Russia's RTS Index futures - liquid tradable instrument.

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Old Jul 12, 2010, 7:35am   #25
 
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Morning Comment - 12.07.2010.

china white started this thread Good morning! Something I will take no credit for – but so rightly pointed out. Computer and software shares have slumped to the lowest valuations in two decades, a sign they will rebound as Standard & Poor’s 500 Index companies start spending their RECORD CASH. “Record cash” (aka liquidity) is key here. We have been pointing out somewhat relentlessly that liquidity is there sitting on the sidelines waiting for the summer lull to finish to get put into action. Corporate cash rose six straight quarters through March, boosting speculation executives will upgrade computers after reducing investments for THREE (!) years. A good hint comes from the S&P 500 Information Technology Index which rose 5.6 percent last week, the BIGGEST gain in a year!

As a lad who graduated into sales-trading in 1999 and formed as a trader in the bear mauling of NASDAQ and UK TechMark between 2000 and 2003, I’d be the last one to preach on techie stocks However, what I am seeing here is that falling valuations and a rebound in spending may lift shares EVEN if U.S. growth slows.

It may sound absurd but this market (and this amount of cash in the market) may make our beloved ECO numbers coming out of the US irrelevant. Q2 earnings season starts today with Alcoa to be the first to report (after market close), but attention mostly will be paid towards JP Morgan, Citi, Bank of America & GE reporting end of week. Surprises are welcome to trigger the indices determine a direction. For S&P 500 index ~ 1,5% left to breach a major resistance line and here earnings reports might be a trigger.

RUSSIA:

1. X5 Retail Group (FIVE LI) 2Q10 retail sales: traffic likes low prices. NEUTRAL Discounters remain on the uptrend. Last Friday, X5 Retail Group disclosed its 2Q10 and 1H10 trading update, which showed that company’s pricing policy (price discounts on target assortment), aimed at increasing consumer traffic, still works, though at the cost of average basket. In 2Q10 X5`s net retail sales increased by 18% y-o-y in ruble terms (vs. 20% y-o-y growth in 1Q10), which consists of 4% y-o-y growth in LFL sales, 11% y-o-y growth from organic selling space expansion and 3% y-o-y sales growth contributed by Paterson stores (acquired in 3Q09 and already fully integrated). FY10 guidance confirmed; store openings comply with full-year target. Earlier X5 said its plans to spend this year RUR18 bn (about $582 mn) for opening of 7-10 hypermarkets, 15 supermarkets and 200-250 discounters and reach at least 20% y-o-y growth in sales (in ruble terms). X5 Retail Group plans to disclose its 1H10 financials on 26 August. Investors would pay much attention to the management comments which are expected to follow the results disclosure. We maintain our BUY recommendation on the stock with end-2010 target price at $50 per GDR. A reason for concern – CFO leaves the company. Also on Friday, X5 reported that its CFO, Evgeny Kornilov, would leave the company in October, 2010 to join another company senior management position. Evgeny Kornilov has worked for X5 since 2006 and is regarded as the true professional in the industry. X5 has started executive search process. Though we see this as a point of investors’ concern, we believe the company will manage to find the best successor.

2. RusHydro’s (HYDR) shareholders bought under the pre-emptive right 42% of additional share issue for RUR9.2 bn. NEUTRAL. RusHydro’s shareholders bought under the pre-emptive right 42% of additionally issued shares worth RUR9.18 bn, according to the company’s press release. The shareholders acquired 7.982 bn from 19 bn shares (par value of RUR1). The placement price is RUR1.15 per share. RusHydro last closing share price stood at RUR1.545. The state bought 23.67% of the total additional share issue. RusHydro started the placement of its additional share issue on 12 December, 2009, pre-emptive rights expired on 2 July. Taking into account the purchase of shares under the pre-emptive rights there are 11 bn shares left. Earlier, the company reported that it accepted offers from market participants to buy the shares of this issue until 12 July inclusive. However, RusHydro stated that it plans to exercise its right not to comply with the offer. In this case, RusHydro can independently buy its own securities, by increasing the number of treasury shares. Given the fact that the company already has 1.78% treasury shares, with the full redemption of the balance of the additional issue, their number could grow to 5.6%. RusHydro expects the state registration of additional issue to be held in November, 2010. Transactions with the additionally issued shares on the stock exchanges will be possible following the state registration. Additionally issued shares will be consolidated with the shares in outstanding in three from the date of the state registration. Transactions with depositary receipts (GDR), which were placed for shareholders – the owners of depositary receipts, which have implemented pre-emptive rights, will be available starting from July, 2010. We believe RusHydro share placement is a good investment opportunity, and recommend taking advantage of it.

