HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>The sharp surge in Omicron-driven local cases has driven more stringent measures by local governments. On ground in Shanghai, we see more tightened measures being implemented over the weekend. </li>
<li>The measures will reduce a lot of foot traffic and lower discretionary spending appetite in Mar, and this will negatively weigh on many 1Q22 results to be announced in late-Apr. </li>
<li>We advocate a long staples, short discretionary strategy in the near term. Also, travel sector will be hit, and on net-net basis, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> looks to be a loser.</li>
</ul>


The sharp surge in Omicron-driven local cases has driven more stringent measures by local governments. On ground in Shanghai, we see more tightened measures being implemented over the weekend. 
The measures will reduce a lot of foot traffic and lower discretionary spending appetite in Mar, and this will negatively weigh on many 1Q22 results to be announced in late-Apr. 
We advocate a long staples, short discretionary strategy in the near term. Also, travel sector will be hit, and on net-net basis, Meituan (3690 HK) looks to be a loser.


China on the Ground: Escalating Measures to Combat Omicron and What Stocks Are Impacted?

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<ul>
<li>Our neutral outlook has come down to price supports holding on the broad global indexes, including $54 on MSCI ACWIex-US (ACWX-US), $76.50 on EAFE (EFA-US), and $99 on ACWI (ACWI-US).</li>
<li>These support levels are now breaking which tilts our stance to bearish at the index level as long as the aforementioned indexes remain below their previous support levels.</li>
<li>We still see the EURO STOXX 50 and TOPIX as holding above support, while the Hang Seng and Bovespa appear to be bottoming, none of which paint a bearish picture.</li>
</ul>


Our neutral outlook has come down to price supports holding on the broad global indexes, including $54 on MSCI ACWIex-US (ACWX-US), $76.50 on EAFE (EFA-US), and $99 on ACWI (ACWI-US).
These support levels are now breaking which tilts our stance to bearish at the index level as long as the aforementioned indexes remain below their previous support levels.
We still see the EURO STOXX 50 and TOPIX as holding above support, while the Hang Seng and Bovespa appear to be bottoming, none of which paint a bearish picture.


Broad Indexes Violate Support But Bright Spots Remain; Buying Energy, Staples, and Utilities

With the MSCI ACWI (ACWI-US) breaking below our $70 “line in the sand” support level we highlighted last week, we believe additional downside is likely and that the path of least resistance is lower for global equities. Considering the damage done to major indexes around the world, any potential bottom is likely to take months to develop and until we see evidence of this repair process we want to be positioned primarily in Sectors with defensive characteristics. Of course, there will be major countertrend rallies along the way, but for now the trend is lower and we would treat rallies as selling opportunities. We outline important technical levels across all markets and highlight actionable opportunities within EM, and the Services and Staples Sectors.

With the MSCI ACWI (ACWI-US) breaking below our $70 “line in the sand” support level we highlighted last week, we believe additional downside is likely and that the path of least resistance is lower for global equities. Considering the damage done to major indexes around the world, any potential bottom is likely to take months to develop and until we see evidence of this repair process we want to be positioned primarily in Sectors with defensive characteristics. Of course, there will be major countertrend rallies along the way, but for now the trend is lower and we would treat rallies as selling opportunities. We outline important technical levels across all markets and highlight actionable opportunities within EM, and the Services and Staples Sectors.

ACWI Below Our Line In The Sand: Further Weakness Expected

Shenzhen Stock Exchange Composite Index / Technical Analysis

Shenzhen Stock Exchange Composite Index (SZCOMP INDEX)

China (MSCI China, Shenzhen A Share) offers a plethora of attractive setups and is a major focus in today’s report. Taiwan (TAIEX) is another focus as it is one of the few global indexes that is not yet breaking down. Lastly, Turkey (ISE National 100) appears to offer an attractive pullback opportunity. Within EM, we highlight attractive opportunities across the technology, consumer discretionary, health care and communications sectors.

China (MSCI China, Shenzhen A Share) offers a plethora of attractive setups and is a major focus in today’s report. Taiwan (TAIEX) is another focus as it is one of the few global indexes that is not yet breaking down. Lastly, Turkey (ISE National 100) appears to offer an attractive pullback opportunity. Within EM, we highlight attractive opportunities across the technology, consumer discretionary, health care and communications sectors.

Markets are showing signs of weakening at logical resistance as we anticipated in last week’s Int’l Compass - we recommend being selective in new purchases. At the same time we are seeing a number of indicators that are giving signals conducive to higher equity prices, meaning global equities may be gearing up for an eventual breakout topside resistance. In this report we highlight some attractive and actionable themes (Miners, consumer staples, and several attractive individual set ups in Thailand) along with indicators that support our overall constructive outlook.

Markets are showing signs of weakening at logical resistance as we anticipated in last week’s Int’l Compass - we recommend being selective in new purchases. At the same time we are seeing a number of indicators that are giving signals conducive to higher equity prices, meaning global equities may be gearing up for an eventual breakout topside resistance. In this report we highlight some attractive and actionable themes (Miners, consumer staples, and several attractive individual set ups in Thailand) along with indicators that support our overall constructive outlook.

U.S.Dollar Weakness A Tailwind For International Markets

China

Tingyi is a major Chinese packaged food and beverage company that manufactures and sells instant noodles, ready-to-drink teas, juices, bottled water, and other instant food products under its Master Kong brand. It also engages in property investment and logistics. The company was founded in 1992 and is headquartered in Shanghai, China.

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Tingyi (322 HK)

China on the Ground: Escalating Measures to Combat Omicron and What Stocks Are Impacted?

Omicron combating measures have been stepped up over the weekend and this will make a dent on the Mar operations of many companies. This will be...

Osbert Tang, CFA

Broad Indexes Violate Support But Bright Spots Remain; Buying Energy, Staples, and Utilities

We are highlighting Energy again because it is easily our favorite Sector. Additionally, defensive Sectors including Staples and Utilities display...

Vermilion Research

ACWI Below Our Line In The Sand: Further Weakness Expected

With the MSCI ACWI (ACWI-US) breaking below our $70 “line in the sand” support level we highlighted last week, we believe additional downside is...

Vermilion Research

EM Outperforming; Favor EM over EAFE

China (MSCI China, Shenzhen A Share) offers a plethora of attractive setups and is a major focus in today’s report. Taiwan (TAIEX) is another focus...

Vermilion Research

U.S.Dollar Weakness A Tailwind For International Markets

Markets are showing signs of weakening at logical resistance as we anticipated in last week’s Int’l Compass - we recommend being selective in new...

Vermilion Research

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