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August 11 2015

Commentary by Eoin Treacy

Email of the day on US Dollar denominated debt

Hello, that article on gold by Ambrose-Pritchard for The Daily Telegraph also refers to the $4.5 trillion in US dollars borrowed by emerging countries. With today's devaluation of the Yuan this Bloomberg article identifies the Chinese airline companies that got hammered because of the significant debt they hold in US$ terms. As the trend for rolling over US$ debt plays out in a couple of years perhaps we should trim some of our EM holdings ahead of the curve. If so, what to trim. It may be useful to know which EM sectors/companies hold significant US$ debt.

Eoin Treacy's view -

Thank you for the above article and this question which is sure to be of interest to subscribers. I would welcome some detailed research on emerging market issuers and their US Dollar exposure. Hopefully someone in the Collective has access to this information. 

At The Chart Seminar in Chicago last year a Peruvian delegate highlighted the risk of Dollar strength to the domestic market and the impact it was having on demand for consumer goods. He postulated that it was going to represent a problem for a number of Latin American issuers. This was a common sense point. 

 



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August 10 2015

Commentary by Eoin Treacy

Farm machinery

Eoin Treacy's view -

Against a background where commodity related businesses have been under rather extreme pressure, farm machinery shares have exhibited relative strength. Crops have generally been favourable which has contributed to falling prices and the strength of the US Dollar has contributed to weakness. However as potential that agriculture prices have found at least a near-term low improves, the farm machinery sector may be worth studying in great detail. 



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August 10 2015

Commentary by Eoin Treacy

Buffett Says a Deal for Mondelez Would Be Difficult to Envision

This article by Katherine Chiglinsky for Bloomberg may be of interest to subscribers. Here is a section:

Warren Buffett said buying Mondelez International Inc., the maker of Oreo cookies and Ritz crackers, would be difficult for him and his partners at 3G Capital because they’re still working on last month’s purchase of Kraft Foods Group Inc.

“It’s quite unlikely that Kraft Heinz will be doing a big acquisition in the next couple of years,” Buffett said Monday in an interview on CNBC. “We’ve got our work cut out for us for a couple of years.”
H.J. Heinz acquired Kraft last month with the backing of 3G Capital and Buffett’s Berkshire Hathaway Inc.

Activist investor Bill Ackman revealed last week that he has built a 7.5 percent stake in Mondelez valued at $5.6 billion. Shares of Deerfield, Illinois-based Mondelez climbed after the announcement, contributing to a 12 percent gain since July 3.

“Most of the food companies sell at prices that would be very hard for us to make a deal even if we had done all the work needed at Kraft Heinz,” Buffett said.

 

Eoin Treacy's view -

Warren Buffet and 3G Capital paid an all-time high for Heinz in 2013 which was ultimately the correct decision. Capitalism trends towards consolidation as the strong acquire the assets of the weak and become stronger. Nestle, Unilever, Colgate Palmolive, Mondelez and Kraft Heinz represent heavy weights in the global processed foods sectors which continue to benefit from the growth of the global consumer and the desire for quick snack foods as the pace of life accelerates with the demands of a modern economy. 



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August 07 2015

Commentary by Eoin Treacy

Email of the day on companies that rely on Eurozone growth

RiverFront Investments have been telling us that European stocks are interesting investments now that a recovery of the EU economy is happening. Over the last few years you and David have correctly argued in favour of investment in European Autonomies because such a large proportion of their sales takes place outside Europe. If RiverFront is correct, should we not be investing in European firms that do most if not all their business inside Europe? Which European firms correspond to this criterion?

Eoin Treacy's view -

Thank you for a topical question of general interest. Europe has been through an extraordinary period of economic upheaval characterised by unprecedented fiscal austerity that has sapped enthusiasm for bullish future potential. The ECB’s decision to adopt a €1,000,000,000,000 stimulus package in order to boost availability of credit and devalue the Euro represents the same kind of bullish catalyst which the USA enjoyed for much of the last six years. This helps to explain the Euro STOXX Index’s relative strength, at least in nominal terms. 



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August 07 2015

Commentary by Eoin Treacy

East Africa The next hub for apparel sourcing?

Thanks to a subscriber for this report by Achim Berg, Saskia Hedrich and Bill Russofrom for McKinsey which may be of interest to subscribers. Here is a section: 

In the past two years, a number of European companies—among them, H&M, Primark, and Tesco—began sourcing some of their garments from Ethiopia. The rest of the apparel industry took notice: since 2013, there has been rising interest in not just Ethiopia but also other East African countries as potential sourcing destinations for apparel. Also contributing to the buzz is the renewal of the African Growth and Opportunity Act (AGOA), which gives certain countries in sub-Saharan Africa duty-free access to the US market.

What is the true potential of East Africa to grow into a major garment-sourcing hub? To find out, we visited factories in the region; interviewed stakeholders, including manufacturers and buyers; and analyzed market data. In addition, we conducted our third survey of chief purchasing officers (CPOs), this time with a series of questions focused on East Africa. This year, 40 apparel CPOs, representing a combined $70 billion in 2014 purchasing volume, responded to our survey. We found that East Africa could indeed become a more important center for apparel sourcing, but only if stakeholders—buyers, governments, and manufacturers—work together to improve business conditions in the region.

Up-and-coming sourcing countries
Nearly three-quarters of survey respondents said, as they did in 2011 and 2013, that over the next five years they expect to reduce their purchases from Chinese firms. Chinese apparel production has indeed fallen since 2010—but China remains the undisputed giant of garment manufacturing, with approximately $177 billion in apparel exports in 2013.

Among CPOs surveyed, Bangladesh remains at the top of the list of future sourcing destinations, with 48 percent of respondents including the country in their top three (Exhibit 1). And 62 percent said they intend to increase their sourcing value from Bangladesh over the next five years. The next two up-and-coming countries are Vietnam and India, where, respectively, 59 percent and 54 percent of surveyed CPOs plan to increase their sourcing value in the next five years. Yet the combined apparel exports of Bangladesh ($24 billion), Vietnam ($17 billion), and India ($17 billion) still amount to less than one-third of China’s.

 

Eoin Treacy's view -

More than five years ago a Turkish delegate at The Chart Seminar who has been a cotton trader for decades told me how a number of Turkish apparel factories were moving their operations to North Africa. As Chinese wages have risen, they are also seeking to move their most labour dependent operations offshore and East Africa represents an attractive destination.  



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August 06 2015

Commentary by Eoin Treacy

Michael Kors Shares Soar After Overseas Sales Fuel Profit Gain

This article by Lindsey Rupp for Bloomberg may be of interest to subscribers. Here is a section: 

Same-store sales fell 5 percent last quarter, excluding currency fluctuations. That was a slightly better performance than the 5.4 percent decline analysts predicted. Michael Kors expects comparable sales to decline by a low-single-digit percentage on that basis in the second quarter.

To help spur demand, the brand has been slashing prices on many of its products. Kors is contending with sluggish mall traffic and a strong dollar, which has reduced tourist spending.

The company also is adding new products in the second half and improving its digital operations.

Sales in the handbag business remain “robust,” though they aren’t growing at the same rates as previous years, executives said on the earnings conference call. Backpacks are getting more popular, and millennial customers in particular prefer smaller bags and cross-body purses, which typically have lower retail values. Watch sales also dragged down the company’s North American same-store sales, the company said.

 

Eoin Treacy's view -

Mid range luxury goods companies have been under pressure to offer more mass market offerings while even the uber-luxurious brands have been offering discounts in Hong Kong in order to spur demand. Michael Kors in particular boosted supply in order to capture market share from Coach, but suffered from the loss of its cache in doing so. Both companies are suffering from interlopers such as Tory Burch. The question now is how much of this is already in the price?



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August 05 2015

Commentary by Eoin Treacy

Citigroup Sounding Alarm on $13 Billion of Bank Bonds in Brazil

This article by Filipe Pacheco for Bloomberg may be of interest to subscribers. Here is a section:

Speculation is mounting that Moody’s will be the second rating company to lower Brazil’s grade to the precipice of junk as the economy suffers its biggest contraction in a quarter century and a bribery scandal frustrates the government’s efforts to restore its finances.

Moody’s, which met with officials in Brazil last month, cited the country’s economic woes and deteriorating finances when it put the Baa2 rating on negative outlook in September.

Things have only gotten worse since then, with Moody’s predicting in a July 16 report that gross domestic product will shrink 1.8 percent this year.

Brazil’s real declined 0.7 percent to 3.4943 per U.S.dollar at 11:51 a.m. in New York. The currency declined 24 percent this year.

Just last week, Standard & Poor’s also revised its outlook on Brazil’s rating to negative. An S&P downgrade would plunge Brazil back into junk since the company rates Brazil BBB-, one level below Moody’s.

“Banks are a leveraged macro play and as such, given the recession, I see the bonds expensive,” Jorge Piedrahita, the chief executive officer of New York-based brokerage Torino Capital LLC, said in an e-mail.

Eoin Treacy's view -

The economic pressure Brazil is experiencing is perhaps most evident in the collapse of the Real which has almost completely unwound the bull market associated with the commodity bull market. The great tragedy is that the country squandered the economic dividend of an almost decade long commodity bull market by failing to introduce regulatory reform, build critical infrastructure and combat corruption. As Warren Buffett says “You don’t know who’s been swimming naked until the tide goes out” On the plus side the Olympics next year and World Cup in 2018 will be fun but are hardly relevant for investors. 



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August 04 2015

Commentary by Eoin Treacy

Lifting of Foreign Ownership Limits Signals Sea Change in Vietnam's Capital Markets

Thanks to a subscriber for this article by Steve Mantle which appeared in Finalternatives and may be of interest to subscribers. Here is a section on Pakistan:

Even small gains in the weighting for frontier and ASEAN indices can have a significant effect on net foreign buying, in turn further helping market cap and liquidity.

The longer term benefit is accession to the MSCI Emerging Markets Index. MSCI announced in June they are adding Pakistan (9.2% Frontier weighting) to the review list for Emerging Market classification. The Karachi Stock Exchange (market cap $75bn) satisfies 14 of the 17 items in MCSI’s criteria. The HOSE meets just 7, although these latest reforms will help towards fulfilling 3 of the foreign ownership requirements. Additionally 2 more items, ‘clearing and settlement timescales’ and ‘investor registration and account set up’, are also being addressed in an attempt to make Vietnam more competitive.

 

Eoin Treacy's view -

Technical changes in how a market is considered by providers tend to have outsized results. Vietnam’s decision to further loosen foreign investment limits in its stock market represented an important development for its potential to represent a larger weighting in international benchmarks. 



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July 31 2015

Commentary by Eoin Treacy

Noble Group Extends Worst Rout Since 1999 Amid SGX Warning

This article by Yuriy Humber and Jonathan Burgos for Bloomberg may be of interest to subscribers. Here is a section:

Noble has bought back its stock at least 11 times since last month and built up a 2.8 percent stake from zero. Companies listed in the city-state aren’t allowed to repurchase their shares two weeks before reporting earnings, according to Singapore trading rules. The company is due to announce its quarterly results on Aug. 13.

“The share buybacks so far have been relatively limited so we don’t expect immediate impact on the company’s liquidity or financial leverage,” Cindy Huang, an analyst at credit-rating agency Standard & Poor’s, said by e-mail.

Noble’s stock declines do not in themselves impact the trading company’s credit position, Huang said.

“The larger issue would be if confidence is affected or lenders’ sentiment is significantly affected,” Huang said.

 

Eoin Treacy's view -

Noble Group is currently trading on a Price to Book of 0.51 not least because its primary business is in coal, coke and petrochemical supply chains which have been under pressure as commodity prices have declined. With a forward P/E of 4 and a yield of 2.12% traders are pricing in either a major write down of their assets or are simply using the share as a vehicle for expressing a bearish view on commodities generally. 



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July 22 2015

Commentary by Eoin Treacy

Textile and garment exports to TPP market up 70 per cent

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

Viet Nam's garment and textile export turnover to countries taking part in the Trans-Pacific Partnership (TPP) negotiations increased by 69.66 per cent in the first five months compared with the same period last year, according to the latest report from the Viet Nam Textile and Apparel Association (Vitas).

Exports to this market also accounted for 66.8 per cent of the sector's total export turnover. Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Viet Nam are members of the TPP.

Exports to the US ranked top with US$4.05 billion, accounting for nearly 50 per cent of the export value to the countries joining the TPP agreement, a 53 per cent increase on the year.

Viet Nam's textile and garment export turnover to the US is expected to reach $11 billion by the end of the year, Dang Phuong Dung, Vitas deputy chairwoman told Hai Quan (Customs) newspaper.
Textile and garment export turnover to the US has increased dramatically in the past 20 years from zero to $9.8 billion in 2014.

The turnover could be doubled once the TPP is signed, she said, adding that it would benefit local enterprises. Garment products' import taxes would be reduced by 7 to 8 per cent, replacing the current 15 to 16 per cent.

 

Eoin Treacy's view -

The devaluation of the Dong has been a major benefit for Vietnam’s export sector and the fact that inflation is now slowing may raise hopes that the devaluation will continue to pause. 



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July 20 2015

Commentary by Eoin Treacy

Australian Banks to Hold More Capital for Mortgage Losses

This article by Narayanan Somasundaram for Bloomberg may be of interest to subscribers. Here is a section: 

Under rules coming into force on July 1, 2016, the average risk weight on residential mortgage exposures will rise to at least 25 percent from about 16 percent, the Australian Prudential Regulation Authority said in a statement. That will increase the capital requirements of the biggest four banks by about A$12 billion ($8.9 billion), according to Goldman Sachs Group Inc. and Morgan Stanley.

“The timing and magnitude of today’s announcement should come as no surprise,” Goldman Sachs analysts Andrew Lyons and Yu Chuan Leong said in a note to investors. “However, the approximately one-year time frame is shorter than we would have expected.”

The regulator is forcing banks to shore up their capital after a government review last December recommended they should rank among the top 25 percent of lenders globally. The capital increase forms part of the regulators’ attempt to ensure the financial system can cope with any downturn in the housing market, where prices have climbed almost 30 percent in the past three years.

Australia & New Zealand Banking Group Ltd. Commonwealth Bank of Australia, National Australia Bank Ltd., Westpac Banking Corp. and Macquarie Group Ltd. will be affected by the new rules, which equate to increasing minimum capital requirements by about 80 basis points, APRA said. The cost of holding more capital may force the lenders to raise their mortgage rates, according to Morningstar Inc. and Bell Potter Securities Ltd.

 

Eoin Treacy's view -

The S&P/ASX 200 Finance Index represents a weighting of 47.85% in the overall index and 43 of the 200 companies.  That’s a large weighting and therefore a potential concern. Measures to ensure the ability of the sector to withstand a downturn in its business are to be welcomed. Meanwhile Financials are likely to benefit from the prospect of additional rate cuts.



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July 15 2015

Commentary by Eoin Treacy

Uniqlo Parent Forecasts Slower Japan Sales on Cool Summer

This article by Monami Yui for Bloomberg may be of interest to subscribers. Here is a section: 

Same-store sales in Japan dipped 12 percent in June as the cooler weather curbed demand for summer clothes, the company said earlier this month.

Net income surged 36 percent in the three months ended May to 27.6 billion yen, based on nine-month figures the company released Thursday in Tokyo. Sales gained 23 percent to 398.4 billion yen in the quarter.

Investors have bet billionaire Tadashi Yanai’s clothing retailer, which offers basic designs made with advanced materials at low prices, will grow by exporting its model to faster-growing markets like China and the U.S.

The shares trade at about 41 times projected earnings, compared with about 31 times for Inditex, which sells Zara casual clothes and is Uniqlo’s bigger global rival and 24 times for Hennes & Mauritz AB, which retails the H&M brand.

 

Eoin Treacy's view -

As the largest company in the price weighted Nikkei-225, Fast Retail exerts an influence on the direction of the overall market. As it expands internationally, the company will be consolidating more foreign earnings into a Yen which continues to weaken. 



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July 06 2015

Commentary by Eoin Treacy

Correction seen after growth

This article from VietnamNews.com may be of interest to subscribers. Here is a section

Also, last week's opening of the State Securities Commission investment promotion conference in the United States helped bolster domestic investors' psychology. Leaders of the Ministry of Finance and the commission presented new policies to help upgrade the Vietnamese investment environment, including newly-issued Decree 60 which allows foreigners to raise their stakes in Vietnamese listed companies.

Meanwhile, Minister of Finance Dinh Tien Dung said the ministry would soon issue a circular to provide instruction to implement Decree 60 in July. This eased investor concerns about the delay in the implementation of the raising foreign room regulation.

The foreign sector reacted positively to this movement, causing an increase. They picked up the combined net buy values of more than VND1.1 trillion ($50.5 million) worth of shares in the two markets, of which 90 per cent of their purchases focused on the HCM City market's shares.

"Although the market outlook remains in an uptrend in the medium- and long-term period, the markets remain exposed to substantial risks of a short adjustment this week," analysts at Bao Viet Securities Co wrote in a report. They added that the market rallies would heavily depend on leading stocks and foreign movements in the context that domestic money flows were still modest.

 

Eoin Treacy's view -

Foreign investment interest in Vietnam has been curtailed by restrictions on ownership of shares. Once the limit on ownership was hit there was no way to buy more and it was difficult to sell because there was the risk that it would be impossible to re-enter the position later. The prospect of Vietnam removing or at least loosening ownership limits represents a potentially important catalyst for the market not least if it helps gain admittance to the MSCI Emerging Market Index.  



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July 03 2015

Commentary by Eoin Treacy

Vietnam Communist Party Chief Trong to Meet Obama in U.S

This article by John Boudreau and Nguyen Dieu Tu Uyen for Bloomberg may be of interest to subscribers. Here is a section: 

“They have to reach out to the U.S.,” Vuving said by phone, speaking of Vietnam. “They need to do something to strengthen Vietnam’s capability to stand up to China. It has reached a tipping point.”
Trong said Vietnam “appreciates” statements from the U.S. supporting a peaceful approach to settling disputes between claimant states to the South China Sea, through which some of the world’s busiest shipping lanes run.

“We are all aware of the strategic location of the East Sea,” he said, using Vietnam’s term for the South China Sea.

“I hope that the U.S. will continue to have appropriate voice and actions to contribute to peaceful settlement of disputes in the East Sea in accordance with international law.”

Trong is viewed as friendlier toward China than the U.S., and thus his visit to the U.S. is even more significant, Le Dang Doanh, an economist and former government adviser in Hanoi, said by phone. While Vietnamese leaders have increased their meetings with U.S. officials, they also often visit China.

