The Federal Reserve is trimming its monthly bond purchases to $75b from $85b. Previously there was fear of such tapering but now, markets cheer this move. This may be for reasons like 1) Less easing means that the value of the USD is preserved, 2) Uncertainty with regards to this issue is lifted, 3) Sell in anticipation, and buy on news. Let me explain point 1 since it is more technical and the rest are self-explanatory.
In past few days, flow data shows 1) a reversal to inflow into USD, 2) inflow into US Bonds, 3) outflow on US stocks. This may be in anticipation of tapering. Tapering means less money supply so USD will be stronger. Bonds have corrected a bit during the Stock market rally so to preserve the value of the USD, bonds make a better investment than stocks for now.
Why selling of US stocks and now US stocks jump after the tapering news? The reason here can be that US stock outflow was due to non-US investors as I have highlighted before. So, when the value of USD is now better preserved (less downside), non-US investors reload their US stock holdings in the short term.
What does it mean for traders and investors like us?
Further rally may be in the making. The Fed said its benchmark interest rate is likely to stay low “well past the time that the unemployment rate declines below 6.5%, especially if projected inflation continues to run below” the Fed’s 2% goal. This means that hot money will continue to support the market and sentiment is positive for now. Any negative sentiment shall provide a healthy dip and opportunity for others to buy. The positive sentiment from the US is likely to affect developed markets (Europe, Japan, HK, SG) more. “2 weeks – 2 month – timeframe” positions on index component stocks may be optimal as we hold through to Yellen’s stepping into office.
Thursday, 19 December 2013
Friday, 13 December 2013
Commentary: Bits and Pieces of the Market Jigsaw
There are many bits and pieces of information that can form a clearer picture of the market outlook that I would like to highlight to everyone. These are organised in terms of time horizon.
Tactical (1week – 1 month)
USD shows a rebound. This means that non-US investors have less reason to sell their USD assets. Pullback in US stocks have been attributed to selling by non-US investors so if the trend does not persist, downside is limited. On the flipside, the buyers on the sell-down were likely to be US investors. This shows a certain level of confidence they have in their own market. Another point here is the discussion on the budget. This affects the supply of and value of USD and must be observed more carefully.
Strategic (1 month – 6 months)
Cheap money remains abundant and shall continue to inflate asset prices. This is in contrary to Bill Gross’ investment outlook. The reason why I would audaciously beg to differ is because our investment horizon is much shorter than PIMCO. Cheap money not only comes from the US but Japan and China as well. Look at how Abenomics is affecting the Japanese economy driving short term price inflations and now fuels the need to increase Japanese income. In China, the government is supporting various labour intensive industries like Shipbuilding so as to maintain employment and income levels. Also, Chinese manufacturing is slowly moving into IndoChina (Vietnam, Cambodia, Laos). This means that Chinese money moves out of China this way as well.
At a time when business confidence is just returning there is no reason why central banks would increase interest rates or the Fed do tapering if it still has the means to maintain a loose monetary policy.
Mergers and acquisitions have been picking up recently all over the world. In my opinion, business men are taking the opportunity to consolidate weaker competitors because they are optimistic. This is important because earnings projections now are likely to be inaccurate. P/E will get lower when earnings increase. Certain companies with incredibly high P/E due to a slump in profits thus far may become undervalued. It is better to value companies based on their Cash Flow rather than earnings now. This is a part that most analysis and reports lack at the moment. This may change in the coming months so it is something to lookout for and turn to our advantage.
Tactical (1week – 1 month)
USD shows a rebound. This means that non-US investors have less reason to sell their USD assets. Pullback in US stocks have been attributed to selling by non-US investors so if the trend does not persist, downside is limited. On the flipside, the buyers on the sell-down were likely to be US investors. This shows a certain level of confidence they have in their own market. Another point here is the discussion on the budget. This affects the supply of and value of USD and must be observed more carefully.
Strategic (1 month – 6 months)
Cheap money remains abundant and shall continue to inflate asset prices. This is in contrary to Bill Gross’ investment outlook. The reason why I would audaciously beg to differ is because our investment horizon is much shorter than PIMCO. Cheap money not only comes from the US but Japan and China as well. Look at how Abenomics is affecting the Japanese economy driving short term price inflations and now fuels the need to increase Japanese income. In China, the government is supporting various labour intensive industries like Shipbuilding so as to maintain employment and income levels. Also, Chinese manufacturing is slowly moving into IndoChina (Vietnam, Cambodia, Laos). This means that Chinese money moves out of China this way as well.
At a time when business confidence is just returning there is no reason why central banks would increase interest rates or the Fed do tapering if it still has the means to maintain a loose monetary policy.
Mergers and acquisitions have been picking up recently all over the world. In my opinion, business men are taking the opportunity to consolidate weaker competitors because they are optimistic. This is important because earnings projections now are likely to be inaccurate. P/E will get lower when earnings increase. Certain companies with incredibly high P/E due to a slump in profits thus far may become undervalued. It is better to value companies based on their Cash Flow rather than earnings now. This is a part that most analysis and reports lack at the moment. This may change in the coming months so it is something to lookout for and turn to our advantage.
Wednesday, 11 December 2013
Special: Time to Bargain Hunt?
Flow data shows non-US investors taking profit on US stocks. Perhaps the Dollardex ( DXY) is at a level at which more downside is expected. This is in contrast to the rise in the US indices previously. S&P and Dow Jones Industrials retreated last night but it does look as if the dip has just begun.
As such, some downside can be expected in the coming days. Asian markets like Japan, China and HK can be reasonably expected to retrace “gaps” on the indices. This may drag sentiment down further.
Looking at 3025 – 3050 on the STI here and about 23300 on HangSeng. Suggest that market participants focus on banks and industrials for bargain hunting. Industrials in this case, mean heavy industries like shipbuilding, autos, machinery. Property stocks, even though they are high beta, may not perform as well on the rebound as fundamentals for property in the region remain weak. Commodities may be a high beta alternative but soft commodity and energy prices have moved ahead already.
Fundamentally, the market looks sound and the consensus on 2014 is generally positive with a focus on stock selection. At a moment like this I would prefer to focus on picking the right sectors rather than specific stocks because sectors can turnaround together, and it does not really matter which stock you choose to trade in those sectors.
Once again, the sectors that have been identified are generally banks and industrials. Those who wish to take higher risk can consider the tech stocks and gaming stocks listed in HK. There may be another wave which may include consumer stocks but that is for a later discussion.
As such, some downside can be expected in the coming days. Asian markets like Japan, China and HK can be reasonably expected to retrace “gaps” on the indices. This may drag sentiment down further.
Looking at 3025 – 3050 on the STI here and about 23300 on HangSeng. Suggest that market participants focus on banks and industrials for bargain hunting. Industrials in this case, mean heavy industries like shipbuilding, autos, machinery. Property stocks, even though they are high beta, may not perform as well on the rebound as fundamentals for property in the region remain weak. Commodities may be a high beta alternative but soft commodity and energy prices have moved ahead already.
Fundamentally, the market looks sound and the consensus on 2014 is generally positive with a focus on stock selection. At a moment like this I would prefer to focus on picking the right sectors rather than specific stocks because sectors can turnaround together, and it does not really matter which stock you choose to trade in those sectors.
