Best Performing Large-Cap ADRs: January 2019

|
Includes: BABA, BHP, BIDU, BUD, CTRP, EBR, EDU, EEM, EWZ, FSUGY, HSBC, JD, LUPEY, PBR, RDS.A, SFTBY, SNP, SPY, TCEHY, TEVA, TM, VALE
by: Dan Victor, CFA
Summary

Global stocks rebounded strongly from lows in December.

Dovish Fed has led to weakness in the U.S. Dollar supporting emerging market sentiment and foreign stocks.

Large-cap stocks from Brazil benefited by optimism from new Presidential administration taking office.

This article highlights the best performing foreign stocks year to date 2019 for the month of January. The YCharts equity screening database counts 1,787 American Depositary Receipts ("ADRs") trading on a U.S. exchange including over-the-counter issuers. Narrowing the list among firms with a stated market cap above $10 billion and excluding stocks with no trading volume over the past month, the universe here considers 510 ADRs. In the case of companies that have dual share-classes I am only counting the more liquid stock with higher trading volume. An analysis of the large-cap ADRs data draws some interesting insight and this article shares some of the current themes driving equity prices across the globe.

Large Cap ADRs by Country

Among 510 in the identifiable universe, Japan leads all countries with 99 traded large cap ADRs. Mega-cap Japanese stocks are led by Toyota Motors Corp (NYSE:TM) and SoftBank Group Corp (OTCPK:SFTBY). For the purpose of the article, 79 stocks from China combine Hong Kong H-shares, and Cayman Island variable-interest entities that are structured to flow earnings from mainland companies. Alibaba Group Holdings (NYSE:BABA) and Baidu Inc. (NASDAQ:BIDU) use this structure. The United Kingdom is the third largest country in terms of large cap foreign stocks with 40, led by Royal Dutch Shell Plc (NYSE:RDS.A) and HSBC Holdings Plc (NYSE:HSBC) in terms of market cap. Overall as a group, foreign stocks averaged 8.4% return in January.

ADR Jan '19 return distribution by country. Data by YCharts/ author table

Top 50 Performing Large Cap ADRs YTD

Brazilian stock Centrais Eletricas Brasileiras SA (NYSE:EBR) with a market cap of $13.8 billion also known as "Eletrobras" returned 60.5% in January leading all foreign stocks. EBR is also up 122.5% in just the past 6 months and much of that performance is related to political developments in Brazil with the election victory by new President Jair Bolsonaro. The right-wing former congressman won on a platform of sweeping economic reforms including the promise to privatize a number of state owned companies, or at least divest non-core assets, and Eletrobras has been cited as a target. The prospect of lower regulation, and a cut to corporate tax rates has been positive for Brazilian equities.

China's New Oriental Education & Technology (NYSE:EDU) with a market cap of $12.2 billion rose 40.6% in January as the second best performing foreign stock. The company is China's largest private education and reported better than expected earnings when it reported on January 22nd. The stock is still down 16% over the past year which could mean further upside in the near term on its current relative strength.

ADR returns YTD. Data by YCharts/ author table

Out of the top 50 performing ADRs, 10 are Brazil stocks. Indeed, the new presidential administration has brought a sense of optimism to the economy represented by higher consumer sentiment figures that have been trending higher since the election. The economy is recovering from a deep recession between 2015 and 2016 and is now benefiting from a period of low inflation and record low interest rate. GDP is forecast to reach 2.5% this year from an anemic 1.5% in 2018. Brazil has been one of the best performing markets in the world this year also supported by a stronger Brazilian Real. I previously published more information on Brazil in this article.

The chart below highlights the Brazil strength comparing a few MSCI country and region specific ETFs with the S&P 500 index (NYSE:SPY). iShares MSCI Brazil Capped ETF (NYSE:EWZ) is up 18.85% YTD, ahead of the iShares Emerging Markets ETF (NYSE:EEM) up 9.47%, and SPY up 8.06%

Chart Data by

YCharts

Another important theme to start the year has been the recovery in commodity prices, particularly since the lows of December. Among the best performing ADRs are 11 materials and energy stocks. Australia's Fortescue Metals Group Ltd. (OTCQX:FSUGY) is up 38% YTD. The company gained as iron ore prices spiked on news of the mining dam collapse in Brazil resulting in Vale SA (NYSE:VALE) announcing production cuts. Subsequently, Vale is one of the worst performing ADRs on the month, down 6%

Energy stocks with significant returns last month include Sweden's Lundin Petroleum AB (OTCPK:LUPEY) up 28.7%, Brazil's Petrobras (NYSE:PBR) up 25.3%, and China Petroleum & Chemical Corp (NYSE:SNP) up 18.2%. The price of Brent crude rallied 16% since the low in late December.

Takeaway

Equity markets globally have been extremely volatile in recent months, and in January that meant significant upside. S&P followed up its worst December since 1931 with the best January in 30 years. Going back to October when markets started trending lower; concerns over global growth, uncertainty from the ongoing U.S. China trade dispute, and difficulty projecting the path of U.S. rates have been just some of the factors blamed on the market weakness.

More recently, dovish comments by the Fed have supported equities supporting global risk sentiment. Lower yields in the U.S. has been reflected in a weaker Dollar supporting foreign currencies. Looking ahead further weakness in the Dollar will be positive for commodity prices and emerging markets. Foreign stocks will continue to offer the potential for outsized returns.

Disclosure: I am/we are long BIDU, EWZ, PBR, BABA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.