 

Eoin Treacy's view -

Vietnam has a long coast line and an interest in what goes on in the South China Sea not least because of the resources to be found underneath it. Sitting between major power blocks such as China, India and Japan, Vietnam has an incentive in developing as many friends, with an interest in seeing the country flourish as an independent nation, as possible. The decision to expand the ability of foreign investors to hold positions in corporations can be viewed in this context in addition to the stated aim of MSCI Emerging market membership.



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July 03 2015

Commentary by Eoin Treacy

Platinum into the next decade

Thanks to a subscriber for this detailed report offering a nuanced view on the platinum market which may be of interest. Here is a section: 

The world still needs more platinum despite the fall in Autocat loadings
The rise in electric vehicles (EV’s with very low or no PGM’s) will reduce the average vehicle platinum loading and contribute to lower demand growth than we have seen historically. Importantly however, under what we consider reasonable (2.6% CAGR) vehicle demand growth, we still forecast growth in gross Autocat demand. A modest increase in fuel cell vehicles (with high platinum loadings) is likely to offset some of the platinum demand destruction from EV’s. Furthermore a “catch-up” in emission standards in the emerging markets such as India and China should also offset the general trend in declining loadings. We outline our forecasts for platinum. Under our base case, we forecast that an additional 1.5Moz will be required by 2030.

The Auto sector is nearly self sufficient due to recycling.
We forecast a continuation in the trend of the increasing metal units being returned to the market over the next fifteen years. The three major Autocat producers (BASF, Johnson Matthey and Umicore) are all adding recycling refining capacity, specifically targeting recycled material. Furthermore, the tranches of Autocats being returned to the market over the next few years all have higher PGM loadings, especially in platinum. We forecast Autocat platinum volumes to double by 2030, which equates to a CAGR of 4%. 

However, the CAGR between 2014 and 2021 is likely to be closer to 8%.
We estimate that the Autocat industry will be a net supplier to the market up until 2020, whilst the additional new ounces required by 2025 will be negligible. By 2030, the additional requirement should be 300koz, equivalent to a large platinum mine, or a two mid-sized mines. The net result is that Platinum demand (post recycling) growth should be slower over the next fifteen years, compared to the historical trend. We estimate a CAGR of 1.1% versus the trend (1975 – 2014) of 2.2%.

Enough replacement ounces from the existing supply base until 2021
The amount of new platinum ounces required from the Southern African mining industry is limited, especially over the next seven years. The existing fleet of development and replacement projects should be sufficient to offset the endemic grade decline and mine depletion (see Figure 6). Furthermore, these projects have favourable economics relative to the current production base, as most projects have also sunk significant capex, lowering the return requirement as a result.

 

Eoin Treacy's view -

The automotive sector is in a process of evolution with China mandating greater use of electric vehicles and tighter emission control while Tesla represents the cool side of the sector. Toyota, Linde, among others, and the platinum miners are championing the build out of hydrogen fuel cells. Both represent corollaries to innovation of solar and wind technology that is making distributed electricity production possible. Sergio Marchionne at Fiat is arguing for fabless manufacturing in the automotive sector which has the potential to act as an additional catalyst for the sector. 



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July 02 2015

Commentary by Eoin Treacy

Corn Market Seen Tighter as Pigs Erode Reserves at 27-Year High

This article by Jeff Wilson for Bloomberg may be of interest to subscribers. Here is a section: 

“It’s probably a combination of more pigs, chickens and cows eating corn, and USDA overestimating last year’s production,” said Dale Durchholz, the senior market analyst at AgriVisor in Bloomington, Illinois. “Supplies are tighter, and God forbid we have any hot, dry weather in July that damages this year’s crop.”

Feed and residual use for the grain in the three months ended in May climbed 31 percent, according to AgriVisor. The inventory of broilers, dairy cows and hogs suggests that such demand could be as much as 200 million bushels larger than the 5.25 billion bushels projected by the USDA, said Durchholz.

As of Sunday, 68 percent of the corn crop was rated in good or excellent condition in the top 18 producing states, down from 75 percent a year earlier.

Wet fields and declining crop conditions suggest a national yield at 162 bushels an acre, below the USDA’s estimate of 166.8 bushels,  Mark Schultz, the chief analyst for Northstar Commodity Investment Co. in Minneapolis, said Tuesday. That would leave a carryover next year of 1.2 billion bushels, below the 1.771 billion that the USDA forecast on June 10.

“The tightening supply and deteriorating crops in the field are a big change from the outlook a month ago,” Schultz said. “Most livestock producers were waiting for lower prices into the harvest, and now they will be scrambling to extend purchases.”

 

Eoin Treacy's view -

El Nino is a major weather phenomenon and this year’s event is expected to be stronger than normal. With droughts in some parts and floods elsewhere the potential for crop yields to undershoot is being priced into agricultural commodities. There has been a significant rally in corn, wheat and soybean prices which is a little overbought in the short term. There is room for some consolidation but clear downward dynamics would be required to question potential for some additional upside. 



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July 02 2015

Commentary by Eoin Treacy

Centene to Buy Health Net in $6.3 Billion Health-Care Deal

This article by Zachary Tracer for Bloomberg may be of interest to subscribers. Here is a section: 

Aetna Inc. is said to be nearing an acquisition of Humana Inc., Bloomberg reported last week. And on June 20, Anthem Inc. went public with a bid for Cigna Corp. UnitedHealth Group Inc., the largest U.S. health insurer, could also make a bid for Aetna.

It’s also possible UnitedHealth could jump in with a competing offer for Health Net, said Ana Gupte, an analyst at Leerink Partners LLC.

Centene will assume about $500 million in debt as part of its transaction with Health Net, which the companies expect to close in early 2016. The buyer plans to fund the purchase using its existing cash and debt financing, with Wells Fargo & Co. providing $2.7 billion in financing commitments, the companies said.

The combined company would have more than 10 million members and an estimated $37 billion in pro forma premium and service revenues for 2015, and the acquisition would boost earnings by about 10 percent in the first year, according to the statement.

 

Eoin Treacy's view -

The Supreme Court’s decision on June 25th to strike down the most recent challenge to subsidies under the Affordable Care Act has acted as a green light for M&A activity in the health insurance market. Health insurers have been some of the greatest beneficiaries of Obamacare and the removal of a major challenge to its permanence is great news for the sector. 



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July 01 2015

Commentary by Eoin Treacy

U.S. Justice Department Opens Antitrust Probe Into Airlines

This article by David McLaughlin may be of interest to subscribers. Here is a section:

U.S. airline shares tumbled, erasing an earlier gain, after the initial Associated Press report on the inquiry. Citing a document, the AP said the department was investigating whether carriers were colluding to help prop up airfares.

The Bloomberg U.S. Airlines Index slid 4.7 percent, the biggest intraday drop since June 8, at 2:03 p.m. in New York. The gauge rose as much as 1.7 percent earlier.

Messages left with the four largest U.S. carriers -- American Airlines Group Inc., United Continental Holdings Inc., Delta Air Lines Inc. and Southwest Airlines Co. -- weren’t immediately returned.

Eoin Treacy's view -

Airlines have benefitted enormously from the fall in oil prices, the recovering economy and consolidation in the aftermath of the credit crisis. If you have booked a summer holiday in the last month you will have noticed that the price of airline tickets has not come down and differences in pricing between airlines is almost non-existent. Little wonder then that the Justice Department is asking why?

 



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June 29 2015

Commentary by Eoin Treacy

Vietnam Eases Foreign Ownership Caps as MSCI Upgrade Sought

This article by Nguyen Kieu Giang for Bloomberg may be of interest to subscribers. Here is a section: 

Vietnam eased curbs on foreign ownership as the government seeks to boost inflows to the nation’s stocks and an upgrade to emerging-market status.

Overseas investors can increase holdings in “a number” of industries to 100 percent from 49 percent effective in September, according to a government decree published late Friday. Other companies will keep their 49 percent limits, while holdings in sectors that are governed by separate ownership regulations such as banks will remain at 30 percent, according to the decree.

The restrictions have been “a major hurdle” to developing the capital markets and deterred many foreign investors, said Andy Ho, chief investment officer of Ho Chi Minh City-based VinaCapital, which manages about $1.4 billion in assets.

Money managers including Templeton Asset Management and Dragon Capital Group Ltd. have said they’re unable to buy as many equities in Vietnam’s $58 billion market as they want because of the caps. The plan to ease restrictions was delayed last year after originally being proposed in 2013.

Vietnam is building its case for an upgrade to emerging- market status from frontier classification by index provider MSCI Inc., the State Securities Commission said in October. An emerging-market ranking, which would increase the pool of eligible investors for Vietnam, requires “significant” openness to foreign ownership and ease of capital flows, as well as minimum levels of liquidity and market value, according to MSCI’s website.

 

Eoin Treacy's view -

Vietnam holds a great deal of promise with a competitive manufacturing sector, proximity to China’s markets and a government which is attempting to reform. However continued inflation is evident in the devaluation of the Dong which remains on a downward trajectory. An easing of restrictions on foreign ownership has long been anticipated by investors but would probably have been more beneficial almost three years ago when it was first mooted. Nevertheless it is good news. 



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June 26 2015

Commentary by Eoin Treacy

Indonesia May Replace Economics Team, Vice President Says

This article by Ben Otto for the Wall Street Journal may be of interest to subscribers. Here is a section: 

But growth has slipped to its lowest level in more than five years, and Mr. Widodo’s team, in place for almost eight months, has failed to arrest the fall. Indonesia’s stock index recently hit its lowest level in more than a year, wiping out all gains made since Mr. Widodo’s election. Lackluster corporate earnings were partly the cause, along with waning confidence in the president’s ability to shepherd his team to quickly implement his program.

Mr. Kalla acknowledged the economy was a problem, and said one of his and the president’s priorities is to speed up spending on stalled infrastructure projects that are expected to inject billions of dollars into the economy. He pointed to a new law that makes it easier for the state to acquire land -- a long-standing sticking point for projects ranging from power plants to factories. The new rules are set to pave the way for a Japanese-funded $4 billion power plant to proceed after years of delay, Mr. Kalla said.

As falling global oil prices cut into Indonesia’s oil-gas revenue, and tax collection so far coming up far short of targets, the government is working to attract more foreign direct investors. Mr. Kalla said that many companies “don’t need more incentives” to invest in Indonesia, pointing to the large population and low labor costs that attract consumer companies and manufacturers. He said the government is trying to address old problems of acquiring permits for foreign workers, improving the roads and access to electricity, and helping to clear land.

 

Eoin Treacy's view -

Unfortunately for Widodo he did not receive the groundswell of support that Modi did in India which would have given him carte blanche to implement his reform agenda. Political infighting and obfuscation have characterised the environment in Indonesia since before Widodo’s victory. Despite the fact a number of the policies he fought for have grudgingly been implemented, perceptions are that little has been achieved. 



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June 25 2015

Commentary by Eoin Treacy

Brazil Bank Stock Goes From Worst to First After Investors Bail

This article by Francisco Marcelino and Ney Hayashi for Bloomberg may be of interest to subscribers. Here is a section: 

Among the largest Brazilian banks, Santander is the one with the highest capital ratios, Victor Martins, an analyst at Planner Corretora de Valores, said by phone from Sao Paulo.

“If the economy picks up, they’ll be in a better position to take advantage of that,” Martins said. “It’s all in their hands to do it.”

Santander Brasil’s capital ratio of 16 percent compares with 16.02 percent at Banco do Brasil SA at the end of the first quarter. It exceeded Itau’s 15.3 percent and Banco Bradesco SA’s 15.2 percent.
Santander declined to comment on its performance since the share-swap offer, which began in April 2014. That’s when the bank offered to buy back the 25 percent stake in the Brazil unit it didn’t already own at a price 20 percent above where it was trading at the time. The deal was to exchange shares of the local unit for those of the parent.

The majority of analysts covering the company recommended investors accept the offer, citing what they saw as a fair price and the risk of holding a stock with low liquidity.

“The market doesn’t believe in our franchise, but we do,” Javier Marin, Banco Santander’s chief executive officer when the deal was announced, told reporters at the time. “That’s why we’re carrying out this transaction.”

 

Eoin Treacy's view -

Brazil remains mired in a political scandal which throws light on the inadequate standards of governance that prevailed over the last decade. Now that commodity prices have fallen and excess capital from exports has dried up, the ability of the economy to thrive without reform in how the country is administered is in question. The Real offers a powerful representation of just how much stress the economy is under. It has more than halved since 2011. Some additional evidence of steadying would be a welcome development from the perspective of foreign investors. 



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June 24 2015

Commentary by Eoin Treacy

Ahold Deal Would Create One of the Largest U.S. Grocery Chains

This article by Chad Bray for the New York Times may be of interest to subscribers. Here is a section: 

The Dutch supermarket operator Ahold and the Delhaize Group of Belgium said on Wednesday that they had agreed to an all-share merger that would create one of the largest supermarket chains in the United States.

The deal would combine Delhaize, the owner of the American supermarket chains Food Lion and Hannaford, with Ahold, which owns the Stop & Shop and Giant stores in the United States, amid increasing competition in the grocery sector.

The combined company would be called Ahold Delhaize and would be worth about 26.2 billion euros, or about $29.5 billion, based on market capitalization. It would have more than 6,500 stores and 375,000 employees in the United States and Europe, and sales of €54.1 billion.

The companies, while based in Europe, generate more than half their sales in the United States. The deal is expected to allow them to compete better with the likes of Walmart Stores, the world’s largest retailer, and with discount grocers such as the German companies Aldi and Lidl, and Costco in the United States.

Eoin Treacy's view -

Economies of scale represent a major competitive advantage in a market where inefficiency represents higher costs consumers will simply not accept. While Ahold sold off its Asian and Latin American operations in the 1990s as a result of an accounting crisis, Delhaize still has its Indonesian unit. The merged companies will have substantial footprints in both Europe and the USA. 



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June 23 2015

Commentary by Eoin Treacy

The Way Humans Get Electricity Is About to Change Forever

This article by Tom Randall for Bloomberg may be of interest to subscribers. Here is a section: 

The price of solar power will continue to fall, until it becomes the cheapest form of power in a rapidly expanding number of national markets. By 2026, utility-scale solar will be competitive for the majority of the world, according to BNEF. The lifetime cost of a photovoltaic solar-power plant will drop by almost half over the next 25 years, even as the prices of fossil fuels creep higher.

Solar power will eventually get so cheap that it will outcompete new fossil-fuel plants and even start to supplant some existing coal and gas plants, potentially stranding billions in fossil-fuel infrastructure. The industrial age was built on coal. The next 25 years will be the end of its dominance.  

2. Solar Billions Become Solar Trillions
With solar power so cheap, investments will surge. Expect $3.7 trillion in solar investments between now and 2040, according to BNEF. Solar alone will account for more than a third of new power capacity worldwide. Here's how that looks on a chart, with solar appropriately dressed in yellow and fossil fuels in pernicious gray:  

3. The Revolution Will Be Decentralized 
The biggest solar revolution will take place on rooftops. High electricity prices and cheap residential battery storage will make small-scale rooftop solar ever more attractive, driving a 17-fold increase in installations. By 2040, rooftop solar will be cheaper than electricity from the grid in every major economy, and almost 13 percent of electricity worldwide will be generated from small-scale solar systems.

 

Eoin Treacy's view -

The pace of technological innovation in solar is rapid and the argument that Moore’s law is applicable is gaining ground as the sector attached increasing research and development spending. The difficulties reported in getting the Ivanpah concentrated solar facility, in the Mojave Desert, up to peak performance is a setback suggesting the time required to deliver new technologies might be longer than some are currently envisaging. Here is a section from a Huffington Post piece dated November 17th: 

"During startup we have experienced ... equipment challenges, typical with any new technology, combined with irregular weather patterns," NRG spokesman Jeff Holland said in a statement. "We are confident that Ivanpah's long-term generation projections will meet expectations."

The technology used at Ivanpah is different than the familiar photovoltaic panels commonly used for rooftop solar installations. The plant's solar-thermal system — sometimes called concentrated-solar thermal — relies on nearly 350,000 computer-controlled mirrors at the site, each the size of a garage door. 

 



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June 22 2015

Commentary by Eoin Treacy

2015 Midyear Outlook, Key Takeaways

Thanks to a subscriber for this report from Wells Fargo which may be of interest. Here is a section: 

We believe earnings momentum is building in the European and Japanese equity markets, and this trend may be the catalyst for higher equity markets, and this trend may be the catalyst for higher equity returns for the remainder of the year. Developed markets should benefit from gradual economic improvements in these regions. Corporate earnings reversions in these markets have turned positive for the first time since 2011. In addition to supporting business and consumer sentiment, another round of quantitative easing (QE) measures launched by the European Central Bank (ECB) and Bank of Japan (BoJ) should provide a nice cushion for equity prices. Equity valuations have increased ahead of improvements in fundamentals and earnings, and stocks are no longer priced as cheaply as they have been in prior years. The MSCI Europe, Australiasia and Far East (EAFE) Index, a primary measure of equity market performance of developed markets outside of the U.S. and Canada, trades at 16.08 times our 2015 estimate. We estimate that price multiples may stay somewhat elevated as investors await the profit cycle to accelerate. 

We are maintaining our overweight to developed market equities. Key risks to this view that bear watching include another rapid slide in the euro against the U.S. dollar, a relapse of economic weakness, particularly in Europe and Japan, and a dip in corporate earnings. Inflated equity market valuations could become a relevant headwind if we do not see earnings growth start to rebound. 

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

The drama, or melodrama, of the unfolding situation in Greece has obscured the fact that two of the largest central banks in the world are engaged in outsized quantitative easing programs. As David has said for years “monetary policy trumps just about everything else most of the time” As potential for a deal between Greece and its creditors looks more likely, the attention of investors is returning to the fountain of liquidity coming from the ECB and BoJ. The relative weakness of bonds is potentially reflective of some liquidation of safe haven positions while the bounce in equities will be pressuring shorts. 



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June 19 2015

Commentary by Eoin Treacy

Ireland

Eoin Treacy's view -

The whole world is focused on Greece with theatrics among the main participants escalating as we approach the next deadline. The ECB has finally engaged in looser monetary policy which is only likely to get more lax if Greece in fact exits the currency union. An export led economy such as Ireland’s remains a beneficiary of these developments no least because of the relative weakness of the Euro.    



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June 18 2015

Commentary by Eoin Treacy

Basel 4 - Truth and Advertising

Thanks to a subscriber for this report from Deutsche Bank which may be of interest. Here is a section: 

In our base case, we expect sector RWA inflation of 14% or EUR 1.2tn. We expect a Basel 4 ratio of 9.9% on 2015, a 1.7% reduction from Basel 3, or EUR 120bn in equity. Given sector 2017 profits of EUR 130bn and 2019 implementation period, we think on average the sector is well placed to absorb the changes. By country, Nordics have the highest B4 ratios and France the lowest. Despite having the highest RWA inflation, Nordics still end up with the strongest B4 ratio because of high pre-existing buffers. France has the lowest B4 ratio by country given starting points and RWA inflation.