3. Novatek’s (NVTK) gas production on the rise. NEUTRAL Novatek increases gas production by 15% YTD. Novatek reported 1H10 operating results. The company’s natural gas production rose 15.4% y-o-y to 18.39 bcm and liquid hydrocarbon – up by 18.5% to 1.747 mn tn. Novatek is on track of achieving its full-year production target of 37 bcm (up by 13% y-o-y). At the end of the year the company plans to launch a third phrase of Yurkharovskoye field that will bring its aggregate capacity to 55 bcm p.a.


GOOD TRADING TO YOU!
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Old Jul 12, 2010, 5:05pm   #26
 
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Strategy 2H2010: Score twice before you cut once. July 12, 2010

china white started this thread I am glad to be in a position to send you our latest Strategy note for 2H2010 that just came out. Pls find both Russian and English versions attached. You will find there both usual suspects (Gazprom – fundamentally undervalued, RosNeft – ruined by tax changes but still dirt cheap etc…) and, equally, unusual suspects (Raspadskaya – where all risks seem to be already priced in; SeverStal – the most attaractive play in steel sector; GlobalTrans – lucrative infrastructure play etc…) along with some compelling dividend stories of TNK-BP variety.

A big piece of research which I am hoping you will find useful. Pls fire away any questions or comments that you may have.

Here it is:


Strategy 2H2010

Score twice before you cut once


Choose Dollar over Ruble

Bearing in mind the existing risks, we bet on less risky US dollar, which may take the leading position among investment assets in 2H10, while ruble as well as other EM currencies will be under pressure. Our view on ruble may change, function of the oil price dynamics.

Choose Eurobonds over Ruble Bonds

The risks of ruble devaluation diminish attractiveness of the ruble-denominated bonds, which rallied over the last 12 months. We recommend choosing short- and medium-term Eurobonds of high-quality issuers. Investors who need to have ruble assets in their portfolio would be better off by choosing new placements with floating coupon rates.

Choose Gold over Oil

In 1H10, a period of high volatility, gold was a safe haven. Going forward the demand for gold should be supported by inflation risks. Oil remains sensitive to the market trend that determines higher volatility and uncertainty.

Choose Soya and Corn over Sugar

Lower than expected crops, as well as growing demand from China, should support soya and corn prices. We expect sugar price to continue the downward trend.

Choose Return over Risks

Excessive liquidity on the market will continue to support equities, but investors have learnt to see the risks and now should choose safe plays. We recommend betting on attractive fundamental value stories, avoiding risky stocks.

Choose Play on recovery over Highly regulated industries

We recommend choosing sectors which are best positioned to capitalize on the economic recovery, growing consumption and long-term investment demand. Meanwhile, we expect sectors with high degree of government involvement to be under pressure due to uncertainty in regulation.

Choose Banks, Retail, Infrastructure over Oil and Utilities

Among the Russian stocks we recommend banking, retail and infrastructure plays, which offer 30-50% upside potential driven by economic recovery and domestic demand. We expect weaker returns in oil and gas and utilities names on the back of uncertainty in regulation (possible tax hikes and tariff changes as well as delays in RAB schedule).


Enjoy!
Attached Files
File Type: pdf STRATEGY_2H2010_tkbc_eng.pdf (2.01 MB, 535 views)
File Type: pdf STRATEGY_2H2010_rus.pdf (2.72 MB, 886 views)
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Old Jul 14, 2010, 7:18am   #27
 
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Morning Comment - 14.07.2010.

china white started this thread Good morning! We mentioned a couple of days ago (see below) that “Computer and software shares have slumped to the lowest valuations in two decades, a sign they will rebound as Standard & Poor’s 500 Index companies start spending their RECORD CASH. “Record cash” (aka liquidity) is key here. We have been pointing out somewhat relentlessly that liquidity is there sitting on the sidelines waiting for the summer lull to finish to get put into action…… It may sound absurd but this market (and this amount of cash in the market) may make our beloved ECO numbers coming out of the US irrelevant.”

