. Last week we mentioned several things we would like to see before having confidence that equity markets are bottoming, such as (1) improving breadth/bullish inflections in metrics such as advance/decline lines, (2) narrowing high yield spreads, (3) bottoming sovereign yields, (4) bottoming commodity prices, (5) outperformance, or at least market-performance, from small-caps, (6) bullish divergences in indicators such as RSI and the % of S&P 500 & ACWX stocks above their 50- and 200-day MAs, and (7) bullish inflections in the global Consumer Discretionary vs. Staples ratios. We are beginning to see sovereign yields (#3) attempt to bottom, but our other indicators continue to move in the wrong direction which suggests there is more downside ahead.

· Index Overviews. Indexes highlighted (priced in local currency) include the Hang Seng, Shanghai Composite, STOXX Europe 600, and Japan's TOPIX.
Underlyings
Clicks Group Limited

Clicks is an investment holding company. Through its subsidiary, Co. is engaged in providing health and beauty merchandise through a network of 657 stores, including 34 in the neighbouring countries of Namibia, Botswana, Swaziland and Lesotho. Co.'s subsidiaries cover the pharmaceutical supply chain from wholesale and distribution to retail pharmacy, as well as beauty and cosmetic products. Co. operates primarily in southern Africa. Co.'s operating segments comprised of Retail and Distribution. Co.'s brands are Clicks, Musica, The Body Shop, GNC and Claire's.

Elders

Elders supplies rural farm inputs including seeds, fertilisers, agricultural chemicals, animal health products and general rural merchandise. Co. also provides personal production and cropping advice. Co.'s operating segments consist Network, which includes the provision of agricultural retail products through a common distribution channel, including agency and financial services; Feed and Processing, which includes the Australian and Indonesian cattle feedlot, and Elders Fine Foods that is involved in the importation and distribution of food products throughout China; Live Export facilitates principle position trades of dairy, beef feeder, beef slaughter and breeding cattle, and sheep.

Jiangxi Zhengbang Technology Co. Ltd. Class A

Jiangxi Zhengbang Technology is engaged in the manufacture and sale of feedstuffs and premix compounds for livestock and poultry; research, manufacture and sale of feed additives; breeding, processing and sale of livestock, poultry and aquatic products; operation of meat and meat products; and acquisition of foodstuffs. Through its subsidiaries, Co. is also engaged in the manufacture and sale of stockbreeding machines; and manufacture and sale of biological products. Co.'s products include complete feed, concentrate feed, premix feed, breeding pigs, fish fries and others.

Kobe Bussan Co. Ltd.

Kobe Bussan is a supermarket operator. Along with its affiliates, Co. operates in four business segments. Business Supermarket segment is engaged in the production, wholesale and retail of food products targeted at business users, offering products from other manufacturers, as well as products produced in the factories owned by Co. and manufacturers in collaboration with Co. Kobe Cook segment offers cooked food products. Cook Inoventure segment is engaged in the restaurant and education businesses. Eco-Regenerated Energy segment operates solar power plants and sells renewable energy to electric power companies. As of Oct 31 2017, Co. operates 780 business supermarkets throughout Japan.

New Oriental Education & Technology Group Inc. Sponsored ADR

Proya Cosmetics (A)

Seria Co. Ltd.

Seria is a discount retailer of general merchandise that sells products at a single price of 100 yen. Co. is engaged in the retail of consumer products through stores, as well as the wholesale of products to franchisees, clients and overseas agents. Co. offers daily miscellaneous goods, such as kitchenware, eating utensils, laundry products, cosmetics, accessories, stationery, toys, storage goods, electrical appliances, pet goods, interior goods and seasonal products; and food products including instant foods, seasonings, canned food, noodles, rice, confectionery, drinks, bakery products and sweets. As of Mar 31 2017 Co. maintains total 1,369 stores including 55 franchised stores.

Swedish Match AB

Swedish Match develops, manufactures, markets, and sells snus and snuff, other tobacco products (cigars and chewing tobacco), and lights (matches and lighters). Snus and snuff are smokeless tobacco products that are produced and sold primarily in Sweden, Norway and the U.S. Other tobacco products represent cigars and chewing tobacco manufactured and sold on the U.S. market. Lights include manufacturing and distribution of matches and lighters. Other operations are primarily the distribution of tobacco products on the Swedish market. Primary brands include General snus, Longhorn moist snuff, White Owl cigars, Red Man chewing tobacco, Fiat Lux matches, and Cricket lighters.

TAL Education Group Sponsored ADR Class A

Zhejiang NHU Co. Ltd. Class A

Zhejiang NHU is engaged in the manufacture and sale of organic chemical products, drug raw materials (vitamin E and vitamin A), and food and feed additives as well as import and export businesses. Co.'s major products include vitamin E, A and Ethoxy Methylene Malonic Diethyl Ester. Through its subsidiaries, Co. is also engaged in the manufacture and processing of vitamins for animals; manufacture and installation of petrochemical equipment and industrial-use pressure vessels; industrial investment and development; and installation and repair of boilers, pressure vessels, pressure piping and industrial machinery and equipment.

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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