Thursday 18th December 2014
NEWS TICKER: THURSDAY DECEMBER 18TH 2014: Scotiabank’s Commodity Price Index dropped -4.8% m/m in November (-6.1% yr/yr) and will end 2014 in a ‘deflationary’ mode, says economist Patricia Mohr. "Significant capacity expansion and the defence of market share by major oil and iron ore producers— against a backdrop of lacklustre world economic growth — account for the softness at the end of the year," she says. Mohr adds that the decision by Saudi Arabia not to reduce output to shore up international oil prices, but instead to allow prices to drop to levels curbing US shale development appears to be having a negative impact on confidence in a wide variety of other commodity as well as equity markets. She predicts prices will fall further this month, but will start to rebound in mid 201 - Jonathan Hill, the EU's financial-services commissioner, says he plans to pursue rules that separate a bank's proprietary trading from retail operations. "The sensible thing to do is to seek to make progress quickly" on the issue, Hill said. "There are still areas of risk in some of the biggest and most complicated banks,” reports Bloomberg- CME Group, said yesterday that it will change daily price limits in its CME Feeder Cattle futures effective today, pursuant to its emergency action authority. The current daily price limit for CME Feeder Cattle futures is $3.00 per hundredweight and will change to $4.50 per hundredweight effective on trade date December 18th Additionally, effective December 19th (tomorrow) these limits will have the ability to expand by 150% to $6.75 per hundredweight on any business day in the event that one of the first two contract months settles at limit on the previous trading day. CME Feeder Cattle futures have been locked limit for five consecutive days as a result of various factors. The change to daily price limits is necessary to ensure continued price discovery and risk transfer, says the CME. Daily price limits for CME Live Cattle futures will remain unchanged at $3.00 per hundredweight. Effective Friday, December 19th, these limits will have the ability to expand by 150 percent to $4.50 per hundredweight in the event that one of the first two contract months settles at limit on the previous trading day - The Straits Times Index (STI) ended +16.42 points higher or +0.51% to 3243.65, taking the year-to-date performance to +2.49%. The FTSE ST Mid Cap Index gained +0.29% while the FTSE ST Small Cap Index gained +0.71%. The top active stocks were Keppel Corp (+2.68%), SingTel (-1.02%), DBS (+2.36%), Global Logistic (-3.21%) and UOB (+0.30%). The outperforming sectors today were represented by the FTSE ST Basic Materials Index (+3.13%). The two biggest stocks of the FTSE ST Basic Materials Index are Midas Holdings (+6.38%) and Geo Energy Resources (unchanged). The underperforming sector was the FTSE ST Telecommunications Index, which declined -0.98% with SingTel’s share price declining -1.02% and StarHub’s share price declining-0.73%. The three most active Exchange Traded Funds (ETFs) by value today were the IS MSCI India (+2.56%), DBXT CSI300 ETF (+0.42%), STI ETF (+0.61%). The three most active Real Estate Investment Trusts (REITs) by value were Ascendas REIT (-0.42%), Keppel DC REIT (unchanged), Suntec REIT (+0.26%). The most active index warrants by value today were HSI23400MBeCW150129 (+7.32%), HSI22600MBePW150129 (unchanged), HSI24000MBeCW150129 (+12.50%). The most active stock warrants by value today were KepCorp MBeCW150602 (+21.95%), DBS MB eCW150420 (+29.29%), DBS MB ePW150402 (-18.03%) - Spain’s Director of Public Prosecutions, Eduardo Torres Dulce, has resigned from the post for “personal reasons”, Spanish daily El Mundo reported this morning. A spokesman for the Public Prosecutor’s office confirmed the news by telephone to The Spain Report, saying that Mr. Torres Dulce had informed Justice Minister Rafael Catalá of his decision: “but that it perhaps would not come into effect until they find a replacement”. That decision is taken at cabinet level. The next cabinet meeting for Rajoy’s government is tomorrow morning - Hedge funds including Marshall Wace, Odey Asset Management and Lansdowne Partners are shorting OTP Bank Plc, a Hungarian lender with a Russian subsidiary whose shares have fallen almost 6% this month reports Albourne Village. All three London-based funds took or increased their position this month in OTP, Hungary’s largest lender, according to data compiled by Bloomberg. The ruble rose today in Moscow after plunging as much as 19%against the dollar yesterday, when Russia’s central bank increased interest rates to 17% percent from 10.5 percent in an attempt to stem the decline. The ruble is down 52% this year and has taken a disproportionate beating in the wake of sanctions and falling oil prices. The country still has the third largest currency reserves in the world and so is unlikely to default. According to Eric Chaney, Manolis Davradakis and Greg Venizelos from AXA IM’s Research and Investment Strategy team Russia will likely resort to fiscal stimulus to contain the risk of social and political unrest. Capital controls, political unrest and even default on private hard currency debts are possible outcomes they say. They credit default swaps market is pricing a one-third probability of sovereign default within five years - Indonesia is ramping up financing for its $439bn development program, planning an almost fivefold increase in sales of project sukuk. The government is seeking to raise IDR7.14trn rupiah (around $568m) from notes that will fund particular construction ventures next year, compared with IDR1.5trn this year, which say local press reports, will help finance its estimated spending of about IDR5,519trn from 2015 to 2019 to build roads, railways and power plants.

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). http://www.ftseglobalmarkets.com/

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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