Once again, the sectors that have been identified are generally banks and industrials. Those who wish to take higher risk can consider the tech stocks and gaming stocks listed in HK. There may be another wave which may include consumer stocks but that is for a later discussion.
Monday, 2 December 2013
Kepcorp negotiating new contracts, Vard secured new contract, GSH buys Land in KL, Market Participants' Dilemma
Opportunities
Keppel Corp (BN4, $11.31) confirms that it is currently negotiating with Golar LNG on the conversion of an existing LNG carrier into a Floating Storage and Liquefaction Vessel (FLSV). The terms and conditions of the contracts have yet to be finalized.
Comments: All these upcoming project expectations may be why Keppel remains strong compared to SembMar.
Vard (MS7, $0.80) secured a NOK400m contract from Island Offshore to construct an advanced offshore support vessel, scheduled for delivery in 1Q15.
Comments: Look at this. Stock price has been depressed for too long. A position trade may be worth considering.
GSH (J16, $0.075) acquired a 5,800sqm prime land parcel located at Jalan Kia Peng, in Kuala Lumpur's "Golden Triangle" from Malaysia’s Tropicana Corp, for a consideration of RM132.4m. The site is slated for mixed residential/commercial development.
Comments: Think this is better than Iskandar land.
Commentary
Market participants seem to be playing a game of “prisoners’ dilemma”. I shall summarise our “Market Participants’ Dilemma” below:
i) You buy, others buy, Everyone makes money when markets go up.
ii) You buy, others don’t buy, You may get stuck.
iii) You don’t buy, others buy, Others may get stuck.
iv) You don’t buy, others don’t buy, the market does not move.
Similar cases shall apply for a bearish scenario.
This is why position trading matters more in such a market. For position trades, you expect to get stuck at least for a couple of weeks. This is what is happening in markets that are moving at the moment. Participants take a longer view and so everyone still buys. If no one wants to get stuck in the short-term, some markets (like Singapore) do not move much.
Keppel Corp (BN4, $11.31) confirms that it is currently negotiating with Golar LNG on the conversion of an existing LNG carrier into a Floating Storage and Liquefaction Vessel (FLSV). The terms and conditions of the contracts have yet to be finalized.
Comments: All these upcoming project expectations may be why Keppel remains strong compared to SembMar.
Vard (MS7, $0.80) secured a NOK400m contract from Island Offshore to construct an advanced offshore support vessel, scheduled for delivery in 1Q15.
Comments: Look at this. Stock price has been depressed for too long. A position trade may be worth considering.
GSH (J16, $0.075) acquired a 5,800sqm prime land parcel located at Jalan Kia Peng, in Kuala Lumpur's "Golden Triangle" from Malaysia’s Tropicana Corp, for a consideration of RM132.4m. The site is slated for mixed residential/commercial development.
Comments: Think this is better than Iskandar land.
Commentary
Market participants seem to be playing a game of “prisoners’ dilemma”. I shall summarise our “Market Participants’ Dilemma” below:
i) You buy, others buy, Everyone makes money when markets go up.
ii) You buy, others don’t buy, You may get stuck.
iii) You don’t buy, others buy, Others may get stuck.
iv) You don’t buy, others don’t buy, the market does not move.
Similar cases shall apply for a bearish scenario.
This is why position trading matters more in such a market. For position trades, you expect to get stuck at least for a couple of weeks. This is what is happening in markets that are moving at the moment. Participants take a longer view and so everyone still buys. If no one wants to get stuck in the short-term, some markets (like Singapore) do not move much.
Friday, 29 November 2013
A New Perspective: China Property Curbs May be Positive for Stocks
Much has been written and reported on China property curbs by the central government. Much has been its dampening of the property market and property developers. The stock market has been hit to some extent as upside on property developer stocks have been limited. Is the market really so bearish or are we missing a different picture?
Let us look some indicators:
1) China’s 7+% GDP Growth moving forward is still amazing. Yes, it is not as good as before. They are in a “slow down”. But how many other countries have such growth numbers?
2) Consolidation within industries. We have all noted such announcements of public-listed companies but these numbers do not truly reflected the unreported private deals going on. The fact that big fish are taking out their smaller competitors by acquiring them is a bullish sign.
Now, think about why the China property market has boomed. We have all read about the “new rich” in Asia. Many business men have made their fortunes in China’s boom days. Some of their money has gotten to acquire property. Simple trend.
Now, consider that China has capital controls on the movement of RMB. Much money that has been earned from China’s domestic boom and growth in consumption is in RMB this money stays within China, mostly. Therefore, if there are property curbs in China to ease investment in the property market, the hot money has to flow somewhere else. China does not have a vibrant fixed-income (debt market). RMB is not a reserve currency for trading commodities. The simplest solution is to park money in stocks.
Shanghai Composite, SSE is trading at 10.97x P/E currently and at 8.56x FY14. This is attractive considering other major markets are trading above 10x FY14 P/E. The fact that China companies have been missing profit expectations puts a low base their earnings benchmarks. Any improvement in earnings in 2014 will make the market appear even cheaper in terms of FY 14 P/E.
I suggest we consider looking at blue-chips listed in Hong Kong and Singapore. December may be an excellent opportunity to accumulate when activity in the market is seasonally lower. Chinese New Year comes at the end of January 2014 so it may not be wise to be too hesitant.
Let us look some indicators:
1) China’s 7+% GDP Growth moving forward is still amazing. Yes, it is not as good as before. They are in a “slow down”. But how many other countries have such growth numbers?
2) Consolidation within industries. We have all noted such announcements of public-listed companies but these numbers do not truly reflected the unreported private deals going on. The fact that big fish are taking out their smaller competitors by acquiring them is a bullish sign.
Now, think about why the China property market has boomed. We have all read about the “new rich” in Asia. Many business men have made their fortunes in China’s boom days. Some of their money has gotten to acquire property. Simple trend.
Now, consider that China has capital controls on the movement of RMB. Much money that has been earned from China’s domestic boom and growth in consumption is in RMB this money stays within China, mostly. Therefore, if there are property curbs in China to ease investment in the property market, the hot money has to flow somewhere else. China does not have a vibrant fixed-income (debt market). RMB is not a reserve currency for trading commodities. The simplest solution is to park money in stocks.
Shanghai Composite, SSE is trading at 10.97x P/E currently and at 8.56x FY14. This is attractive considering other major markets are trading above 10x FY14 P/E. The fact that China companies have been missing profit expectations puts a low base their earnings benchmarks. Any improvement in earnings in 2014 will make the market appear even cheaper in terms of FY 14 P/E.
I suggest we consider looking at blue-chips listed in Hong Kong and Singapore. December may be an excellent opportunity to accumulate when activity in the market is seasonally lower. Chinese New Year comes at the end of January 2014 so it may not be wise to be too hesitant.
Thursday, 21 November 2013
Special: Market Outlook 2014 in Brief
We are currently in a stagnant period. Stock prices seem a bit on the high side and the uncertainty discourages market participants from taking risk. As such, we see that markets tend to either creep higher on low volume or, maintain status quo on relatively low volume. There is nothing fundamentally wrong in the market at the moment so, the market is trading more “technically” rather than fundamentally.
