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Fri, 12th February 2016

Anirudh Sethi Report

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Archives of “stock” Tag

5 theories for the market turmoil

Rising volatility this year in stocks, bonds, currencies and commodities has left investors scrambling to figure out what’s going on.

Markets in Asia were again shaken Thursday morning, as shares in Hong Kong fell sharply when the market reopened after an extended holiday. The Hang Seng Index was down 4% in early trading. China’s main stock market in Shanghai remained closed for the Lunar New Year, prompting fears stocks could tumble when it reopens Monday as investors digest recent market events.

The drop in Asia followed the fourth consecutive day of losses for major indexes in the U.S. On Wednesday, federal Reserve Chairwoman Janet Yellen flagged risks to the economic outlook that could delay the central bank’s plans for raising interest rates.

As investors and analysts search for reasons for the global volatility, what seems plausible one day is quickly disqualified when the market veers in the other direction.

It wasn’t long ago that the plunge in oil prices seemed to be the biggest factor driving down equity indexes. But now the S&P 500 is down more this year than its energy subsector, both declines dwarfed by the plunge in financial shares.

Jaiprakash Power -Deadline to Repay Debt on Feb 13th-Where Money gone ?

Debt-ridden Jaiprakash Power Ventures said on Tuesday it may once again seek board approval for a standstill agreement with bondholders to extend the deadline to repay money it owes them. Foreign currency convertible bonds (FCCBs) issued by the company in February 2010 are due for redemption on February 13 after the company negotiated a similar agreement in February last year.

Since then it has paid bondholders close to $125 million and owes them another $101.41 million. The FCCBs have a conversion price of Rs 85.81 per share. On Tuesday, shares of JP Power Ventures closed at Rs 5.98 on the BSE. In early February 2010, when the company issued FCCBs, the stock was trading at close to Rs 68.

In a filing to the stock exchanges, the company said, “With reference to the earlier letter dated February 01, 2016 informing about holding of next Board Meeting on February 11, 2016, inter alia, to consider Quarterly Results, Jaiprakash Power Ventures Ltd has now informed BSE that the Board in that meeting shall also be apprised of the possibility of signing a standstill agreement with a majority of the holders of outstanding FCCBs issued by the Company, since the Company may require additional time beyond February 13, 2016 to repay the FCCBs in full.”

At the end of March 2015, the consolidated net debt stood at Rs 31,409.73 crore, according to Bloomberg data.

In September last year, Jaiprakash Power sold its Karcham Wangtoo and Himachal Baspa II hydropower units to JSW Energy for an enterprise value of  Rs 9,700 crore. Analysts observed at the time that the asset sale was necessitated by high interest costs and and losses on account of its coal blocks for the 1.3 GW Nigrie project being cancelled. In addition, the company also signed an MoU with JSW Energy to sell its 500 MW Bina thermal plant in Madhya Pradesh for which the due diligence is understood to be in process. The company has synchronised the 1.9 GW Bara plant which is expected to be commissioned by March.

Breaking -IEA says chances of an OPEC/non-OPEC meeting are very low

International Energy Agency out with their latest report

  • sees oil stocks building throughout 2016, by 2m bpd in Q1, 1.5m in Q2
  • possible further growth of OPEC 2016 production and USD strength to keep pressure on oil prices
  • “very hard to see how oil prices can rise significantly” if stock building continues
  • big fall off in production from US shale producers is taking a long time to happen

No joy here for oil price bulls as IEA comes in with a timely reality check.

Full IEA report here

Brent currently $33.34 just off session highs with WTI $30.45

The 462 IT Stocks in the broad Russell 3000 index have shredded a total of $529 billion -YTD

BIGGEST SHAREHOLDER WEALTH DESTROYERS IN TECH

Company, Symbol, Market cap destroyed this year ($ billions), % ch. ytd

Apple, AAPL, -$62.3, -10.7%

Alphabet, GOOGL, -$51.0, -9.5%

Microsoft, MSFT, -$42.1, -9.6%

Intel, INTC, -$25.5, -15.7%

Cisco Systems, CSCO, -$21.6, -15.7%

MasterCard, MA, -$16.3, -15%

LinkedIn, LNKD, -$15.3, -51.8%

Visa, V, -$14.4, -7.7%

salesforce.com, CRM, -$13.28, -25.4%

International Business Machines, -$8.8, -6.6%

Overnight US Market.Dow Crashed 296 points.S&P 500 Down 36

BEAR MARKET TRADING RULESStocks fell sharply Tuesday, with the Dow down almost 300 points, after another sell-off in the oil patch put energy shares on the defensive and risk-taking on hold in what has been a difficult start to 2016.

Increasingly, the trading motto on Wall Street is “as oil goes, so goes the U.S. stock market.” And the correlation between the falling price of U.S.-produced crude and a stock market in the red is intact yet again Tuesday.

