AAUC (AA UNION CAPITAL) Investment strategy

Oil prices have slumped since early October amid an abrupt positioning unwind among investors accompanied by bearish fundamentals. This may well change as developments related to Iran, supply/demand estimates, seasonality, and OPEC decisions could turn supportive. Hence, we see chances of a tactical rebound in the coming weeks and recommend adding exposure, either directly or by exploring option strategies.

Another way of gaining exposure is via energy equities. Q3 results confirmed that energy profits remain in a strong recovery mode and the vast majority of our energy top picks reported double-digit earnings growth. We outline our preferred companies.

AAUC ( AA UNION CAPITAL) RESEARCH TEAM CIO view

Asian equities: Bearishly optimistic

There has been a lot to be bearish about Asia in 2018, but in my view, selling fatigue has set in among investors. Markets are now oversold. While the outlook maybe somewhat cloudy, markets seem to have priced in a substantially – and probably unrealistically – more negative outcome.

Expected regional returns

Mid-November saw the AAUC Global Risk Appetite Index (GRA) generate a weekly technical buy signal for the MSCI Asia ex-Japan Index (MXASJ) for the first time since mid-2015. As the analysis suggests, this typically represents a reliable and important signal.

Without getting into too much detail, the metrics show – with a reasonable degree of confidence – that since 1991, each time a buy signal was triggered, a return of 25% was generated over the subsequent 70 weeks with 63% of these signals being successful.

Similarly, over the same period, we also note the GRA also generated buy signals for the HSI and MSCI Singapore indices. For the HSI, a return of 27.3% was generated over the subsequent 70 weeks with 63% of the signals being successful. For the MSCI Singapore Index, a return of 19.3% was generated over the subsequent 70 weeks with 57% of the signals being successful.

Indeed, more broadly, the entire emerging market (EM) complex is firing buy signals right now with the overall MSCI EM Index also expected to return 25.4% in the next 70-week period.

In my view, selling fatigue has set in among investors. Almost daily we read of asset managers active in accumulating deep value stocks across Asia, taking advantage of depressed pricing. I will wait for the “starting tweet” at the end of the month before I recommend we do the same.

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