Archive for the ‘New York Stock Exchange’ Category

Brazilian banking, a two horse race

itau-unibancoBrazilian banks have been on a tear this year, with both Itau-Unibanco & Banco de Bradesca returning more than 100% year to date. As the “B” in BRIC, Brazil is thought  to be coming out of it’s recession, with The Economist stating that the country could see a return to 4%-5% in 2010, as Brazil is less dependant on the US as an export market & is forging ties in Asia, notably with China on energy accords.

Over the last month however, ITUB & Bradesco, the number 1 & 2 private banks, have been dragging, with ITUB being hit yesterday by the general market malaise, shedding 2.3% over the session. The overall negative sentiment on Brazil in August was not helped by President Lula‘s much discussed plan for the government to take greater control of oil reserves via the worlds fourth largest oil company Petrobras, which has seen some investors pulling back on Brazilian ADRs.

There are reasons to be bullish however, as Finance Minister Guido Mantega commented last week that Moody’s Investors Service is signalling that it may upgrade Brazil to investment grade. The banking system has been going through a wave of consolidation, with state owned Banco de Brasil jostling with ITUB & Bradesco for the top spot, all helped along by an 8.5% interest rate.

Bradesco has done well with it’s half year results, beating analyst estimates, mainly propped up by it’s sale of a partial stake in VisaNet, the Brazilian Visa affiliate, which provided the bank with a much needed $1.5Bn cash injection. Bradesco still retains a 26.5% stake in VisaNet after the IPO.

“The worst might be over in terms of defaults,” Chief Executive Luiz Carlos Trabuco Cappi said in a conference call with journalists. “With the formal economy and wages growing, the trend for default rates after reaching the peak is to edge lower.”

Similarly, Itau-Unibanco had a healthier than expected half year, with profits only dropping by 14%, mainy due to bad debt provisions,, which had doubled on 2008. Lending is expected to expand 10% to 15% in 2009 and should grow as much as 25% next year as Brazil emerges from recession, Chief Financial Officer Silvio de Carvalho said in a conference call with journalists.

“We have clear signs that credit has become an important factor in the economic recovery now underway,” Carvalho said. “Everything leads us to believe that the crisis is behind us.”

Looking at both of these stocks, they have both been recording higher lows & higher highs for the last 6 months, which to me makes them aln attractive prospect. Add in the positive sentiment from Moody’s, Fitch & Standard & Poor regards the Brazilian economy & there is certainly a feeling of comfort there.

ITUB_Trend

Looking at ITUB in particular, their ambitions to become a full service provider in all aspects of financial services took a step further last week when the bank merged it’s fledgling insurance business with specialist firm Porto Seguro, allowing it to now offer health & life insurance products to it’s 50 million customer base, this only 3 days after Bradesco & Porto had ended similar talks.

“The two companies have a lot to explore together,” said Kelly Trentin, a banking analyst at the SLW brokerage in Sao Paulo. “Financial stability in Brazil and rising family income make it more likely that people will look for more insurance products.”

So for me, Itau-Unibanco is the horse to back in this race right now.

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Hedged In on SDS, FXI & FXP as bears wake up early

kodiak-bear1Normally at this time of year, bears are getting their stores in & looking at hibernation, but the recent market has turned that around, with bears dozing most of the summer & now waking up & looking hungry.

Followers of our Twitter account, will know that we have been taking a good look at China over the past 10 trading days & have a very bearish outlook on China going into the 3rd Quarter & by default on the S&P 500. Signals have been coming for a while with the BDI declining at an alarming rate from it’s June highs, flagging up the possibility that China’s economy & associated infrastructure drive are starting to run out of steam.

The Shanghai Composite has been steadily declining. losing in the region of 21% of its value in the last month, today the benchmark index slumped an eye boggling 6.75% at its close. This has prompted me to look at a trade that I have been thinking about for a few weeks, that is neatly hedged & could also be a home run as bearish sentiment hits the markets again.

