The global shift is coming. Michael Kurtz of Nomura writes on Global Equity Strategy today on how the US will lag Asia and Continental Europe this year:

“With Fed Chair Yellen professing confidence in US labor market strength and the ‘transitory’ nature of oil-induced low CPI readings, two phenomena impose themselves upon the global equity foreground:

1. eventual acceleration in US wages, to the continuing benefit of US consumer spending power but the relative profit-margin disadvantage of US firms; and

2. ongoing US dollar firmness sustained by Fed expectations which already is helping redistribute US demand growth into the rest of the global economy via stronger US imports.

“[This is clear from] the recent US Q4 GDP breakdown, within which -- largely unappreciated amidst a predominant focus on the ‘disappointing’ headline number -- year-on-year US private consumption actually continued to accelerate (both goods and services). A key subtractor from the 2.2% SAAR ‘headline’ figure was net trade meaning more of that underlying US consumption pickup is materializing as imports from the rest of the world. This is good news for global markets receptive to any external shot-in-the-arm.

“Both continuing dollar strength and gathering US wage pressure (even if the Hourly Earnings component of today’s otherwise surprisingly strong February job data underwhelmed), suggest US stocks could continue to underperform in months ahead, even as US growth remains the global recovery’s key pillar, and even as the S&P continues to rise in absolute terms (as we expect). This was the pattern during the last Fed hiking cycle (2004-06 and beyond), [when] the S&P 500 rallied a robust 45% but was still bested by MSCI World Equities’ greater 65% gains.

“We expect single-digit absolute S&P 500 upside [in] 2015, with our current index target of 2,175 based on modest multiple expansion to 18x forward (2016) EPS of $120.80/sh We expect greater returns in Japan and Asia ex-Japan (both Overweight) [and] Continental Europe (Neutral),markets that benefit from rising US wages and, dollar strength, leaving us Underweight the S&P 500 by default.”

Monday the European Central Bank belatedly begins its quantitative easing program, now expected to run only about 18 months. If Mario Draghi is to be believed, this will be long enough to produce the growth and inflation needed.

More  follows from Belgium, Spain, South Africa, Germany, Switzer-, Ire-, Fin- and The Nether-lands, France, and Britain. Including an annual report and a new stock pick and a sell.

Biosimilars and Other Drugs

• Belgian Galapagos Group reported unaudited full year 2014 revenues of €108 mn,including €18m from discontinued operations (Biofocus and Argenta, both sold). Net profit at €33 mn (v €8.1 mn loss in 2013) beat forecasts. This result of €1.24/sh mainly resulted from divestiture of its former US service operations.

It closed the year with cash of €198 mn, enough to operate until the end of 2016 but there may be more income from milestones and licenses.

Its phase 3 trials for rheumatoid arthritis drug filgotinib, after completing phase 2 trials Darwin 1 and 2, achieved 98% recruitment of eligible patients them now enrolled in the long- term extension Darwin 3. A decision on whether to proceed depends on interpretation of the 24-week phase 2B trials by AbbVie which licensed filgotinib. It delivered a pre-clinical osteo-arthritis candidate, GLPG1972, under its alliance with Servier. Phase 1 starts in 2015. Our former Milan-based biotech maven works in the RA area at GLPYY, why we own this stock.

Clinical phase 2 trials have also begun for its cystic fibrosis triple-combo therapy to be completed by midsummer. This is a major breakthrough. Galapagos reported restoration of up to 60% healthy CFTR function in pre-clinical evaluations of its combo therapy compounds for the class II cystic fibrosis mutation. It also initiated Phase 1 study with potentiator GLPG1837, for which topline results expected Q3 2015. It also nominated corrector GLPG2222 as a pre-clinical candidate, with the Phase 1 start expected before the end of this year.

Its GLPG1205 Phase 2A study for ulcerative colitis has begun. It is enrolling 180 patients for a phase 2 Crohn's disease stufy of filgotinib. It also disclosed a new target GPR84 in ulcerative colities. Galapagos nominated pre-clinical candidate antibody MOR106 in its inflammation in its alliance with MorphoSys.

It initiated Phase 1 study with GLPG1690 in the alliance with Janssen Pharmaceutica NV, after reporting positive topline results in Q1 this year. Janssen is a sub of Johnson & Johnson.

Separately, Galapagos has been added to the Amsterdam mid-cap stock index which may boost its extremely low visibility. The ADR, GLPYY, hardly trades in the US, why we track the US moves of the Belgian stock with GLPGF.