“Spoto ono” as they say in certain parts of London It is not just the mere fact that US closed at HOD yesterday and US futures are out of the gate already this morning. What is even more important is that once a commodity player’s earnings topped estimates and the company forecast growing global demand all 10 industries in the S&P 500 advanced – the shopping spree is across the board! Intel and Texas Instruments just confirm our belief that chip and gadget makers may be the biggest beneficiaries in this RECORD CASH LIQUIDITY SEA

Commodity producing EMs will be another big beneficiary and countries like Russia or Brasil will provide a high beta play for international money in this leg northbound.

RUSSIA: Yesterday our desk traded mostly in less liquids (our USUAL trading activity in electricity, telecoms + consumers, machinery), although in the last trading hour we had good buy tickets in blue chips mostly on MICEX - SBER, ROSN, GAZP, CMST.

Good trading to you!
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Old Jul 15, 2010, 7:44am   #28
 
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Morning Comment - 15.07.2010.

china white started this thread Good morning! When we mentioned a few days ago that “Computer and software shares have slumped to the lowest valuations in two decades, a sign they will rebound as Standard & Poor’s 500 Index companies start spending their RECORD CASH. “Record cash” (aka liquidity) is key here” – I was asked almost straight away why I look so much at chip and gadget makers – of which there are none in Russia. The lad giggled if I was looking at fur coat makers when I lived in Brasil

The importance of companies of Intel, AMD and Apple variety is that 1) they have reach over both consumer and investment spending, and also have reach throughout the world; and 2) they are hardly targeting “bare necessity” spending, meaning you are unlikely to spend your last coin on their products. Therefore they are perhaps the best gauge of “intrinsic” liquidity in the market. Currently this gauge is clearly pointing north.

Yet – yesterday we saw a rather peculiar market’s reaction on Intel’s extremely positive report – having opened with a gap of 4%, the stock slid by 2,5% from it’s opening price on heavy volumes. Well, someones were obviously waiting for positive momentum to off-load. If we continue to see such reaction on better than expected US corporate reports, it may put a lid on any IMMEDIATE trading upside – even though you cannot blame those someones for taking a bit of profit.

Another interesting snippet is bullish sentiment. If you believe newsletter writers survey the level of bullish sentiment about U.S. stock market fell below the level of bearishness for the first time since April 2009! I vividly remember such overly-increased pessimism at important market reversals – biggest ones of course being March 2003 and March 2009 – and to me personally this sign is also pointing north.

RUSSIA: Moscow heat erodes client’s flows on local markets and there was no interesting activity yesterday. Volumes are still low and we had mostly sellers in liquid stocks since the very opening, clients tend to wait for positive sentiment to enter the market and all attention is now towards US corporate reports. Russia is cheap by no means, but with summer activity subdued we will hardly see the market immediately rushing out of the gate here.

Good trading to you!
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Old Jul 16, 2010, 7:11am   #29
 
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Morning Comment - 16.07.2010.

china white started this thread Good morning! An interesting observation that we made some time ago is that in a market liquidity set-up best described as “high tide floats all boats”, our dear ECO numbers coming out of the US become much less important than removal of individual “dark clouds” hanging over the market and impeding that liquidity. Last hour of US going was classic in that respect.

First, hint at a “significant announcement” to be made by SEC regarding Goldmans;

Second, BP claiming it stopped the flow oil at its leaking Gulf of Mexico well for the first time since April.

Voila. 15 points up on S&P within half an hour.

Overall – without dissecting into intraday time frames – clear sideways. Loads of “intrinsic” liquidity, which is likely to stay dormant into the summer holiday period.

Yesterday most of our trading activity came from utilities sector - we traded distribution names, TGKs, would buy Rostov Helicopter (RTVL RU)!; at the end of the day had sellers in blue chips (no surprise!)