A wide range of outcomes is still possible depending on finalization
The range of outcomes could be wide, or impact sooner, depending on how the proposals are finalized. Two risks are; i) more granular, portfolio-based, RWA floors could lift sector RWA inflation to 22% and catch out more banks costing a further 0.6% of CT1; ii) national regulators may move faster than 2019 on harmonizing RWA by adjusting banks’ internal models tackling so called model risk. Our feedback is that management may have this higher up the immediate agenda because it may come sooner. In our 9 June 2014 Truth in Advertising report we looked at the issue of model risk.

We screen stocks on Basel 4 and potential for payout surprise
Despite finalization of rules in the next year, and implementation not before 2019, guidance from banks will likely impact perceptions around capital and payout. Stocks we like on our base case are Lloyds, Unicredit, Banco, Danske, CBK and Bankinter. For Unicredit and CBK in particular, perceptions around relative capital strength could be weak, wrongly in our view. Our analysis shows they are better placed on Basel 4 than some may think with reasonable valuation. Out of this list, Lloyds and Banco could be more impacted if we get a tougher implementation of more granular RWA floors.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

European banks were decimated by the financial crisis and the ongoing lack of appetite for consumer credit remains a headwind. Nevertheless, if the USA is any guide the introduction of a concerted effort to inflate money supply and steepen the yield curve should help some of the better positioned banks back onto a growth trajectory over the medium term. 

The Europe STOXX 600 Banks Index (P/E 22.3, DY 3.61%) rallied to new four-year highs following the introduction of the ECB’s QE program and has been consolidating that gain since. It found at least near-term support today in the region of the 200-day MA. 

 



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June 18 2015

Commentary by Eoin Treacy

Piercing the gloom

Thanks to a subscriber for this report from Deutsche Bank which may be of interest to subscribers. Here is a section:

China is decelerating – (a fairly consensual view) and this is coinciding with additional production ramp-up as projects started years ago come to fruition. The net outcome is over supply (again, a consensual view) and prices should fall (as they have done). A risk is to use pre China boom commodity prices as a guide to the future, because this is too bearish as many commodity prices hit century lows in the early 2000’s. Iron ore hit an annual low in 2002 for instance at US$36/t (real CIF) – so market fears of sustained iron ore prices of US$30-40/t would require iron ore to retrace to century low levels, into perpetuity. We do not think this is likely. Meanwhile, a number of the miners offer good value on their existing assets alone at normalised prices, the potential growth upside and high yields justify buying them – on top of that, dividends are both attractive and maintainable into the foreseeable future. Now is a good time to selectively pick up some value, in our view.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

Investment in new green field projects has stopped and is unlikely to become a significant factor until there is evidence metal prices are tending higher. Having embarked on developing new mines, companies have little choice but to complete the projects and these sources of supply continue to come to market. This situation favours lower cost, more established companies. 

There is an important difference between Chinese demand growth and absolute demand. As a major economy, per capita demand has increased substantially over the last decade. A great deal of mine expansion was predicated on the trend of demand growth persisting indefinitely. The pace of growth has moderated considerably but there is no evidence it has reversed. Any major economy has an annual consumption rate for industrial resources. Generally speaking, commodity bull markets don’t end because demand decreases. Rather supply increases to overwhelm demand. This is exactly what we have seen happen and a new demand growth model will have to evolve in order to change the environment. 

 



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June 11 2015

Commentary by Eoin Treacy

Email of the day on the lack commonality in luxury goods companies

I read this article about luxury goods in today's FT  and then ran through your luxury goods section in your Favourites in the Chart Library. I cannot see a common pattern in the charts. Since this a major element of what you teach in the Chart Seminar, I would like your thoughts on this particular case.

Eoin Treacy's view -

Remy Cointreau was among the greatest beneficiaries of the largesse of Chinese officialdom since its expensive liquors were consumed at so many dinners. This all came to a halt in 2013 when Xi Jinping’s corruption crackdown gained traction. Conspicuous consumption suddenly became unfashionable as bloggers posted photos of cadres wearing luxury watches. This was highlighted most poignantly at this year’s annual Party meeting when a number of high profile wives of senior officials were seen holding cheap plastic handbags rather than the Chanel and Hermes bags of previous years. 



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June 10 2015

Commentary by Eoin Treacy

Vale Outlook for China Sends Ibovespa to Biggest Gain in World

This article by Julia Leite for Bloomberg may be of interest to subscribers. Here is a section: 

“Several Chinese producers -- a higher number than people realize -- have already left the business,” Vale’s Ferreira, said Wednesday at a Rio de Janeiro conference. “I think we will have a better second half in China than the first half in terms of steel.”

On top of raw-material shares, banks also helped push the Ibovespa higher. Banco Bradesco SA recovered from an 11-month low while Itau Unibanco Holding SA was set for the best day since February. Still, Fides’ Vieira said the advance may not be sustained as Latin America’s largest economy continues to disappoint.

Inflation has accelerated as President Dilma Rousseff increases government controlled prices to shore up public accounts. That has sent annual consumer prices to the fastest pace in more than a decade, and the central bank has responded by boosting borrowing costs six consecutive times.

Bets on a further slowdown at a time when the economy is already forecast to show the worst recession in 25 years have dragged down the Ibovespa from this year’s high. The benchmark gauge had entered a bull market April 24, after rallying more than 20 percent from its 2015 low, on speculation government measures would revive growth and help Brazil keep its investment-grade credit rating.

 

Eoin Treacy's view -

The Brazilian market has been the subject of a number of challenges over the last couple of years not least the collapse in iron-ore and coal prices and the entanglement of the current administration in Petrobras’s corruption scandal. 

The Index has been rangebound, in nominal terms, for much of the last two years and found support today in the region of the 200-day MA. A sustained move below 52.500 would be required to question current scope for some additional upside. 

 



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June 08 2015

Commentary by Eoin Treacy

June 03 2015

Commentary by Eoin Treacy

Finally! The yen breaks 30-year support, a new round of currency turmoil begins

Thanks to a subscriber for this report by Albert Edwards for SocGen which may be of interest. Here is a section: 

Why is China’s lurch into deflation on the GDP deflator, but not the CPI measure, so important? We have pointed out before (unfortunately we don’t have space for the chart here) that in Japan during the 1990s the thing to watch to see the havoc that deflation was wreaking on nominal revenues and debt/income loads was not the CPI, but rather the GDP deflator, which fell far faster than the CPI. Economic agents produce far more than just consumer goods and services and the GDP deflator is a much wider basket of goods and services and includes exports and investment goods. Clearly the descent into outright GDP deflation in China explains the more aggressive, even slightly panicky, policy easing measures there.

We also pointed out last week that China’s move into BoP deficit imposes a substantial monetary headwind on the economy. China may wish to keep the renminbi stable at this time while the IMF is currently considering including it in the SDR currency basket. But the economy is simply not in a position to withstand a major yen decline bringing down the currencies of its competitors in the region (and the additional deflationary impulse). I remain convinced that China must start guiding its currency down against the dollar and it can do that easily now it has a BoP deficit by doing absolutely nothing (ie not intervening any longer to hold it up)! China will also take the IMF’s recent declaration that the renminbi is no longer undervalued as justification for these actions - link.

Worrisome deflation is already being imported into the US, especially from Japan (see chart below). China (blue line) has yet to participate, but a further round of Asian devaluations will inevitably see waves of deflation heading westwards – as in 1997/98. Watch this data closely.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber;'s Area. 

The Yen has been a catalyst for competitive currency devaluation across the Asian region since the BoJ initiated its QE program in 2012. As the Yen extends its downtrend there is potential that it will act as an additional incentive for regional competitors to devalue their currencies.

The US Dollar broke out against the Yen last week and a sustained move below ¥122 would be required to begin to question medium-term scope for continued upside. 



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June 03 2015

Commentary by Eoin Treacy

GDP growth, miners not enough to boost market

This article by Stephen Cauchi for the Sydney Morning Herald may be of interest to subscribers. Here is a section:

"Today's GDP data underscores why we shouldn't be too concerned about the economy right now," Aberdeen Asset Management senior investment manager Jasmin Argyrou said. "Some of the worrying trends in confidence we saw late last year have reversed and although investment activity is subdued, household consumption has held up surprisingly well. This is ultimately the key for the investment outlook."

The reason the sharemarket did not respond to the data, Credit Suisse analyst Damien Boey said, was that investors are focused primarily on yield rather than growth. "Stocks have reached a point where changes to the earnings outlook or the GDP outlook at the margins don't really have a big impact, given that valuations are kind of extended," he said. "Maybe they're looking for more rate cuts as the only way up."

Bond yields rose on Wednesday and that was enough to send the market lower, he said.

 

Eoin Treacy's view -

Australian investors have been heavily invested in high yielding domestic shares, primarily banks, in order to benefit from full franking. The relative value proposition has also been bolstered by historically low interest rates and a resources sector which has been a subpar performer since 2009.

Australian 10-year government bond yields share a high degree of commonality with their other developed market counterparts. The yield has jumped over the last couple of weeks to break the yearlong progression of lower rally highs and is now trading in the region of the 200-day MA. The 3% area represents an area of prior resistance and a sustained move above it would confirm more than temporary supply dominance. 



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May 29 2015

Commentary by Eoin Treacy

No One Knows Cable Like John Malone

This article by John Malone for Bloomberg may be of interest to subscribers. Here is a section: 

Most of Malone’s $8.6 billion net worth can be traced back to that decision. Well, that and a whole bunch of other decisions that followed. TCI shareholders enjoyed a 5,000-fold gain from 1974 to the end of 1997, Robichaux calculated. In his book “The Outsiders,” private-equity manager Will Thorndike describes Malone as one of a rare breed of CEOs who act mainly as capital allocators -- disciplined enough to buy when the price is low and sell when it is high. Thorndike also offers this Malone quote from 1982: “The key to future profitability and success in the cable business will be the ability to control programming costs through the leverage of size.”

Eoin Treacy's view -

YouTube celebrated its 10-year anniversary today. I was discussing that fact with my daughters on the way to school this morning. My eldest was 9 in March so she has a hard time understanding that a world without Wi-Fi and iPhones was all we had before she was born. She aspires to being a computer game programmer when she grows up but what she and her younger sister want now is their own YouTube channel. The fact that such a feat is within reach of young children is an additional testament to how much the world has changed.

They and their friends consume most of their media content online rather than from TV channels. This has to be music to the ears of people like John Malone. They now pay nothing for a considerable portion of the content being consumed by their customers and as a result can force tougher terms on the content they do pay for. Regardless of what content you consume, cable or Wi-Fi access is a prerequisite. 



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May 15 2015

Commentary by Eoin Treacy

Netflix Tops $600 a Share, Said to Be in Talks to Enter China

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

Entering China would let Netflix, the broadcaster of “House of Cards” and “Orange Is the New Black” take advantage of what’s forecast to be explosive growth in online TV in the nation of 1.4 billion people. The market is estimated to almost triple to 90 billion yuan by 2018, according to Shanghai-based Internet consultant IResearch.

A local partnership would be essential given the Chinese government’s strict controls over licensing for online content. Netflix wants a partner that has licenses for content on all devices -- including mobile phones, computers and set-top boxes, according to the people. China’s State Administration of Press, Publication, Radio, Film and Television has given Internet TV licenses to seven companies, including Wasu.

Wasu didn’t respond to an e-mail seeking comment. Two phone calls to Wasu’s general line weren’t answered.

 

Eoin Treacy's view -

Gaining a foothold China would be a major prize for Netflix but it will have to tread carefully and approach the right partner if it is to succeed in this venture. Additionally there are a number of Chinese competitors it will need to face down regardless of which partner it chooses. 



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April 27 2015

Commentary by Eoin Treacy

Indonesian Stocks Decline Most Since 2013 on Earnings Concerns

This article by Harry Suhartono and Kyoungwha Kim for Bloomberg may be of interest to subscribers. Here is a section: 

“Corporate results from some of the largest Indonesian companies confirmed that the economy is weakening,” said Audrey Goh, Singapore-based investment strategist at Standard Chartered Bank. There’s probably “some negative sentiment” from the planned executions, she said.

President Joko Widodo’s resumption of executions for drug smugglers after a hiatus under his predecessor has increased international focus on Southeast Asia’s largest economy and the world’s fourth-most populous nation. Australia, which has a history of spats with its northern neighbor, has warned the deaths may damage ties and hasn’t ruled out sanctions or diplomatic action.

 

Eoin Treacy's view -

Joko Widodo does not have a wide margin of support in parliament so there is the possibility that the resumption of executions for drug smuggling represent an attempt to bolster his strongman credentials as the economy weakens. Commodities continue to represent a major source of income for the Indonesian economy despite the increasing potential for growth in the consumer economy. The fall in oil, tin and coal prices all represent headwinds but the possibility of the country attracting negative attention as a result of executions represents an additional issue.  



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April 24 2015

Commentary by Eoin Treacy

Amazon, Microsoft Profit From Cloud as Nasdaq Reaches Record

This article by Tom Giles for Bloomberg may be of interest to subscribers. Here is a section: 

Minutes after the Nasdaq Composite closed at a record, three of the biggest bellwethers in technology reminded the market precisely why investors are so bullish on companies that do business through the Web.

Amazon.com Inc. for the first time broke out sales from its division that sells computing power and software via the Internet, reporting a 49 percent jump last quarter. Microsoft Corp. posted profit that topped analysts’ estimates, also underscoring healthy demand for software delivered through the cloud. Google Inc. benefited from rising volume of online ads.

The numbers are a testament not only to the endurance of the Internet as a conduit of commerce and information, but also to the ways it has revolutionized how the world’s biggest corporations operate. All three companies have been at the heart of these changes since the Web’s inception as a business tool, and are now vying for a bigger slice of the still-fledgling market for cloud computing.

Google is seeking to extend its lead in online search and advertising, Amazon is spending billions of dollars to expand in e-commerce and data centers, and Microsoft is building on its dominance of the business-software market.

“We are innings one or two of the cloud,” said Kim Forrest, an analyst at Fort Pitt Capital Group Inc., which oversees about $1.8 billion in Pittsburgh.

 

Eoin Treacy's view -

This is a big day for the Nasdaq. Back in 2003 no one anticipated the Index would surmount its bubble peak in little more than a decade. Of course the relative weightings of the Index have changed almost beyond recognition in that time but above all else, the Nasdaq’s performance is a testament to how successful the USA is at creating companies that fill market niches we never knew existed. 



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April 21 2015

Commentary by Eoin Treacy

Buttered Coffee Could Make You Invincible. And This Man Very Rich

This article by Gordy Megroz for Bloomberg may be of interest to subscribers. Here is a section: 

He calls the mixture Bulletproof coffee. Drink it, the name implies, and you’ll feel invincible. “Fats and caffeine help stimulate the brain,” Asprey says in his office, taking another sip. The coffee, along with the drug cocktail he’s just downed, which includes vitamins K and C as well as aniracetam, a pharmaceutical designed to improve brain function, is intended to provide hours of enlightenment. “There’s a sense of cognitive ease, where everything you want to say is at the tip of your tongue,” he says. “It’s like getting a new computer—you never want to go back to the old one.”

Eoin Treacy's view -

In the videos on Mr.Asprey’s website he is sporting the near ubiquitous beard of the hipster generation and his fad is likely to be popular among those searching for the next new health craze. The evolution of demand for grass fed dairy and beef products could not be more welcome news for Irish and New Zealand dairies and beef exporters.



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April 20 2015

Commentary by Eoin Treacy

Report from The Chart Seminar in Singapore

Eoin Treacy's view -

Last week’s event was another enjoyable visit to Singapore and was an apt time to ruminate on Lee Kwan Yew’s legacy of turning a tropical backwater into a first world private banking and high end manufacturing centre. Delegates came in from Argentina, Australia, Japan and of course Singapore which led to some interesting and varied discussions.

Singapore’s stock market is being led higher by the banking sector and shares a high degree of commonality with Taiwan and South Korea. The Index is somewhat overbought in the short-term and some consolidation of recent gains in looking likely. However a sustained move below the 200-day MA, currently near 3400, would be required to question medium-term scope for additional upside.

As one might imagine the main topic of conversation was on the outlook for the Asian region not least following China’s explosive breakout over the preceding three weeks.  Delegates were also interested in the outlook for the European region and we also looked at the S&P 500. We looked at the oil price and a number of related instruments. We also looked at gold prices and a number of miners, select Singapore shares as well as a wide range of international bank shares. We also had a wide ranging discussion on currencies. 



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March 31 2015

Commentary by Eoin Treacy

Muhammadu Buhari Wins Nigerian Presidency in Power Shift

This article by Pauline Bax, Emele Onu and Yinka Ibukun for Bloomberg may be of interest to subscribers. Here is a section: 

Buhari, a 72-year-old former military ruler who heads the All Progressives Congress, won 52.4 percent of votes cast in all 36 states and the Federal Capital Territory in Africa’s biggest oil producer, according to tallies by the electoral authorities.

Jonathan received 43.7 percent in the March 28-29 election. He called Buhari to congratulate him, an opposition spokesman, Lai Mohammed, told reporters in the capital, Abuja.

“It’s a massive, massive democratic revolution for Nigeria,” Clement Nwankwo, executive director of the Policy and Legal Advocacy Center, which monitored the election, said by phone from Abuja. “It’s a boost to accountability, to the power of the people to bring a government to account through the ballots.”

Buhari, a northern Muslim, faces the tasks of ending a six- year-old war against the Islamist militant group Boko Haram that’s killed more than 13,000 people and restoring investor confidence in an economy that’s reeling from a 50 percent drop in the price of oil, its main export, since June.

“We are putting our feet on the first rung of the ladder of democracy,” Folarin Gbadebo-Smith, managing director of the Center for Public Policy Alternatives in Lagos, the commercial capital, said by phone. “We have been able to change a government that did not meet our expectations.”

 

Eoin Treacy's view -

The first true test of a nascent democracy is in the willingness of an incumbent to accept the will of the people, give up power and engage in an active opposition within parliament. The initial signs are positive that Nigeria can achieve this feat and as such it represents a significant step forward for the both the country and region’s standards of governance. Even more important is that Buhari has a record of integrity and a desire for reform which puts in good standing with other democratically elected reform minded leaders in countries like India and Indonesia.   