(Dutch shares are very easy to trade in the US without ADRs. Under Dutch law a trade can take place anywhere a buyer and seller get together. So big Dutch shares like Phillips, Shell, and Schlumberger do not have ADRs, but New York shares.)

• Today Novartis (NVS) sub Sandoz won the first FDA approval for a biosimilar drug, a copycat of Amgen's Neupogen from Novartis called Zarxio for all 5 indications for using Neupogen which boosts white blood cells. A biosimilar is not a generic drug because it is produced

But market success is not assured right away, as the Swiss pharma's CEO has been first to admit. The problem is that doctors fear the genric is not as safe as the Amgen variety, despite our FDA. US biosimilars are latecomers, since they have been in use in Europe since 2006. There 17 biosimilar products are already on the market.

NVS CEO Joe Jimenez expects prescriptions for for Zarxio will take time to grow. He expects the tipping point for biosimilar drugs, priced ~25% below their pricey reference products, will not come till 2020, after US doctors get used to them and the FDA has figured out just how to regulate them.

Our FDA defines biosimilars thus: a biological product that is highly similar to a US-licensed reference biological product notwithstanding minor differences in clinically inactive components, and for which there are no clinically meaningful differences between the biological product and the reference product in terms of the safety, purity, and potency of the product.

NVS's CEO told Nikkei (news service) today: We can rebuild our good name after 'reputational hit' in Japan What's going to save Novartis' reputation in Japan? Science, says CEO Joe Jimenez, a week after the government suspended his Japanese unit for failure to report side effects.

• Here's why Bavarian Nordic landed that big contract. Good results last month from a prostate cancer vaccine, which we reported. BVNKF announced positive survival data from a Phase I combination study of its active prostate cancer immunotherapy candidate Prostvac and Bristol-Myers Squibb's Yervoy (ipilimumab), an immune checkpoint inhibitor. Thirty study participants with metastatic castration-resistant prostate cancer (mCRPC) were treated with Prostvac and escalating doses of ipilimumab. The median overall survival was 31.3 mos. It was 37.2 months for patients who got a 10 mg/kg dose, and 20% of patients in this group remain alive at the 80-month mark. That's a significant improvement over docetaxel, which at the time of enrollment was the only FDA-approved treatment to improve overall survival, extending lives by a median 18.5 months. The official ADR is dormant, BVNYY, so use BVNKF or BVNRY. I use the former; reader JS uses the latter. They track each other.

• GlaxoSmithKline (GSK) cut the total compensation of CEO Sir Andrew Witty to £3.9 mn in 2014 according to the fine print on its annual report, down from £7.2 mn in 2013. His salary was up slightly but his bonus was cut 51% to £917,000 ($1.4 mn). Knighthood is going cheaply.

• EuroBiotech Report writes today that an investment vehicle backed by the megarich Serono family plans to merge Stallergènes (now Paris-GENP) with Greer to create a transatlantic allergy immunotherapy player to go toe-to-toe with Circassia (LON:CIR) and US Merck. We used to own the French developer of sub-lingual under-tongue allergy desensitizing drugs before Serono bought it. (Serono later merged with Merck KgA of Germany. )

As is usual in Swiss acquisitions, Serono underpaid for the French firm; making it worse is that Fidelity Brokerage sold my shares (because there was no SEC offer document) at a price just under the offer but not in euros, but in US dollars. So I went to arbitration against Fidelity, lost because arb is a racket, and was told to move my account and not darken Fido's door again, how I wound up with e-trade.

Heavy Industry

• Abengoa has won a major contract to build a 100 megaWatt solar-thermal power plant complex for a public-private partnership in Poffader in KaXu, Cape Province, South Africa. The plant will feed into Eskom, the energy-short electricity ute. ABGB is not providing funding.

• Dutch Schlumberger Ltd won designation as its top oilfield services play by Credit Suisse today. SLB is expected to outperform in a low-oil-price period.

• We are not buying Cemex (CX, Mexico) to gain from the divestitures regulators requite to allow the pending merger of Swiss Holcim and French Lafarge in European cement. We already are owners of CRH (CRH), an Irish firm, which is buying the bulk of the divested assets.

