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Vermilion Int'l Compass: Global Equity Strategy

Europe, Japan, MSCI ACWI Testing Critical Supports

Many major indexes are still testing (and holding above) critical supports. This includes MSCI ACWI (ACWI-US), TOPIX/TOPIX Small/Nikkei 225, EURO STOXX 50, STOXX Europe 600, and the DAX... see charts below and on page 2. As long as these supports continue to hold we cannot be bearish. Our overall outlook remains neutral, and we continue to see many attractive buying opportunities, especially out of Japan, India, and a new one -- Brazil.

U.S. Dollar (DXY), Global Sovereign 10-Yr Yields, Commodities. As we have said for months, until we see breakdowns from topping patterns on at least two of these three -- the DXY, global sovereign yields, and commodities (esp. crude oil) -- global equity markets will have difficulty establishing a reliable bottom. On a positive note, we may be seeing commodity prices going through a topping process, something we have discussed over the past month. Still, we need to see the Bloomberg Commodity index (DJP-US) break below $32.50 in order to confirm a major top. On a much more problematic note, the DXY and global sovereign 10-year yields continue to make new highs, showing no definitive signs of topping; these continue to be two major risk-off signals that suggest rangebound price action on global equities (MSCI ACWI) is a best-case scenario.
Japan, India, and Brazil. Japan (TOPIX/TOPIX Small/Nikkei 225) and India (SENSEX) continue to be two of our favorite countries to invest -- remain overweight/add exposure. We are now adding Brazil (Bovespa) to that list. The vast majority of today's individual stock recommendations are from these three countries.
Actionable Theme: Consumer Discretionary. Consumer Discretionary remains leadership globally, and this is especially true within Japan and India -- add exposure/stay long. Industries covered include motor vehicles, retail/apparel, restaurants, and leisure -- among others... see pages 3 and 5-11.
Actionable Theme: Financials. The global Financial Sector is starting to show leadership characteristics -- again, especially in Japan/India, but also in Europe and Brazil -- add selective exposure... see pages 4 and 11-15.