Dec 4, 2016 - Shenzhen overtaking New York…really? Let’s see, starting tomorrow…Part 2.

Tomorrow on Dec 5, 2016 the awaited Shenzhen-Hong Kong Connect comes to life and foreign investors (expecting primarily fund managers) will be able to access another Chinese stock exchange. General expectation are much higher than for Shanghai-Hong Kong Connect as the Shanghai Stock Exchange lists mainly stocks of state owned enterprises. More at (Part 1) link.

We also expect much higher interest from foreign investors as the shares of more appealing names from so called “New economy” than those listed in Shanghai are very likely to attract investors and speculators from abroad.

Shenzhen stocks by industry (Market cap %)

32% Manufacturing

25% Tech, media and telecom

18% Consumer goods and services

8% Pharma

5% Real estate and construction

5% Finance

3% Utilities and transportation

3% Other

Initial impact

-          Increase in trading volumes on Shenzhen Stock Exchange that will be driven by new interest from hedge funds

-          A part of the new trading volume will come from flipping foreign institutional portfolios from special institutional accounts to new Connect accounts

-          Market should initially rise but some cautious will be in place

Later on

-          The launch is positive for decision whether to include Chinese stocks to MSCI indices, especially to those tracking Emerging markets

-          Such as step would attract additional investors as hedge and mutual funds, pension funds and other types of speculators that will relocate some parts of their portfolios in order to diversify and benefit from new market opportunities. For example, only the index fund rebalancing and including Chinese shares can bring additional USD 400 bln of new money to Chinese stock markets.

Initial risks

-          Short-term volatility after the launch

-          Shenzhen listed stocks having high valuations and PE ratios that may scare cautious investors:

Hang Seng Composite SmallCap Index (Hong Kong) with PE at 11

Hang Seng Index with PE 12

ChiNext Composite Index (Chinese equivalent to NASDAQ) with PE 58

Medium to longer term risks investors should take a note of

-          Yuan depreciation

-          Availability of proper analysts coverage

-          Lack of credible and internationally recognized accounting practices

-          Government regulation, political interference and support of certain companies and industries

-          Different local standards, market surveillance and actions from regulators

-          Prospects for economic growth

-          Confidence of domestic investors that is still a bit unpredictable based on Western investors’ standards

-          Status of emerging market with all the pros and cons that are topped with possibility of sudden capital inflows and outflows as well as well-above average market volatility

On the other the door to another huge stock market is getting opened what creates enormous amount of new opportunities that are waiting to be discovered. The numbers tell the whole story:

-          As there are 417 shares listed on Hong Kong Stocks Exchange while 881 on Shenzhen Stock Exchange

-          Also worth of mentioning that the market capitalisation of combined Hong Kong, Shanghai and Shenzhen will be half of the one of NYSE but higher than NASDAQ.

-          In other words, the combined market will rank as the second in the world by market capitalisation

-          And with double the number of listed companies than NYSE has.

Sounds like lots of new opportunities and tempting? Yes, it does!

Good luck Champs!

Mr Hawk

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmailDOTcom

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Dec 4, 2016 - Are Italians finally going to do something with their unwillingness to make a change?

The market is expecting a No vote victory of a very tight race but 20% of the voters were still undecided few days ago. The referendum is the third opportunity this year, after Brexit vote and Trump’s victory, for those who want to express the protest against the system and status quo and the result may be a proxy for upcoming elections in Netherlands, France and Germany. It seems that the election results this year are a sign of frustration rather the real call for a change. Hopefully Germany will be the exception link.