Moving forward, H1 2014 may be a good time. Bernanke is stepping down on Jan 31 so he is unlikely to rock the boat for now. Yellen taking over seems to be a “politically correct” person and so we can expect stimulus to continue as it has been expected. The only limit to stimulus, in my opinion, is the debt limit. This is not expected to be changed in the next 6 months as suggested by a Bloomberg report today. Therefore, the probability of any sweeping measures in the near term is relatively low.
In Asia, China’s growth is slowing down as expected so we do not see the negative effects of it badly affecting the stock market. Abenomics has been having short-term positive inflationary effects in Japan. Comparing stock prices, there is still a chance that there may be a geographical shift in asset allocation favouring Asia in the coming months.
My only concern now is Europe. It has been too quiet at that end and it is a big “?” if anything negative may come from there to expand our downside risk.
So what does this mean for investors/traders?
The current market situation favours position traders. Scalpers may get frustrated by the uncertain swings. Position traders can look forward to taking mid-term positions of a few weeks to a few months on this pull-back. Markets are seasonally boring at this time of the year. Prices on certain stocks can be attractive to hold into Jan and Feb. I am not pin-pointing any sector or counter at the moment because a general upswing will benefit everyone.
H2 2014 is still very uncertain at this point in time. Therefore, it is important not to look beyond what we cannot reasonably forecast.
Moving forward, H1 2014 may be a good time. Bernanke is stepping down on Jan 31 so he is unlikely to rock the boat for now. Yellen taking over seems to be a “politically correct” person and so we can expect stimulus to continue as it has been expected. The only limit to stimulus, in my opinion, is the debt limit. This is not expected to be changed in the next 6 months as suggested by a Bloomberg report today. Therefore, the probability of any sweeping measures in the near term is relatively low.
In Asia, China’s growth is slowing down as expected so we do not see the negative effects of it badly affecting the stock market. Abenomics has been having short-term positive inflationary effects in Japan. Comparing stock prices, there is still a chance that there may be a geographical shift in asset allocation favouring Asia in the coming months.
My only concern now is Europe. It has been too quiet at that end and it is a big “?” if anything negative may come from there to expand our downside risk.
So what does this mean for investors/traders?
The current market situation favours position traders. Scalpers may get frustrated by the uncertain swings. Position traders can look forward to taking mid-term positions of a few weeks to a few months on this pull-back. Markets are seasonally boring at this time of the year. Prices on certain stocks can be attractive to hold into Jan and Feb. I am not pin-pointing any sector or counter at the moment because a general upswing will benefit everyone.
H2 2014 is still very uncertain at this point in time. Therefore, it is important not to look beyond what we cannot reasonably forecast.
Monday, 11 November 2013
Special: Technical Observations
US Stocks
Daily index charts on the S&P500, Dow and Nasdaq do not appear meaningful at this point. A clearer picture can be found in weekly index charts. A great divergence in Moving Averages and “doji”s is a flag for caution. Currently, the US market seems to be supported by stability in the USD which is elaborated below.
USD
Dollardex has been ard the low 80s. 79 looks like a strong support. A look at the weekly trend over the past 2 years shows that the Fed is in control over the volatility of the USD. The stability of the USD despite the uncertainty and new measures in the US shall give confidence to investors of USD assets. This means that Bond and Stock markets have support and a sudden crash is not likely.
China, HK
Again, daily charts are not as meaningful. Weekly charts have turned clearly bearish with converging downside indicators and “dark clouds”. HK 10yr Gov bonds are swaying around high 93 – low 94, this is not normal and has a negative implication if it continues like this. As a benchmark, Singapore Gov Securities (SGS) are trading at high 104.
Singapore
SGD remains very strong with inflow above the norm. However, it seems that money is bring parked in the Bond market more than the Stock market, as we can see from the strength in SGS (SGS used as a benchmark for the Bond market). The Stock market shall remain stable as there is strength in the SGD so a sudden crash is also unlikely. However, weekly index chart is also more inclined to move negatively.
The bottom line
I suggest we take opportunity to unwind all positions. Any correction of as little as 5 – 10% shall give us an excellent opportunity to reposition. Blue-chips are generally more affected by macro trends but pennies may not be spared. Pennies that open high or get churned up may be “distributed” (in technical analysis terms) so it is necessary that we take caution.
Daily index charts on the S&P500, Dow and Nasdaq do not appear meaningful at this point. A clearer picture can be found in weekly index charts. A great divergence in Moving Averages and “doji”s is a flag for caution. Currently, the US market seems to be supported by stability in the USD which is elaborated below.
USD
Dollardex has been ard the low 80s. 79 looks like a strong support. A look at the weekly trend over the past 2 years shows that the Fed is in control over the volatility of the USD. The stability of the USD despite the uncertainty and new measures in the US shall give confidence to investors of USD assets. This means that Bond and Stock markets have support and a sudden crash is not likely.
China, HK
Again, daily charts are not as meaningful. Weekly charts have turned clearly bearish with converging downside indicators and “dark clouds”. HK 10yr Gov bonds are swaying around high 93 – low 94, this is not normal and has a negative implication if it continues like this. As a benchmark, Singapore Gov Securities (SGS) are trading at high 104.
Singapore
SGD remains very strong with inflow above the norm. However, it seems that money is bring parked in the Bond market more than the Stock market, as we can see from the strength in SGS (SGS used as a benchmark for the Bond market). The Stock market shall remain stable as there is strength in the SGD so a sudden crash is also unlikely. However, weekly index chart is also more inclined to move negatively.
The bottom line
I suggest we take opportunity to unwind all positions. Any correction of as little as 5 – 10% shall give us an excellent opportunity to reposition. Blue-chips are generally more affected by macro trends but pennies may not be spared. Pennies that open high or get churned up may be “distributed” (in technical analysis terms) so it is necessary that we take caution.
Wednesday, 2 October 2013
Yangzijiang bags US$871m contracts, KepFels clinches US$440m contracts, Vallianz orderbook boosted more than 27x
Opportunities
Yangzijiang (BS6, $1.10) bags orders worth US$871m for 12 bulk carriers and five containerships.
Comments: Positive news. Chart looks a bit overbought buy high may go higher.
KepFels, an arm of KepCorp (BN4, $10.37) clinches US$440m deal from Clearwater affiliate.
Comments: High Beta play that we can look at.
Vallianz (545, $0.059) takes over Rawabi Swiber's existing contracts, thus allowing it to boost its order book by more than 27 times to US$334 million, with a contract to charter Anchor Handling Tug Supply (AHTS) vessels to a leading oil company in the Middle East.
Comments: Stock is halted at the moment. Take note of it when it opens.
Commentary
Market seems to be having calm before the storm. As I have mentioned before, the next issue after the budget is the “debt ceiling”. This is a major problem as it not only affects whether the US government can function, it affects the amount of QE that can be done. Inability to increase debt may result in premature tapering.
