Waiting For Brent To Tank

Latest news: Oil is trading in bear market territory, with prices falling to their lowest level this year as rising supplies threaten to derail an effort by some of the world’s biggest producers to bring an end to a three-year glut. Renewed concerns about growing production from within the Opec cartel and a reinvigorated US shale industry took global crude benchmarks on Tuesday to the lowest level since mid-November with Brent crude sinking to $46 a barrel. Prices at one point during the session were down more than 20 per cent from levels at the start of 2017. A decline of more than 20 per cent from the most recent high is typically considered a bear market. Crude has now erased all its gains since late last year, when Opec and other producer countries, including Russia, agreed to cut output by 1.8m barrels a day for the first six months of 2017. A decision in May to extend the original six-month deal for a further nine months has not helped lift sentiment as a growing chorus of traders and analysts question the effectiveness of the supply curbs.

Price of Brent crude on Tuesday

Brent crude, the international benchmark, fell 89 cents, or almost 2 per cent, to settle at $46.02 a barrel, the weakest level since November 15. West Texas Intermediate, the US marker, dropped by 97 cents to a nine-month low of $43.23 a barrel, down by more than 20 per cent from a February peak.

Brent Graph.png

Two questions – (1) where is the bottom for brent? (2) what would you do when Brent tanks to the bottom? Continue reading “Waiting For Brent To Tank”

Timber anyone?

May 2017 –  Three  Malaysian-listed companies reported a more than 10% deviation in their financial results, with WTK Holdings Bhd and Seacera Group Bhd recording added profits, and HCK Capital Group Bhd lower earnings.

Malaysian timber player, WTK Holdings announced that there was a deviation of more than 10% between its audited and unaudited net profits for Q4’2016 ended Dec 31, 2017, mainly attributable to over recognition of net loss of an associate. The group had earlier reported a share of loss of associates of RM21.21 million, higher than the audited share of loss of RM21.07 million, mainly adjusted for realised gain on foreign exchange on settlement of vessel charter rental denominated in US dollars
Continue reading “Timber anyone?”

FBMKLCI vs Brent Crude (Updated)

News Update: 

Oil prices fell to almost four-month lows on Wednesday after data showed U.S. crude inventories rising faster than expected, piling pressure on OPEC to extend output cuts beyond June.

The American Petroleum Institute said late Tuesday that U.S. inventories climbed by 4.5 million barrels to 533.6 million last week, outpacing analyst forecasts of 2.8 million.

Investors now want to see whether Wednesday’s figures from the U.S. Energy Information Administration confirm the rise. EIA will release its report at 10:30 a.m. EDT (9:30 a.m. ET).

“With U.S. crude stocks continuing to mount into record territory both in total and at Cushing following almost two months of OPEC production restraint, we feel that the odds of a gradual unraveling in the OPEC agreement have been increased significantly,” Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note.

Global benchmark Brent futures for May delivery were down 59 cents, or 1.1 per cent, at $50.37 a barrel by 9:48 a.m. ET. Earlier the contract fell as low as $50.05, its lowest since Nov. 30 when OPEC countries agreed to cut output.

On its first day as the front-month, U.S. West Texas Intermediate (WTI) crude futures for May were down 53 cents, or 1.1 per cent, at $47.71 per barrel.

“A look below $50 (for Brent) is quite possible today if (EIA) data show a similar pattern, but it’s impossible to say how far below $50,” Commerzbank analyst Carsten Fritsch said.

A deal between the Organization of the Petroleum Exporting Countries and some non-OPEC producers to reduce output by 1.8 million barrels per day (bpd) in the first half of 2017 has had little impact on bulging global stockpiles of oil.

OPEC, which sources say is increasingly leaning toward extending cuts, has broadly delivered on pledged reductions so far, but non-OPEC states have yet to cut fully in line with commitments.

“OPEC has used up most of its arsenal of verbal weapons to support the market. One hundred per cent compliance by all is the only tool they have left and on that account they are struggling,” said Ole Hansen, head of commodity strategy at Saxo Bank.

U.S. shale oil producers have been adding rigs, pushing up the country’s weekly oil production to about 9.1 million bpd for the week ended March 10, up from an average of 8.9 million bpd for calendar 2016, according to U.S. energy data.