A barrel of West Texas Intermediate crude was down $1.74, or 5.5%, to $29.88 a barrel, and that pressured Dow components Exxon Mobil (XOM), which was 2.2% lower after topping a depressed earnings forecast, and Chevron (CVX), which was off 4.8%.

The weakness in Exxon Mobil and Chevron weighed on the 30-stock Dow, which closed down 296 points, or 1.8%, at 16,154. The benchmark Standard & Poor’s 500 index was 1.9% lower and the Nasdaq composite dropped 2.2%.

After today’s drop, the Dow is off 7.3% for 2016, the Nasdaq is down 9.8% and the S&P 500 if off 6.9%. Also, all three indexes are back in correction territory, meaning they are off more than 10% from their record closes last year. The S&P had been out of correction territory for two trading sessions following a big rally on Friday.

China equities absorb third of all global trade

Share trading by retail investors in mainland China during last year’s stock market bubble was so great it accounted for more than a third of the total amount of equities traded globally.

Annual data compiled by the World Federation of Exchanges, the trade association for the world’s bourses, also found that the frenzied buying and selling sent global equity volumes soaring 55 per cent to a record 27.3bn in 2015, surpassing the levels seen in the financial crisis. The total value of share trading rose 41 per cent to $114tn, the WFE added.

Of those totals, the number of trades in mainland China rose 186 per cent to 10.1bn while the value of share trading soared 218 per cent to $43tn.

The numbers underlined the depth of participation in the world’s most populous country last year.

With an immature institutional investment market and strict controls on investments from overseas, trading is dominated by retail investors, colloquially known as “aunties”, who are widely believed to sometimes rely on rumours, numerology or feng shui to make investment decisions.

They helped fuel a bubble that subsequently popped over the summer, when the Shanghai and Shenzhen exchanges lost a combined 45 per cent of their capitalisation over three months.

Japanese Bond Yields Continue To Collapse As China Margin Suffers Longest Losing Streak On Record

Following Kuroda’s panic policy measures from Friday, JGB yields continue to collapse across the curve (though notably 30Y is selling off – is someone actually concerned about long-term survival risk?). 2Y Yields have collapsed all the way to BoJ’s -10bps rate, 5Y is plunging – now close to -9bps, and 10Y has dropped 20bps to just over 6bps… with BofA warning a negative 10Y rate looms. However, Japan is not having all the excitement as China’s margin debt (driver of all animal spirits) dropped again today – making this the longest losing streak in history as China’s stock market investors continue to leave the levered building screaming fire.

JGB yields are collapsing… not exactly the risk-on stock-buying euphoria Abe and Kuroda were hoping for

Govt may sell stake in three blue chip firms to raise funds :AXIS Bank -Larsen -ITC

The Government is planning to sell the holding of SU-UTI (Specified Undertaking of the Unit Trust of India) in three blue-chip companies — Axis Bank, Larsen & Toubro and ITC Ltd — in the next few months. The stake sale, which may spill over to the next year, is expected to help devote more funds for public investment in 2016-17, according to senior government officials.

 “Raising resources for increased government expenditure while keeping the fiscal deficit under control is a big challenge. Selling SU-UTI holding in these three companies will partly help expand the fiscal space,” a senior government official told 

“Axis Bank is likely to be the first one,” the official added.

SU-UTI currently holds 11.66 per cent in Axis Bank, 11.27 per cent in ITC Ltd and 8.18 per cent in L&T. Based on Friday closing prices of the companies’ shares on the Bombay Stock Exchange, the stake sale in the three companies will fetch the government Rs 48,658 crore. Having set a disinvestment target of Rs 69,500 crore for 2015-16, the government has managed to raise only Rs 13,337 crore in the first 10 months.

Attempts to sell stakes in these three companies have met with stiff opposition in the past. As far as ITC is concerned, it is feared that the sale may result in majority foreign shareholding and loss of Indian control in the firm. London-headquartered British American Tobacco, which holds 30 per cent stake in the Indian cigarette-maker through different entities, has had a strained relation with the ITC management in the past.

China’s 3 Trillion Yuan Margin Call Time Bomb Is About To Explode

Make no mistake, investors didn’t need any more reasons to be bearish on Chinese equities.

Mainland markets are veritable casinos dominated by retail investors who until last summer, were enthralled with the prospect of easy riches in an environment where shares only seemed to know one direction: up.

All of that changed last June when a dramatic unwind in the half dozen backdoor margin lending channels that helped to fuel the rally triggered an epic rout that became self-fulfilling once the retail crowd (which accounts for 80% of the market) became rip sellers rather than dip buyers.

Since then, successive efforts on the part of the CSRC to stabilize the situation by pouring CNY1.5 trillion into A-shares has met with limited success as periods of calm are interrupted by violent bouts of selling like those we saw earlier this month when China tried and failed to implement a circuit breaker.

Throw in the ongoing yuan deval fiasco and there’s every reason not to be involved in Chinese stocks.

But when it rains it pours, and now, analysts say margin calls on SCLs are the next landmine that may pose a “systemic risk” for China’s battered markets.