The news has been full of noise. Even if the shutdown is short lived, a sudden situation leading to 800,000 civil servants stopping work for the next few days is already chaos. Fund managers interviewed by various news agencies have had positive comments on the US stock market this morning. This has been inconsistent with the flow data on US stocks.
Yangzijiang (BS6, $1.10) bags orders worth US$871m for 12 bulk carriers and five containerships.
Comments: Positive news. Chart looks a bit overbought buy high may go higher.
KepFels, an arm of KepCorp (BN4, $10.37) clinches US$440m deal from Clearwater affiliate.
Comments: High Beta play that we can look at.
Vallianz (545, $0.059) takes over Rawabi Swiber's existing contracts, thus allowing it to boost its order book by more than 27 times to US$334 million, with a contract to charter Anchor Handling Tug Supply (AHTS) vessels to a leading oil company in the Middle East.
Comments: Stock is halted at the moment. Take note of it when it opens.
Commentary
Market seems to be having calm before the storm. As I have mentioned before, the next issue after the budget is the “debt ceiling”. This is a major problem as it not only affects whether the US government can function, it affects the amount of QE that can be done. Inability to increase debt may result in premature tapering.
The news has been full of noise. Even if the shutdown is short lived, a sudden situation leading to 800,000 civil servants stopping work for the next few days is already chaos. Fund managers interviewed by various news agencies have had positive comments on the US stock market this morning. This has been inconsistent with the flow data on US stocks.
Monday, 30 September 2013
Commentary on US Budget Woes
Commentary
It has been a while since I wrote something and calls have been coming in to get a better grip of the situation. The lack of commentary over the last 2 weeks has been due to a lack of direction in the market and a penny fever that has been relatively irrational.
The latest buzz today is the US budget woes. This seems like a rephrase of debt ceiling issues we have every year. The US government has not enough money to fund their continuing operations. Some programmes and some parts of government may have to shut down. A solution to this will bring us back to raising the debt ceiling again. And the saga continues. Like how it does every year since 2008.
So, what is in it for us?
First, remember market history, it tends to repeat itself. Tapering talks that have been stalled means that there is something right about US economic recovery. The debt issues are the opposite of this. There can be a day where debt woes make way for tapering talks again when market is on the upswing. So, buy on dips can be a strategy.
Next, I hate to admit it but penny fever may be over, due to the effects of macro-economic news. Penny fever arose when there was no clear direction. Now, with macro influences, market has clearer direction (negative in the short term) so penny fever may subside.
What can we look at if not for pennies?
Every time macro news hits, blue-chip (especially index stocks) tend to be affected to a greater extent. Therefore consider sticking to “high-beta”. These are cyclical stocks like property stocks and industrials stocks like shipping. Banks can offer a good rebound too.
It has been a while since I wrote something and calls have been coming in to get a better grip of the situation. The lack of commentary over the last 2 weeks has been due to a lack of direction in the market and a penny fever that has been relatively irrational.
The latest buzz today is the US budget woes. This seems like a rephrase of debt ceiling issues we have every year. The US government has not enough money to fund their continuing operations. Some programmes and some parts of government may have to shut down. A solution to this will bring us back to raising the debt ceiling again. And the saga continues. Like how it does every year since 2008.
So, what is in it for us?
First, remember market history, it tends to repeat itself. Tapering talks that have been stalled means that there is something right about US economic recovery. The debt issues are the opposite of this. There can be a day where debt woes make way for tapering talks again when market is on the upswing. So, buy on dips can be a strategy.
Next, I hate to admit it but penny fever may be over, due to the effects of macro-economic news. Penny fever arose when there was no clear direction. Now, with macro influences, market has clearer direction (negative in the short term) so penny fever may subside.
What can we look at if not for pennies?
Every time macro news hits, blue-chip (especially index stocks) tend to be affected to a greater extent. Therefore consider sticking to “high-beta”. These are cyclical stocks like property stocks and industrials stocks like shipping. Banks can offer a good rebound too.
Tuesday, 17 September 2013
Singapore Air passenger load factor improves, Blumont invests in Resource Generation, Ezra issues debt
Opportunities
Singapore Air (C6L, $10.39) Aug. passenger load factor 82.4% vs 78.3%; Aug. overall load factor 69.1% vs 67.5%
Comments: SIA is still trading below book value (0.9235x P/B according to Bloomberg and 0.955x P/B according to Reuters). Previously, I have alerted everyone on SIA below $10 in the column. Keep this on your watchlist. Shipping and Aviation are industries worth looking into as they are in recovery phases. Yes, we may not see it yet but by the time recovery is clearer, prices would not be so cheap anymore.
Blumont Group (A33, $1.96) plans to invest A$21m-A$22m in Resource Generation
Comments: $3.3bil market cap and P/E of 245x according to Reuters.
Ezra Holdings (5DN, $1.295) issues S$25m 5% fixed rate notes due 2015.
Comments: Recent run up may spark profit-taking?
Commentary
Flows in Asian markets have been muted in the last few trading sessions. This suggests a quiet period and some profit-taking here and there.
Technically, charts on major indices are trading close to their downtrend resistance. A scenario that is possible is a false break and another leg down. This is a scenario that is worth keeping in mind in contrary to all the bullishness that says a breakout of these resistance lines will take the markets higher.
The bullish scenario is inconsistent with the flows at the moment so the chances of that happening, is not as high in my opinion.
Singapore Air (C6L, $10.39) Aug. passenger load factor 82.4% vs 78.3%; Aug. overall load factor 69.1% vs 67.5%
Comments: SIA is still trading below book value (0.9235x P/B according to Bloomberg and 0.955x P/B according to Reuters). Previously, I have alerted everyone on SIA below $10 in the column. Keep this on your watchlist. Shipping and Aviation are industries worth looking into as they are in recovery phases. Yes, we may not see it yet but by the time recovery is clearer, prices would not be so cheap anymore.
Blumont Group (A33, $1.96) plans to invest A$21m-A$22m in Resource Generation
Comments: $3.3bil market cap and P/E of 245x according to Reuters.
Ezra Holdings (5DN, $1.295) issues S$25m 5% fixed rate notes due 2015.
Comments: Recent run up may spark profit-taking?
Commentary
Flows in Asian markets have been muted in the last few trading sessions. This suggests a quiet period and some profit-taking here and there.
Technically, charts on major indices are trading close to their downtrend resistance. A scenario that is possible is a false break and another leg down. This is a scenario that is worth keeping in mind in contrary to all the bullishness that says a breakout of these resistance lines will take the markets higher.
The bullish scenario is inconsistent with the flows at the moment so the chances of that happening, is not as high in my opinion.
Wednesday, 21 August 2013
Keppel wins $280m contract, S&P chart, Senario Analysis
Opportunities
Keppel (BN4, $10.30) to build accomodation semi-submersible at approx. $280m.
Comments: Opportunity at almost year-to-date low? Year-to-date low is $10.23.
Chart of the Day
S&P Daily Chart looks like it is screaming for a rebound.
However, HSI and STI Weekly Charts show a contrasting picture.
Decoupling, divergence or are we too short-sighted?
Commentary
Market has sold off before Jackson Hole. Senario for extensive downside = massive tightening. Senario for kneejerk upside = almost everything else. It is times like this when we may wish to choose to bet against the Black Swan when the odds seem to be in favour of that.