“OPEC’s market intervention has not yet resulted in significant visible inventory drawdowns, and the financial markets have lost patience,” U.S. bank Jefferies said in a note.

But the bank said the market was undersupplied and, if OPEC extended cuts into the second half, inventories would draw down and prices recover above $60 in the fourth quarter.

However, it said U.S. crude production was expected to grow by 360,000 bpd in 2017 and 1 million bpd in 2018, and a price recovery could spur more U.S. shale activity.

Source – read more

Clearly, we are not seeing an optimistic view for the brent crude oil. Further, downside risk for brent still prevails. How does this impact on Malaysia’s FBMKLCI stock index?

Generally, there is a positive correlation between FBMKLCI and Brent. Nevertheless, lately, we are seeing a “divergence” whereby FBMKLCI has been rising whilst brent has been declining.

B v K.png

Given the bearish prevailing sentiment for brent, is Malaysia’s FBMKLCI’s overstretched?

0200I.MY.jpeg

The following table shows the updated regression analysis between FBMKLCI and brent (since June 2014), whereby there is significant statistical relationship between FBMKLCI / brent:

Relationship_March 2017.png

Currently, the actual FBMKLCI exceeds its forecast value of 1,697 points but nevertheless it is within the 95%-confidence interval of between 1,601 – 1,792.

FKLCIvsBrent_Graph.png

Based on the regression relationships, the following table shows the possible forecast range of FBMKLCI based on the movements in brent crude (USD) (USD25 – USD62.50):

Forecast Range.png

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

We Are Still In A Range

An uptrend should have a higher High, higher Low. A downtrend should have a lower High, lower Low. We are in range if we are seeing neither of these patterns.

News Update

KUALA LUMPUR: Bursa Malaysia ended at an intra-day high today on persistent buying interest in selected heavyweights, particularly in consumer-and finance-related stocks, dealers said.

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) ended 18.98 points or 1.11% higher at 1,727.36 from 1,708.38 last Friday.

The index opened 1.79 points easier at 1,706.59 and moved between 1,706.21 and 1,727.36 throughout the day.

On the broader market, gainers led decliners 567 to 358, 364 counters were unchanged, 406 untraded and 14 others were suspended.

Volume trimmed to 3.01 billion units, worth RM2.63 billion, against last Friday’s 3.41 billion units worth RM2.63 billion.

Among consumer-related stocks, BAT was the top gainer. It rose RM1.30 to RM49.50 followed by Dutch Lady which increased 26 sen to RM55.66.

Finance stocks, Hong Leong Financial Group rose 36 sen to RM15.66, HCK Capital Group improved 25 sen to RM3.60 and CIMB Group added 24 sen to RM5.46.

FXTM Chief Market Strategist Hussein Sayed said last week was the repricing of interest rates expectations, in which investors across different asset classes were no longer waiting for clarification from the US administration to base their decisions, at least in the short-run.

“The significant rally in US equities and the US dollar last week occurred without any new fresh fiscal signals.

“Infact, President Trump’s speech on Tuesday left many questions unanswered, and still investors reacted as if tax cuts and stimulus plans will be implemented regardless,” he added.

The FBM Emas Index rose 114.57 points to 12,172.16, FBMT100 Index surged 113.49 points to 11,849.8 and the FBM Emas Shariah Index was up 64.36 points at 12,563.13.

The FBM 70 added 71.89 points to 14,100.12 while the FBM Ace was 19.72 points higher at 5,280.8.

Sector-wise, the Industrial Index rose 26.22 points to 3,262.67, Plantation Index gained 13.95 points to 8,108.46 and the Finance Index surged 199.01 points to 15,487.57.

The Malaysian Rubber market ended mostly higher today, taking the queue from the rubber futuresd market on the Tokyo Commodity Exchange (TOCOM) which was prompted by higher crude oil prices.

However, gains were capped by the ringgit’s appreciation against the US dollar which stood at 4.4460 versus the greenback as at 5pm.