 Facts

-          Renzi is planning to change the dysfunctional system of the government and take some of the powers from regions to be able to implement the changes and make the governing of the country more flexible

-          Italy had already 65 governments since WW2 and tends more towards populism than pragmatism

-          Senate to become more advisory body to Chamber of Deputies than decisions stopping one

-          The biggest party would have a majority

-          Some Italian banks are under pressure as they have issues with refinancing

-          Monte di Paschi is seeking EUR 5 bln few days after referendum as it needs to increase its capital from EUR 500 mln to be better position itself and handle the EUR 28 bln portfolio of bad loans

-          Unicredit s in talks with potential investors to increase the capital week after and potential investors may withdraw from already pre-agreed deal in case of No vote

-          GDP per capita still at the level from ’90, the economy did not grow over the past 15 years

-          Labour market is frozen, public debt is at 133% of GDP level and banks are coping with bad loans

What to expect

No vote

-          Means weak government if Renzi decides not to resign as he had promised

-          If he does it will not automatically lead to snap elections as they may reshuffle the government first

-          If they call for a snap elections populist opposition leader Grillo may benefit the most and call a referendum on Euro. Even if he does the outcome will negative for him as 85% of population wants to keep euro.

-          Chaos on Italian political scene if Renzi resigns suddenly and headaches in Brussels

-          Spread between Italian and German 10 year government bonds reached 186 bps this week and may rise much higher what in turn means more expensive financing of the state debt

-          Very likely the country rating will be reviewed with the high risk of downgrade

-          ECB is ready to intervene and buy bonds to contain the potential selloff and spikes in yields but this step is limited to days/weeks only as ECB needs an approval from Governing Council to carry such operations for longer period

Yes vote

-          Brussels will take a breather as populists across EU would see a rejection of their simple but not working policies and it would be a positive step on the back of Brexit and Trump’s victory

-          Renzi would have a mandate to go ahead with constitutional changes and political situation will calm down to certain degree. Again it will depend also on what margin the Yes will win.

-          After implementing the constitutional changes the political setup in Italy should be more stable but there is a risk as the Senators will not be elected but nominated by regions that are the sources of corruption. That may potentially create an opportunity for so called politicians to get into Senate without actually being elected.

Market impact

No vote

-          Before going into EURUSD shorts immediately after No takes the win it would make sense to wait a bit whether Renzi will announce his resignation immediately and check by what margin the No vote won. In case of a slim difference the market reaction may not be that profound as in the case of a decisive No victory.

-          Italian banks and European equities will suffer but the biggest hit will be taken by Italian banks

Yes vote

-          In case of Yes vote the upside in EURUSD is quite limited and the underlying trend of USD strength will stay firmly in place

-          In case of Yes vote, the winner will be Italian banks and European equities in general. The banks should really benefit also from raising bond yields due to inflation fears and the fact that the amount of bad loans on their books has stabilized.

Good luck Champs!

Mr Hawk

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmailDOTcom

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Aug 28, 2016 - Q2 Earnings – Week 8

The Jackson Hole speech of Janet Yellen was definitely a surprise for markets (stock markets including). In the shadow of this event there are still few companies reporting earnings that may be interesting to see before Friday’s US NFPs:

This Week

Monday

Exor SpA (IT) – estimated EPS 2.40, +165.4% Y/Y; Revenue 141 904 mln

Tuesday

Alimentation Couche-Tard Inc (CA) – estimated EPS 0.57, +8.1% Y/Y; Revenue 8 834 mln

Bank of Nova Scotia (CA) – estimated EPS 1.48, +0.7% Y/Y; Revenue 6 612 mln

Industrial & Commercial Bank of China (CN) – estimated EPS 0.20, …% Y/Y; Revenue … mln

Wednesday

National Bank of Canada (CA) – estimated EPS 1.20, -3.7% Y/Y; Revenue 1 563 mln

Bouygues (FR) – estimated EPS 0.22, -47.5% Y/Y; Revenue 8 160 mln

Illiad SA (FR) – estimated EPS 4.03, +48.2% Y/Y; Revenue 2 285 mln

Thursday

lululemon athletica Inc (CA) – estimated EPS 0.38, +11.2% Y/Y; Revenue 514 mln

Campbell Soup Co – estimated EPS 0.50, +15.8% Y/Y; Revenue 1 695 mln

Pernod Ricard SA (SA) – estimated EPS 1.78, …% Y/Y; Revenue 3 790 mln

Bollore SA (FR) – estimated EPS 0.21, +3.0% Y/Y; Revenue 10 460 mln

Friday

Nothing important

Good luck Champs!