Keppel (BN4, $10.30) to build accomodation semi-submersible at approx. $280m.
Comments: Opportunity at almost year-to-date low? Year-to-date low is $10.23.
Chart of the Day
S&P Daily Chart looks like it is screaming for a rebound.
However, HSI and STI Weekly Charts show a contrasting picture.
Decoupling, divergence or are we too short-sighted?
Commentary
Market has sold off before Jackson Hole. Senario for extensive downside = massive tightening. Senario for kneejerk upside = almost everything else. It is times like this when we may wish to choose to bet against the Black Swan when the odds seem to be in favour of that.
Tuesday, 20 August 2013
Special: More on Paya Lebar Airbase Plot, Tapering is not Tightening
2 Topics today.
More on the Paya Lebar Airbase Plot
A look at the map of Singapore shows that Paya Lebar Airbase is as big as Pasir Ris. This gives us an idea of what may be coming. The outskirts of the Airbase have been traditionally zoned for Industrial Land use. 2 senarios may take place moving forward:
1) Change of plot ratios. Due to uplifting of height restrictions due to presence of Airbase.
This may present enbloc opportunities in 2 places, i) Areas that can overlook the Airbase at this time (edges of Tampines, Pasir Ris, Bedok Reservoir, SengKang, Serangoon), ii) Areas long the flight path of landing (planes approach from East Coast somewhere above Ford Road exit, past Geylang and Paya Lebar).
2) Change of land use. The land around the Airbase needs not be Industrial Land. Change of use to either Commercial or Residential may present new opportunities.
It may not be easy for one to visualise all these points. The best way is to look at a detailed map of Singapore. I welcome anyone who wishes to have a more in-depth discussion.
Tapering is not tightening
I explained this to a client this morning so thought it may be helpful to explain to everyone.
Tapering is not tightening. Imagine the economy as a patient with high cholesterol, the Fed is the doctor. Doctor puts the patient on a course of cholesterol pills, say twice a day. Cholesterol pills are like the Fed’s bond-buying remedy. Now, the doctor thinks that the patient is getting a bit better so, he reduces the dosage to once a day. This is tapering.
The patient eating lesser pills a day won’t die. Similarly, the market won’t die. However, reducing dosage means that the patient may go through a stage of “cold turkey”, similar to the shivers in the market now. Tightening will be taking the course of medication away altogether. In that case, it is obviously negative for the patient. Similarly, tightening at this stage is outright negative.
Hope everyone has a better idea now.
More on the Paya Lebar Airbase Plot
A look at the map of Singapore shows that Paya Lebar Airbase is as big as Pasir Ris. This gives us an idea of what may be coming. The outskirts of the Airbase have been traditionally zoned for Industrial Land use. 2 senarios may take place moving forward:
1) Change of plot ratios. Due to uplifting of height restrictions due to presence of Airbase.
This may present enbloc opportunities in 2 places, i) Areas that can overlook the Airbase at this time (edges of Tampines, Pasir Ris, Bedok Reservoir, SengKang, Serangoon), ii) Areas long the flight path of landing (planes approach from East Coast somewhere above Ford Road exit, past Geylang and Paya Lebar).
2) Change of land use. The land around the Airbase needs not be Industrial Land. Change of use to either Commercial or Residential may present new opportunities.
It may not be easy for one to visualise all these points. The best way is to look at a detailed map of Singapore. I welcome anyone who wishes to have a more in-depth discussion.
Tapering is not tightening
I explained this to a client this morning so thought it may be helpful to explain to everyone.
Tapering is not tightening. Imagine the economy as a patient with high cholesterol, the Fed is the doctor. Doctor puts the patient on a course of cholesterol pills, say twice a day. Cholesterol pills are like the Fed’s bond-buying remedy. Now, the doctor thinks that the patient is getting a bit better so, he reduces the dosage to once a day. This is tapering.
The patient eating lesser pills a day won’t die. Similarly, the market won’t die. However, reducing dosage means that the patient may go through a stage of “cold turkey”, similar to the shivers in the market now. Tightening will be taking the course of medication away altogether. In that case, it is obviously negative for the patient. Similarly, tightening at this stage is outright negative.
Hope everyone has a better idea now.
Monday, 19 August 2013
Special - Singapore Prime Minister’s New Plans: How it may affect our investments
Prime Minister Lee Hsien Loong announced some new plans last night at his National Day Rally. Here are the highlights that may affect our investments.
Infrastructure
Paya Lebar Airbase to shift to Changi, freeing up land for homes, offices and factories
Comments: Paya Lebar Airbase plot is big enough to establish a whole new township. Just like how Bidadari will see about another 38,000 units of new homes being created, the new township at Paya Lebar Airbase plot may flood another similar number into the market.
Build a new Air Force air base and fourth runway at Changi East
Comments: Military aircraft are noisier than commercial aeroplanes. This may affect properties there moving forward. The good news is, it may take the next 2 decades to full realise.
New ‘Jewel’ project at Changi Terminal 1, with shops, restaurants and indoor garden
Terminal 5 to be ready by mid-2020s
Comments: This morning CMA (JS8) announced, “CapitaMalls Asia collaborates with Changi Airport Group on project at Changi Airport to jointly develop the concept and plans for the proposed redevelopment of the car park site fronting Terminal 1 at Singapore Changi Airport". They were ready all along. The “Jewel” shall be realised sooner than people think. T5 may still be a decade away so, I shall not be bothered about it too soon.
1,000 ha Southern Waterfront City, after container portsmove to Tuas
Comments: Questions now are, “Who will build it? Who will own it?” 1000ha = 107,637,000 sqft. Projects here for developers could mean hundreds of millions at the very least. This is something to watch out for.
Housing
Build-To-Order prices to remain stable, more help for lower- and middle-income families
Comments: Ridiculous prices for public housing may be over. This is in hope of putting an end to speculation on public housing.
I have no doubt that these plans will be executed flawlessly unless there is political instability.
Infrastructure
Paya Lebar Airbase to shift to Changi, freeing up land for homes, offices and factories
Comments: Paya Lebar Airbase plot is big enough to establish a whole new township. Just like how Bidadari will see about another 38,000 units of new homes being created, the new township at Paya Lebar Airbase plot may flood another similar number into the market.
Build a new Air Force air base and fourth runway at Changi East
Comments: Military aircraft are noisier than commercial aeroplanes. This may affect properties there moving forward. The good news is, it may take the next 2 decades to full realise.
New ‘Jewel’ project at Changi Terminal 1, with shops, restaurants and indoor garden
Terminal 5 to be ready by mid-2020s
Comments: This morning CMA (JS8) announced, “CapitaMalls Asia collaborates with Changi Airport Group on project at Changi Airport to jointly develop the concept and plans for the proposed redevelopment of the car park site fronting Terminal 1 at Singapore Changi Airport". They were ready all along. The “Jewel” shall be realised sooner than people think. T5 may still be a decade away so, I shall not be bothered about it too soon.