Shanghai_composite

Having looked at three well traded ETFs , we are placing a trade that is mixing it up a little with SDS :Ultra Short S&P 500, FXI :iShares FTSE/Xinhua China 25 Index & FXP ProShares UltraSh FTSE/Xinhua China 25. The following chart shows the last 5 trading days of SPY, FXI & FXP. As can be seen, there was a clear signal on Tuesday last, that there was a divergence in FXI / FXP, with the S&P 500 mainly trading sideways.

china_v_spy

Now using the Morgan Stanley A Fund CAF as a sentiment monitor for the Shanghai market over the same period against SPY (NYSE: SPY), it would seem that there has been some pretty good correlation over the last 6 months of trading. For me CAF is one of the best tickers to use for real sentiment, as it trades in China A Shares, whilst FXI (NYSE: FXI) is predicated on 25 stocks traded on the Hong Kong market (mostly ADRs). From looking at the charts, it would appear that CAF (NYSE: CAF) actually front runs FXI by a two to three day period & this has helped me immensely in trading Chinese ADRs this summer. At the same time, SPY has followed the FXI trend reasonably faithfully for the last 3 months, until August 17th, when FXI began to dip.

SPY_FXI_CAF

So our feeling is that with China declining at such a rapid rate, Long FXP  (NYSE: FXP) short FXI is a no brainer & we are looking to make some good returns over the next few weeks, we are also adding in a soupcon of SDS for interest & to confirm our bearish sentiment on the S&P 500. With a ratio of 2:1:1 we feel that this is a well hedged play, with a good upside potential.

We are looking to hold this trade for a minimum 10 day period & I have set this trade up on kaChing.com in our test account in order to track it. The idea being that we can give a visual on the performance of the trade & also  a good term of reference when we close out the positions & reblog.

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MyStockVoice.com is now alive & kicking

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It’s taken a while & it’s been an interesting experience, but am pleased to say that we released MyStockVoice.com into public beta. For me personally, there have been a few challenges, “assisted” along the way by re-locating with my family from Switzerland to Slovakia.

The team at Connection Services who have designed & support the MSV platform have been excellent, especially when responding to an ever changing set of requirements. MyStockVoice started as this WordPress blog, where I could muse on my views on Emerging Markets & BRIC economies. A conversation with a friend who works in the City (London) encouraged me to look at doing something a little more. The original format, was a forum, then a newswire service & now it’s a fully fledged blog publication platform. So you can imagine how happy my colleagues at CSL were, when I tripped back every few months & said “right, this is what we are doing now”

Our aim at MSV is to provide an ever widening audience with value insights into what is rapidly becoming a major topic for hedge funds, investment managers & retail investors alike : BRIC & Emerging Markets. International stocks traded on US exchanges are becoming ever more popular, especially via Depositary Receipts (ADR,ADS,ADN) , for the more cautious or long minded, a number of ETF (Exchange Traded Funds) have sprung up to service the appetite to take part in these growing economies.

Covering all the major regions, MSV provides focussed channels into a variety of sectors & also specific categories for Macro Econmics, ADR & ETF investing. We are pleased to be working with some well established names from the investment community, along with faculties such as Knowledge at Wharton, the Economics Faculty at Beijing University, Skolkovo Business School in Moscow & Cranfiedl University in the UK.

Our strapline is “your community … your voice”  & to reflect this, we will be bringing our readers plenty of new unique content. Much of my time in the last two to three months has been spent contacting individual bloggers & also online media services that are based in the regions covered. In this way, we can present a “blend of thought”, that will allow our subscribers to formulate informed opinions on their own particular areas of interest.

So, enough jawing from me, but to close, Alex, Chris & myself would like to thank the team at CS & all the people that have had input into the project. We sincerely hope that you enjoy the MSV experience & are always open to new ideas, partnership opportunities & most of all feedback.

Many thanks

Paul

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More pressure on copper as commodities start to fade

FCXFollowing on from my post last week “What goes up  must come down” , where I looked at the two largest producers of copper, Chile‘s Codelco & also the American firm Freeport McMoRan, I have spent some time over the weekend researching the copper market & looking to see if I could find anymore signals that would show market direction.

