Vermilion Int'l Compass: Global Equity Strategy
Global equities have continued to stabilize, with the MSCI ACWI's 50-day moving average acting like a magnet as prices have oscillated above and below it. More importantly, support levels have held and long-term uptrends are intact. While we expect to see continued heightened volatility and consolidation, our long-term outlook for global equities remains bullish.In today's report we highlight the following themes:
• Pullbacks creating buy opportunities. Hong Kong (Hang Seng) and Japan (TOPIX)have pulled back to their respective support levels, offering an opportunity to gain exposure in leadership countries. Germany (DAX), which has been a top-performing European market virtually every year since 2003, offers a similar entry near support... see pages 2-3
• EAFE small-caps outperforming. Developed markets outside of the U.S. and Canada are being led by small caps, as shown in the chart below. We put a spotlight on Japan, broad Europe, Germany, and the UK, where small-caps are outperforming large-caps. We recommend overweighting small-caps in these markets... see pages 3-4
• Investment Banking & Brokerage small-caps are outperforming. Attractive charts include: TP ICAP (TCAP-GB), kabu.com Securities (8703-JP), Monex Group (8698-JP), Matsui Securities (8628-JP), Tokai Tokyo Financial (8616-JP), and Nihon M&A Center (2127-JP). UK insurance names also offer buy opportunities: Jardine Lloyd Thompson Group (JLT-GB) and Beazley (BEZ-GB)... see pages 5-6
• Auto parts stocks are also outperforming. We highlight actionable names out of Germany, France, Norway, Hong Kong, and Japan... see pages 7-9
• Emerging markets. We reiterate our overweight EM recommendation. With relative strength advancing to new highs vs. the MSCI ACWI, we expect outperformance to continue. EM large-caps are outperforming their small-cap counterparts - favor large-caps over small-caps... see page 10
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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