1,000 ha Southern Waterfront City, after container portsmove to Tuas
Comments: Questions now are, “Who will build it? Who will own it?” 1000ha = 107,637,000 sqft. Projects here for developers could mean hundreds of millions at the very least. This is something to watch out for.
Housing
Build-To-Order prices to remain stable, more help for lower- and middle-income families
Comments: Ridiculous prices for public housing may be over. This is in hope of putting an end to speculation on public housing.
I have no doubt that these plans will be executed flawlessly unless there is political instability.
Friday, 16 August 2013
Special: The situation so far and what we can look forward to next
Commentary
The Situation so far
There has been a lack of “real drivers” for the markets. This roughly explains the volatility all round. Results reporting season has almost come to an end. We have realised that the markets have reacted selectively to company results. This just shows a disconnection between sentiment and reality.
Particularly for the Singapore market, selective small caps have been running and have rewarded the courageous traders handsomely.
What’s next?
I continue to watch technical fronts as the market is fundamentally unstable. Technicals tend towards the bearish. However, sentiment can be the true driver. Look at what happened in Shanghai this morning. It can be reasonable to suspect robotic trading glitches that further spurred more reaction (2nd impulse noted this morning). Chaos Theory would suggest that it can even possibly be a 3rd impulse.
China is having its lunch break as I write this and I would suspect that prices may recover to reasonable levels after humans come back after a lunch discussion.
This may provide us with an opportunity to sell later today or even on Monday.
Why do this? Various index charts will show a 50% Fibonacci retracement in the last selloff over the last few days. However, a proper correction does not happen in 1 leg. It happens in 2, at the very least. So the next rebound may provide opportunity to trade the next leg down.
Feel free to contact me to discuss trading ideas as specific trading ideas are beyond the scope of today’s newsletter.
The Situation so far
There has been a lack of “real drivers” for the markets. This roughly explains the volatility all round. Results reporting season has almost come to an end. We have realised that the markets have reacted selectively to company results. This just shows a disconnection between sentiment and reality.
Particularly for the Singapore market, selective small caps have been running and have rewarded the courageous traders handsomely.
What’s next?
I continue to watch technical fronts as the market is fundamentally unstable. Technicals tend towards the bearish. However, sentiment can be the true driver. Look at what happened in Shanghai this morning. It can be reasonable to suspect robotic trading glitches that further spurred more reaction (2nd impulse noted this morning). Chaos Theory would suggest that it can even possibly be a 3rd impulse.
China is having its lunch break as I write this and I would suspect that prices may recover to reasonable levels after humans come back after a lunch discussion.
This may provide us with an opportunity to sell later today or even on Monday.
Why do this? Various index charts will show a 50% Fibonacci retracement in the last selloff over the last few days. However, a proper correction does not happen in 1 leg. It happens in 2, at the very least. So the next rebound may provide opportunity to trade the next leg down.
Feel free to contact me to discuss trading ideas as specific trading ideas are beyond the scope of today’s newsletter.
Monday, 12 August 2013
Special - Shipping and Ship-Building: Is this the worst case senario?
Shipping and Ship-Building
Is this the worst case scenario? Has the industry bottomed? Shall we ride the next decade of cyclical upswing on Shipping and Ship-Building?
The shipping and ship-building industries have been in limbo. There exists oversupply, given that more ship deliveries are coming. There is no obvious turnaround in demand outlook, either from Euro-Asia routes or US-Asia routes. This old story has been told ever since 2008.While there seemed to have been a slight recovery in shipping activity between 2008 and 2013, it seemed to have went unacknowledged.
I received 2 AsiaPac Shipping reports (1 from Standard Charted, 1 from Deutsche Bank) today. Despite the claims, I have yet to see analyst reports that balance the numbers on demand and supply (throughput vs. available container space, TEUs) and also replacement statistics (TEUs destroyed from scrapping of old ships vs. TEUs created from building of new ships). These numbers would be more useful in our decision making than pure claims. Understand that these are just update reports and therefore are meant to be short. My point here is to let everyone know exactly what numbers to look out for.
In addition to shipping numbers, orderbook numbers of ship-builders and profit-margin trends are other indicators to lookout for. Yangzijiang's (BS6) 2Q13 revenues were up 12% yoy to RMB4.4b while net income declined 8% yoy to RMB812m. As at end Jun, the orderbook stood at 71 vessels worth a combined US$3.24b. It has 47 options outstanding (22 containerships and 25 multi-purpose bulk carriers) for contracts valued at US$2.54b. This is strong, in light of bearish sentiment.
As for shipping lines, NOL (N03) reported a 2Q13 loss of US$35m. This was better than consensus. Counter is now trading at about 1.0x P/BV according to various analysts versus trough valuation of 0.79x.
Now for some personal homework I did. Was at East Coast last Saturday, the number of empty ships in the horizon are still not very encouraging. The proximity of ships from the shore is also an indicator of the number of them parked out there. The last time I saw this was in 2008. We can use our waters as a benchmark because ships still pass our waters as the same routes have been used for the last 200 years (refer to Singapore’s Maritime history).
Is this the worst case scenario? Has the industry bottomed? Shall we ride the next decade of cyclical upswing on Shipping and Ship-Building?
The shipping and ship-building industries have been in limbo. There exists oversupply, given that more ship deliveries are coming. There is no obvious turnaround in demand outlook, either from Euro-Asia routes or US-Asia routes. This old story has been told ever since 2008.While there seemed to have been a slight recovery in shipping activity between 2008 and 2013, it seemed to have went unacknowledged.
I received 2 AsiaPac Shipping reports (1 from Standard Charted, 1 from Deutsche Bank) today. Despite the claims, I have yet to see analyst reports that balance the numbers on demand and supply (throughput vs. available container space, TEUs) and also replacement statistics (TEUs destroyed from scrapping of old ships vs. TEUs created from building of new ships). These numbers would be more useful in our decision making than pure claims. Understand that these are just update reports and therefore are meant to be short. My point here is to let everyone know exactly what numbers to look out for.
In addition to shipping numbers, orderbook numbers of ship-builders and profit-margin trends are other indicators to lookout for. Yangzijiang's (BS6) 2Q13 revenues were up 12% yoy to RMB4.4b while net income declined 8% yoy to RMB812m. As at end Jun, the orderbook stood at 71 vessels worth a combined US$3.24b. It has 47 options outstanding (22 containerships and 25 multi-purpose bulk carriers) for contracts valued at US$2.54b. This is strong, in light of bearish sentiment.
As for shipping lines, NOL (N03) reported a 2Q13 loss of US$35m. This was better than consensus. Counter is now trading at about 1.0x P/BV according to various analysts versus trough valuation of 0.79x.
Now for some personal homework I did. Was at East Coast last Saturday, the number of empty ships in the horizon are still not very encouraging. The proximity of ships from the shore is also an indicator of the number of them parked out there. The last time I saw this was in 2008. We can use our waters as a benchmark because ships still pass our waters as the same routes have been used for the last 200 years (refer to Singapore’s Maritime history).
Tuesday, 6 August 2013
What Next?
Commentary
What next?
It has not been easy to come up with trading ideas in the last few days. The clear opportunities just are not there. Yes we can play on minute price swings and what not. These choices I shall leave to those individual investors whose risk preference puts them more on the adventurous side. Not using the term risk appetite here because even clients with low risk appetites may prefer to look at a penny stock now since those are the only ones that are moving.
