Sunday 4th October 2015
NEWS TICKER, OCTOBER 2ND 2015: Asian stock markets were mixed in trading today. The Straits Times Index (STI) ended 8.7 points or 0.31% lower to 2793.15, taking the year-to-date performance to -17.00%. The top active stocks today were DBS, which declined0.86%, Sinarmas Land, which gained 0.89%, SingTel, which declined 1.11%, CapitaLand, which gained 3.69% and UOB, with a1.72% fall. The FTSE ST Mid Cap Index declined 0.35%, while the FTSE ST Small Cap Index declined 0.35%. Australia's S&P/ASX 200 ended 1.2% lower at 5052.02, following a patchy performance overnight in US markets, while South Korea’s Kospi index fell 0.5% over the day. The Nikkei 225 ended flat. Hong Kong's Hang Seng Index, which reopened after a holiday Thursday, was a rare bright spot for the region, up 3.2%, helped by slightly stronger-than-expected Chinese manufacturing data reported yesterday. However, analysts continue to warn against reading too much into any short term data, the long term outlook for Asia is still strong, though short term, while everyone hangs on the outcome of US jobs and economic data, investors are tending towards extreme caution - The amount of outstanding Euro commercial paper (CP) and certificates of deposit (CD) has decreased by $880m in the latest week according to the CMDPortal. Corporate sector outstanding, decreased by $5.1bn during the week, while sovereign, supranational and agency outstandings increased by $3.9bn to $242. Financial outstandings have fallen by $30.3bn in the last eight weeks while outstanding of asset backed securities has increased by $652m. Commercial paper (CP) consists of short-term, promissory notes issued primarily by corporations. Maturities range up to 270 days but average about 30 days. Many companies use CP to raise cash needed for current transactions, and many find it to be a lower-cost alternative to bank loans - Moody's has downgraded the corporate family rating (CFR) and the probability of default rating (PDR) of Eurasian Resources Group Sarl (ERG) to Caa1and Caa1-PD, respectively, both with negative outlook. The rating downgrade is associated with the agency's decision to lower the Baseline Credit Assessment ('BCA') of ERG to caa2, from caa1 previously. The lowering of the BCA to caa2 reflects the deteriorated fundamental credit profile of ERG, due to its increased financial and liquidity risks, which the rating agency considers are not sufficiently mitigated by the company on a stand-alone basis. The BCA is a key factor behind the CFR, as defined according to the Government-Related Issuer ('GRI') rating methodology, which Moody's applies to ERG, given the Government of Kazakhstan (Baa2 stable) is a main shareholder with a 40% stake. Moody's assessment on the other main factors behind the CFR according to the GRI methodology remained unchanged. In particular, Default Dependence is still considered as high and Government Support as moderate. These assessments drive the one notch uplift on the BCA.

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Barings backs resources sector equities over commodities

Tuesday, 05 August 2014
Barings backs resources sector equities over commodities Resources sector equities are currently more attractive than direct investments in physical commodities and investors should focus on investing in ‘companies not commodities’ to benefit from an increasing global demand for resources, according to Baring Asset Management (Barings).

Resources sector equities are currently more attractive than direct investments in physical commodities and investors should focus on investing in ‘companies not commodities’ to benefit from an increasing global demand for resources, according to Baring Asset Management (Barings).

The opportunity in resources equities is as strong as it has been for several years, believes Barings.  Its positive outlook is based on the size of differential between what it sees as positive company specific drivers versus a negative – often macro driven – consensus view. 

The firm has been investing in resource-related equities for nearly 20 years and manages more than $900m in a range of different strategies in the asset class. 

 “After several years of a benign-to-negative commodity pricing backdrop and associated de-rating by shareholders, companies are finally taking action to improve margins and returns driven by self-help and or restructuring,” says Duncan Goodwin, head of Global Resources at Barings.

“To capture this market shift, we are putting more emphasis on the bottom-up element of stock selection and increasing the level of stock conviction in the Baring Global Resources Fund.  That means a reduced emphasis on top-down portfolio construction with more risk taken at the stock level and reduced macro factor risk. 

“We are increasing the level of stock conviction by decreasing the number of investments held in our portfolio. With the right analysis, we believe it is possible to target investment opportunities offering superior returns and better prospects for positive earnings surprises.”

Since March this year, the Baring Global Resources Fund has been tracked against a new composite benchmark, represented by a 60% weighting to the MSCI AC World Energy Index and a 40% weighting to the MSCI AC Materials Index. 

The benchmark broadens the investable universe of stocks in the Materials space beyond solely Metals and Mining to include subsectors such as chemicals, construction materials, containers and packaging and paper and forest products.

In addition to oil and gas production, the processing, marketing, storing and transporting of hydrocarbons is becoming an increasingly important factor for investors as countries and regions look to secure a stable and competitive source of energy to sustain economic growth.

Barings believes valuations for resources companies are currently trading below historical levels and look set to revert to their long term mean – making them very attractive for active investors with a strong understanding of the sector.  On a longer term basis, continued population growth will drive absolute demand for natural resources, energy production and raw materials, which, in turn, will create growth opportunities for resources companies throughout the value chain.

Goodwin adds: “Over the very long term, we are adamant that resource equities retain a valuable role in investment portfolios.  As commodity prices are closely correlated with rises in consumer prices, investment in the resources sector has the potential to act as a hedge against inflation.  We believe the opportunities in the sector are as strong as they have been for several years and expect a positive re-rating of the sector and associated gains for our resources fund irrespective of the macro.”

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