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March 20 2015

Commentary by Eoin Treacy

U.Ks FTSE 100 Rides Past Record, Reaching 7,000 for First Time

This article by Inyoung Hwang and Roxana Zega for Bloomberg may be of interest to subscribers. Here is a section: 

“U.K. stocks have had a strong rise given the headwinds,” Richard Hunter, head of equities at Hargreaves Lansdown Plc in London, said by phone. “Mining, oil and bank stocks make up a big part of the index, and we all know the difficult time these three sectors have had. Despite that, the FTSE 100 has managed to make progress.”

It’s been a good week for the benchmark: Chancellor of the Exchequer George Osborne on Wednesday unveiled higher economic growth and lower deficit and unemployment forecasts along with help for the North Sea oil industry. The latter has helped energy stocks trim declines spurred by a rout in oil and metals prices. Banking shares have been hurt by a series of scandals ranging from manipulation of interest-rate benchmarks to tax- evasion schemes.

Even with the FTSE 100 at a record, the advance in British equities this year is about a third that of gains in European peers, which was boosted by additional stimulus from the region’s central bank.

Eoin Treacy's view -

Clicking through the constituents of the FTSE-350 sector Indices section of the Chart Library, we can see that the UK stock market’s rally is well supported, It is also worth noting that the banking, resources and oil & gas sectors are no longer acting as headwinds, have all found at least near-term support this week. 

We are in the final stages of testing for the new filter system and hope to re-launch it soon. Perusing the results of this high/low filter for the FTSE-350 we can see that the majority have been trending for some time which highlights just how much of a brake the above sectors have represented for the UK stock market. 

In the table, the columns represent performance over 1 month, 3 months, 6 months, 12 months, 3-years and 5-years. It will only show data for when the respective share has hit a new high. Therefore at the top of the table you will see all the columns are filled because prices have hit new five-year highs while further down the list a share may only have hit a new 3-month high. 

 



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March 17 2015

Commentary by Eoin Treacy

Macau Gaming

Thanks to a subscriber for this report from UOB which may be of interest. Here is a section:

No signs of improvement. Since our previous adjustment of gaming revenue assumptions in early-January, Macau’s gaming market has shown further deterioration. In 2M15, gross gaming revenue (GGR) dropped 48.6% yoy to MOP43.3b, with VIP and mass-market GGR falling 40.3% yoy and 25.8% yoy respectively. As the trend suggests that 1Q15 GGR will fail to meet our previous MOP75.1b expectations, and various factors suggest fundamentals may deteriorate further before reaching the bottom, we further cut our expectations on future gaming revenue assumptions, with growth assumptions reduced to -21.2% (from -3.1%) for 2015 and +9.0% (from 12.7%) for 2016.

Besides declining revenue, we foresee that rising labour cost due to a labour shortage will put additional pressure on casino operators’ earnings. Several casino operators will be raising casino workers’ salaries by 5% in 2015. Hence, we lower 2015 and 2016 industry EBITDA assumptions by 27.0% and 32.4% respectively vs our previous estimates. We also lower our valuation multiples for casino operators because of the worsening market outlook

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

The anti-corruption campaign in mainland China has taken a toll on the fortunes of casinos, luxury goods and luxury drinks manufacturers. However while the leather goods and spirits companies are showing signs of renewed investor interest, Macau casinos are accelerating lower. 



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March 09 2015

Commentary by Eoin Treacy

It is Deja Vu as Brazilian Impeached Ex-President Investigated

This article by Peter Millard for Bloomberg may be of interest to subscribers. Here is a section: 

“What’s really sad is that we’ve seen this movie before -- it’s on repeat,” said Paulo Bilyk, chief investment officer of Rio Bravo, a Sao Paulo-based fund with $10 billion under management.

Indeed, the unraveling of Collor’s presidency amid allegations of corruption and hyperinflation draws parallels to the current situation. Collor, the first elected president after Brazil’s dictatorship ended in 1985, was barred from holding public office for eight years after his impeachment on accusations he condoned an influence-peddling scheme run by his campaign treasurer. He was cleared of all accusations in 2014 by the Supreme Court, which cited insufficient evidence.

Collor won re-election for the state of Alagoas from a party allied with Rousseff shortly before his appearance at a campaign stop with the President. Collor’s political base is in Brazil’s northeast, one of the poorest regions of the country, where Rousseff’s Workers Party is also popular.

 

Eoin Treacy's view -

Governance is Everything. For a country like Brazil this is even more important now that commodities are no longer trending higher. Money swelling state coffers helps to paper over a lot of cracks. The problem is that when the flows of money reverses, in a lower commodity price environment, administrations often fail to realise that they need to improve governance in a meaningful way if investors are to be placated. Brazil under Dilma Rousseff has not demonstrated that it has grasped this fact.



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February 20 2015

Commentary by Eoin Treacy

Widodo Moves Sink Cement Stocks With Banks Seen Next at Risk

This article by Harry Suhartono for Bloomberg may be of interest to subscribers. Here is a section: 

Investors are concerned that Jokowi’s administration will take a more “hands-on” approach to state-owned companies, said Joshua Tanja, head of research for Indonesian equities at UBS AG in Jakarta.

The government is considering lowering interest rates on government-subsidized loans to buyers of low-cost homes, Bisnis.com reported on Jan. 20. The online version of Indonesia’s largest business newspaper cited Basuki Hadimuljono, minister for housing and public works, for the proposal.

PT Bank Tabungan Negara, the state-owned lender that acts as an agent for government’s home-loan program, tumbled 8.2 percent the day after the report and is down 12 percent this year. Maryono, the president director of Bank Tabungan who goes by one name, didn’t answer calls to his mobile phone.

Investors should shift money into industries that have a lower chance of government intervention, including mobile-phone retailers and cigarette makers, John Rachmat, the head of research at PT Mandiri Sekuritas in Jakarta, wrote in a Jan. 19 research report.

 

Eoin Treacy's view -

The victory of Widodo in last year’s presidential election was watched closely in the hope that, as an outsider, he might hold the same promise of improving governance for Indonesia that Narendra Modi has for India. He has so far taken a proactive attitude to state owned enterprises and has attempted to lower the cost of infrastructure development by limiting the price of commodities such as cement. The limitations on ore exports have also remained in place. In late December he took advantage of lower oil prices to scrap gasoline subsidies and cap the payment on diesel. 



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February 04 2015

Commentary by Eoin Treacy

Petrobras Top Management Resigns in Brazil Corruption Case

This article by Sabrina Valle, Denyse Godoy and Paula Sambo for Bloomberg may be of interest to subscribers. Here is a section: 

“With low oil prices and Petrobras’s financial difficulties, the incentives to lean more on international oil companies to help develop the pre-salt have grown substantially,” the Eurasia analysts wrote about the company’s offshore discoveries. “It is clear that any substitute to Graca is likely to be someone with industry credentials and capable of conducting a ‘house cleaning’ of the firm.”

The scandal has also engulfed Brazil’s largest construction companies, which may bring public works projects to a halt, and threatens the presidency of Dilma Rousseff, who served as Petrobras chairman during some of the time when the alleged graft was occurring.

Foster, a frequent guest at the presidential palace in Brasilia, had offered to resign “one, two, three times” after the company was forced to delay quarterly results because of the scandal, she told reporters on Dec. 17. Foster said then that she would stay in the job as long as the president trusted her.

Rousseff has been a personal friend since the two worked together at the Ministry of Mines and Energy in 2003.

Eoin Treacy's view -

An issue faced by many nationalised industries is that they become subject to the avarice of their politically appointed boards as well as rent seeking public officials. For Petrobras this was particularly poignant since the President of Brazil is a former executive. In the run up to the October election Petrobras rallied in anticipation of Dilma Rousseff losing. Unfortunately for shareholders she won and the additional decline in oil prices contributed to the share more than halving from what was already a depressed level. 



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January 28 2015

Commentary by Eoin Treacy

Pizza Boxes in Play as Rock-Tenn Heralds More Mergers

This article by Brooke Sutherland for Bloomberg may be of interest to subscribers. Here is a section: 

There are other forces driving consolidation. An improving job market and the drop in oil prices are helping to stoke demand for consumer-related packaged products, said Panjabi of Baird. International Paper Wednesday reported fourth quarter sales that beat analysts’ estimates.
At the same time, materials costs are coming down, Panjabi said.

“The idea of increasing your exposure to that paradigm makes more sense,” he said. Companies are going to want to “capitalize on that dynamic” and merging with a peer will help reduce costs even further.

Packaging Corp. could be a potential takeover target or a merger partner, Anthony Pettinari, a New York-based analyst at Citigroup, wrote in a report on Tuesday. The company could also be an acquirer, according to Mark Wilde, a New York-based analyst at BMO. After buying Boise Inc. in 2013, it has the balance sheet flexibility to start looking at deals, he said.

 

Eoin Treacy's view -

As energy costs fall and consumers have more cash, the demand for and cost of manufacturing packaging should improve. The sector has been a solid outperformer over the last few years as consumer demand globally improved in line with the growth of the middle class but the fall in oil prices is an additional bullish catalyst. 



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January 27 2015

Commentary by Eoin Treacy

Stronger Dollar Punishes U.S. Earnings From P&G to DuPont

This article by Cécile Daurat for Bloomberg may be of interest to subscribers. Here is a section: 

Other companies, like Honeywell International Inc., were able to anticipate the currency changes. Back in October, Honeywell CEO Dave Cote reversed his policy and started using currency hedges because he was -- rightly -- concerned the euro may sink further.

3M Co. today was another example of a global business weathering the dollar strength, partially with currency hedges. The St. Paul, Minnesota-based manufacturer beat fourth-quarter earnings estimates, countering the negative effects of foreign- exchange rates with stronger sales, especially in fast-growing markets.

P&G, which makes about two-thirds of annual sales outside of the U.S., said currency effects will continue to be a drag in the current fiscal year and reduce sales by 5 percent, leading to a decline of as much as 4 percent from a year earlier. Like Kimberly-Clark Corp. and other consumer companies, Cincinnati- based P&G was especially hurt by a slump in Venezuela, where falling oil prices have heightened the bolivar’s volatility.

Bristol-Myers, the New York-based maker of cancer treatments such as Yervoy for melanoma, gets about half its sales outside the U.S. The dollar’s strength weighs down the company as it pursues growth by focusing on a new class of cancer drugs.

 

Eoin Treacy's view -

The big fall in oil prices and the big rally in the Dollar continue to influence decisions in boardrooms. 3M and Honeywell were little changed today following their results not least because their currency hedging strategies paid off. Following a quarter where companies that hedged their exposure outperformed, we can anticipate that more companies will be hedging their currency exposure by the end of this quarter. 



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January 26 2015

Commentary by Eoin Treacy

3 Myths That Block Progress For The Poor

The 2014 report from the Bill and Melinda Gates Foundation may be of interest to subscribers. Here is a section: 

You might think that such striking progress would be widely celebrated, and that people would rush to figure out what is working so well and do more of it. But they’re not, at least not in proportion to the progress. In fact, I’m struck by how few people think the world is improving, and by how many actually think the opposite—that it is getting worse.

I believe this is partly because many people are in the grip of several myths—mistaken ideas that defy the facts. The most damaging myths are that the poor will remain poor, that efforts to help them are wasted, and that saving lives will only make things worse.

I understand why people might hold these negative views. This is what they see in the news. Bad news happens in dramatic events that are easy for reporters to cover: Famine suddenly strikes a country, or a dictator takes over someplace. Good news—at least the kind of good news that I have in mind—happens in slow motion. Countries are getting richer, but it’s hard to capture that on video. Health is improving, but there’s no press conference for children who did not die of malaria.

The belief that the world is getting worse, that we can’t solve extreme poverty and disease, isn’t just mistaken. It is harmful. It can stall progress. It makes efforts to solve these problems seem pointless. It blinds us to the opportunity we have to create a world where almost everyone has a chance to prosper. 

If people think the best times are in the past, they can get pessimistic and long for a return to the good old days. If they think the best times are in the future, they see things differently. When science historian James Burke wrote about the Renaissance in The Day the Universe Changed, he pointed to one source for many of the advances that happened in that amazing period: the shift from the belief that everything was decaying and getting worse to the realization that people can create and discover and make things better. We need a similar shift today, if we’re going to take full advantage of the opportunity to improve life for everyone.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Apart from its deep pockets the Gates Foundation sets itself apart by exuding a sense of optimism that the problems affecting large portions of the global population can be solved within our lifetimes. The rise of China and India has already lifted a billion people out of abject poverty and improving governance is likely to achieve a similar feat in the next decade for even more countries. 



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January 23 2015

Commentary by Eoin Treacy

Review of the FTSE 350

Eoin Treacy's view -

The ECB’s massive QE program will put pressure on the BoE to delay any plans it may have had to raise short term interest rates. Along with its own easy monetary policy, the prospect of recovering demand on mainland Europe should be a positive for the UK’s economy and it may also be subject to additional capital flows since not all the money created by the ECB will stay inside the Eurozone. 

I thought it might be an opportune time to look at the FTSE 350 since its constituents may be among the beneficiaries of ECB largesse. The Index has surged over the last two weeks to retest its peak and a while some consolidation is possible in the current area a sustained move below 3500 would be required to question medium-term scope for additional upside. 

I clicked through the constituents of the FTSE 350 this morning and also created a section for the FTSE All Share REIT Index in the Chart Library. Here is a link to an Excel sheet of the FTSE350’s constituents ranked by sector then by market cap. 
Among Autonomies:

In the banking sector HSBC (Est P/E 10.65, DY 5.27%) has firmed in the region of 600p. It is now testing the 200-day MA and a sustained move below 600p would be required to question potential for additional upside.  

 



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January 08 2015

Commentary by Eoin Treacy

A year of public investment driven macro economic vigour

Thanks to a subscriber for this interesting report from Deutsche Bank focusing on India. Here is a section: 

Improving economics and govt actions increase probability of ratings upgrade
We assign a high likelihood of a sovereign ratings upgrade for India as most macro indicators have exhibited improvements in past 2 years. A rating upgrade will likely entail multi-layered benefits for Indian economy and markets. Over the past decade we have witnessed 4 instances of rating upgrades by S&P and Moody’s and on an average Sensex has returned 9% in the following 6 months and 40% in the following 12 months of ratings upgrade. Boost to capital inflows and improved perception of India on the back of rating upgrade should help moderate volatility associated with US rate normalization and create some headroom for RBI to ease monetary stance.

India likely to remain one of the favored emerging markets
Expectations of normalization by the US Fed and a subdued commodity pricing environment will continue to drive multi-asset differentiation within Emerging markets. India's embrace of long pending, supply side reforms together with an investment driven macroeconomic stabilization will allow it to deepen its relative attractiveness in 2015. Among key EMs, India has demonstrated one of the best improvements on external front with CA deficit now in comfort zone at (2.1% in Sep’14 qtr. 4.7% in FY13), appreciable FX reserves accumulation and sharp uptick in capital inflows.

Government must ensure its economic agenda is not side tracked 
While the urgency in moving ahead on key ordinances is indicative of the commitment to reform, passing bills in parliament will be vital to ensure that reform is structural, enduring and getting institutionalized. Translation of many of the recent ordinances into law in the next session of parliament will be viewed as crucial determinants of the government’s execution prowess. Other risks: Faster- and steeper-than-anticipated Fed rate normalization and any systemic risk associated with steep decline in oil prices.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

There are few countries that benefit more from weak oil prices than India so the recent energy market moves represent something of a windfall for Narendra Modi’s government.  This might yet allow the RBI to cut interest rates but the broader question is over how bold the administration will be in its legislative agenda. A great deal of enthusiasm has already been priced into the market and it will be interesting to see how much is delivered upon this year. 

With a large young upwardly mobile population India represents a fertile market for global Autonomies, a number of which maintain listed subsidiaries on the Munbai exchange. Many of these trade on aggressive multiples not least because supply is reasonably thin. 

 



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December 18 2014

Commentary by Eoin Treacy

Falling oil prices and the implications for asset quality

Thanks to a subscriber for this report from Deutsche Bank which may be of interest. Here is a section:

Our country bank analysts have studied the financing of the local energy production chain in 12 Asian markets and in this report evaluate the risks arising from sharply falling global oil prices. For the oil production countries, namely Australia, Malaysia and China, bank lending is primarily extended to the state-owned or globally established MNCs engaging in E&P (Exploration and Production), with some of them engaging in diversified energy businesses; for example, gas, that can help offset part of the losses from falling oil prices. In Australia, banks have set aside economic overlays (3-6% of the exposure) to buffer against potential risks from the worsening asset quality of the mining and energy sectors.

Impact for banks financing refinery businesses and overseas projects
While the refinery businesses of the major oil importing countries (India and Thailand) should benefit from falling global oil prices, the banks have less than 1% of loans pledged to the related industries, implying limited positive earnings impact. For Asian banks, such as Japanese banks, that have financed overseas projects, the borrowers are primarily strong companies with limited default risks.

Indian, Indonesian and Chinese banks historically the best performers
Since 2006, we identified four periods of global oil prices falling by an average of 46% within six months and we observed that global equity indices have been negatively affected, with MSCI Asia-ex JP financial index underperforming the S&P Index by 2%, but outperforming the global MSCI EM index by 4.7%. The best performers were India (+19%), Indonesia (+8%) and China (+4%), while HSBC (-14.5%), Standard Chartered (-21%) and Korean banks (-16%) were the worst. This order of performance is consistent with our preference among Asian financials based on our fundamental analysis.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

A number of Asian markets have been subject to some quite extreme volatility over the last couple of weeks as the impact of meaningfully low oil prices have shaken the status quo. 



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November 26 2014

Commentary by Eoin Treacy

Shorting Chickens Becomes Hot Trade in Stock Market

This article by Megan Durisin and Shruti Date Singh for Bloomberg may be of interest to subscribers. Here is a section: 

With higher chicken prices and lower feed costs, the industry has been “operating under the most advantageous conditions possible,” Francesco Pellegrino, a New York-based analyst for Sidoti & Co LLC, who recommends buying Sanderson Farms shares, said in a telephone interview yesterday. He doesn’t cover Pilgrim’s Pride. Short interest has risen because investors are questioning how much longer “peak” conditions can persist, he said.

Whole chickens sold by farmers in Georgia, the biggest producing state, rose 9.4 percent this year to an all-time high of $1.14 a pound, which has held through much of November. A retail gauge of composite wholesale-chicken prices has climbed 24 percent this year to average 90.404 cents a pound in October, USDA data show.

Chicken production will climb 3 percent next year to an all-time high of 39.206 billion pounds, the USDA forecasts.

That’s at least 65 percent higher than estimated beef or pork output. A USDA index of chicken-feed costs was 24 percent lower in September than a year earlier as American farmers collect record corn and soybean crops.