Flows have started to turn negative on stocks. Clearly negative but, I am not about to scream, “Sell everything!” Legally speaking, I am not allowed to do so. On the other hand, I am not confident of a crash or even a correction as yet. The climax at a peak has not surfaced.
What may happen next is a relatively long period of consolidation. Worse, if markets drift gradually downwards. Everyone prefers a quick correction so that it is clear what to do next. The market however, is not so straight forward.
What next?
It has not been easy to come up with trading ideas in the last few days. The clear opportunities just are not there. Yes we can play on minute price swings and what not. These choices I shall leave to those individual investors whose risk preference puts them more on the adventurous side. Not using the term risk appetite here because even clients with low risk appetites may prefer to look at a penny stock now since those are the only ones that are moving.
Flows have started to turn negative on stocks. Clearly negative but, I am not about to scream, “Sell everything!” Legally speaking, I am not allowed to do so. On the other hand, I am not confident of a crash or even a correction as yet. The climax at a peak has not surfaced.
What may happen next is a relatively long period of consolidation. Worse, if markets drift gradually downwards. Everyone prefers a quick correction so that it is clear what to do next. The market however, is not so straight forward.
Thursday, 1 August 2013
DBS results inline, Gent HK sells NCL, Europtron in RTO deal to mine gold
Opportunities
DBS (D05, $16.70) announced 2Q13 results which was in-line with estimates. 16-month attempt to buy Bank Danamon Indonesia has collapsed. Some analysts believe that the end of the saga could spell higher dividends.
Comments: Good news for DBS. Price may continue to see upward action.
Genting Hong Kong (S21, US$0.440) plans to divest up to a 5.6% stake in Nasdaq-listed Norwegian Cruise Line Holdings for as much as US$352m, according to regulatory filings yesterday. The maximum sale price is US$30.65 per share. Norwegian Cruise shares closed at US$29.76.
Comments: Positive on Gent HK as NCL was loss making. Now Gent HK gets cash back.
Europtronic (E23, $0.056) in RTO deal to transform itself into gold miner.
Comments: Possible punt?
Commentary
US stocks continue “home bias” as first mentioned yesterday as other global stock markets remain relatively uninteresting. In Asia, the strongest net bought stock market remains South Korea.
Technically, I think we are in a period of sideways consolidation. After which, I presume anything can happen after this as negative and positive factors exist fundamentally.
Also, the Fed has to do something as inflation is still below their targets. Anyone can reasonably expect them to continue boosting money supply which may explain why USD continues to be weak and the observation we have above.
DBS (D05, $16.70) announced 2Q13 results which was in-line with estimates. 16-month attempt to buy Bank Danamon Indonesia has collapsed. Some analysts believe that the end of the saga could spell higher dividends.
Comments: Good news for DBS. Price may continue to see upward action.
Genting Hong Kong (S21, US$0.440) plans to divest up to a 5.6% stake in Nasdaq-listed Norwegian Cruise Line Holdings for as much as US$352m, according to regulatory filings yesterday. The maximum sale price is US$30.65 per share. Norwegian Cruise shares closed at US$29.76.
Comments: Positive on Gent HK as NCL was loss making. Now Gent HK gets cash back.
Europtronic (E23, $0.056) in RTO deal to transform itself into gold miner.
Comments: Possible punt?
Commentary
US stocks continue “home bias” as first mentioned yesterday as other global stock markets remain relatively uninteresting. In Asia, the strongest net bought stock market remains South Korea.
Technically, I think we are in a period of sideways consolidation. After which, I presume anything can happen after this as negative and positive factors exist fundamentally.
Also, the Fed has to do something as inflation is still below their targets. Anyone can reasonably expect them to continue boosting money supply which may explain why USD continues to be weak and the observation we have above.
Wednesday, 31 July 2013
China Cosco guidance may be indicator of industry outlook, MapletreeGCC better distribution, Yoma disappoints
Opportunities
China Cosco (1919.HK) expects first-half loss to narrow on asset sales.
Comments: I see this as an indicator that the shipping/ship-building industry bottoming for the longer run. China Cosco is the parent of Cosco (F83, $0.755) listed in Singapore. Looking at Yangzijiang (BS6,$0.930) on dips for a longer-term position.
Mapletree Greater China Commercial Trust (RW0U, $0.945) posted available distribution per unit of 1.73c beating its forecast of 1.6c by 8.3%.
Comments: This is for keeps if anyone is interested.
Yoma (Z59, $0.865) disappoints as Q1 profit tumbles 81%.
Comments: Chart shows a downtrend at the moment. $0.005 dividend that XD on 01 Aug may not be much of a support.
Commentary
As we have suspected yesterday, BNY’s report today states that US stocks are net bought by US investors and net sold by foreign investors. It mentions “home bias”. “Home bias” is strongest during periods of risk aversion and heightened uncertainty.
Reiterating here that, Japan and South Korea remain the stronger net bough stock markets in the region supported by currency flows. SGD reversal to being net sold present risk that Singapore stocks (especially blue-chips) are at risk of correcting in the coming weeks.
China Cosco (1919.HK) expects first-half loss to narrow on asset sales.
Comments: I see this as an indicator that the shipping/ship-building industry bottoming for the longer run. China Cosco is the parent of Cosco (F83, $0.755) listed in Singapore. Looking at Yangzijiang (BS6,$0.930) on dips for a longer-term position.
Mapletree Greater China Commercial Trust (RW0U, $0.945) posted available distribution per unit of 1.73c beating its forecast of 1.6c by 8.3%.
Comments: This is for keeps if anyone is interested.
Yoma (Z59, $0.865) disappoints as Q1 profit tumbles 81%.
Comments: Chart shows a downtrend at the moment. $0.005 dividend that XD on 01 Aug may not be much of a support.
Commentary
As we have suspected yesterday, BNY’s report today states that US stocks are net bought by US investors and net sold by foreign investors. It mentions “home bias”. “Home bias” is strongest during periods of risk aversion and heightened uncertainty.
Reiterating here that, Japan and South Korea remain the stronger net bough stock markets in the region supported by currency flows. SGD reversal to being net sold present risk that Singapore stocks (especially blue-chips) are at risk of correcting in the coming weeks.
Tuesday, 30 July 2013
UtdEnvirotech proposes purchare of Memstar unit, Blumont write-downs, my hunch on the market
Opportunities
UtdEnvirotech (U19, $1.025) proposes $293.4m purchase of Memstar (5MS, $0.099) unit. It will pay 25% in cash, 75% through issue of some 200m new UtdEnvirotech shares.
Comments: Not positive for both companies in the short-term. Textbook corporate finance tells us that when a company pays 75% of a takeover in stock, it is not a confident move. UtdEnvirotech shareholders can expect to be diluted. Memstar shareholders may not gain much from this either. The little cash paid by UtdEnvirotech is not wonderful. Sentiment-wise, market may sell off after a churn in the past few days. It has already been a weak morning for these 2 counters.
