Vermilion Int'l Compass: Global Equity Strategy
Japan Breaking Out; EM Remains LeadershipMajor global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) continue to trend higher and are devoid of bearish inflections. Additionally, the US dollar (DXY) displays a false breakout as it was unable to hold above the 11-month downtrend and 91 level. This tells us the DXY is likely headed lower, something we view as a positive risk-on signal for global equities. As a result, we remain bullish and we continue to recommend adding exposure on pullbacks.
· Japanese Equities Improving; EM Equities Remain Leadership. Japanese equities display improving price trends while RS on the TOPIX and TOPIX Small indexes show signs of bottoming. Within Japan, the price-weighted Nikkei 225 index is leading, largely due to strength in some heavily-weighted constituents, Fast Retailing (9983-JP) and Softbank (9984-JP), two stocks we recommend owning. Additionally, EM equities (MSCI EM index) remain leadership with price and RS uptrends intact -- remain overweight/add exposure... see chart below and page 2. The vast majority of today's individual stock recommendations fall within these two buckets -- Japanese or EM equities.
· US Dollar (DXY). In last week's Int'l Compass we noted that one market dynamic that was becoming more of a concern was the US dollar (DXY), which had been strengthening in recent weeks -- a risk-off signal. Thankfully, the DXY failed to hold above key resistance levels at the downtrend and also the 91 level. This tells us the DXY is likely headed lower, which we view as a positive risk-on signal for global equities (and especially for EM equities and commodities)... see chart below.
· Actionable Themes: Communications, Industrials, Energy, & Materials. Again, the vast majority of today's individual stock recommendations hail from Japan or EM countries. The Communications Sector displays significant improvement in both Japan and emerging markets. Industrial Manufacturing stocks are outperforming in Japan, China, and India. The Energy Sector continues to improve globally as crude oil prices remain bullish. Lastly, the Materials Sector remains leadership in Japan and emerging markets. We highlight actionable ideas within the above areas -- add exposure... see pages 3-15.
SoftBank Group is a holding company. Domestic Telecommunications business provides mobile communication services, mobile devices, broadband services to retail customers, and telecom services to corporate customers in Japan. Sprint business provides mobile communication services and fixed-line telecommunication services in the U.S. Yahoo Japan business operates Internet-based advertising and e-commerce business. Distribution business distributes mobile devices overseas, and sells software and mobile device accessories in Japan. ARM business designs microprocessor intellectual property and related technology. SoftBank Vision Fund & Delta Fund business is engaged in the investment activities.
Telkom SA SOC is a technology company. Co.'s services and products include: Fixed-line retail voice services to post-paid, pre-paid and private payphone customers; Fixed-line customer premises equipment rental, sales and services both voice and data needs; Interconnection services; Fixed-line data services, including domestic and international data transmission services; Data center operations which includes e-commerce, application service provider, hosting, data storage, e-mail and security services; W-CDMA, a 3G next generation network; Mobile communication services, including voice services, data services and handset sales and; Other services including directory services.
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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