Good trading to you!
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Old Jul 16, 2010, 8:37am   #30
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Re: Russia's RTS Index futures - liquid tradable instrument.

Loving the commentary, russia is one of the most recent markets that i have just started paying attention too. Funny thing also i noticed i am in the same building as your london office, small world.

I am just curious would you say there are any particular reasons why someone should trade the rts index over the other large european indexes such as the dax or eurostoxx ?

Last edited by Macro_Guy; Jul 16, 2010 at 8:46am.
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Old Jul 19, 2010, 7:40am   #31
 
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Morning Comment - 19.07.2010.

china white started this thread Good morning! Yep, S&P fell 30 points plus on Friday – but let us take a closer look:

1) A typical quarter, going back through 1994, according to Reuters, would have 62% beating estimates, 18% matching and 20% missing. So far, of the 48 S&P 500 companies that have reported, 75% topped analysts' expectations and 13% reported results inline with projections and 13% reported results beneath estimates. We are hardly in our worst quarter reporting – again, so far.

2) What attributed to the market scare on Friday was major banks seeing lower trading revenues because of the stock market’s plunge this spring – and we are talking Citi, BofA joining JPMorgan Chase & Co. in this chore. However they were also quite unanimous reporting higher earnings in the second quarter this week as loan losses fell.

Last bit is actually quite important in my opinion. Those bad loans have a knack of denting market confidence and spoofing bouts of sell-offs. Hate repeating myself, but that coupled with liquidity in the market (less summer-holiday component) is a bullish thing on my books. However, it thin those thin summer markets, yo-yo swings should not be treated as a particularly odd thing. The economy is improving but not at a breakneck pace, and those investors still in their offices veering between hope and despair cannot be blamed for such swings.

RUSSIA: On Friday gap up at the opening was treated by traders in blue chips as a chance to close short term longs, more sellers came around after US opening and accelerated after University of Michigan confidence came out. During the day we had mostly flows in liquid stocks; had 2-way flows in electricity distribution companies; sellers in several names in regional telecoms (due to heavy redemptions of a local pension account).

Good week to you!
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Old Jul 19, 2010, 10:05am   #32
 
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Re: Russia's RTS Index futures - liquid tradable instrument.

china white started this thread
Quote:
Originally Posted by Macro_Guy View Post
Loving the commentary, russia is one of the most recent markets that i have just started paying attention too. Funny thing also i noticed i am in the same building as your london office, small world.

I am just curious would you say there are any particular reasons why someone should trade the rts index over the other large european indexes such as the dax or eurostoxx ?
Small world indeed! I suggest we meet up next time I am in London which should be by the end of this week!

When you trade EMs you trade extra risk for an extra premium. No wonder EMs - NORMALLY - have 1) higher BETA against mature markets and 2) higher volatility. Higer BETA ensures your profits are amplifies if you are in the right boat; higher vol means there are more shorter-scale time frames where you can scalp the market. I am attaching 2 charts for 30-day historical volatility for DAX and Russia's RTS Index - in a "quiet" period now vol on DAX is 20 while on RTS it is 28. The gap normally widens on a big move; e.g. on the latest move down DAX vol topped at 32, while RTS's at 50!

If you play that higher volatility indices you normally need to be a more experienced trader - and FOR SURE a very disciplined one with your stop losses. Too wide - and you lose too much if you are wrong; too tight - and your get buffed out no matter if you are long or short.

Higher BETA on the other hand means you can sit back and enjoy higher returns on big moves - once you are in the right boat You pay a risk premium for that though, EM CDSs trade much higher than any of G7's.

LAST THING YOU WANT TO HAVE BITING YOU when you trade EMs is lack of liquidity, when you cannot quickly unwind your positions in a more volatile market. Therefore I strongly suggest palying ONLY liquid EM indices and stocks - first and foremost, Russia's RTS Index, OGZD LI, ROSN LI, SBER RU etc.... and Brasil's Bovespa Index and the likes of petrobras and Companhia Vale.
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dax_30dayvol.gif   rts_30dayvol.gif  
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