Brief Japan: The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished and more

In this briefing:

1. The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished
2. Global-Ex-U.S. Equity Strategy: Add Exposure To Technology, Communications
3. Smartkarma’s Week That Was in JP/​​​​​​​​KR: Semiconductor Warnings, Exit of Chairman Cho, & 청년수당
4. Screening the Silk Road: (Small-)Mid Cap Free Cash Flow
5. Denso Continues to Strengthen Its Investment CASE with Acquisitions

1. The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished

• The dollar IS the story
• EUR punished for negative yields
• Chasing Brexit down a rabbit hole
• Gold confounds
• Bitcoin at an interesting juncture

The fact that the dollar has strengthened despite the dovish turn at the Fed this year and the significant fall in US rates and bond yields has confounded many analysts.

2. Global-Ex-U.S. Equity Strategy: Add Exposure To Technology, Communications

We view weakness in global equity markets over the past week as correcting a significant amount of the excess optimism. We recommend taking advantage of the pullback by adding exposure to our favorite areas – namely Technology. Our overall outlook on global equities (both the MSCI ACWI and ACWI ex-US) remains positive and we continue to expect higher equity prices going forward.  In today’s report we provide a technical appraisal of all major markets and highlight actionable stocks throughout the int’l Technology and Communications sectors.

3. Smartkarma’s Week That Was in JP/​​​​​​​​KR: Semiconductor Warnings, Exit of Chairman Cho, & 청년수당

In the past week, there were earnings warnings from three major players in the global semiconductor sector, including Samsung Electronics (005930 KS), Micron Technology (MU US), and Infineon Technologies Ag (IFX GR). 

In Korea, after the collapse of the talks between Trump and KJU, the biggest loser has been President Moon Jae-In whose popularity has been sinking in the past several weeks. Moon Jae-In’s popularity has been sinking from the 80-90% range when he was first elected two years ago to the low-to-mid 40% range now. There has been a tremendous gain of the conservative Liberty Korea Party, led by Hwang Kyo-Ahn. Many people in Korea have become very dissatisfied with failing economic policies of the incumbent Moon Jae-In party and its excessive populism. 

In the past week, the following reports that are relevant for Japan and Korea have received a lot of interest among Smartkarma readers:

• Amarin–Our Talks With The CEO & An Update on New Trial Data Released at ACC Conference
• It’s The Annual Tuesday & Wednesday BUY TOPIX Trade
• Nissan: Atrocious Governance Should Be Rectified Before Even Thinking of a Merger
• Hitachi Bumps Yungtay Bid to NT$65. Take It.
• KOSPI 200 June 2019 Rebalancing: List of Addition/Deletion Candidates
• Samsung Electronics Voluntary Red Flag on 1Q Earnings
• The Final Countdown Between NPS Vs Korean Air Chairman Cho Yang-Ho
• SNK Corp IPO Preview

4. Screening the Silk Road: (Small-)Mid Cap Free Cash Flow

In April 2018, we published a FCF screen with the sole aim of identifying potential names which could prove to be strong candidates in a Small-Mid Cap portfolio. We move to update this list with a strong bias to the mid-cap stocks appearing.

This screen performs well with markets where the value style is in favour. Given the market appears to be trending back to this style, we believe the Small-Mid Cap universe should capitalise on this over the next 12-months. We identify within the screen some high trading liquidity deep value candidates across the Asia Pacific universe.

Our updated 2019 list of names contains 17 stocks, with a more diversified spread of countries and sectors, compared to April 2018. A point to note is that basic material stocks have strengthened within the composition. Interestingly, the style of stock which has increased its presence amongst the list is the contrarian style, highlighting an opening up in value.

5. Denso Continues to Strengthen Its Investment CASE with Acquisitions

Denso Corp (6902 JP) announced this month that it has invested in the Seattle-based connected vehicle services pioneer- Airbiquity Inc. Airbiquity is one of the leading companies in the connected vehicle services sector and has been one of the companies that has continuously developed automotive telematics technology. This investment made by Denso follows its investment made in Quadric.io this year ( Stake in Quadric.io Following Renesas; Denso Attempts to Keep Chip Makers Close to Achieve AD Aims). As we previously mentioned, Denso is in full swing in its development in the autonomous driving field and next-generation technologies development. Thus, it wouldn’t be a surprise to see Denso emerge as the first mover in next-generation technologies such as AD and connectivity solutions. According to Denso, its investment worth $5m in Airbiquity is expected to accelerate the development of over-the-air (OTA) systems for wirelessly updating automotive software from a remote location. OTA systems are methods of distributing new software, configuration settings, and providing updates to the electronic device in use, for instance, a car navigation system in a vehicle. These OTA systems which have been increasingly used to update the software of such multimedia products in a vehicle are now gaining more prominence given the emergence of next-generation technologies such as electrification, EV and connectivity. We also believe that Denso’s Stake in Airbiquity is likely to accelerate Denso’s transition in its business model to be a leading software solution provider. Thus, its series of investments such as in Tohoku Pioneer EG, JOLED, ThinCI, Quadric, and now Airbiquity are indicative of the decisiveness of its change in business model and moves towards achieving next-generation technology leadership.