Eoin Treacy's view -

While there is no futures contract for chicken we do have the price of boneless chicken breast in the Chart Library Library. Prices have been volatile but a progression of higher reaction lows is evident since 2008 and a sustained move below 180 would be required to question medium-term potential for continued higher to lateral ranging. 



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November 24 2014

Commentary by Eoin Treacy

DBS, Bank of Singapore among top 10 private banks in Asia

This article from Channel News Asia dated last month may be of interest to subscribers. Here is a section: 

Private Banker International (PBI) said on Friday (Oct 17) that DBS Private Bank kept its ninth place in the ranking of wealth managers for the rich, with assets under management (AUM) of US$54 billion (S$68.7 billion) as at December 2013, up from US$46 billion the year before.
Bank of Singapore, the private banking arm of Oversea-Chinese Banking Corp (OCBC), stayed at number 10, with AUM of US$46 billion at the end of 2013, an increase from US$43 billion at end-2012. 

Looking ahead, Bank of Singapore said it expects to see further growth. Said its chief executive officer Mr Renato de Guzman: "We now have more than 300 relationship managers and we think there is more room for them to grow their asset base. 

“So organically we have within the organisation room to grow from existing resources that we have. Secondly, part of our strategy is to really work closely with OCBC, and they are very successful in areas or countries with a strong presence. The recent acquisition of Wing Hang Bank with OCBC is a big opportunity for Bank of Singapore."

 

Eoin Treacy's view -

At the Singapore venue for The Chart Seminar earlier this year, the majority of attendees were private bankers which was a departure from the event we held in Singapore during 2012. The growth of the sector in the city state reflects concerted long-term policy initiatives to grow the business and this is unlikely to change as the region’s major population centres increasingly seek private banking services. The opening up of China’s capital market and the increasing ability of capital to leave the country should be net benefits for the private banking sector. 



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November 24 2014

Commentary by Eoin Treacy

Heineken Takes Beer Out of Man Cave With $300 Dispenser

This article by Matthew Boyle for Bloomberg may be of interest to subscribers. Here is a section: 

The Sub’s upscale design plays into the growing trend of more refined at-home drinking -- fancy cocktails, fine wine, craft beer -- which “communicates a certain status” among consumers, said Ben Voyer, a social psychologist at the ESCP Europe Business School. While mainstream beer volumes are falling, sales of premium-priced beers such as Heineken’s Affligem and the tequila-flavored Desperados are on the rise. In Italy, half of all Torps sold are Affligem, an ale started at a Belgian abbey founded in 1074.

Heineken fell 0.6 percent to 61.12 euros at 1:23 p.m. in Amsterdam. Even for the man who has everything, though, the Sub is “ridiculously” expensive, said Euromonitor analyst Spiros Malandrakis, who predicts it will fail unless Heineken licenses its technology to other brewers to widen the selection of brands. That strategy helped make Keurig Green Mountain Inc.’s coffee machines ubiquitous in American kitchens.

That won’t happen with the Sub, however, according to Nasard. “We’re not a service provider.” Instead, Heineken -- which has introduced a cheaper $235 plastic version of its machine -- plans to keep this Christmas gift in the family.

 

Eoin Treacy's view -

Most people who own a capsule coffee machine will testify that consumption and expenditure rise while tolerance for lower quality products such as instant decreases. That’s music to the ears of companies such as Nestle and it is inevitable that others seek to adopt a similar high profile business plan for their products. It remains open to question whether Heineken will succeed with its Torps but the innovation is admirable. 



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November 21 2014

Commentary by Eoin Treacy

Email of the day on the outlook for 2015

Hi David & Eoin, I wanted to get FTM thoughts and opinion on where the best investment returns could be had over the next 12 months and what would be the key things to watch for? Thanks for an excellent service 

Eoin Treacy's view -

Thank you for your kind words and your question. This is a topic we cover almost daily in the written commentary and the audio but it is a good time to summarise our views. 

Let’s ruminate for a moment though on the timing of your question. Generally speaking, the last six weeks of the year is given over to thinking about the possibility of a Santa Claus rally and people don’t generally look at the outlook for the next year until the last week of December or the first week of January. It made headlines during the week that Goldman Sachs had released its prognostication for the coming year, which may have prompted your email. However I believe it is worth considering that the stock market is a discounting mechanism and as a bull market progresses we tend to want to discount cash-flows from increasingly further into the future. It is a measure of how strong the market has been over the last month that investors are already planning for next year. Five consecutive weeks to the upside suggest some consolidation is increasingly likely.

 



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November 21 2014

Commentary by Eoin Treacy

Ibovespa, Real Surge on Speculation Levy to Be New Finance Chief

This article by Denyse Godoy and Filipe Pacheco for Bloomberg may be of interest to subscribers. Here is a section: 

Levy, who is head of Bradesco Asset Management Ltd., was treasury secretary from 2003 to 2006 under President Dilma Rousseff’s predecessor, Luiz Inacio Lula da Silva. He will replace Guido Mantega, Brazil’s longest-serving finance minister, Folha de S.Paulo newspaper reported in its online edition. The president’s press office said Rousseff won’t announce cabinet changes today.
“Levy is investors’ favorite name for the finance ministry because he is very close to the markets,” Jason Vieira, an economist at consulting firm MoneYou, said in a telephone interview from Sao Paulo.  “He is also known as a good manager for what he did at the Treasury.”

 

Eoin Treacy's view -

Dilma Rousseff acknowledged the failure of her last administration in her acceptance speech but the market will need to see evidence of real change before giving Brazil the benefit of the doubt once more. Appointing a finance minister who understands the market is a positive development. 



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November 05 2014

Commentary by Eoin Treacy

Consumer shares

Eoin Treacy's view -

On October 10th I reviewed the constituents of the Autonomies section of the Chart Library. At the time approximately half were trading above or in the region of their 200-day MAs, while the remainder were in varying stages of trend deterioration. Since then the wider market has rebounded impressively, the Japanese market has been given a new injection of liquidity and the US Dollar has been quite firm. I clicked through the constituents once more this morning to identify those exhibiting relative strength. 



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November 05 2014

Commentary by Eoin Treacy

African Presidents Push Burkina Faso Army to Hand Over Power

This article by Simon Gongo and Pauline Bax for Bloomberg may be of interest to subscribers. Here is a section: 

The presidents of Nigeria and Ghana are in Burkina Faso to press the army to cede power to civilians after its takeover last week.

Ghana’s John Dramani Mahama, chairman of the Economic Community of West African States, and Nigeria’s Goodluck Jonathan arrived in Ouagadougou, the capital, today to join mediation efforts. The African Union yesterday labeled the military’s takeover a coup, and reiterated a demand for army chiefs to step down within two weeks or face sanctions.

The army took charge of the country last week as President Blaise Compaore, who had held the office for 27 years, was ousted amid protests against his efforts to extend his rule. Lt. Col. Isaac Zida, the transitional leader, told religious chiefs yesterday that he will step down and have power to civilians.

Eoin Treacy's view -

Governance is a relative consideration rather than an absolute. There is no doubt that the Ebola crisis in West Africa has highlighted just how underdeveloped the region is in absolute terms but on a relative basis, the macroeconomic condition of an increasing number of countries is improving albeit from a low base. If Burkina Faso does in fact embrace a democratic model, it will be another step forward for the continent in terms of a desire to improve the standards of living for the majority. 

 



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October 27 2014

Commentary by Eoin Treacy

Rousseff Losing Bond Investors as Economy Falters

This article by Paula Sambo and Filipe Pacheco for Bloomberg may be of interest to subscribers. Here is a section:

Quantitas Gestao de Recursos, a Porto Alegre-based investment boutique that manages 15 billion reais ($6.1 billion), estimated last week there is a 50 percent chance Brazil could be cut to junk in her second term.

“Unfortunately, this is very negative for Brazil,” Bianca Taylor, a Boston-based sovereign analyst and strategist at Loomis Sayles, which oversees $223 billion of assets, including Brazilian bonds, said in a telephone interview last night.

Taylor expects a “natural negative reaction” in bond markets this week. “She has not managed the country in a good way so far.”

Rousseff has boosted spending and stepped up government control of state-run companies, discouraging investment and helping sink the economy into stagflation. The country’s gross domestic product shrank in the first half of the year while annual inflation soared to 6.75 percent in September, above the top end of the government’s target range.

Bonds Fall
Brazil’s benchmark dollar bonds due in 2025 fell 0.44 cent to 100.87 cents on the dollar at 8:51 a.m. in New York while yields on local fixed-rated notes maturing in 2023 rose 0.57 percentage point to 12.61 percent. The Ibovespa benchmark equity index slumped toward a bear market, falling 4.9 percent to 49,408.11. The real posted the world’s biggest drop as it sank 2 percent to 2.5248 per dollar, a nine-year low.

Brazil’s dollar bonds returned 8.7 percent this year, trailing the average 10 percent advance for investment-grade developing nations, JPMorgan Chase & Co. indexes show. In Rousseff’s first three years in office, the notes posted an annual gain of 5.04 percent, lagging behind the 5.6 percent return for similarly rated sovereign peers.

 

Eoin Treacy's view -

In her victory speech Dilma Rousseff acknowledged her poor performance in stoking economic growth and said she wanted to do better the second time around. It is all well and good to commit to dialogue but reigniting growth in a declining commodity price environment is going to take courage and imagination which was not on show during her first term. The burden of funding social programs is likely to continue to be put on major state run enterprises such as Petrobras and might increase. 



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October 23 2014

Commentary by Eoin Treacy

Rousseff to Be Ahead of Neves in Brazil Ibope Poll

This note by Matthew Malinowski for Bloomberg may be of interest to subscribers. Here it is in full:

 Incumbent Dilma Rousseff’s lead over Aecio Neves will be bigger than margin of error, Veja columnist Lauro Jardim reports today without saying where information was obtained.

It will be 1st time in the second round an Ibope poll shows Rousseff statistically ahead in valid votes: Veja

Ibope poll to be published at 6:00 p.m. local time on O Estado website: Veja

 

Eoin Treacy's view -

The heightened volatility seen on international currency markets over the last year highlights the fact that investors are no longer willing to assume all emerging markets will move in concert. The fact is that each needs to be addressed on its individual merits and perceptions of improving governance are more important than ever. 



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October 21 2014

Commentary by Eoin Treacy

Mass. General in talks to build hospital in China

This article by Liz Kowalczyk for the Boston Globe may be of interest to subscribers. Here is a section: 

“China has a real serious problem in regard to availability of beds,’’ said Benjamin Shobert, managing director of Seattle-based Rubicon Strategy Group, which advises health care companies entering China. The shortage led the Chinese government two years ago to allow outsiders to invest in and provide expertise for the country’s health care system.

Since then, Mass. General, which is the largest hospital in New England, has developed a relationship with China. A Chinese medical tourism firm, Beijing Saint Lucia Consulting, refers patients to the hospital. The firm opened a Boston office last year to provide translators, chauffeurs, and other services for wealthy Chinese coming to Mass. General and other Boston hospitals for cancer treatment, orthopedic procedures, and other medical care.

“There is still a large gap between China and America when it comes to medical technology and service,’’ said Joseph Zhao, the company’s deputy general manager in China. With doctors in high demand there, “physician-patient communication only lasts 5 to 10 minutes,’’ he said.

 

Eoin Treacy's view -

Wealthy Chinese consumers have resources to buy just about any material possession imaginable but domestic healthcare is still developing relative to other countries. World class healthcare is as much an attribute of the upper middle class as luxury brands, property or other services and demand is increasing. Medical tourism continues to expand as demand for services represents growth in Asia while desire for lower cost is fuelling demand elsewhere. 



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October 20 2014

Commentary by Eoin Treacy

Joko Widodo sworn in as Indonesia's president

This article from the Los Angeles Times may be of interest to subscribers. Here is a section: 

But Widodo’s reform efforts -- including plans to reduce a popular fuel subsidy that eats up around one-fifth of the national budget -- are likely to face opposition in a hostile parliament where the opposition, led by his election rival Subianto, holds 63% of seats. Subianto refused to accept his election defeat and has threatened to block Widodo’s agenda.

“While he has attracted plenty of plaudits for his clean style of government, he is untested at the national level and could struggle to push through critical reforms,” reported Capital Economic, a London research group.

Last month, Subianto won a vote to end Indonesia’s system of direct elections for local officials, which helped Widodo get his start in politics in Solo nine years ago. The change has raised concerns about the future of democracy in a country usually lauded as a successful example of transition from dictatorship.

Analysts say Widodo may have to cut deals with the opposition and possibly offer Cabinet positions to members of Subianto’s coalition. That could disappoint some supporters but also weaken resistance to his reforms, said professor Tim Lindsey, who directs the Center for Indonesian Law, Islam and Society at the University of Melbourne in Australia.

“Jokowi is a canny operator, and has shown the ability to broker deals while leading minority governments as mayor of Solo and as governor of Jakarta,” Lindsey said.

Widodo visited Subianto last week, their first meeting since the election, and mentioned him by name during his inauguration address. Subianto stood and gave Widodo a military salute -- a sign, according to experts, that he was offering his rival at least temporary support.

 

Eoin Treacy's view -

The election of a non-elitist to power in Indonesia is a major achievement and reflects the power of a democracy to deliver on improving standards of governance when needs must. Widodo will need skill and luck in order to push through his reform agenda and with an opposition led parliament this will not be easy. Indonesia became a net oil importer by 2004 yet the hefty oil subsidy it pays to keep the domestic price of fuel low is still intact. Any progress that can be made in reducing this burden will be seen as a win and would free up capital for more productive uses. 



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October 13 2014

Commentary by Eoin Treacy

Brazilian Real Leads Global Currency Gains as Neves Ahead in Poll

This article by Filipe Pacheco for Bloomberg may be of interest to subscribers. Here is a section:

“The political debate tends to remain the main driver for currency trading,” Deives Ribeiro, a foreign-exchange manager at Fair Corretora de Cambio e Valores in Sao Paulo, said by phone. “Investors liked to see Neves ahead of Rousseff.”

Neves would have 52.4 percent of votes in the runoff, compared with 36.7 percent for Rousseff, according to a Sensus poll published on the website of IstoE magazine. The survey of
2,000 people Oct. 7-10 has a margin of error of plus or minus 2.2 percentage points. Ricardo Guedes, director of research firm Sensus, also conducts internal polls for the Neves campaign.

Eoin Treacy's view -

The ‘anyone but Rousseff’ camp appears to be gaining ground ahead of the October 26th run-off. With Marina Silva throwing her weight behind Aecio Neves the opposition has gained some important coherence. However, we can anticipate continued volatility until the final result is known. 



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September 24 2014

Commentary by Eoin Treacy

Survey predicts health benefit cost increases will edge up in 2015

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

One strategy employers are using to soften the increase in health spending in 2015 is adding a low-cost, high-deductible health plan for the newly eligible employees – or for all employees.  Consumer-directed health plans (CDHPs) that are eligible for a health savings account cost, on average, 20% less than traditional health plans. Health reform is clearly accelerating that trend. While about half of large employers offer a CDHP today, nearly three-fourths (73%) say they will have a CDHP in place within three years.  And 20% say it will be the only choice available to employees (today, only 6% of large employers have moved to “full-replacement” CDHPs.)

“The move toward high-deductible consumer-directed plans is spurring other changes as well, such as more voluntary options,” said Ms. Watts. “While some employees are comfortable with a lower level of coverage, offering supplemental insurance alongside a high-deductible plan gives employees access to more protection if they want it.”

 

Eoin Treacy's view -

The Affordable Care Act is the gift that just keeps giving for insurance companies. The imposition of a 40% excise duty on so called “Cadillac plans” due to come into effect in 2018 is necessitating that employers revise the coverage they offer employees now. Untaxed health, dental and eye care benefits that were an attractive part of the total compensation package for a considerable number of white collar workers are now being rewritten in an attempt to avoid an even greater commitment on behalf of the employer.

The shake-up of the system, the fact that the value of health coverage offered by the employer now has to appear on the W2 (P60 in the UK) and the passing on of costs to the insured potentially means that people expecting a tax refund may not get one while others may get more than they anticipated. The evolution of the high deductible health plan (HDHP) means that upwards of a $1000 in deductibles will be passed onto workers before health coverage kicks in.  A couple of trips to the doctor or a routine test in the space of 12 months will quickly take that money out of one’s account and ensure it won’t get spent elsewhere. 



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September 23 2014

Commentary by Eoin Treacy

Rousseff Has 42% Support in Brazil Runoff; Silva 41%

The results of the most recent Brazilian poll may be of interest to subscribers. Here is a section: 

President Dilma Rousseff and Marina Silva still stastistically tied, according to MDA poll published on CNT’s website.

In previous poll released Sept. 9, Marina Silva had 45.5% support in runoff vs 42.7% for Rousseff 
In 1st round, Rousseff would win 36% of votes vs 27.4% for Silva and 17.6% for Aecio Neves

 

Eoin Treacy's view -

Speculation in the Brazilian stock market has ebbed and flowed along with the prospects of incumbent Dilma Rousseff losing next month’s Presidential run-off. Rather than especially favouring Marina Silva investors appear to have adopted an “anyone but Rousseff” preference. In all likelihood the October 5th election will result in a run-off which will take place on October 25th.  



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September 19 2014

Commentary by Eoin Treacy

Robust demand and disciplined supply for metal casings

Thanks to a subscriber for this report from Deutsche Bank focusing on the metal casings sector for hand held devices. Here is a section:  

We hold an optimistic view on the metal casings industry. On the demand side, we are confident about its robust shipment momentum within the next three years due to (a) the design trend toward ultra-slim and lighter form-factor, and larger panel-screens on mobile devices (NBs, smartphones and tablets), (b) Apple’s preference for using metal casings (its adoption rate at 86%, Figure 19) for iPhone, iPad and Macbook products, and (c) the increasing adoption rate from other smartphone and tablet brand vendors. On the supply side, the disciplined procurement of CNC (Computer Numerical Control) machines by major casing suppliers in Asia (hence controlled supply increase) and the higher entry barriers in metal casings manufacturing and surface treatment solution can help ease the Street’s concerns about the industry’s oversupply risks.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

It is easy to become desensitised to photos of long lines of people sleeping outside Apple stores in order to be among the first to own the next new product. However these people represent the loyal customer base that is the envy of every other consumer electronics company. News last week that privately held, discount smart phone manufacturer Xiaomi would be moving to metal cases exemplifies the trend of Apple imitators, not least in the build quality end users have come to expect.



