In this briefing:
- Celltrion/Celltrion H Pair: Last 2 Days Must Be Price Divergence, Not Mean Reversion
- Are US Stocks A Buy Yet?
- Korea Stock Market Monthly Recap #31 (December 2018)
- Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019
- Autonomous Driving. Waymo Leading The Charge With Ten Million Miles Driven And Counting
1. Celltrion/Celltrion H Pair: Last 2 Days Must Be Price Divergence, Not Mean Reversion
- The accounting fraud issue had hammered the Celltrion duo nearly equally up until Dec 26. But last two days were different. Healthcare got hurt much more deeply. Celltrion fell only 2.41%, but Healthcare fell 11.52%.
- The accounting issue is supposed to be equal to both. KOSPI move and merger are still alive to push up Healthcare. Local institutions and foreigners have bashed both pretty much equally in the last two days. This is another sign that it was more of a price divergence than a mean reversion.
- The duo is now at 20D MA and also the yearly mean. I expect it to go substantially below the yearly mean on KOSPI move and merger expectations. A powerful downwardly mean adjusting force still seems to be in action. I’d long Healthcare and short Celltrion to exploit the latest price divergence.
2. Are US Stocks A Buy Yet?
- 5%-like rallies on Wall Street are signs of a bear market not a bull market
- Bull markets require strong liquidity and low risk appetite, neither yet apply
- Risk appetite readings at minus 12.6 are still above the minus 40 criterion for an upturn
- Recent large fall in risk appetite consistent with upcoming economic recession
3. Korea Stock Market Monthly Recap #31 (December 2018)
Korean stock market declined again in December. KOSPI was down 2.7% in December and completed 2018 with a decline of 18% this year. Investors remained cautious preferring to increase their capital allocation to defensive sectors such as utilities. However, December was a bit unusual in that KOSPI declined much less than the US market (S&P 500 was down 9% in December). In the past few months, there has been a noticeable outperformance of numerous emerging markets stocks relative to the US stock market.
Fool me once, fool me twice, fool me three times? It has been 10 years since the last Great Repression. Unlike in 2008, when the US Fed Fund rate plummeted from 4.1% in the beginning of the year to 0.09% at the end of the year, the US Fed Fund rate kept climbing throughout the year. The share price declines in global equity markets around the world this year are probably reflecting the concerns about a potential recession in the next two years.
Our model portfolio was down 2.0% in December (cash is 30% of model portfolio), outperforming KOSPI which was down 2.8% in December. Starting January 2019, we are increasing the cash portion to 35% of the model portfolio, to become more defensive in capital allocation.
The top 10 events impacting the Korean stock market, economy, & politics in December were as follows:
- Global markets volatility
- Growing concerns about the declining memory prices on the semiconductor sector
- Investors trying to find next HanjinKal
- Hyundai Motor Group and Korean Government’s Big Push into Hydrogen Fuel Cell Vehicles
- Jim Rogers & Ananti
- The EU agrees to cut carbon emissions from cars by 37.5% by 2030
- Amorepacific’s strong rebound
- Korean prefs vs. common
- Samsung Biologics trades again
- Naver’s surprising stock option plan
The top three reports we wrote in December related to the Korean market were as follows (in terms of views & appreciates):
- Review of Our IPO Research in 2018 & Change in Our IPO Research Process for 2019
- Top Seven Korean Stocks for Corporate Activists in 2019
- Korean Stock Market Sectors 2018 Review & 2019 Outlook
4. Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019
The year 2018 has proven tumultuous for global markets. Rapidly changing geopolitical priorities of the US, an erstwhile hegemon, have played a role no less significant than the withdrawal of liquidity by leading central banks or US monetary policy tightening. The US has openly declared that it is in a state of “cold war” with China. Despite the recent truce, signs are abundant that the confrontation between the two global superpowers will continue into 2019 and beyond. In 2019, we expect more countries to find themselves in a position where they must choose who they want to side with, the US or China. There are other tectonic shifts, too, which are causing re-alignment of global geopolitical alliances.
5. Autonomous Driving. Waymo Leading The Charge With Ten Million Miles Driven And Counting
Waymo CEO John Krafcik made some bold decisions after taking the helm at Alphabet‘s self-driving project in September 2015. Chief among them was the fact that the company abandon its plans for Level 3 automated driving and focus exclusively on levels 4 & 5. Furthermore, he decreed that Waymo would no longer manufacture its own vehicles but would instead integrate their technology into those of other automakers. Three years later, those decisions would appear to be finally paying off.
On October 10 2018, Waymo reached a significant milestone having completed 10 million self-driving miles across 25 cities in the US. While their first million self-driving miles took 18 months to complete, Waymo now clocks up over a million self-driving miles per month. The company also recently announced the launch of its robo taxi service in Phoenix, Arizona and looks set to quickly follow suit in California. Plans to extend its self-driving technology beyond robotaxis, most notably for trucks and last-mile transportation solutions are also in the works. Furthermore, the company has begun laying down a framework of innovative B2B revenue models which should help accelerate the speed with which they can eventually monetize their technology.
It hasn’t been smooth sailing all the way for Waymo however. Earlier this year, the company was derided for the driving style of its autonomous vehicles and faced the criticism that its driverless cars continue to have safety drivers. There was also an embarrassing incident where one of those very safety drivers caused the self-driving car he was monitoring to hit a motorcyclist when he attempted to take control of the vehicle. According to Waymo’s own analysis of the vehicle log files, the accident would not have happened had he not intervened.
With ten million self-driving miles under their belt and a thoughtful, strategic approach to monetizing their technology beginning to emerge, Waymo remains firmly ahead of their peers in leading the autonomous driving charge.