Among heavyweights, Maybank was up nine sen at RM8.82, Public Bank, TNB and IHH Healthcare rose six sen each to RM19.94, RM13.68 and RM5.95, respectively, and Sime Darby improved four sen to RM9.14.

Of actives, Dagang Nexchange rose two sen to 41 sen, Borneo Oil was up by half-a-sen to 17.5 sen, Berjaya edged up 1.5 sen to 39.5 sen while Nexgram was flat at 4.5 sen.

Main Market turnover fell to 2.18 billion units, worth RM2.49 billion, versus last Friday’s 2.34 billion units worth RM2.45 billion.

Volume on the ACE Market trimmed to 592.93 million shares, valued at RM105.15 million, from 794.75 million shares, worth RM143.94 million.

Warrants slid to 217.38 million units, worth RM26.92 million, from 259.62 million units, valued at RM36.27 million.

Consumer products accounted for 119.75 million shares traded on the Main Market, industrial products (332.42 million), construction (186.91 million), trade and services (1.02 billion), technology (107.89 million), infrastructure (12.24 million), SPAC (10.8 million), finance (103.39 million), hotels (499,200), properties (235.89 million), plantations (34.71 million), mining (nil), REITs (19.86 million) and closed/fund (34,900).

The physical price of gold as at 5pm stood at RM170.58 per gramme, up 64 sen from RM169.94 at 5pm last Friday. — Bernama

The sentiment appears “bullish” but are we in an uptrend ?

If the graph below is of significance, then it is quite clear that we are still very much in a range. We have yet to see a clear breakout from the range which started since September 2015. The range is evidenced as follows:

  • No clear higher High, higher High or lower High, lower Low
  • A clear trading price channel of between 1,610 and 1,727
  • No significant increase in trading volume throughout the price channel
  • Average true range has dropped significantly since Sep 2015 (signaling reduction in volatility)
  • Modified MACD signaling high frequency of buy and sell signals

March 2017.jpeg

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

Where Do We Stand Now?

Today marks the last day for the month of February of 2017. The reporting season saw a mixed bag of results. The key themes of the reporting season are summarised as follows:

  1. Significant translation losses due to uncertainties associated with the foreign exchange / Ringgit;
  2. Earnings recovery in palm oil sector (due to supply-related issues, rather than demand-driven factors);
  3. Property sector is subdued;
  4. Banking – rising provision and flattish growth;
  5. Declining profitability margins in line with rising inflation (associated with commodity / weakening Ringgit);
  6. Massive impairments in Oil & Gas sector
  7. Mixed results in retail sector due to weakening consumer sentiment
  8. Certain export-driven companies appear to achieve revenue growth but not in terms of profitability margins

Now, where do we stand? Uptrend, range-bound or downtrend……

Technically, we may continue to be stuck in a range-bound channel, with a current downward price bias (expected support at 1,615):

FBMKLCI_28022017.jpeg

Unless there is further deterioration in future earnings, FBMKLCI’s current trailing P/E of 16.75x is relatively not too deviated from the historical mean P/E of 16.657x  (since 2011):

FBMKLCI_normality_Feb17_PER.png

Unless there is further impairment in book value, FBMKLCI’s current trailing P/B of 1.689x is relatively lower than the historical mean P/B of 2.1084x  (since 2011):

FBMKLCI_normality_Feb17_PBR.png

FBMKLCI’s current dividend yield stands at 3.12% which is relatively lower than the historical mean dividend yield of 3.334%.

FBMKLCI_normality_Feb17_Div.png

In a nutshell, the likelihood of FBMKLCI to be “overvalued” at this juncture is relatively low unless there is further deterioration in the earnings and book value of the listed companies.

On a separate note, we are observing a possible diverging trend between FBMKLCI’s PER and PBR since 2015, whereby it is observed that the PBR line continues to decline whilst the PER line has been oscillating. This could be possibly attributable to (i) lower earnings; (ii) lower dividends recorded by the listed companies.

FBMKLCI_normality_Feb17_PBRvsPER.png

What is more concerning is that the current volatility of FBMKLCI appears to be relatively low if compared to its historical trend. Will be there be a “storm” ahead?

HVG_feb_fbmklci 2017.png

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.