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September 15 2014

Commentary by Eoin Treacy

BlackRock Betting on Silva Win in Brazil Is Bullish on Petrobras

This article by Christiana Sciaudone for Bloomberg may be of interest to subscribers. Here is a section: 

Brazil votes next month on whether to reinstate incumbent President Dilma Rousseff or elect Marina Silva. The two are running in a statistical tie, with a Vox Populi poll published last week showing Silva would get 42 percent of votes in a runoff, compared with 41 percent for Rousseff.

“We’re overweight because we’re looking and we’re continuing to look for change,” Landers said in a Sept. 12 interview at BlackRock’s New York office. “We have good reasons to believe that the election will go towards Marina.”

Landers said Silva is signaling that she will allow the private sector to be “in charge of its own destiny,” instead of trying to control every aspect of the economy, and that she will bring inflation down. Rousseff has been using Petrobras and other state companies as fiscal and monetary policy tools, driving their value down, Landers said.

As part of Rousseff’s effort to contain inflation, she limited Petrobras’s ability to increase fuel prices.

If Rousseff wins in October, Petrobras will return to the nine-year low it hit in March, Landers said, and BlackRock would reduce its exposure to Brazil. “We would significantly have to rethink our portfolio,” Landers said. The Latin America fund shrank from $4.5 billion in December on flows.

Petrobras is the second-largest holding in Brazil after Itau Unibanco Holding SA in BlackRock’s Latin America fund. Earlier this year, various BlackRock funds bought 500,600 shares of Petrobras, as the Rio de Janeiro-based company is known, according to data compiled by Bloomberg.

Eoin Treacy's view -

The Brazilian Bovespa Index pulled back sharply from early this month in the aftermath of polls that showed Rousseff with a wider lead than many had expected. This year has seen a number of heavily contested elections which have seen pro-reform candidates assume power. If Brazil votes for Silva it will probably be seen as another green light for foreign investors to return to Brazil after a particularly difficult period. 



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September 09 2014

Commentary by Eoin Treacy

Email of the day on uranium mining investment vehicles

Your comment on the Uranium price is of interest to me. Prior to Fukishima , Geiger Counter was very much in vogue. Then came the collapse. I wondered what the view was now concerning the above and perhaps suggest other companies listed in London that have positive chart patterns .    

Eoin Treacy's view -

Thank you for this question which others may have an interest in. Geiger Counter generally runs a concentrated portfolio of high potential explorers and developers although its current holdings are peppered by some larger uranium names.  

I highlighted it as a potentially interesting fund offering exposure to the uranium market on August 22nd

 



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September 05 2014

Commentary by Eoin Treacy

A Chinese Internet Giant Starts to Dream

This article from the MIT Technology Review focusing on Baidu may be of interest to subscribers. Here is a section: 

Ng, who calls deep learning a “superpower,” will build a new generation of such systems at Baidu. Services that may result remain in the brainstorming stage, but he will hint at what they may be. He dreams of a truly intelligent personal digital assistant that puts Apple’s Siri to shame, for example. Looking further ahead, the technology could transform robotics, a pet subject for Ng—his engagement photos were taken in a robotics lab—and make autonomous cars and unmanned aerial vehicles much more capable. “We’re going to do some cool things here,” he says with a grin.

They’ll have to if they are to compete: Google, Facebook, Microsoft, and others have been hiring lots of deep-­learning experts for their labs, sometimes even from each other. And Baidu still has a lot to prove. Fairly or not, it has the reputation many Chinese companies do for copying the products and business models of U.S. Internet leaders. It’s a process cynics dub C2C—“copy to China.” Baidu has seemingly tried to emulate Google in countless ways over the years, from its spare search homepage to a head-mounted computer, Baidu Eye, that looks a lot like Google Glass. Baidu has even begun working on self-driving cars. With its new star hire, it appears to be following Google’s lead once again.

Ng insists that the C2C stereotype is no longer accurate, particularly for his new employer. “I used to work for the USA’s Baidu,” he jokes. Then he picks up his phone and says in English, “Please call a taxi for me.” A moment later, Baidu’s translation app utters the same phrase in Mandarin Chinese and shows the equivalent ideograms on the screen. It’s slick—but is it better than Google’s translation app, which appears to do the same thing? That’s not clear. It’s Ng’s job to develop cutting-edge technologies that will leave no doubt who is ahead.

Eoin Treacy's view -

As a country develops, the logical path both in the governance and commercial fields is to look at what worked elsewhere and employ it at home. The more successful companies eventually branch out to create their own novel solutions to problems and compete on the international stage. China’s companies are well capitalised and have a government willing do take major steps to promote their wellbeing. As high population countries in Asia, Latin America and Africa develop and their middle classes increase, the opportunity is ripe for internet companies to benefit. Chinese companies are well placed to compete in this environment. 



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August 29 2014

Commentary by Eoin Treacy

Brazil Slips Into Recession for First Time in Over 5 Years

This article by Matthew Malinowski and Raymond Colitt for Bloomberg may be of interest to subscribers. Here is a section: 

Brazil’s economy slipped into recession for the first time in more than five years as investments contracted on lower confidence before the October presidential election.

Gross domestic product shrank by 0.6 percent in the April- June period from the previous three months, after contracting a revised 0.2 percent in the first quarter, the national statistics agency said today in Rio de Janeiro. The contraction in the second quarter was bigger than the median estimate of 42 economists surveyed by Bloomberg, who expected a 0.4 percent drop.

President Dilma Rousseff has attempted to revive growth with tax cuts, billions of dollars in credit and higher social spending. With inflation hovering around the upper limit of the target range, consumer and business confidence eroded in the run-up to the first round vote on Oct. 5. It’s the first time the economy contracted for two consecutive quarters since the aftermath of the global financial crisis in 2008.

“This is the last thing that Dilma would have wanted, today’s data is the worst-case outcome for her,” Neil Shearing, chief emerging markets economist at Capital Economics Ltd, said by phone from London. “This is clearly going to put pressure on the central bank to loosen policy in order to support growth.”

Eoin Treacy's view -

In the bad news is good news department, the underperformance of the Brazilian economy increases the likelihood that Rousseff will not win the October election. Investors are betting that a victory by a pro-business candidate will boost stock market returns because of expected regulatory changes, not least a removal of the oil price subsidy. 



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August 28 2014

Commentary by Eoin Treacy

BOK Cut Room Seen in Inflation-Linked Debt Slump

This article by Jiyeun Lee for Bloomberg may be of interest to subscribers. Here is a section: 

So-called linkers due June 2023 lost 1.8 percent this month, data compiled by Bloomberg show. Notes maturing in 2021 indicate inflation of 1.56 percent over their lifetime, less than the Bank of Korea’s target of 2.5 percent to 3.5 percent through 2015. Governor Lee Ju Yeol lowered the benchmark rate to 2.25 percent from 2.5 percent on Aug. 14 and said price pressures are “not high.”

The first reduction in borrowing costs since May 2013 came after the BOK lowered its living cost estimates and Finance Minister Choi Kyung Hwan unveiled an 11.7 trillion won ($11.5 billion) spending plan to boost the slowest growth in more than a year. While most analysts predict Lee will keep interest rates unchanged, Samsung Asset Management Co. and Eastspring Asset Management Co. see room for a further cut.

“Another rate cut within the year is possible as one isn’t enough to support the government’s growth push,” Jack Kim, who helps manage 700 billion won of fixed-income assets for Eastspring in Seoul, including Korean linkers, said in an Aug.26 phone interview. “Low inflation should make it feasible.”

 

Eoin Treacy's view -

Falling interest rates, low inflation, a government flush with cash and keen to promote growth results in South Korea being an interesting prospect right now. The strength of the Won throughout the last year, especially during a time when currency market volatility has been an issue for a number of neighbouring countries is an additional positive consideration from the perspective of foreign investors. 

South Korea’s stable of highly successful world class companies is a logical place to start one’s investigation of the domestic stock market but neither the major electronics companies, at 22% of the Index, nor the Korean automakers are responsible for the recent return to outperformance of the Kospi. 

 



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August 20 2014

Commentary by Eoin Treacy

Indonesian Nationalism

This article by Neil Chatterjee for Bloomberg casts a cautious tone on political machinations within Indonesia. Here is a section: 

Indonesia’s leaders want to wean the country off of commodities and push investment in value-added manufacturing and services to emulate the success of countries like South Korea and create a more even distribution of wealth. With a population hungry for jobs, there is fertile ground for the elite to paint the issue in nationalist terms and blame foreigners to win votes and serve its own interests. After all, countries from Australia to Zimbabwe are pursuing similar drives to earn more from their resources. Critics including the World Bank say such policies often backfire, and that driving away investors could cost Indonesia more than $6.5 billion in lost taxes and royalties over the next three years. That could exacerbate an economic slowdown and cripple efforts to build roads, schools, hospitals and other infrastructure.

Eoin Treacy's view -

It will still be a while before Joko Widodo’s victory is confirmed by the Supreme court and his administration takes over. Indonesia ranks towards the top of global corruption rankings so anything a new government can do to reduce graft and streamline planning will help improve perceptions that the country of 300 million can begin to reach its productive capacity.

The last few days of the previous administration’s rule saw an easing of export restrictions on ores but it remains to be seen what Widodo’s attitude to the ban is. In attempting to ensure greater benefit from its natural resources, Indonesia is attempting to mirror China’s development where a focus on infrastructure development in its early stages paid off. 



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July 31 2014

Commentary by Eoin Treacy

Adidas Drops Most in 17 Yrs, Berenberg Sees Credibility On Line

This note by Heather Burke for Bloomberg may be of interest to subscribers. Here it is in full:

Management communication, credibility “appear on the line” after profit warning, Berenberg says in note.

In golf, mkt “over-bloated” with inventory, U.S. chains such as Dicks have to right size existing goods, cut future orders

TaylorMade-adidas Golf restructuring may cost ~EU25m-EU30m ex loss of sales, profit anticipated in 2H14

In Russia has done an about-face, will now accelerate store closings, big effect is associated loss of 2H sales, profit, as E. Europe ~14% sales, 20% Ebit, Russia is >90% of that region

Scope of downgrade hard to quantify

Baader Bank says share price reaction “adequate,” sees potential downside revision for mkt consensus of 20%-25%

Profit warning expected, but sharper than seen.

Eoin Treacy's view -

Adidas’ expansion into Eastern Europe has not been as successful as planned and the closing of stores in Russia reflects this. Tighter sanctions imposed on Russia by Europe may have been the final catalyst for this decision. By contrast the reorganisation of TaylorMade is a significant but much smaller issue.  

Adidas’ share price has been deteriorating since late last year and it began to encounter resistance in the region of the 200-day MA from March. Today’s action represents an acceleration of the downtrend but there is no evidence yet that it is over. Some scope for a reversionary rally exists but a potentially lengthy period of support building will be required before investors are likely to support significantly higher levels. 



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July 31 2014

Commentary by Eoin Treacy

Londoners Cashing in Flee to Suburbs as Rally Wanes: Mortgages

This article by Patrick Gower for Bloomberg may be of interest to subscribers. Here is a section: 

 

The slowdown in price gains and the prospect of realizing profit tied up in London homes could tempt wealthy foreigners to head elsewhere, economists say. Those who bought homes in the priciest districts of town in dollars, rubles, rupees or riyals during 2009 would double their money if they sold today, Hamptons’ Morris said.

“With the prospect of increasing interest rates, and resultant strengthening of the pounds, the temptation for overseas investors to cash in is getting bigger,” Morris said.

Chancellor of the Exchequer George Osborne is adding a capital-gains tax next year on homes sold by people living abroad after raising a transaction tax to 7 percent from 5 percent for properties priced at more than 2 million pounds in 2012.

Eoin Treacy's view -

London property was a safe haven in the aftermath of the financial crisis not least because of low supply and the swift devaluation of the Pound. With transaction taxes set to increase and the prospect of Russian investment being curtailed, the market has lost a potent source of demand which will likely sap potential for additional upside. 



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July 30 2014

Commentary by Eoin Treacy

Tapping into growth

Thanks to a subscriber for this report from Deutsche Bank focusing on European brewers. Here is a section: 

Beer takes share from a readily addressable market in the form of cheaper,  often illicit and non-commercial alcohol. The level of local alcohol in a market  is strongly correlated to national income as per Figure 9.

This readily available market accounts for over 50% to 90% of alcohol consumption in Africa, with growing markets like Nigeria, Democratic Republic of Congo and Ethiopia particularly attractive. Other emerging markets have lower, but nevertheless interesting figures which range from 15% to 40%. Markets like Latin American Ecuador and Peru and Asian markets such as Myanmar and Cambodia looking interesting to the brewers. 

Beer is a luxury 
The barrier to conversion from illicit alcohol to beer is the affordability of beer.  Per capita consumption in a market is relation to the amount of time a consumer has to work to afford a beer. As seen in Figure 11, the first inflection point for growth acceleration is around 120 minutes of work to afford a beer.

A second inflection can be found at 30 minutes worked for a beer. Not only does beer consumption accelerate to the levels seen in developed markets, consumers also move up in the portfolio towards more premium brands. 

There are market dependent limits to per capita growth 
There is a limit to how much alcohol and beer one can drink. For beer, the per capita average of 10 liters of pure alcohol translates to 200 liters which approximates consumption in core beer markets such as Germany and Czech. 

As markets mature, our analysis indicates a range of 70-90 liters per capita being the developed market norm over time. For most emerging markets with favorable population and illicit alcohol profiles, this is a growth destination; for developed markets this may translate into more declines.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

The last few paragraphs above highlight just how important international expansion is for larger brewers. The profile of consumption in emerging middleclass economies represents where they have the best potential to grow their businesses. The pace of M&A activity within the sector highlights the fact that international expansion and establishing  brand loyalty remains a priority. 



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July 28 2014

Commentary by Eoin Treacy

Zillow to Acquire Trulia for $3.5 Billion in All-Stock Deal

This article by Jing Cao and Pui-Wing Tam for Bloomberg may be of interest to subscribers. Here is a section: 

The deal positions a unified Zillow and Trulia to capture a larger share of digital real estate ads as more people shift house hunting onto the Web and property agents deploy more marketing dollars onto the Internet. While there are other real estate websites such as Move Inc. and Redfin Corp. that are growing, Zillow and Trulia are the top two most-visited property sites in the U.S. tracked by ComScore Inc.

“The opportunity here is very large -- both companies are growing extremely fast,” said Ron Josey, an analyst at JMP Securities who rates Zillow the equivalent of a buy. “They should be able to benefit from some sort of brand awareness and the network effect just grows with this deal alone.” 

Eoin Treacy's view -

The housing recovery is well established and while some areas of California appear to be fully valued, the prospects of another crash appear remote. Real estate agents compete for access to the consumer base and online databases represent a great way of marketing so that personal interaction can be reserved for the most serious prospects. As a result, online real estate search engines represent potent marketing venues not least via mobile apps. 



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July 25 2014

Commentary by Eoin Treacy

China digital transformation: The Impact of the Internet on productivity and growth

Thanks to a subscriber for this report from McKinsey which may be of interest. Here is a section: 

China has posted high rates of labor productivity growth in recent years, but its progress began from a very low base. As a result, its labor productivity remains well below the levels in advanced economies (Exhibit 3). China created $15,500 of GDP per worker in 2013, significantly lower than levels in the United States ($107,200), Japan ($76,700), and Germany ($67,300). A closer look at the sector level bears this out: US labor productivity in the ICT and manufacturing sectors, for example, was 12 and ten times higher than China’s average labor productivity in those sectors, respectively, in 2013.

China faces a growing imperative to continue making strong gains in productivity. The rapid economic growth of recent decades was fueled by an expanding labor force and heavy capital investment, but this model is coming under pressure, particularly as the population ages. In fact, China’s labor force is projected to begin shrinking by 2015. As the dependency ratio doubles over the next two decades, the savings rate is also likely to decline as older Chinese draw down their savings. To avoid a slowdown and continue to improve living standards, China will have to make its existing labor and capital stock more efficient—and wider technology adoption will be central to this effort.

The rapid growth of China’s Internet economy is not yet reflected in its labor productivity performance. From 2010 to 2013, China’s labor productivity increased by 26 percent, while the contribution of Internet-related output to GDP increased by 35 to 60 percent (depending on whether C2C e-commerce is included).

However, China appears poised to capture large gains as its companies step up their adoption of Internet technologies. According to McKinsey’s latest survey of Chinese CIOs, the typical Chinese company spends 2 percent of revenue on IT, far below the 4 percent international average. These same respondents predict their IT spending will increase to 3 percent of revenue by 2015—and while that still leaves a large gap, it indicates clear momentum.26 As Chinese companies digitize their operations on a wider scale, they will gain the ability to streamline operations, open new sales channels, accelerate the R&D process, and become leaner.

The Internet is likely to usher in disruptive change, but it is also a catalyst for faster productivity growth. We project that the new applications described in this report could contribute 7 to 22 percent of China’s overall labor productivity improvement by 2025. Capturing this potential will be critical for China’s future competitiveness, particularly as the country’s labor costs increase and its demographic dividend diminishes. 

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

China has succeeded in transforming its economy by leveraging its low labour costs and enormous population. However as the population ages and wages increase, delivering productivity gains is essential if the country is to succeed in attaining its long-term development goals. 

A large number of countries have succeeded in moving from low income to middle income economies but the number that have persisted with their goal of moving into the high income bracket is considerably smaller. Continued zeal for the policy objectives that deliver productivity growth will be worth monitoring as a result. China’s digital economy represents a promising development and suggests that it will succeed in continuing to move up the ranks of GDP per capita. 

 



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July 25 2014

Commentary by Eoin Treacy

South Africa Remains Committed to Debt Sustainability

This note by Mike Cohen for Bloomberg may be of interest to subscribers. Here it is in full:

Rising burden of debt reinforces importance of sustaining fiscal policy, Finance Minister Nhlanhla Nene tells lawmakers in Cape Town during debate on national budget.

Nene also says:

“Rising interest rates have increased the cost of servicing our debt, commodity prices have declined and the depreciation has pushed up inflation”

Fiscal space built up in the early 2000s has diminished

Govt has taken measures to reduce consumption spending

 

Eoin Treacy's view -

The weakness of the South African Rand has been a tailwind for the stock market in local currency terms but does little to stimulate foreign investor interest in the country. Therefore it is worth monitoring the Rand for signs it may be stabilising as a clue to when foreign investors will revisit the South African market. 

The US Dollar accelerated to a medium-term peak near ZAR11.5 versus the Rand in January and encountered resistance near ZAR11 from June. It is now testing the region of the 200-day MA and a failure at this level would further challenge the consistency of the three-year uptrend. 

