Vermilion Int'l Compass: Global Equity Strategy
Major Top in Place on U.S. Dollar (DXY)Our gameplan for 2023 remains unchanged; (1) we see limited upside from here for global equities (MSCI ACWI), and we expect a rangebound year of trading on the ACWI-US with $93 capping upside and $75-77 capping downside, (2) remain overweight Europe and the UK, (3) we want to add exposure on pullbacks to China/Hong Kong/EM, and (4) overweight non-U.S. equities (MSCI ACWI ex-US) relative to MSCI ACWI.
U.S. Dollar Major Top. The U.S. dollar (DXY) is breaking below 5-year support at $103; at this point we feel confident calling a major top on the DXY, which is bullish for risk assets, and is another sign suggesting the lows are in for global equities. $103 and $105-106 are now resistance levels to watch; as long as the DXY is below $106 we could see the ACWI-US test the $93 level... see chart below.
Non-U.S. Equities Outperformance Likely to Continue. To reiterate a point we have been making for the past three weeks, we believe non-U.S. equities are likely to continue outperforming relative to U.S. equities in the months and potentially years to come. This change is being fueled by the declining DXY (see above). Graphically we can see this when looking at the MSCI ACWI ex-US vs. MSCI ACWI ratio, which is bullishly inflecting above its 13-year downtrend... see chart below.
Breakout Levels Holding in the UK and Europe. Breakout levels in Europe and the UK are holding, giving us confidence to stick with out overweight Europe/UK call. Breakout levels we want to see hold include 7700 on the FTSE 100, 3800-3840 on the STOXX Europe 50, and 4000-4030 on the EURO STOXX 50.
Hang Seng and MSCI China Approaching 1-Year Resistance. Hong Kong's Hang Seng is approaching 1-year resistance at 22,600 while MSCI China (MCHI-US) is similarly approaching 1-year resistance at $57. If these are to break out, we would expect some consolidation/pullback first. Therefore, we prefer to add exposure on pullbacks... see page 2.
Actionable Theme: Technology, Communications, and Consumer Discretionary. The UK/Europe and Hong Kong/China continue to make up the majority of our buy recommendations... see pages 4-18.
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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