Vermilion Int'l Compass: Global Equity Strategy
S&P 500 and MSCI ACWI Breaking OutThe U.S. (S&P 500) is breaking out after several months of consolidation, and the same can be said of the MSCI ACWI index (for which the U.S. accounts for 64% of the country weighting). As a result, we are upgrading our outlook on global equities (MSCI ACWI) to bullish. While we are bullish on the S&P 500 and MSCI ACWI, and their breakouts could mean other countries are getting ready to break out, the U.S. (S&P 500) remains our only country overweight. Moreover, major indexes in the next two largest global equity markets (Europe and Japan) remain below critical resistances of 5000-5120 on the EURO STOXX 50 and 2740-2820 on the TOPIX. Additionally, broad global MSCI indexes (local currency) including the ACWI ex-U.S. and EAFE remain at/below resistance from their YTD highs. We believe breakouts are likely coming, and we would use any pre-election pullback as an opportunity to add exposure.
Remain Overweight the U.S. Our only country overweight is the U.S. (S&P 500).
China and Hong Kong Pulling Back. We initially discussed buying shares of BYD Company, Geely Auto, Alibaba, and Meituan (among many others) in our 9/26/24 Int'l Compass. Then, in our 10/3/24 Int'l Compass, we discussed how the Hang Seng was testing 3-year resistance at 22,600 and the Shanghai Composite was testing resistance at 3422, noting to only buy on pullbacks. These resistance levels held strong and the indexes have meaningfully pulled back to test supports at 19,700-20,000 and 3175, respectively. These supports must hold, or things could get ugly quick... see page 2.
Actionable Themes: Services and Financials. We are not "giving up" on global defensive Sectors -- particularly Utilities, Real Estate, and Telecommunications, which remain our favorites as they continue to outperform. The vast majority of names we have highlighted within these Sectors over the past 3-4-months remain attractive (e.g., ERIC.B-SE, DTE-DE, TRUE-TH, IBE-ES, TA-CA, and GULF-TH, among others). With that said, today we are focusing on other areas that display leadership qualities, including Services and Financials... see pages 3-15.
Royal Bank of Canada is a financial services company that provides personal and commercial banking, wealth management services, insurance, investor services and capital markets products and services. Co. serves personal, business, public sector and institutional clients through offices in Canada, the U.S. and 37 other countries. Co. is organized into five segments: Personal and Commercial Banking, which is comprised of Co.'s personal and business banking operations, and its auto financing businesses; Wealth Management, Insurance; Investor and Treasury Services; and Capital Markets. As of Oct 31 2017, Co. had total assets of C$1.21 trillion and total deposits of C$789.64 billion.
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.
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