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>Sovereign 10-year yields are hitting multi-year highs in the US, UK, Germany, France, Japan, and India (among others). This is a positive for shipping stocks on two levels.</li>
<li>(1) Rates moving higher generally suggests robust GDP growth, and more economic activity means more need for shipping.</li>
<li>(2) Value stocks historically outperform in rising rate environments, and most of the shipping stocks highlighted today have P/Es in the 4-6X range, putting them squarely in the value camp.</li>
</ul>


Sovereign 10-year yields are hitting multi-year highs in the US, UK, Germany, France, Japan, and India (among others). This is a positive for shipping stocks on two levels.
(1) Rates moving higher generally suggests robust GDP growth, and more economic activity means more need for shipping.
(2) Value stocks historically outperform in rising rate environments, and most of the shipping stocks highlighted today have P/Es in the 4-6X range, putting them squarely in the value camp.


Shipping Stocks Set Sail; Buy DAC-US, SBLK-US, ZIM-US, GSL-US, GNK-US, GOGL-US, 316-HK,& MAERSK.B-DK

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

<ul>
<li>The review period for the March review of the HSCI ended on 31 December. There are a lot of new listings that should be included in the index.</li>
<li>SenseTime is a high probability inclusion to the index, though it will only be added to Stock Connect in July once it completes 6 months and 20 trading days.</li>
<li>Xpeng and Li Auto will be added to Stock Connect in Feb/March if they pass the velocity test. We see Li Auto as failing the test, while Xpeng is close.</li>
</ul>


The review period for the March review of the HSCI ended on 31 December. There are a lot of new listings that should be included in the index.
SenseTime is a high probability inclusion to the index, though it will only be added to Stock Connect in July once it completes 6 months and 20 trading days.
Xpeng and Li Auto will be added to Stock Connect in Feb/March if they pass the velocity test. We see Li Auto as failing the test, while Xpeng is close.


HSCI Index Rebalance and Stock Connect: Plenty of New Listings Should Be Included

Orient Overseas International / Index Rebalance

<ul>
<li>The review period for the March review of the HSCI ends on 31 December. There are expected to be a lot more inclusions than deletions at the review.</li>
<li>There are quite a few stocks that should be included following their listing over the last couple of months while others are now potential inclusions after passing the velocity test.</li>
<li>Quite a few of the potential deletions from the HSCI and Stock Connect have large holdings via Southbound Stock Connect and these stock could see some selling.</li>
</ul>


The review period for the March review of the HSCI ends on 31 December. There are expected to be a lot more inclusions than deletions at the review.
There are quite a few stocks that should be included following their listing over the last couple of months while others are now potential inclusions after passing the velocity test.
Quite a few of the potential deletions from the HSCI and Stock Connect have large holdings via Southbound Stock Connect and these stock could see some selling.


HSCI Index Rebalance and Stock Connect: More Inclusions than Exclusions in March

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Pacific Basin Shipping / Equity Bottom-Up

The 3Q21 trading update for <a href="https://www.smartkarma.com/entities/pacific-basin-shipping-ltd" target="_blank" data-smartkarma-citation="entities:929:1" rel="noopener">Pacific Basin Shipping (2343 HK)</a> painted a positive picture for the earnings performance for 2H21 and FY22. There is good QoQ improvement in time-charter equivalents for its Handysize and Supramax fleet in 3Q21, which are 69.3% and 98.6%, respectively, higher than 1H21. On such basis, we estimate that its 3Q21 profit may be some 33% more than 1H21, blowing away market consensus by sizeable margin.Additionally, the growth in minor bulk trade, particularly construction materials, cement and clinker and grains, has underpinned good Handysize and Supramax demand. The supply pressure is also light as net fleet growth is expected to be 3% and 1.8% for FY21 and FY22, respectively. We also think Pacific Basin may take opportunistic disposals of vessel to capture the favourable capital value movements. All in all, we think that having retreated 25% from the peak, the stock has returned to more attractive valuation multiples.

The 3Q21 trading update for Pacific Basin Shipping (2343 HK) painted a positive picture for the earnings performance for 2H21 and FY22. There is good QoQ improvement in time-charter equivalents for its Handysize and Supramax fleet in 3Q21, which are 69.3% and 98.6%, respectively, higher than 1H21. On such basis, we estimate that its 3Q21 profit may be some 33% more than 1H21, blowing away market consensus by sizeable margin.Additionally, the growth in minor bulk trade, particularly construction materials, cement and clinker and grains, has underpinned good Handysize and Supramax demand. The supply pressure is also light as net fleet growth is expected to be 3% and 1.8% for FY21 and FY22, respectively. We also think Pacific Basin may take opportunistic disposals of vessel to capture the favourable capital value movements. All in all, we think that having retreated 25% from the peak, the stock has returned to more attractive valuation multiples.

