The London Chart Seminar May 19th & 20th
Comment of the Day

May 23 2011

Commentary by Eoin Treacy

The London Chart Seminar May 19th & 20th

Eoin Treacy's view The recent London event was attended by delegates from 8 different countries - the UK, Australia, USA, Ireland, Finland, Belgium, UAE and Sweden. The conversation was quite stock specific but a common interest in the rise of the global middle class was evident. I will write about this topic tomorrow.

Discussions on the Euro sovereign crisis, uranium miners, lithium, rare earth metals, the Yen, the Dollar, Treasury yields and India all featured within the two days.

Delegates at both the London and Sydney seminars expressed an interest in uranium shares. Confidence has taken a blow since the Fukushima accidents, the uranium price pulled back but is currently showing relative strength and uranium miners have pulled back sharply. This article from Bloomberg suggests that the initial panicky response to the crisis is subsiding and that China and India's nuclear expansion plans remain unchanged. Here is a section:

None of that reduces the power requirements of the world's fastest-growing economies. China's economy will probably expand 9.5 percent this year, according to the median of 11 forecasts compiled by Bloomberg. India's gross domestic product may grow as much as 8.5 percent in the current fiscal year, Chakravarthy Rangarajan, chairman of the Prime Minister's Economic Advisory Council, said on May 3.

"Fukushima has made us pause and rethink some of our projects," Xu Yuming, vice secretary general of the Nuclear Energy Association, said in a May 12 interview in Beijing. "Of course, the overall plan won't be changed. China faces power shortages and we need to change our energy mix. To resolve these issues, we must develop nuclear."

Even if Japan develops half of its proposed 19 gigawatts of nuclear power this decade, the country, together with China, India, Russia and South Korea, will add a combined 160 gigawatts by 2020, according to Bloomberg data based on figures from the World Nuclear Association, Sanford C. Bernstein & Co., the Federation of Electric Power Companies of Japan and South Korea's economy ministry.

Shares such as Paladin Energy, Denison Mines and Bannerman Resources among others have pulled back to test their tsunami lows and have at least paused. Clear upward dynamics would confirm the return of demand in the current area. The Japanese crisis has probably delayed the evolution of a medium-term bull market but is unlikely to have derailed it.

Delegates from both within the Eurozone and outside expressed a great deal of anxiety regarding the currency union and its sovereign debt crisis. Despite considerable negative sentiment towards peripheral debt and prospects for the currency, the Euro is still a comparatively firm currency compared to the US Dollar, Pound and Yen, despite some recent weakness. However, this is not to belittle the regions problems which remain of considerable concern.

Spreads of Greek, Irish and Portuguese debt over German bunds remain on upward trajectories and CDS for the same countries reiterate the perceived risk in such debt. Until recently, investors have spared Spain and Italy from concerted selling pressure but spreads over Bunds for both these countries look more likely than not to trend higher.

Delegates pointed out that any form of payment delay or in Jean Claude Juncker's words "reprofiling" of Greek debt would be treated as a default which would trigger CDS and result in the ECB refusing to accept such bonds as collateral. This would put the currency under stress and necessitate a recapitalisation of the ECB by its member states if outright quantitative easing were to be avoided. (Also see David's comments above on the Eurozone).

I have been arguing since at least March 7th that in a high price environment consumption efficiencies are a more likely innovation than production efficiencies. Capital has been pouring into battery research and development and Korean shares such as Samsung SDI, LG Chem and Cheil Industries are clear upside leaders which would be best bought following reactions.

Lithium mining should be a beneficiary of increased demand for the element in battery manufacture. Socieda Quimica Min de Chile, FMC Corp and Rockwood Holdings are among some of the best performers and while susceptible to some consolidation and reversion towards the mean, they remain in relatively consistent medium-term uptrends.

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