Re-capping on the trade, FCX so some very significant selling volumes from the open on Friday &  the trade triggered as FCX fell through the 65 mark, where I commited to 50% of my planned exposure, the remaning 50% was then entered at 64.25 & I rode this down to 63.06.  I am looking to repeat this trade as a swing this week & here are some of the reasons why.

As previously stated on Freeport McMoRan, the company has scaled back copper production & has increased gold production to an all time high. Freeport is making some serious cutbacks & cost management is a major theme, as with many other major stocks, so I am still bearish on FCX as a whole from a fundamental standpoint.

Whats more interesting, is looking at some other factors that help bear out (nice pun) my thesis that we are looking at short term oversupply of copper. First let’s have a look at the copper Exchange Traded Fund : JJC, it has seen a strong uptrend  since early this year, returning a tad over 100% year to date, however looking at this technical chart, it would seem to be overbought & is signalling this.

JJC

Turning to a shorter term chart & looking at volumes on JJC, we can see that it hit & refused it’s upper Bollinger on Thursday 13th & saw some very aggressive selling in high volumes on Friday. If we then look closer at the history of the ticker, it has a habit of withdrawing back to it’s 20 Day Moving Average, which would give a reasonable bottom at 36.90 on any significant breakdown. So, I am looking to take another short position in JJC (if I can, it’s pretty illiquid) & see if I can’t double up on my FCX trade.

JJC 3 month

Another indicator that all may not be well is the performance of the Base Metals ETF : DBB, which holds an equal 33.33% in copper, aluminium & zinc. DBB has also had quite a years so far, with a return rate of 53%, on Friday this started to look fragile & there was fairly spikey activity in the ticker all through the day, finally closing 3.8% down, so not a bright day for metals at all. Again looking at a 3 month chart, we can see that DBB has been hitting it’s head against the upper Bollinger since mid July & at the latter end of last week also refused. Needless to say that Friday saw some volumes selling off, although not as heavily as FCX & JJC. The reasoning behind this is that DBB is held by select financial institutions & they are unable to un-reel their positions very quickly.

DBB

So to summarise, FCX still looks weak, JJC in my opinion is looking to implode & the major ETF in this sector is on the retreat. Again, I’ll be looking at shorting Freeport down, as per the tactics from my last post & if I can get in on JJC, I’ll be tapping into a short there too, looking for an exit at around 38.50. If the sell off continues, next stop for me is the 34.20 mark, so I’ll look to drop the short at 34.50. Add to all this the negative sentiment on China  & commodities right now, I think these swings could be real earners for this week.

Author has no current holdings in any stock mentioned

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What goes up must come down, is copper running out of steam ?

gravityCopper prices are at an all time high, coming off of deep lows in December 2008 of $1.25 lb, 3 month delivery is currently trading in Shanghai at $2.90 lb / $7,431 per tonne, extending the metals five week winning run. Shanghai copper looks to end the week almost 8.5% up, its strongest 5 day performance in more than two months. But are there stormy times ahead? Chilean mining giant Codelco, which is the worlds largest producer of the red metal, has just announced results for H1 2009.

Copper production including output from its 49% stake in El Abra, rose 16% to 822,000 tonnes in the first half of 2009, from 715 000 tons in same period in 2008. However, it seems all is not as sunny as the production figures would lead us to believe.  Codelco has seen its profits sink by 82% in the first half from $4.11 Bn to $722 Mn, due to lower copper prices. A worldwide slump in molybdenum prices from $72 to $20 year on year, has also not helped things along either. Although copper has had a good run, the question is, has it run out of steam, with Chinese buyers supposedly easing away from contracts, having fuelled the boom by stockpiling since November last year.

Not the case according to Codelco Chief Executive Jose Pablo Arellano. He is bullish & feels that copper demand is likely to continue due to ongoing requirements from China and stimulus programs in the world’s leading economies.

“The key factor in the rise in prices is China, in the next few quarters, we should see the stimulus programs in the United States, Europe and Japan start to have an effect, something we haven’t seen yet.”