Geek Stocks

• SAP is zapping staffing by cutting 2,200 jobs under a second round of cuts under CEO Bill McDermott. The reduction is about 3% of its workforce as SAP moves toward cloud computing rather than traditional licensing. As was pointed out by our article by Ronald Fink, that less quickly profitable software sales while Hana cloud system payments are stretched out over time. Ron will be adding new yield shares to our portfolio next week.

• ”Alcaraz”, an anonymous Filipino analyst, says “a GeekBench test result hints that Nokia is already working on an Android phone”.

After selling its existing line to Microsoft, Nokia can start selling phones again in 2017. NOK is already selling its N1 Android tablets in China using "hunger marketing", pre-releasing small numbers which only feed demand. Alcaraz also says that NOK was wrecked by ex-MSFT CEO Stephen Elop's excessive love for Windows phones.

Fund Notes

Gen. Joe Shaefer writes in The Investor's Edge about a new holding in his Stanford Wealth Mgmt. portfolio (reprinted with permission). We are adding it to our fund portfolio:

Commodities and basic materials are not exactly a popular investment theme these days. But we don’t invest for today; we invest today to be where we want to be tomorrow. And if we can do it with a near 7% yield, even better. A country ETF may be just the ticket: the Global X Norway ETF (NORW). It is not currency-hedged so our returns in Norwegian kroner will take a haircut when the fund translates returns into dollars. I am skeptical that the dollar will continue its meteoric rise.

If ever there was a nation likely to enjoy a strong currency when others fail, it would be one that has a $900 bn sovereign wealth fund established for the future of its people, blessed with abundant natural resources in demand for export trade, and a AAA credit rating.

The #1 position held by NORW is Statoil. STO comprises 16% of NORW and that’s dandy. Sure STO is down right now. It is an oil stock, an industry leader in its interest coverage, cash to debt ratio, operating and net margins, ROE, ROA, revenue growth, and EPS growth [at a] trailing PE of just 10. Its price/book ratio is just 1.2, price/sales 0.7, and its EV/EBIT only 3.15 (which may be the lowest in the industry.

It is a major player in the US, active operations in the Bakken, Marcellus, Eagle Ford, and offshore Gulf of Mexico. In India, Mexico, Myanmar, and 30 other nations, Statoil’s experience in Norwegian continental shelf is [an] entrée to joint venturing for deep water exploration.

The 2nd biggest is DNB, Norway’s largest financial services firm,underwriter, and bank. It, too, has global reach.

#3 is Telenor (TELNF) just out of the top ten telecos in revenue, but in another measure of size, total number of mobile subscribers, bigger than AT&T or Verizon and only slightly smaller than China Telecom. Telenor owns networks in 12 countries and has other operations in 29 more.

They also reach into Russia, the ‘Stans and elsewhere via their 33% j.v. with Russia’s Vimpel, and have extensive broadcasting and TV distribution throughout Scandinavia.

NORW’s other holdings include Yara Intl, the global chemicals and agricultural fertilizer company; Norsk Hydro, the aluminum and hydroelectric power firm; Schibsted, international publisher of print and online newspapers and information; Marine Harvest; Opera Software, the Internet browser, cloud provider and more; and Norwegian Air Shuttle, which provides the best bargain fares from the US to most of the key European gateways and is growing like Topsy.

NORW’s average P/E is 11. It sells near its low for the past year. And it yields 6.7%, payable only at year-end. It’s a buy.

• To make room we are selling Thai Fund, TTF, over politics. This follows sale of a small cap pick by ex-contributor Paul Renaud (from the www.global-investing.pro minutewoman portfolio). Only a few subscribers joined me and Paul in selling TRC Construction PCL, for a gain of 500%.

While Thailand is a business growth story, investing there should not require that we pledge dis-allegiance to the United States, the current major theme of Paul's Thaistocks.com blog.

We invest abroad but continue to put up with and pay taxes here, even if our country has faults Paul rants about. Meanwhile he ignores Thai risks: the vexed succession of the ailing king; the military junta in power; environmental negligence; the Thaksin and Yingluck Shinawatra challenged; the red-shirt rebellion against the business and political elite. I don't want to have to censor the political posture of my writers, which is why Paul is out.

• Poland surprised the market today with another 0.5% cut in its benchmark to 1.5%, the lowest ever. It cut its rates last in Oct. 2014. We are invested in Poland via MSCI Poland Investible Exchange-capped ETF, EPOL. It stands to gain immediately from the lower interest rate since about half its holdings are banks and insurance companies.