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

TSE Tokyo Price Index TOPIX / Technical Analysis

Despite EAFE’s YTD outperformance relative to EM, EAFE and EM returns have generally been equal since August, shown by the stalemate in the EAFE vs. EM ratio. The U.S. dollar (DXY) is currently trading near support within the 16-17 month uptrend channel. Technicals suggest the most likely scenario is for the DXY uptrend to continue and for support to hold -- which would likely result in EAFE reasserting as leadership.  In this publication we highlight attractive investment themes and individual ideas across developed markets, with special attention given to Japan, Germany, Sweden, Italy, Spain, and Switzerland.

Despite EAFE’s YTD outperformance relative to EM, EAFE and EM returns have generally been equal since August, shown by the stalemate in the EAFE vs. EM ratio. The U.S. dollar (DXY) is currently trading near support within the 16-17 month uptrend channel. Technicals suggest the most likely scenario is for the DXY uptrend to continue and for support to hold -- which would likely result in EAFE reasserting as leadership.  In this publication we highlight attractive investment themes and individual ideas across developed markets, with special attention given to Japan, Germany, Sweden, Italy, Spain, and Switzerland.

Developed Markets Strategy: Stick with Japan

Global equities are now breaking out to new highs amid positive technical developments -- something we noted was increasingly likely in last week’s Int’l Compass. These breakouts and other technical developments highlighted below argue that this is the beginning of a new leg higher. Now is the time to be playing offense. In today’s report we highlight our favorite setups within Industrials, spanning the Vermilion international Manufacturing, Services, and Transportation Sectors.

Global equities are now breaking out to new highs amid positive technical developments -- something we noted was increasingly likely in last week’s Int’l Compass. These breakouts and other technical developments highlighted below argue that this is the beginning of a new leg higher. Now is the time to be playing offense. In today’s report we highlight our favorite setups within Industrials, spanning the Vermilion international Manufacturing, Services, and Transportation Sectors.

Global Equity Strategy: Global Equities Beginning a New Leg Higher

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

Harmonic Drive Systems / Equity Bottom-Up

With <a href="https://www.smartkarma.com/entities/10238" target="_blank" data-smartkarma-citation="entities:10238:1">Harmonic Drive Systems (6324 JP)</a> having rebounded as much as 56% from its trough this year, risk-reward looks decidedly less attractive now. While we had been somewhat constructive on the name due to order looking like they have a hit bottom, a closer analysis of the breakdown of orders has us thinking that a potential rebound could underwhelm relative to the markets revenue expectations and that the stock's premium multiple could leave it more vulnerable than more modestly priced peers.

With Harmonic Drive Systems (6324 JP) having rebounded as much as 56% from its trough this year, risk-reward looks decidedly less attractive now. While we had been somewhat constructive on the name due to order looking like they have a hit bottom, a closer analysis of the breakdown of orders has us thinking that a potential rebound could underwhelm relative to the markets revenue expectations and that the stock's premium multiple could leave it more vulnerable than more modestly priced peers.

Harmonic Drive: Measuring the Potential Downside Risk

Director, Pearl Hill Advisors

Nicholas Tanner

Director

Pearl Hill Advisors

Kawasaki Heavy Industries / Equity Bottom-Up

The shares have underperformed TOPIX by 25% over the last 12 months and in terms of book, see chart below, are trading at near 5 year lows. Earnings for 3/19 were revised down after 1Q (operating profit from Y75bn to Y66bn due to write-off in the rolling stock division). The current forecast in our view is achievable and next year, in the absence of further write-off and growth in other parts of the business, we would expect operating profits to recover to the Y80bn level. This is a big conglomerate with many moving parts, some good and some not so good, but there is a price for everything and given where the shares are now, and where we think earnings are going, we are happy to buy here with the company trading at 0.9x book and the shares yielding just under 3%.

The shares have underperformed TOPIX by 25% over the last 12 months and in terms of book, see chart below, are trading at near 5 year lows. Earnings for 3/19 were revised down after 1Q (operating profit from Y75bn to Y66bn due to write-off in the rolling stock division). The current forecast in our view is achievable and next year, in the absence of further write-off and growth in other parts of the business, we would expect operating profits to recover to the Y80bn level. This is a big conglomerate with many moving parts, some good and some not so good, but there is a price for everything and given where the shares are now, and where we think earnings are going, we are happy to buy here with the company trading at 0.9x book and the shares yielding just under 3%.

Khi (7012) Given Expected Recovery in Profits, Shares Are Now Too Cheap.

Please see some recent buy ideas, all very cheap, that we believe offer decent longer term growth and have had a dreadful December. We have written on all recently and below is a summary of the main points as well as an some valuation metrics. All are sensibly priced in our view now.

Please see some recent buy ideas, all very cheap, that we believe offer decent longer term growth and have had a dreadful December. We have written on all recently and below is a summary of the main points as well as an some valuation metrics. All are sensibly priced in our view now. 

A Round up of Some Japanese Equities Buys as We Begin the New Year.

Japan

Kawasaki Heavy Industries, Ltd. designs, develops, and manufactures transport equipment and industrial heavy machinery for military and commercial use.  The Company produces ships, railroad cars, aircraft engines and parts, hydraulic and gas turbines, submarine engines, boilers, and industrial robots.  Kawasaki Heavy Industries offers engineering and construction services to industrial plants.

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Kawasaki Heavy Industries (7012 JP)

Developed Markets Strategy: Stick with Japan

Despite EAFE’s YTD outperformance relative to EM, EAFE and EM returns have generally been equal since August, shown by the stalemate in the EAFE...

Vermilion Research

Global Equity Strategy: Global Equities Beginning a New Leg Higher

Global equities are now breaking out to new highs amid positive technical developments -- something we noted was increasingly likely in last week’s...

Vermilion Research

Harmonic Drive: Measuring the Potential Downside Risk

With Harmonic Drive Systems (6324 JP) having rebounded as much as 56% from its trough this year, risk-reward looks decidedly less attractive now....

Mio Kato

Khi (7012) Given Expected Recovery in Profits, Shares Are Now Too Cheap.

The shares have underperformed TOPIX by 25% over the last 12 months and in terms of book, see chart below, are trading at near 5 year lows....

Pearl Hill Advisors

A Round up of Some Japanese Equities Buys as We Begin the New Year.

Please see some recent buy ideas, all very cheap, that we believe offer decent longer term growth and have had a dreadful December. We have written...

Pearl Hill Advisors

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