 



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July 24 2014

Commentary by Eoin Treacy

Ethiopia Becomes China to China as Shoe Workers Chant in Mandarin

This article by Kevin Hamlin, Ilya Gridneff and William Davison for Bloomberg may be of interest to subscribers. Here is a section: 

Shaping up a handful of employees is one small part of Zhang’s quest to profit from Huajian’s factory wages of about $40 a month -– less than 10 percent the level in China.

“Ethiopia is exactly like China 30 years ago,” said Zhang, 55, who quit the military in 1982 to make shoes from his home in Jiangxi province with three sewing machines and now supplies such brands as Nine West and Guess?. “The poor transportation infrastructure, lots of jobless people.”

Almost three years after Zhang began his Ethiopian adventure at the invitation of the late Prime Minister Meles Zenawi, he says he’s unhappy with profits at the Dongguan Huajian Shoes Industry Co. unit, frustrated by “widespread inefficiency” in the local bureaucracy and struggling to raise factory productivity from a level he says is about a third of China’s.

And

Cost inflation in countries including China has prompted Hennes & Mauritz AB, Europe’s second-biggest clothing retailer, to work with three suppliers in Ethiopia. The nation has “great potential” for production, H&M head of sustainability Helma Helmersson said in an April interview.

China’s average manufacturing wage is 3,469 yuan ($560) per month. Pay at the Huajian factory ranges from the basic after- tax minimum of $30 a month to about twice that for supervisors.
By contrast, average manufacturing wages in South Africa, Africa’s biggest manufacturer, are about $1,200.

The duty-free and quota-free access that Sub-Saharan Africa enjoys for the U.S. and EU markets gives additional savings thanks to the African Growth and Opportunity Act for the U.S. and the EU’s Everything But Arms accord for the poorest countries. Import tariffs on shoes made in China range from 6 percent to as much as 36 percent, Zhang said.

 

Eoin Treacy's view -

Textiles is one of the most price sensitive industries and therefore is the first to migrate to cheaper locales when wage pressures appear. Therefore watching where textile companies choose to situate their factories offers a good indication of where rapid economic growth is likely to manifest itself next. As governance improves in much of Africa, the challenge of mobilising increasingly large populations to realise their productive capacity is a daunting one. However when starting from such low levels, administrations can follow a path well-paved by Asian countries over the last half century. Little wonder then that Chinese manufacturers spot parallels between China and Ethiopia.



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July 23 2014

Commentary by Eoin Treacy

4 Reasons China Removed Oil Rig HYSY-981 Sooner Than Planned

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

The discussions between Yang and his Vietnamese counterpart, Deputy Prime Minister and Minister of Foreign Affairs Pham Binh Minh, were not strictly convened to discuss South China Sea issues; but it is clear the oil rig crisis dominated talks. In private remarks Yang strongly advised Vietnam not to take legal action against China in the interest of repairing bilateral relations.

Yang also held meetings with Prime Minister Nguyen Tan Dung and party Secretary General Nguyen Phu Trong. The latter meeting was especially significant because it led to an informal understanding to find a mutually acceptable way out of the current impasse. In order to clear the way for bilateral discussions both sides agreed to conduct follow up discussions by party officials responsible for external affairs.

While Chinese and Vietnamese party foreign affairs specialists began sounding each other out, Vietnamese party leaders agreed to convene a meeting of the Central Committee specifically to focus on the South China Sea dispute and the proposal to initiate legal action against China. Given the ground swell of anti-China opinion in the party and society at large “to break out of China’s orbit,” it appeared likely that the Central Committee would not only approve legal action against China but also approve steps to align more closely with the United States. Foreign Minister Minh’s trip was approved and he is scheduled to visit Washington in September.

It was in this context that China decided to announce the early withdrawal of HYSY-981 from contested waters. According to retired General Nguyen Trong Vinh (xuandienhannom blog, July 16), China deliberately withdrew the oilrig to influence the outcome of the forthcoming Vietnamese party plenum. The coincidence of Typhoon Rammasun provided the pretext. If Chinese officials were concerned about the safety of HYSY-981 they should have left it in place rather than tow it towards Hainan Island where Typhoon Rammasun was headed.

 

Eoin Treacy's view -

The ratcheting down of tensions between China and Vietnam, at least temporarily, is a welcome development suggesting China is interested in keeping Vietnam within its sphere of influence. How the Chinese will act once Vietnam’s 9th plenum has ended remains open to question. 

 

 



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July 23 2014

Commentary by Eoin Treacy

Saudi Stock Opening Shut to Some as Hot Money Unwanted

This article by Zahra Hankir and Sarmad Khan for Bloomberg may be of interest to subscribers. Here is a section: 

Saudi Arabia is keeping as much as $40 billion of foreign investor capital waiting as it decides which institutions can participate in the Arab world’s biggest stock exchange.
     
The regulator will publish rules next month allowing participation for the first time by qualified foreign financial institutions starting in the first half of 2015, the Capital Market Authority said on its website yesterday. The announcement sent the benchmark Tadawul All Share Index to its highest level since May 2008 yesterday, and the strongest level since February
2008 today.

The world’s biggest crude exporter is opening one of the most restricted major stock exchanges as King Abdullah pushes to diversify the economy from oil and create new jobs. Entry to MSCI Inc.’s benchmark emerging-markets index could mean $40 billion of inflows to Saudi stocks, said Rami Sidani, the head of frontier markets investing at Schroder Investment Management in Dubai. Buying shares may be restricted initially to long-term institutional investors, according to Shuaa Asset Management.

“They have been very clear about what they are looking for, which is very large institutional investors, sticky money with long investment horizons,” Amer Khan, a senior executive at Shuaa in Dubai, which oversees more than $300 million in assets, said by telephone yesterday. “They have seen what happened during the financial crisis and they want to limit hot money.”

Eoin Treacy's view -

We began to highlight the fact that a number of Middle Eastern stock markets had catch up potential in 2011. As valuations increase for large cap markets such as the USA, investors naturally begin to look for markets with lower valuations and those that have not experienced substantial gains. This year the resources sector is where the Saudi Arabian Index was in 2011. 



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July 18 2014

Commentary by Eoin Treacy

The next industrial revolution: Moving from B-R-I-C-K-S to B-I-T-S

Thanks to a subscriber for this report from Goldman Sachs exploring the industrial applications of the Internet of Things (IoT). Here is a section: 

While IoT spans a variety of industrial sectors, the focus of this report is on Home Automation. Previous reports in this series addressed the applications of IoT to CommTech, Semiconductors and Software. In this report, we address the impact of the IoT on the industrials space, with a deeper dive into Home Automation within the Building Automation opportunity below. We expect a series of follow-up reports touching the following topics.

Building Automation focuses on improving energy efficiency and occupant comfort/utility within the home or commercial building. Key advantages include improved security, remote monitoring of devices, and energy management.

Manufacturing applications of IoT could help facilities to reduce downtime through predictive maintenance, have better visibility into inventory and energy management, and improve operational efficiencies overall.

Resources could benefit from real-time equipment monitoring, energy efficiency (smart meters), and fuel reduction (O&G).

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

The frivolity of much of the social media space has led some to believe that future productivity gains will be limited. However, the increasing application of new technologies to the industrial sector almost certainly insures that this assumption will prove false. Rapid prototyping, embedded sensors, processors and transmitters are driving efficiencies that are transforming the industrial sector. This is important because productivity growth is a necessary component in the evolution of a secular bull market. It is for this reason that veteran subscribers will be familiar with our continued emphasis, particularly in the Friday audio, that we are in a technological golden age more commonly referred to as the Third Industrial Revolution. 



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July 09 2014

Commentary by Eoin Treacy

Widodo Euphoria Lost on Top Forecaster Before Election

This article by Kyoungwha Kim, Liau Y-Sing and Ye Xie for Bloomberg may be of interest to subscribers. Here is a section: 

Both leading presidential candidates, Jakarta Governor Joko Widodo, known as Jokowi, and Suharto-era General Prabowo Subianto, pledge to tackle corruption, improve infrastructure and boost economic growth in the world’s most populous Muslim nation. Indonesia’s benchmark stock index rose to a seven-week high and the rupiah strengthened yesterday as a new poll showed Jokowi widening his lead over Prabowo and speculation grew that voters outside Indonesia support him.

The Lingkaran Survei Indonesia poll released yesterday showed Jokowi, 53, leading by 3.6 percentage points, compared with a 0.5 percentage-point advantage in a similar poll at the end of June. A Roy Morgan poll last week showed the race was too close to call.

A Prabowo victory might “act as a dampener for business sentiment given his penchant for following populist, protectionist and debt-fueled growth policies,” said Anne, whose bank rose from third place in the first-quarter rankings.

 

Eoin Treacy's view -

By this time just about everyone understands how transformative a positive change in government can be; considering the effect Narendra Modi’s landslide victory has had in India. This has fuelled optimism for the candidacy of Joko Widodo who voters hope can deliver a similarly transformative effect on the Indonesian economy. He does not have the same resume as Narendra Modi but there is little doubt that Indonesia’s financial markets would benefit from a market friendly administration. 
 

 



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May 09 2014

Commentary by Eoin Treacy

Sprouts Farmers Market Profit Soars; 2014 Outlook Raised

This article by Tess Stynes for the Wall Street Journal may be of interest to subscribers. Here ii is in full:

Sprouts Farmers Market Inc. (SFM) said its first-quarter profit surged 86% as the specialty grocer's revenue beat expectations.

Shares rose 6.1% to $29.06 in recent after-hours trading as adjusted earnings also beat estimates and it raised its 2014 guidance.

For the year, Sprouts raised its per-share adjusted earnings estimate by a nickel and now expects 63 cents to 65 cents. The grocer also increased its projection for net sales growth by two percentage points and now expects an increase of between 18% and 20%. The company also boosted its same-store-growth estimate by 1.5 percentage point to between 8.5% and 9.5%

The competition in the organic and natural foods space has intensified, as established supermarket chains beef up their higher-end offerings and other niche players embark on expansion plans.

Phoenix-based Sprouts reported a profit of $33.7 million, or 22 cents a share, up from $15.6 million, or 14 cents a share, a year earlier. Excluding secondary offering expenses and other items, adjusted earnings rose to 23 cents from 14 cents. Analysts polled by Thomson Reuters expected per-share profit of 20 cents.

Revenue increased 26% to $722.6 million, topping the company's forecast for $720 million. Same-store sales increased 13%.

Rival Whole Foods Market Inc. (WFM) reported late Tuesday that fiscal second-quarter earnings were flat from a year ago, at $142 million, albeit revenue was up nearly 10% at $3.32 billion. The company also trimmed its annual sales and profit forecasts.

 

Eoin Treacy's view -

A lot of the steam has been squeezed out of recent IPOs regardless of sector. A number of new entries face challenges associated with growing quickly. They often absorb some of their smaller competitors in the race to seek a stock market listing. This means they are left with a number of units that do not fit cohesively with the whole. This is as true of 3D printing shares as it is of internet security and while the challenge is not as great for supermarkets, creating and inseminating a company culture remains a challenge. 



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May 08 2014

Commentary by Eoin Treacy

Nestle Challenge Grows After $5 Billion Mondelez Merger

This article by Matthew Boyle for Bloomberg may be of interest to subscribers. Here is a section: 

For Nestle SA, life at the top of the $81 billion coffee market just got more difficult. The world’s biggest coffee maker, which derives about a fifth of its $100 billion in sales from java, faces a new number two after Mondelez International Inc. agreed to combine its coffee unit with its D.E Master Blenders 1753 BV. The new company, Jacobs Douwe Egberts, is the latest step by Master Blenders owner JAB Holding Co. to create a caffeine-fueled global powerhouse in one of the few vibrant areas of the $1 trillion food and beverage sector.

That creates headaches for Vevey, Switzerland-based Nestle, whose coffee business has slowed of late after driving revenue and margin expansion for much of the past decade. Sales growth at the unit that includes most of the coffee portfolio has halved, while the single-serve Nespresso division has lost market share to copycats in Europe and failed to make a dent in the U.S.

“Nestle now has proper competition just at a time when they’re struggling,” Jonny Forsyth, an analyst at Mintel, said in a phone interview. “They should be worried.” Nestle declined to comment on the new company.

The combination is the largest in an industry that has rapidly consolidated in the past five years, with more than 100 deals worth almost $23 billion, according to data compiled by Bloomberg. The largest of those deals was Master Blenders takeover by JAB last year.

 

Eoin Treacy's view -

In many respects coffee is a beverage consumed by the middle classes. Consumption has increased over the last decade and is likely to increase further. The consolidation of the sector suggests that related companies are well aware of this fact and they have been competing to gain the critical mass necessary for global expansion. 

Mondelez International’s partnership with D.E Master Blenders can be viewed as a positive for both companies. Quite how much of a threat to Nestle it represents remains open to question. After all, it might be competitive but the sector remains on a strong growth trajectory. 

 

 



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May 06 2014

Commentary by Eoin Treacy

Bayer to Buy Merck Consumer-Health Unit for $14.2 Billion

This article by Naomi Kresge for Bloomberg may be of interest to subscribers. Here is a section:

Buying the Merck unit adds the allergy medicine Claritin and Coppertone sunblock to a Bayer portfolio anchored by the iconic pain pill aspirin. Bayer, based in Leverkusen, Germany, had 3.9 billion euros ($5.4 billion) in sales of non- prescription medicines last year, accounting for about 9.7 percent of the drug and chemical conglomerate’s revenue.

“We are strong in the over-the-counter business with Bayer aspirin and other products, so this was a great opportunity for us to strengthen the business and truly become a global leader,” Chief Executive Officer Marijn Dekkers said in an interview with Bloomberg Television.

Bayer ranks second in over-the-counter drugs by sales, behind Johnson & Johnson, according to a ranking compiled by the German company. After the Bayer-Merck transaction closes and Glaxo and Novartis form their venture, that venture will be the largest, followed by Bayer and then J&J, according to Bayer.

Eoin Treacy's view -

The pace of M&A activity in the healthcare sector continues to increase. While an argument continues to run in the bond markets over when interest rates will begin to rise and what effect that will have on borrowing costs, corporations are clearly voting with their wallets. They appear more willing to pay reasonably high prices with cheap credit rather than wait for the possibility of lower prices but perhaps more expensive funding.

The consumer and large cap pharmaceuticals sector had been mostly rangebound over the last year but as the wider market has ranged, these sectors have moved to positions of outperformance.

 



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May 02 2014

Commentary by Eoin Treacy

Email of the day on Energy, Bank Capital & Cars

Have you noticed US oil producers are having trouble capitalising on these higher global Oil prices.  We both agree the world needs a cheap energy.  I think it is unlikely that cheap energy source will be conventional or unconventional Oil and Gas.  My concern is that cheap energy solution may take another 10 years to materialise.

I still think European banking looks like Zombie banking.  We know European banks have capital deficiencies.  I think these banks are holding back a broad recovery in the European economy.  My sources continue to tell me European banks are still trying to shrink balance sheets.  I believe the ECB needs to be more proactive in solving this problem.  I see ECB is talking of QE - I am not sure this idea is the solution more likely the problem.   However the bank capital dilemma needs to be addressed quickly otherwise Europe faces a possible Japanese situation of low growth for decades.

Like you I am a strong believer in the big European global business brands and product solutions.  However the availability of credit is stifling growth in Europe's smaller companies and businesses.   From what I observe VW increasingly looks like it is going to dominate the global car industry.  Unless Toyota can catch up in this technology race they will lose their cherished Crown of the dominate global car producer.  As for old world car companies Ford , GM etc. sadly they look like a great short to me.  Every time I hire rental car in the US I come away with the thought how do US car companies do it so badly and remain in business.  I don't expect US cars to handle like my Porsche but US cars are just plain scary to drive.

Please keep up the good service.

Eoin Treacy's view -

Thank you for sharing your perspective on a range of topics. The revolution in unconventional supply of oil and gas can be viewed in terms of a supply response to high prices. At the beginning of the last decade $40 was considered the highest price possible for oil with the result that a great deal of additional supply was simply uneconomic.

Canadian bitumen becomes economic in the region of $40. Generally speaking more established offshore oil fields, such as the North Sea, have a breakeven in the region of $20-$25 while newer offshore such as Brazil’s pre salt ultra-deep water fields comes in closer to $45. A number of the unconventional plays have breakevens closer to the $50-60 area. As a result, we can conclude that price is the determining factor in which sources of potential supply are ultimately moved into production. 



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May 02 2014

Commentary by Eoin Treacy

Bitter Taste of Cadbury Guides U.K. Stance on Pfizer-AstraZeneca

This article by Thomas Penny for Bloomberg may be of interest to subscribers .Here is a section: 

Even after Pfizer’s 63.1 billion-pound ($106.5 billion) sweetened offer for AstraZeneca was rejected, the government said it was pressing Pfizer for assurances on jobs and the U.K.’s place as a center for the life-sciences industry. The government will carefully weigh Pfizer’s proposals to see “whether they offer sufficient protection of our priorities,” Cameron’s office said today.

Eoin Treacy's view -

The fact that Astra Zeneca shares held their gain following the refusal of Pfizer’s offer suggests investors believe the acquisition will eventually be successful. Europe is proving a fertile hunting ground for well-capitalised US companies in search of acquisitions. GE’s attempt to acquire Alstom’s core power plant unit represents another such example. Considering the relative difference in valuations between the two continents, this trend is likely to continue.  



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April 29 2014

Commentary by Eoin Treacy

Africa: A ripe opportunity

Understanding the pharmaceutical market opportunity and developing sustainable business models in Africa This report by IMS Health is highly educative and I regard it as a must read for anyone interested in Africa. Here is a section:

By 2016, pharmaceutical spending in Africa is expected to reach US$30 billion.  This value is driven by a 10.6% compound annual growth rate (CAGR) through 2016, second only to Asia Pacific (12.5%) and in line with Latin America (10.5%) during this period. Spurred by a convergence of demographic changes, increased wealth and healthcare investment, and rising demand for drugs to treat chronic diseases, this market potentially represents a US$45 billion opportunity by 2020. 

The pharmaceutical growth is a reflection of economic strength accompanied by increasing healthcare spending. Sub-Saharan Africa (SSA), excluding South Africa, is notable in this regard: according to the Economist Intelligence Unit, its economies are growing faster than anywhere else in the world and this trend is expected to continue.

The appeal of Africa lies not in its size – the continent accounts for just 3% of the global economy – but in the dynamics that drive sustainable growth at a time when the major established pharmaceutical markets face a more uncertain future. Underpinning these prospects are a series of positive economic trends: greater political and fiscal stability and improvements in pro-business legislation have led the United Nations (UN) to forecast that Foreign Direct Investment (FDI) in Africa could more than double by 2014, despite speculative money leaving the continent following the collapse of Lehman Brothers, and the Arab Spring restricting investment in North Africa.