But what of US based Freeport McMoRan (NYSE:FCX), Codelcos main rival & erstwhile partner ? Last month, Freeport beat analysts expectation by a long margin, but again the upbeat news needs to be examined a little more closely. Net earnings for the quarter were $588 million, or $1.38 per share, compared with $947 million, or $2.25 per share in the same quarter of 2008, with revenues dropping to $3.68 billion from  $5.44 billion, or 38%. Revenues were bolstered by gold sales, as the company ramped up production from 265,000 ounces in Q2 2008 to 837,000 ounces this year, but is debatable if this pace can be sustained, never mind improved upon. In In June, Chief Executive Richard Adkerson told Reuters there was no sign of recovery in the developed world that would lead to a restart of its idled U.S. copper operations, despite a pick-up in Chinese buying.

FCX has been riding high of late & I am kicking myself having looked for an entry at the $45 mark back in early June, only to be beaten by the market surge that has occurred. Bears should not be too dismayed however, as it looks as though play is going to start running the other way. Inventories on the London Metal Exchange have been on the decline since March, mainly due to companies like Freeport scaling down operations, whilst feeding the Chinese appetite. March is also when we started this huge bull run, which in my opinion is starting to look a little fatigued & toppy. One of the major indicators that I have been looking at on a weekly basis is the price of copper versus declared inventory on the LME. As you can see, inventory declinbe petered out in early July & we are now seeing that inventory starting to climb.

LME Copper

Now looking at FCX from a technical standpoint, its pretty obvious that it has been performing well in it’s channel (hat tip to anyone that has been long since March ), but it has also significantly not managed to break through the upper Bollinger band. It’s headed there right now, with a closing price yesterday of $66.07, the upper Bollinger is marking time at $66.87 & my expectation is that FCX is going to fail & pull back relatively sharply, with first major support at the $60 mark. If it falls through that level, I can see it triggering off a steady fall to the $52-$54 range, any “bad” news from China or any of the developed economies, will put on added pressure. According to Short Squeeze, short interest in FCX has increased by 8% in the last month, which is always an indicator that something is on the horizon, especially in a stock that is 80% held by institutions.

FCX

So to summarise, China is not buying in the volumes it was, US / Europe / Japan recovery is a long way off, Codelco made huge losses whilst bolstering production & Freeport has only made positive steps due to cost cutting & stepping up gold production, not withstanding its problems at it’s flagship Grasberg mine in Indonesia. That gold production doesn’t have a lot of headroom either. I’ll be keeping a very close eye on this & if significant volumes start selling through to $65, I’ll be riding down the ladder as far as I can.

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Vodafone steps up to the plate, backed up by Emerging Markets

vodafoneLast week Vodafone Group (NYSE:VOD) released an interim management statement that considering the current economic climate, I consider to be pretty upbeat. I have been a long term holder of Vodafone stock on the London Stock Exchange & have over the last year traded the NYSE traded ADR up & down on swings. However with the current market, I am now looking for some growth & value plays. Looking a little closer at the report & doing some quick analysis of some of the major themes contained, I am now quite bullish on VOD going forward & will be picking up some shares for my investment portfolio. As of writing Vodafone was trading at £121.00 in London & $19.64 in New York.

Comment from : Vittorio Colao, Chief Executive

“In the first quarter the service revenue trend in Europe was consistent with the previous quarter and we continued to see good growth in India and South Africa. Our total communications strategy is delivering well, with organic data revenue up 19% and organic fixed line revenue 7% ahead of the comparative period. Free cash flow generation was strong at £1.9 billion, up 21%. The Group has reaffirmed its guidance for the full year.”

