India Equity Research: J.P. Morgan - Asia

Asia - Keep The Faith Asia Technicals Strategy: Charting The Course

MXAPJ’s inability to get past the strong 485-492 resistance zone and underperformance in the last 3-weeks is challenging a bullish absolute and relative view (end of underperformance, 7Feb14; good morning Asia, 26Mar14). Despite this weakness/ under-performance, momentum remains supportive and we would retain long/ outperformance positions with stops at 460 (current 475) and 27.4 (on relative index, vs. 28.2 currently). Ultimately a stronger upside will remain hostage to a clear breakout above the 485-493 resistance levels. In the meantime, keep the faith and use rotational opportunities – Top Outperform – India, Singapore, (Countries) and Energy (sectors). Top Underperform – China, HK (Countries) and Cons. Disc. (Sectors).

Figure 1: Top Technicals Picks

TOP PICKS	OUTPERFORM	UNDERPERFORM
COUNTRIES	INDIA	CHINA
	SINGAPORE	HONG KONG
	THAILAND

SECTORS	ENERGY	CONSUMER DISCRETIONARY

Source: J.P. Morgan.

· MXAPJ – Monthly chart (Figure 2) based on closing levels clearly shows the index capped by the Jul’11 falling trendline and contained in a “triangle”. A breakout from this formation is needed to determine trend direction. On the weekly charts(Figure 3), a third attempt at going past the 485-492 resistance zone faltered in mid-April. Although the index has pulled back 2.5% from mid-April highs, indicators such as MACD, RSI remain supportive of long positions. The index has retained its sequential “higher-highs and higher-lows” further supporting retention of long positions.

· MXAPJ vs. MXWO (Figure 4) – After a bottoming out in Jan/ Feb (see note of 07Feb14), relative index suggested outperformance action in late March (see report of 26Mar14). Relative performance has however unwound over the last 3-weeks and in the process the relative index has pulled back below its 40wma. Yet, the relative index’s RSI and MACD remain supportive for outperformance positions. Relative index has support at 27.4 (Mar’14 low) vs. current 28.2 levels – outperformance longs should use this as a stop loss.

· Rotational Opportunities (Countries) (Figure 5) – Rotational chart shows a substantial momentum fade for strong performers Indonesia and Philippines over the last 6-7 weeks. While these markets continue to outperform, this appears to be decelerating. In contrast, Thailand and Singapore appear to be gathering performance momentum. Korea, HK, China are both under-performing and show worsening momentum. Taiwan and India appear to be seeing momentum revival. See figures 7-14 for country charts

o TOP OUTPERFORM – INDIA (Figure 10), SINGAPORE (Figure 11), Thailand (Figure 13)

o TOP UNDERPERFORM – CHINA (Figure 7), HK (Figure 8)

· Rotational Opportunities (Sectors) (Figure 6) – Tech, consumer discretionary, materials and healthcare have lost substantial momentum in recent weeks while staples, energy have seen momentum revival along with financials. Recent outperformance for financials faces headwinds. See figures 15-18 for key sector relative charts.

o TOP OUTPERFORM – ENERGY (Figure 16)

o TOP UNDERPERFORM – CONSUMER DISCRETIONARY (Figure 15)

Figure 2: MXAPJ Monthly (Close Basis) Back to Text