Report
Dave Nicoski ...
  • Ross LaDuke
EUR 92.80 For Business Accounts Only

Int'l Macro Vision: Sector Synopsis

Int'l Equity Strategy



The recent bear market rally has run its course and market indicators are still largely bearish amid rapidly rising global rates/inflation and tightening monetary policy. Moreover, the broad MSCI global indexes (ACWI, ACWI ex-U.S., EAFE, and EM) all remain in YTD downtrends. As long as these downtrends remain intact, we are bearish at the index level, and we expect more volatility and lower prices ahead. From a Sector perspective, we want to remain overweight commodity Sectors (Energy and Materials) and also defensives (Health Care, Utilities, and Consumer Staples).

Below we summarize the basis for our bearish outlook.

Bearish Indicators:

In addition to the aforementioned MSCI indexes being stuck in YTD downtrends, MSCI China (MCHI-US) and China Internet (KWEB-US) remain in 16-month downtrends.
Japan's Nikkei 225 and TOPIX Small indexes are below 28,350 and 2300 resistance, respectively. Hong Kong's Hang Seng also remains below 22,700 resistance. Europe's EURO STOXX 50 remains below 3870 resistance. Germany's DAX remains below major resistance in the 14,815-14,950 zone.
The U.S. dollar remains in an uptrend and shows signs of a potential major breakout above 5.5-year resistance at $104.
MSCI ACWI defensive Sectors including Consumer Staples, Utilities, and Health Care remain in multi-month relative strength uptrends (vs. MSCI ACWI).
10-year sovereign yields are surging globally, hitting multi-year highs; we see a secular reversal where rising rates are the new normal.
Inflation is taking a toll on the global consumer, something that is likely to continue until energy prices fall.
High yield spreads in the U.S. and Europe remain on a widening path.
Bottom Line: Broad global MSCI equity indexes remain bearish with YTD downtrends intact, while indexes in Japan, Hong Kong, China, Europe, and Germany all remain below key resistance levels. Until we see indexes break above the aforementioned levels, we cannot be bullish. In terms of Sector allocations, remain overweight Energy and Materials with the secular commodity bull market intact. Defensive Sectors remain in multi-month RS uptrends, and we recommend overweights to Health Care, Utilities, and Consumer Staples.
Underlyings
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.

Total SE

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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