This FDI is fuelling macroeconomic growth and vastly improving access to new technology. The recent boom in mobile subscribers reflects this trend: as of mid-2012, there were more than 600 million mobile subscribers on the continent, surpassing American and European figures. At the same time, major demographic shifts show an increasing number of working-age Africans, a rising middle class which accounts for 34% of the continent’s inhabitants, and an urban population expected to exceed that of China’s and India’s by 2050.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

IMS Health recently IPOed in New York. The company which specialises in crunching complicated prescription data in order to sell it to pharmaceutical companies represents one of a new breed of information companies that are likely to become more common in the coming decades as big data moves into the mainstream. While they do not generate revenues in Africa, one can understand why the continent represents an interesting opportunity for them. 

According to this report GlaxoSmithKline is the dominant provider of pharmaceuticals in Africa. However, with annual revenues of £30 billion the 3.8% represented by the Middle East and Africa barely moves the needle in terms of the share’s performance. Nevertheless, as a global Autonomy GSK represents one of the companies most likely to benefit from the continued evolution of the global consumer. The share (Est P/E 15.38, DY 5.2%) has been largely rangebound for much of the last year but a sustained move below 1500p would be required to question medium-term scope for additional upside. 

South African listed Aspen Pharmacare generates 35.5% of its revenue in South Africa and 10.2% in the rest of Africa. The share (Est P/E 25.48, DY0.56%) has lost momentum following an accelerated advance in September and it will need to continue to hold above or in the region of the 200-day MA if medium-term upside potential is to continue to be given the benefit of the doubt. 

Africa has been one of the more fashionable destinations for investors over the last few years with the result that prominent regional shares now have rather expensive valuations. For example the UK listed Africa Opportunities Fund which invests directly in Sub Saharan Africa’s less liquid markets traded on a discount to NAV of 18% in early 2012. Following an impressive advance it now trades at a 2% premium and appears to be unwinding an overbought condition relative to the 200-day MA. 



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April 17 2014

Commentary by Eoin Treacy

Email of the day on the health of the global middle class

“Does the following analysis in the FT raise questions about a central plank our your argument in favour of a long term secular bull market in Autonomies?” 

Eoin Treacy's view -

Thank you for this question which others may also have an interest in. Here is a section:

In an interview, Kaushik Basu, the World Bank’s chief economist, warned that many of those people who had emerged from poverty in recent years remained “very vulnerable” to slipping back. He also said the world economy faced risks, including the possibility that China’s growth could slow even more than it has already, something that would have big repercussions for the developing world.

Even if that risk did not materialise, Mr Basu said, current growth would not be enough to return to the sort of poverty reduction seen in recent decades.

To make up for that, he said, “governments need to do more, much more, in terms of structural reforms in developing countries”.



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March 13 2014

Commentary by Eoin Treacy

Irish Economy shrinks sharply at end of 2013

This article by Eoin Burke Kennedy for the Irish Times may be of interest to subscribers. Here is a section: 

Merrion economist Alan McQuaid said: “We wouldn’t read too much into the GDP data. In our view they are understating the true health of the economy at this juncture given the huge improvement we’ve seen in employment in the past year, with GNP a better barometer.”

He said much of Ireland’s problems last year stemmed from the expiry of patents in the key pharmaceutical sector, which depressed merchandise exports overall.

However, he noted services exports remained resilient and were 7.1 per cent higher year-on-year in the fourth quarter.

Davy Stockbrokers said the data contained “a mish-mash of revisions and volatility - largely related to the pharmaceutical sector - so it is difficult to see through the statistical fog.”

 

Eoin Treacy's view -

One of the main drivers of Ireland’s recovery remains the fact that it plays host to the European headquarters of a significant number of Fortune 500 companies. This has helped ensure Ireland benefits from export led growth while a number of other troubled Eurozone peripheral nations have struggled. The pharmaceutical sector has historically played an important role as both an employer and exporter but the emergence of generic drugs has been a challenge for the Irish operations which had previously relied on patent protection.

An idiosyncrasy of the Irish stock market is that none of the foreign multinationals with operations in the country sustain listings in Dublin. CRH (23.5%), Ryanair (15.8%) and Kerry Group (13.4%) represent 50% of the domestic Index. The ISEQ has been among the best performing European indices over the last year but is currently somewhat overextended and a reversion towards the 200-day MA appears to be underway. 

 



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February 19 2014

Commentary by Eoin Treacy

China Cement, Sweet spot in the super cycle

Thanks to a subscriber for this interesting report from Deutsche Bank which may be of interest to subscribers. Here is a section: 

Supply growth for cement has reached an inflection point The supply outlook looks particularly attractive with net supply growth of 1.9% and -4.0% for FY14/15E, as the cement sector faces the toughest measures in its history to rein in overcapacity. The State Council has issued guidelines under Document 41 to ban new supply approvals, control land and credit availability and to remove 32.5 grade (low quality) cement. The Clean Air Action Plan and new cement emission standards provide a catalyst for obsolete capacity removal and consolidation. We also see a more rational supply response being driven by 1) CNBM’s diminishing potential in M&A, and 2) economic returns for new plants that look low, notwithstanding our view of the cycle.

Moderate demand growth to absorb excess capacity
Cement demand should moderate to c.5% CAGR in the next five years, declining from a high of 9.6% in 2013. Urbanization should continue to drive cement demand particularly in Western China. While investors are concerned about China’s high cement consumption per capita, our study of developed countries shows that urbanization rates correlated strongly with cement consumption per capita until urbanization rates reached c.70-80%. China’s urbanization rate will not reach this level for 10-15 years.

Structurally higher margins in the long run
Most would view 2011 as the peak of the cycle with industry margins at unit GP of RMB87/t and bellwether Conch achieving GP of RMB123/t. However, we believe there is room to exceed this in the next few years given the structurally better supply-demand. This is helped by structurally lower coal prices, now 40% below the 2011 peak. With more aggressive consolidation ahead, this should provide support for higher margins. 

Eoin Treacy's view -

The full report is posted in the Subscriber's Area.

At the Singapore venue for The Chart Seminar last week, we discussed the outlook for cement companies and other materials companies based on the fact that expectations are low and chart patterns generally supportive of a recovery hypothesis.

Anhui Conch is trading in the region of the upper side of a two-year range and will need to continue to hold above the 200-day MA if medium-term potential for additional upside is to continue to be given the benefit of the doubt.

China Resources Cement Holdings found support in the region of the 200-day MA from January and broke out to new 18-month highs two weeks ago. A sustained move below HK$5.25 would be required to question medium-term scope for additional upside.

Taiwan Cement Corp has a broadly similar pattern to the TAIEX and most recently found support in the region of 200-day MA from early February. A sustained move below TW$42 would be required to question medium-term potential for additional upside.

While not covered in the above report, German listed Heidelberg Cement is forming first step above its base while Irish and UK listed CRH has held a progression higher reaction lows since late 2011. 



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January 21 2014

Commentary by Eoin Treacy

AB InBev to Pay $5.8 Billion for Korean Oriental Brewery

This article by Frank Longid and Clementine Fletcher for Bloomberg may be of interest to subscribers. Here is a section: 

“On the surface, the deal seems odd as they’re paying more than three times for Oriental than what they sold the business for five years ago," said Pablo Zuanic, an analyst at Liberum Capital. “However, this signals to us they see growth in South Korea -- not so much in terms of market growth, but to improve share and drive the penetration of Budweiser and Corona.”

Korea’s beer market has grown about 2 percent a year from 2009 through 2012, the companies said. AB InBev plans to further develop Cass as well as throw its marketing support behind brands including Budweiser, Corona and Hoegaarden in the market.

Eoin Treacy's view -

It must be pretty galling for AB InBev to pay such a hefty price for an asset they sold less than a decade ago for a fraction of the price. What this story and last week’s announcement that Santory is attempting to purchase Beam Inc highlight how reliant the global alcoholic drinks market is on brand recognition. As a result companies tend to pay for growth.

This trend suggests the consolidation of brands within the drinks sector remains a significant theme. Brown Forman, an S&P500 Dividend Aristocrat yielding 1.75%, surged on news of the bid for Beam probably on the assumption that it is next in line for an offer.

 



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January 16 2014

Commentary by Eoin Treacy

Nu Skin Plunges After China Says It Will Probe Its Operations

This article by Lauren Coleman-Lochner and Rachel Butt for Bloomberg may be of interest to subscribers. Here is a section: 

Scott Van Winkle, an analyst at Canaccord Genuity Inc., today cut his recommendation on the stock to hold, from buy, saying the Chinese market is large enough to significantly affect Nu Skin's results and valuation.

Network marketers such as Nu Skin have always been questioned, "causing outsized share price movements," Olivia Tong, an analyst at Bank of America Corp., wrote in a note yesterday. "There does not seem to be tangible evidence to validate negative claims targeted at the company thus far".

 

Eoin Treacy's view -

Nu Skin Enterprises derives almost 80% of its revenue from Asia where demand for its products is high and door to door selling meets with less social resistance. Given the incentive programs and networking strategies employed by such companies, there is a fine line between what might be construed as pyramid selling and the momentum driven sales process as it is currently structured.  



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January 13 2014

Commentary by David Fuller

The MINTs are very different and might not all see stellar growth

In rapidly developing countries, often the proceeds of economic growth fail to flow adequately to shareholders – particularly foreign ones

Here is a latter section from this informative column by Roger Bootle for The Telegraph:

 Although each of the MINT countries will probably do pretty well over the years ahead, with Indonesia in particular perhaps capable of 7pc growth, these countries do not stand out from others in their respective regions.

Although Mexico could be the growth leader in Latin America, in South-East Asia, the Philippines and Vietnam have exceptional growth prospects, and in Africa, Kenya and possibly even Egypt do - the latter if it could get itself sorted out. Meanwhile, in Europe, Poland has good prospects, although probably not quite as good as Turkey’s.

Talk of growth prospects naturally leads people to dream of spectacular returns in the stockmarket. Last year the Nigerian market put in a stellar performance – up by nearly 50pc over the year – but equity markets in the other three MINTs fell over the year.

It must always be remembered that, for a variety of reasons, the link between economic growth and stock market returns is not always that strong.

The often widely divergent performance of the Chinese economy and stock market is a salutary example.

How a market is valued in the first place is a key consideration. Moreover, in rapidly developing countries, often the proceeds of economic growth fail to flow adequately to shareholders – particularly foreign ones.

Of the four economies, I am fairly optimistic about the immediate economic outlook for Mexico and Nigeria. But beware: that might not translate into large rises in share prices this year – or indeed in the near future. To make a mint you have to coin it.

David Fuller's view -

The acronyms such as BRIC and MINT are of little value for these diverse developing and frontier markets, as Roger Bootle points out.  They have also become tedious with time. 

This item continues in the Subscriber's Area.



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January 13 2014

Commentary by Eoin Treacy

Sanusi Lamido Explodes: How vested interests are killing Nigeria

This transcript of a speech by Sanusi Lamido Sanusi, the governor of Nigeria¡¯s  central bank, to TEDxYouth in August and now posted by Premium Times may be of interest to subscribers. Here is a section: 

But my experience with the banking reforms, and how it affects the fear of vested interest is as the following.

After we discovered the things that happened in the banks, the critical thing we had to do was to take a decision that would pitch us against powerful political and economic forces.

We were dealing with chief executives that in 2009 had become invincible. They were in the seat of power. They had economic power and they had bought political protection. They were into political parties, they had financed elections of officers and they believed that nobody could touch them.

And every time I said it was time for us to take action, people said to me you can?¡¥t touch these people, you'll be sacked. Or you can't touch these people they will kill you. Or you can't touch these people, you can't do that.

And I said you know what? We are going to take them on.

And we took the decision. We're going to remove them. You know what? We removed them and nothing happened.

We're going to prosecute them, we're going to put them in jail. And we put one of them in jail.

And we are going to recover these assets. Because the way the central bank operated in the past, these guys take all this money and the central bank says "the bank has failed".

The banks that we saved had 4.4 trillion naira in deposits. They had eight to ten million customers. But the government and the system has always berthed on the side of the rich people.

Because these eight million customers, the old woman in Gboko or in Yenagoa, or Maiduguri, who has been told to save her money and who?¡¥s saved money for 40-50 years wakes up one day and all her savings are gone.

The civil servants who've saved for 35-40 years, kept his pension money in the bank, the school fees of his children, their medical bills, wakes up one day and he finds that his bank is barricaded because the bank has failed.

Banks do not fail.

When people say banks have failed, it''s like saying a man whose throat has been slit and you say the man died. He did not die, he was killed.

Eoin Treacy's view -

Standards of governance enter just about every discussion on Africa. This is not surprising since the level of corruption, political instability and wars are what make the headlines. However, the fact that we are now seeing high profile public officials throwing light on these issues, not as insurmountable but as challenges is noteworthy. Let us then ask ourselves are standards of governance improving or deteriorating? I have to conclude that they are improving, albeit from a very low base. 



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December 18 2013

Commentary by Eoin Treacy

BRICs Creator ONeill Wowed by New Lulas Success

This article by Nacha Cattan for Bloomberg may be of interest to subscribers. Here is a section: 

Pena Nieto, 47, wasted little time pushing his agenda after taking office a year ago. On his second day on the job, he signed a pact with the two biggest opposition parties to pursue legislative proposals to spur economic growth.

The reform agenda has drawn praise from Pacific Investment Management Co.¡¯s Bill Gross, BlackRock Inc. Chief Executive Officer Laurence D. Fink and former U.S. Treasury Secretary Lawrence Summers. O¡¯Neill says the legislative victories put Pena Nieto in position to be the decade¡¯s most successful policy maker from the Group of 20 nations, a title he gave to Brazilian President Luiz Inacio Lula da Silva in the past decade.

Changes he implemented include forcing teachers to undergo annual evaluations and curbing the market power of dominant telecommunications companies such as billionaire Carlos Slim¡¯s America Movil SAB. He also signed measures to encourage banks to lend more and added taxes on dog food, soda pop and high-calorie snacks in an attempt to reduce the government¡¯s dependence on oil revenue.

 

Eoin Treacy's view -

While Mexico's reputation abroad has been tarnished by media reports of drug related violence, this may also have helped to foster resolve to support reforms. From my new home in Los Angeles, I look forward to visiting Mexico and seeing for myself how these measures are having an effect on the ground. 

 



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December 17 2013

Commentary by Eoin Treacy

Chocolate Eaters Drive Record Cocoa Output Deficit

This article by Luzi Ann Javier, Marvin G. Perez and Isis Almeida for Bloomberg may be of interest to subscribers. Here is a section: 

Global sales of chocolate confectionary will gain 2.1 percent to a record 7.3 million tons next year, after a 2 percent gain in 2013, estimates Euromonitor International Ltd. Sales in China more than doubled in the past decade, outpacing gains in Western Europe, the biggest consumer. Tighter supplies will mean higher costs for food makers including Nestle SA, Barry Callebaut AG and Lindt & Spruengli AG.

"Demand for chocolate is great" said Ashmead Pringle, the president of Atlanta-based GreenHaven Commodity Services, which oversees about $340 million. "A lot of the world population is moving to the middle class and will have more money to spend, in particular in emerging markets and Asia"

 

Eoin Treacy's view -

Cocoa exhibits one of the firmer chart patterns within the commodity complex and has been supported by disappointing crops in West Africa as well as continued growth in demand. Since the life cycle of the cocoa tree involves five years from sapling to pod production, increasing supply represents a medium-term challenge. 
 

 



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December 16 2013

Commentary by Eoin Treacy

On Target on diabetes

Thanks to Martin Spring for this edition of his ever topical report. Here is a section on diabetes:

 

Unless the condition is controlled, the consequences are very unpleasant. Complications include problems with the eyes, kidneys, cardio-vascular system and the nervous system. The mortality rate for sufferers under 60 averages 28 per cent in Europe, 38 per cent in North America and the Caribbean.

The root cause is well known. Most people who develop the more common form of diabetes, type 2, are eating more calories than their bodies are using.

According to the US Centers for Disease Control, diet and exercise changes can more than halve the risk of pre-diabetic conditions such as elevated blood sugar content developing into diabetes type 2.

Diabetes cannot be cured, but it can be controlled through weight loss, low-carb diets, exercise, and a range of medical treatments.

The most important drug is synthetic insulin, which is injected into the bloodstream to compensate for the shortage of the pancreatic hormone.

Eoin Treacy's view -

Diabetes is a global epidemic, particularly for people whose ancestors subsisted on a scarcity of calories. This is particularly poignant for India and China where rising incomes are fuelling growth in snack foods with high sugar content. Since the disease is a chronic condition rather than something that can be cured, it can also be considered a growth industry, regardless of how personally distasteful that way of viewing the world might be. 



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December 05 2013

Commentary by Eoin Treacy

Herbalife Audit Will Clear Borrowing for Buyback Bass Says

This article by Saijel Kishan and Leslie Patton for Bloomberg may be of interest to subscribers. Here is a section:

Once the Grand Cayman-based company completes its three- year audit in the next 60 days, it will be able to access capital markets and borrow 2.5 times earnings before interest, taxes, depreciation and amortization, he said today in a Bloomberg Television interview with Stephanie Ruhle.
     
“We’re catalyst-driven investors, and in this case the catalyst is coming in the next 60 days when they have their three-year audit done,” Bass said, adding that Herbalife is a business that generates “significant” cash flows, has no debt and is growing. Dallas-based Hayman owned about 436,000 Herbalife shares, or 0.4 percent of the stock outstanding, as of Sept. 30, according to data compiled by Bloomberg.

Herbalife has recently been under scrutiny amid allegations by hedge-fund manager Bill Ackman that the company is a pyramid scheme. While Herbalife has consistently denied Ackman’s claims, the activist investor last month said he will take his bet against the company “to the end of the earth.”

Eoin Treacy's view -

Few companies have gained such notoriety as a result of their sales strategy as Herbalife, but regardless of whether one agrees or not, there is no denying that the company makes money.



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December 04 2013

Commentary by Eoin Treacy

Yum Sees Tripling India Store Count to About 2,000 by 2020

This note by Caterine Larkin for Bloomberg may be of interest to subscribers. Here it is in full:

Yum says at investor meeting that KFC stores in India avg $1m annual sales.
Pizza Hut testing cafe store concept in India
Pizza Hut delivery in China ¡°in early days of growth¡±
Says Chinese govt investing in infrastructure
YUM sees ¡°huge opportunity¡± for KFC in France and Germany

 

Eoin Treacy's view -

Few companies have been as successful in adapting to foreign markets as Yum Brands. As a result the company generates more revenue from China that the USA and the difference in product offerings between the two jurisdictions is a significant influence on that figure. 
 

 



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