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June 27 2022

Commentary by Eoin Treacy

Video commentary for June 27th 2022

June 27 2022

Commentary by Eoin Treacy

China Stocks Approach Bull Market as Investors Catch Up on Gains

This article from Bloomberg may be of interest to subscribers. Here is a section:

Adding to a growing number of market participants turning more positive on Chinese shares, abrdn plc’s regional chairman Hugh Young said they look to be the best home for fresh money in Asia amid a tough investment environment.

“We are inclined to put more money into China again, depends on the portfolio,” Young said in an interview on Monday, adding that the firm underweights the country’s shares in portfolios. “It’s very hard to be super bullish about anything at the moment” but valuations in China are reasonable and the investing landscape could improve.

Deutsche Bank AG’s private bank global chief investment officer Christian Nolting said last week he was considering turning overweight on Chinese stocks and Morgan Stanley, Bank of America and Jefferies Financial Group all ramped up bullish commentary this month.

Eoin Treacy's view

Xi Jinping’s statement that China will hit its growth target has been greeted with enthusiasm by investors. While COVID zero represents a challenge for growth, it increases the potential more liquidity will be made available. At present concerns about further inflating asset bubbles are on being downplayed.

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June 27 2022

Commentary by Eoin Treacy

Do U Dare to Dream?

Thanks to a subscriber for this report focusing on uranium, from BMO, which may be of interest to subscribers. Here is a section:

Playing Into a Number of Pertinent Thematics: The global push for energy independence following Russia’s invasion of Ukraine has provided a tailwind for uranium expectations, as nuclear build-outs are back in vogue. The role of uranium, and wider nuclear technology, in a low-carbon global economy is becoming ever clearer and is driving significant research and development into the next generation of technologies, just as happened with solar power around 2010. Given this pathway, we believe the uranium price will ultimately have to rise to necessary levels to stimulate the increased production required to match growing demand needs; hence, we have increased out L/T price to US$58/lb, from US$50/lb. Furthermore, government strategy in the U.S., potential Chinese exports of the Hualong reactor technology and development of small modular reactors (SMRs) all have potential to see demand surprise on the upside relative to our base case.

Eoin Treacy's view

Sprott’s decision to enter the uranium market as a major buyer resulted in a major breakout in September 2021. The price quickly jumped from $11 to $20. Since then it has returned to unwind most of that advance.

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June 27 2022

Commentary by Eoin Treacy

The Return of Industrial Warfare

Thanks to a subscriber for this informative article by Alex Vershinin for RUSI (Royal United Services Institute for Defence and Security Studies). Here is a section:

Presently, the US is decreasing its artillery ammunition stockpiles. In 2020, artillery ammunition purchases decreased by 36% to $425 million. In 2022, the plan is to reduce expenditure on 155mm artillery rounds to $174 million. This is equivalent to 75,357 M795 basic ‘dumb’ rounds for regular artillery, 1,400 XM1113 rounds for the M777, and 1,046 XM1113 rounds for Extended Round Artillery Cannons. Finally, there are $75 million dedicated for Excalibur precision-guided munitions that costs $176K per round, thus totaling 426 rounds. In short, US annual artillery production would at best only last for 10 days to two weeks of combat in Ukraine. If the initial estimate of Russian shells fired is over by 50%, it would only extend the artillery supplied for three weeks.

And

The war in Ukraine demonstrates that war between peer or near-peer adversaries demands the existence of a technically advanced, mass scale, industrial-age production capability. The Russian onslaught consumes ammunition at rates that massively exceed US forecasts and ammunition production. For the US to act as the arsenal of democracy in defence of Ukraine, there must be a major look at the manner and the scale at which the US organises its industrial base. This situation is especially critical because behind the Russian invasion stands the world’s manufacturing capital – China. As the US begins to expend more and more of its stockpiles to keep Ukraine in the war, China has yet to provide any meaningful military assistance to Russia. The West must assume that China will not allow Russia to be defeated, especially due to a lack of ammunition. If competition between autocracies and democracies has really entered a military phase, then the arsenal of democracy must first radically improve its approach to the production of materiel in wartime.

Eoin Treacy's view

China’s stated aim is to “reunite” with Taiwan politically by whatever means are necessary. This article from Taiwan News, focusing on the Koumintang’s (pro-unity party) recent stated pro-US stance may be of interest. 

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June 27 2022

Commentary by Eoin Treacy