Highlights from the report :

  • Group: Revenue £10,743 million, up 9.3%
  • Group data revenue of £888 million, up 19.4% on an organic basis
  • Free cash flow of £1,896 million, up 21.2%; net debt at 30 June 2009 of £31.2 billion
  • Cost reduction programme on track
  • Proportionate mobile customer base of 315.3 million; 8.0 million net additions during the quarter
  • Europe: Service revenue up 4.4% driven by FX benefits. Data revenue up 17.8%. Fixed line revenue up 5.7%
  • Africa & CEE: Service revenue up 26.3% including Vodacom acquisition,Vodacom organic growth of 5.2% offset by weakness in CEE
  • Asia Pacific and Middle East: Service revenue up 21.8%
  • India service revenue growth of 23.0%

Interesting to see Vodafone making a point of mobile data revenues & 19.4% grwoth is a pretty impressive statistic. Much of this being driven out of Europe, where one of the big booms in mobile data is the popularity of 3G wireless broadband dongles (USB sticks) on “Unlimited” packages, which all the major operators have adopted. Vittorio Collao announced a major cost cutting initiative last November 2008, targetting cost reductions of $1.45Bn by  the end of the 2011 financial year in order to offset the pressures from inflation and the competitive environment and to enable investment in revenue growth opportunities. Savings of more than 65% of this target are expected to be generated by the end of the current financial year.

Vodafone has been at the forefront of network sharing, originally this started in the UK with Orange, now the group has signed a pan-European deal with Telefonica-O2, which will see network sharing being implemented in Germany, Ireland, UK & Spain. Analysts see this as a huge positive, as the deal is set for a ten year term & should save each company in the region of $350 million per annum. The growth figure of 8 million subscribers runs in line with analysts global forecasts for 2009 of circa 13%, as Vodafone is one of the higher value operators in each of its markets, the fact that it is expanding subscribers in a high churn market is positive.

“Old” Europe is the only area where Vodafone operates both fixed & mobile services, predominantly in the UK, Ireland, Spain, Potugal & Germany, where it is the second largest provider of broadband via its Arcor business unit. Having already discussed the cost savings initiative with Telefonica, the main story here is on how Vodafone are manbaging to reduce churn & promote ARPU via new services. Vodafone is far & away the leader in all of these markets regards business services (excepting Germany, which is dominated by T-Mobile), with consumer playing a strong supporting role, crucially the majority of these accounts are postpaid, which is reflected in higher service revenues than is the norm in this sector.

Another area that Vodafone is finally catching onto is the machine-to-machine market, or M2M. The company has made some recent investments in this sector & is set to benefit as the market grows from $4.2Bn in 2008, forecast to rise to $12.5Bn by 2012. It’s not all good upbeat news though, as recent EU intervention in roaming charges has had a detrimental effect on voice service revenues aceross the board. Retail termination costs have hit this part of the business very hard, with only Netherlands showing minimal growth of 0.6% mainly due to MVNO operations, whilst at the other end of the scale, Greece voice revenues sank by 15%.

In “new” Europe (CEE) & Africa, the atypical Emerging Markets,  we are presented with a mixed bag, however the region saw service reveues grow by 26.5%, mainly due to Vodacom (of which more later). Vodafone has seen serious competition in Romania, where no less than 6 operators are competing for one of the lowest ARPU generating populations in Europe, the situation not being helped by the extremely poor performance of the Lei versus the Euro. Similarly, Turkey has not been the shining star that Vodafone had expected when it launched their in 2005. However, now that 3G services are finally being launched, Collao today announced that the company would be investing up to $675 million in network infrastructure over the next 12 months, as Turkey has very low fixed line connections, mobile broadband is set to be a revenue enegine. I also have a feeling that as & when Turkey accedes to the EU, plenty of “rural” grant funding will be made available for the three network operators to provide near 100% coverage. At time of writing, there are some rumours of Turkcel & Vodafone entering into limited network sharing on 2G (GPRS) services, but these remain unconfirmed.