Blumont (A33, $1.415) plunged into the red to the tune of $22.4m during its fiscal Q2 as the company wrote down financial assets. Net earnings for the April-June 2013 period were down from $11.9m during year-ago quarter.
Comments: Not positive on the share price for the moment despite the short jump in price at the opening.
Commentary
A statistic rocks yesterday’s hypothesis on USD weakness may result in weakness in US stocks. Last night, flow data from BNY showed that US stock inflow was at +2.80. 95% of the time, this statistic should be between -1.96 to +1.96 (those who remember your high school statistics will appreciate this much better). US Bond inflow was +2.07 while USD outflow was -2.96. A stark divergence. We can rationalise the bond inflow despite the USD outflow but the stock inflow just shows that support from US investors is exceptionally strong (US investors do not need to change for USD to buy US stocks so their action has no impact on USD flow).
This throws yesterday’s fear that negative sentiment in US may negatively affect Asian markets for now. Contrary to popular belief, I would like to comment that Asian markets appear well supported at the moment. My forecast is this support can sustain throughout this week but it is uncertain if it will carry throughout August. Call it a hunch. I may be wrong.
UtdEnvirotech (U19, $1.025) proposes $293.4m purchase of Memstar (5MS, $0.099) unit. It will pay 25% in cash, 75% through issue of some 200m new UtdEnvirotech shares.
Comments: Not positive for both companies in the short-term. Textbook corporate finance tells us that when a company pays 75% of a takeover in stock, it is not a confident move. UtdEnvirotech shareholders can expect to be diluted. Memstar shareholders may not gain much from this either. The little cash paid by UtdEnvirotech is not wonderful. Sentiment-wise, market may sell off after a churn in the past few days. It has already been a weak morning for these 2 counters.
Blumont (A33, $1.415) plunged into the red to the tune of $22.4m during its fiscal Q2 as the company wrote down financial assets. Net earnings for the April-June 2013 period were down from $11.9m during year-ago quarter.
Comments: Not positive on the share price for the moment despite the short jump in price at the opening.
Commentary
A statistic rocks yesterday’s hypothesis on USD weakness may result in weakness in US stocks. Last night, flow data from BNY showed that US stock inflow was at +2.80. 95% of the time, this statistic should be between -1.96 to +1.96 (those who remember your high school statistics will appreciate this much better). US Bond inflow was +2.07 while USD outflow was -2.96. A stark divergence. We can rationalise the bond inflow despite the USD outflow but the stock inflow just shows that support from US investors is exceptionally strong (US investors do not need to change for USD to buy US stocks so their action has no impact on USD flow).
This throws yesterday’s fear that negative sentiment in US may negatively affect Asian markets for now. Contrary to popular belief, I would like to comment that Asian markets appear well supported at the moment. My forecast is this support can sustain throughout this week but it is uncertain if it will carry throughout August. Call it a hunch. I may be wrong.
Monday, 29 July 2013
Positive expectations for SMM results by analysts, Swiber wins contracts, Innopac profits tumbles, paring of USD ahead of central bank meetings
Opportunities
From the Analysts’ Desk: Looking for SembMar (S51, $4.48) to follow Keppel’s (BN4, $10.55) lead with strong O&M margins, driving 12% YoY profit growth. MBKE will be looking for confirmation of pipeline analysis, which shows strong Semisub demand for 2H13.
Comments: Chart on SembMar looks good for now. SembMar results on 01 Aug (this Thursday).
Swiber (AK3, $ 0.725) won contracts worth about $330m and about $105m under its joint venture company. The contracts would start immediately and are expected to be completed by 2015.
Comments: Price gapped up this morning but it can present an attractive opportunity on pullback. Look at how its subsidiary Kreuz (5RK $0.775) has ran ahead in the past weeks.
Innopac (I26, $0.138) Q2 profit tumbles 95%.
Comments: Not positive despite last Friday’s churn-up.
Commentary
Negative sentiment from US may spread to Asia. Both technical charts and flow information point to an increasing likelihood of a general pullback.
Flow data shows position paring on USD ahead of central bank meetings. This may take its toll on US stock markets. Reason being that when outflow happens on USD this time, the only other asset to be affected will be stocks because inflow was recently just observed in US Treasuries and fixed-income. Bonds shall have a tendency to be held as the buying decision was made knowing there may be oncoming USD weakness. Stock price on the other hand, are still high. Given the lack on inflow into the markets in the past weeks, profit-taking may take place on older positions.
SPECIAL
Our analysts' Contribution on WE Holdings (5RJ, $0.096) XR Theoretical Price
WE Holdings: Using Friday's close of $0.096, we estimate the ex-rights price
= [ 0.096 + 0.015 + 0.03 ] / 3
= $0.047
This involves a renounceable 1-for-1 rights issue @ $0.015 plus one free warrant with exercise price @ $0.03.
The warrants may be exercised from the date of issue and have a life span of 2 yrs.
The corporate action is a complex one that involves derivatives, hence we can only give a broad estimate of the ex-rights price.
Since the rights and warrants are deep in the money, we assume full acceptance of the rights and expected full conversion of the warrants.
v----- Voice your views below -----v
From the Analysts’ Desk: Looking for SembMar (S51, $4.48) to follow Keppel’s (BN4, $10.55) lead with strong O&M margins, driving 12% YoY profit growth. MBKE will be looking for confirmation of pipeline analysis, which shows strong Semisub demand for 2H13.
Comments: Chart on SembMar looks good for now. SembMar results on 01 Aug (this Thursday).
Swiber (AK3, $ 0.725) won contracts worth about $330m and about $105m under its joint venture company. The contracts would start immediately and are expected to be completed by 2015.
Comments: Price gapped up this morning but it can present an attractive opportunity on pullback. Look at how its subsidiary Kreuz (5RK $0.775) has ran ahead in the past weeks.
Innopac (I26, $0.138) Q2 profit tumbles 95%.
Comments: Not positive despite last Friday’s churn-up.
Commentary
Negative sentiment from US may spread to Asia. Both technical charts and flow information point to an increasing likelihood of a general pullback.
Flow data shows position paring on USD ahead of central bank meetings. This may take its toll on US stock markets. Reason being that when outflow happens on USD this time, the only other asset to be affected will be stocks because inflow was recently just observed in US Treasuries and fixed-income. Bonds shall have a tendency to be held as the buying decision was made knowing there may be oncoming USD weakness. Stock price on the other hand, are still high. Given the lack on inflow into the markets in the past weeks, profit-taking may take place on older positions.
SPECIAL
Our analysts' Contribution on WE Holdings (5RJ, $0.096) XR Theoretical Price
WE Holdings: Using Friday's close of $0.096, we estimate the ex-rights price
= [ 0.096 + 0.015 + 0.03 ] / 3
= $0.047
This involves a renounceable 1-for-1 rights issue @ $0.015 plus one free warrant with exercise price @ $0.03.
The warrants may be exercised from the date of issue and have a life span of 2 yrs.
The corporate action is a complex one that involves derivatives, hence we can only give a broad estimate of the ex-rights price.
Since the rights and warrants are deep in the money, we assume full acceptance of the rights and expected full conversion of the warrants.
v----- Voice your views below -----v
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