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Vermilion Int'l Compass: Global Equity Strategy

Bullish Outlook Intact; Upgrading Brazil to Overweight

In our October 26, 2023 Int'l Compass we discussed our expectations for a bounce in global equities (MSCI ACWI). So far, that has been the low. Then, in our November 2, 2023 Int'l Compass, we discussed the bullish implications of the false breakdown in the MSCI ACWI (local currency). Finally, we outlined in our November 16, 2023 Int'l Compass our belief that a year-end rally has begun in global equities (MSCI ACWI). Recent developments have only reinforced our bullish outlook on global equities (MSCI ACWI), and we continue to expect a rally into year-end and beyond.

Reasons to Expect More Upside. We continue to see many reasons to be bullish on global equities into year-end and the early part of 2024, including (1) bullish price patterns on broad global indexes (MSCI ACWI, ACWI ex-US, EAFE, and EM) and major countries (U.S., Europe, Japan), (2) the U.S. dollar's (DXY) trend lower is likely to continue toward $101-$101.50, (3) global sovereign 10-year yields have, at the very least, put in short-term tops (and more likely, intermediate-term tops), (4) U.S. and European high yield spreads are at 19-month and 8.5-month narrows, respectively, (5) defensive MSCI ACWI Sectors including Consumer Staples (KXI-US) and Utilities (JXI-US) remain in YTD RS downtrends, and (6) breadth continues to bottom-out. As previously discussed, the significance of all of these risk-on signals cannot be understated, and we expect for the bull market in ACWI-US to resume... see page 2.
Upgrading Brazil to Overweight. We are upgrading Brazil to overweight with the Bovespa index breaking above 20-month resistance at 122,000, as RS displays a multi-month base breakout -- add exposure. Additional overweight recommendations remain unchanged, and include Japan, India, Poland, and Greece... see chart below.
Actionable Theme: Utilities in Europe, UK, and India. While the MSCI ACWI Utility Sector remains a clear laggard, we are starting to see signs of leadership within Europe, UK, and India -- add exposure... see pages 3 and 5-8.
Actionable Themes: Precious Metals Miners/Materials, Industrials, Transportation, Real Estate, and Technology. Several beaten-down areas are emerging as leadership, as the combination of falling sovereign yields and a falling U.S. dollar comes to the rescue. Meanwhile, we remain bullish on Technology... see pages 4 and 8-20.