Meanwhile, Africa has seen a real boost this year, with Vodafone finally acquiring a majority interest in Vodacom South Africa from Telkom, as we discussed earlier this year in Consolidation hits Rainbow Nations telecom sector; Vodacom is now the flagship Vodafone brand in sub-Saharan Africa & has recently listed on the Johannesburg Stock Exchange. Another hit in this region is Vodafone’s 40% majority holding in Kenya’s Safaricom. Jointly the two companies launched the mobile payment platform M-Pesa back in 2007 & it has gome through a number of modifications & upgrades since then, winning a United Nations award along the way. The service has 5.75 million users signed up in Kenya & now that it has been proved & tested, look to Vodafone to launch M-Pesa in a number of new regions in Africa, such as Nigeria, Ghana & South Africa. An interesting video on Safaricom & M-Pesa can be viewed here : Michael Joseph

Vodafone’s controversial investment in Essar , seems to be paying off handsomely, as the Indian carrier now operates in all 26 mobile circles across the sub-continet. Service revenues jumped by 23% with the subscriber base leaping 56%, or  by 77 million subscribers in the last year. Vodafone will also be launching M-Pesa in India this year & it is thought that up to 17% of the subscriber base will ustilese the m-payment system. Vodafone-Essar recently applied & was granted both a national Internet Service Provider & National Long Distance licences, from the Indian Government, as expectations run high on the “last mile” being finally opened. The NLD licence will have an immediate effect, as Vodafone will now be able to backhaul its own national STD voice traffic & not have to rely on local carriers, which will be a welcome development since mobile voice terminations have fallen by 5% in India in the last year.

In Asia Pacific, there is only one big story & that is the merging of Vodafone Australia & Hutchinson Whampoa’s 3 in order to create a realistic competitor to government owned Telstra. The new Vodafone-Hutchinson Australia is a 50-50 JV, which will carry the Vodafone brand & now has a combined cutomer base of just over 6 million users. Vodafone will be looking to leverage its Vodafone Live! content platform here & significant cost savings on network (roaming charges) can be expected, the combined networks now have 98% coverage of metropolitan areas across the country. Vodafone will also receive a deferred payment of AU$500 million from Hutchison-Whampoa, to reflect the difference in the joint business assets (network).

So all in all, a home run for Vodafone in its first quarter of the current financial year. Considering the global economic environment, I feel that this is a great performance (although possibly helped along by currency rates) & that if the management team can keep a firm grip on the operating companies, Vodafone should be one of the strongest performing telecoms companies for 2009-2010. Continued expansion in both India & Africa, along with the introduction of services such as M-Pesa will attract & hold valuable customers. I’m long on the ADR, having bought in last week at $18.68 & am looking for it to exceed $23.50 within three months.

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Vale to sweep up as Rio “fails” in Chinese espionage fiasco

bulk ore carrierThis post from China News Wrap is significant, as it’s sourced locally from International Financial News, which is a Peoples Party owned newspaper. China informs Australia that proof is irrefutable (sic) Basically the Chinese authorities are not going to back off, having been snubbed over the Chinalco deal. I reckon this will run & be very detrimental for both Rio & BHP Billiton. Anyyone else noted that both firms have been talking up inventories being built up elsewhere ? The real deal is in the 2nd last paragraph of the story :

“At the same time, although Rio Tinto had made statements last week emphasizing that it would ‘continue its iron-ore operations in China’, the actual situation does not seem to reflect this. The overseas media yesterday reported that shipments of spot market iron-ore from Brazil to China soared to record highs in July, which could be related to the Rio Tinto case. Australia seems to have temporarily suspended its exports of spot market iron-ore to China. Data from the shipping company AXSMarine indicates that orders for shipments to China from Australia’s main iron-ore port fell to 12 this month, while orders for shipments from Brazil reached the record high of 31. This means that China’s demand for iron ore is still strong.”

so basically VALE is picking up the slack & would also seem to be enjoying it too, if this piece from Reuters is anything to go by :

Vale Resists China Price Cut Request on Demand Gain

“Politically Vale has done well with its customers by letting the Australians settle first,” Cliff said. In the first quarter, China took 66.5 percent of Vale’s total iron-ore sales of 52.1 million metric tons, up from 32 percent a year earlier.”

Regular readers of MyStockVoice will know that I’m a big fan of Vale, so, long VALE is a no brainer & I have felt that BHP is a little toppy for a week or so, may instigate a short. RTP I’ll leave for bigger fish to swim with.

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