Mr Hawk

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmail.com

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Stocks - Q2 Earnings Note

Q2 Earnings

Traditionally, Alcoa starts on Monday after market, followed by other important names later this week. Estimated EPS 0.09 and -51.1 Y/Y, Revenue 5.271.

Yum! Brands reporting on Wednesday (estimated EPS 0.74 and 7.2 Y/Y, Revenue 2.695).

CSX Corp reporting on Wednesday after market (estimated EPS 0.44 and -20.9 Y/Y, Revenue 3.099).

Delta Airlines reporting on Thursday (estimated EPS 1.48 and 16.5 Y/Y, Revenue 10.499). Suffered from higher oil prices but check the valuation multiples, as their levels may be interesting. Also weekly chart worth of being reviewed.

BlackRock reporting on Thursday before market (estimated EPS 4.8 and -3.3 Y/Y, Revenue 2.791). The results with company guidance can shed some light on how the shift from active fund management of mutual & hedge funds to passive vehicles like ETFs or managed ETF portfolios impacts the entire wealth management sector. As Fintech is biting more and more, many wealth managers are looking at cheaper options for their clients, as some active asset managers struggle to generate enough alpha to justify their fees.

US Bancorp reporting on Friday before market (estimated EPS 0.81 and 0.8 Y/Y, Revenue 5.196)

…but those of high importance are:

JPMorgan Chase Inc reporting on Thursday (estimated EPS 1.44 and -3.7 Y/Y, Revenue 24.416). Not only earnings will be reviewed but also the impact of Brexit vote, as they have substantial operations in UK (most employees from all US banks present in UK), and any need for reshuffling the structure and/or moves some activities to continental Europe after UK exit. Definitely, a market mover for other bank stocks as well.

Wells Fargo & Co reporting on Friday (estimated EPS 1.01 and -1.5 Y/Y, Revenue 22.248). As it is the number 3 by assets in US, company results will be scrutinized from retail perspective. The mortgage and lending business can do well due to low long-term interest rates that support refinancing.

Citigroup Inc reporting on Friday (estimated EPS 1.13 and -22.3 Y/Y, Revenue 17.723). Along with JPMorgan Chase there will be some question marks related to Brexit vote and the market will also review the profitability of their global business model, as the activity in EM was not spectacular. Citigroup has the most business of US banks coming from abroad, thus is more vulnerable to international developments.

Good luck Champs!

Mr Hawk

 DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading       teams view on past and current economic and capital market environment. It is not and shouldn´t been viewed   as an investment advice and the creator of this material shouldn´t been hold liable for any loss resulting from       action where despite this disclaimer someone would consider this  material  as an investment advice. 

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People`s Party won 137 seats in Spain`s Elections (2nd update)

Peoples of Spain turned to pro-establishment People`s Party of Mariano Rajoy, which has won 137 the seats (39% of 350) in the repeated Spanish Elections compared to 123 in December. The two biggest left wing parties of the country, Unidos Podemos will have 71 (unchanged) and the Socialist party 85 seat (down from 90) in the new parliament. In contrary to the earlier estimates the two won`t be able to form a government with absolute majority in the Spanish Parliament.

None of the parties has won an absolute majority in the 350-strong parliament. The second general elections in 6 months was supposed to solve the political deadlock in the country, after the winner parties couldn`t agree on forming a coalition in December. Now the parties will be forced back to the negotiating table to form a government and it will start all over again. 

After the shocking EU referendum this result already added to the negative market sentiment from Friday. Asian Stocks declined with oil, pound and euro. Gold`s reaction was subdued while the hedge funds were holding record longs in gold last week. 
(2nd Update from Tech Man)

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice.
All rights reserved ©2016 www.landoftrading.com Contact: landoftradingATgmail.com 

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