Pacific Basin Shipping (2343 HK): Stellar 2H21 in the Making

Global Special Situations & Strategy, SR Services Ltd

David Lepper

Global Special Situations & Strategy

SR Services Ltd

SR Services provides Strategic Knowledge and Solutions services for Family Offices and Corporate Business. 

We deliver this via advisory services, strategic planning, opportunity analysis/sourcing, as well as solution implementation. 

Whilst, we create intellectual discipline and operational leverage for your projects or daily activities, our ultimate objective is to empower whilst enhancing your decision making. 

Strategic Knowledge and Solutions

Cross Asset Strategy

What is the key question? Are we at the start of another 12-year bull market in value stocks? That's the duration of the last period when the value style of investing out performed growth in the Asia Pacific region.What is the evidence? Over the last 12-months, the balance between growth and value reversed the dominance that growth has held for much of the last 10-years. Whilst in Q1 2021, we remained cautious about a full declaration that the trend is reversing, we feel that the process is indeed underway and that a multi-year reversal is in progress. This is not just positive for value investors, but increasingly so for Small-Mid Cap investors.Why read this screening note? Q1 2021’s screen performance trumped the market delivering relative outperformance of 26.2%. Of the 27 names presented, 18 stocks delivered positive share price performance with an average increase of 21%, whilst the remaining 9 stocks declined 9.4 %. What is presented? 56 names appear in our Q3 2021 Asia Pacific list providing plenty of opportunity for investors. The average EV/FCF multiple of 5.2x in Q3 2021 compared to 6.3x in Q1 2021 and 5.6x in Q2 2020. The average Free Cashflow multiple on equity is 4.6x in Q3 2021 versus 4.2x in Q1 2021.

What is the key question? Are we at the start of another 12-year bull market in value stocks? That's the duration of the last period when the value style of investing out performed growth in the Asia Pacific region.What is the evidence? Over the last 12-months, the balance between growth and value reversed the dominance that growth has held for much of the last 10-years. Whilst in Q1 2021, we remained cautious about a full declaration that the trend is reversing, we feel that the process is indeed underway and that a multi-year reversal is in progress. This is not just positive for value investors, but increasingly so for Small-Mid Cap investors.Why read this screening note? Q1 2021’s screen performance trumped the market delivering relative outperformance of 26.2%. Of the 27 names presented, 18 stocks delivered positive share price performance with an average increase of 21%, whilst the remaining 9 stocks declined 9.4 %. What is presented? 56 names appear in our Q3 2021 Asia Pacific list providing plenty of opportunity for investors. The average EV/FCF multiple of 5.2x in Q3 2021 compared to 6.3x in Q1 2021 and 5.6x in Q2 2020. The average Free Cashflow multiple on equity is 4.6x in Q3 2021 versus 4.2x in Q1 2021.

Screening the Silk Road: Q3 2021 All Cap Screening - Free Cashflow (FCF)

Hong Kong

Orient Overseas International Ltd, through its subsidiaries, owns and leases ships, operates terminals, and provides freight forwarding and container transportation services.  The Company also develops and invests in properties, leases equipment, and invests in securities.

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Orient Overseas International (316 HK)

Shipping Stocks Set Sail; Buy DAC-US, SBLK-US, ZIM-US, GSL-US, GNK-US, GOGL-US, 316-HK,& MAERSK.B-DK

Dry-bulk & energy shipping stocks are breaking out of bases, giving us a high degree of confidence that price and RS appreciation is likely to...

Vermilion Research

HSCI Index Rebalance and Stock Connect: Plenty of New Listings Should Be Included

There could be up to 34 adds and 22 deletes for the HSCI in March based on market cap, liquidity and prolonged suspensions. A lot of new listings,...

Brian Freitas

HSCI Index Rebalance and Stock Connect: More Inclusions than Exclusions in March

We expect there will be a lot more inclusions than exclusions at the March rebalance of the HSCI. The changes to the index will result in changes...

Brian Freitas

Pacific Basin Shipping (2343 HK): Stellar 2H21 in the Making

Great 3Q21 trading update suggests 2H21 and FY22 outlook remain encouraging. Demand-supply dynamics remain favourable and there is room for...

Osbert Tang, CFA

Screening the Silk Road: Q3 2021 All Cap Screening - Free Cashflow (FCF)

Is it the start of a 12-year bull market in value? That's the duration of the last period when APAC value outperformed growth. Q'1s FCF screen...

David Lepper

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