Russia's RTS Index futures - liquid tradable instrument.

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Old Jul 19, 2010, 8:40am   #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, 11:05am   #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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Old Jul 20, 2010, 8:14am   #33
 
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Morning Comment - 20.07.2010.

china white started this thread Good morning! I, for one, think that IBM results provide a good example of what the markets are and where they are heading. Yup, IBM reported revenue that fell short of expectations, however what I think is important is that IBM did issue an upbeat forecast for its 2010 earnings.

I’d much rather hear that than the other way around – which would be good revenue now and a gloomy projection for year earnings

I will probably be repeating our last couple of morning comments – but the companies have money to spend, and the economy has the money to absorb increased production going forward – whatever you think of the economy’s sorry state. Summer market is and will be thin until mid-August at least, with any order of meaningful size capable of rocking the boat – either way. In that climate the high-frequency-traders and momentum boys will remain in charge - it could be a long bumpy summer.

Good trading to you!
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Old Jul 21, 2010, 8:20am   #34
 
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Morning Comment - 21.07.2010.

china white started this thread Good morning! Yesterday’s state of markets is best described as “ahead of the stress test results due on Friday and after results from Goldmans.” Mixed at best. But - add to the mix a strong result from a gadgeteer Apple – chip and gadget producers gauge the real liquidity in the market because they have not only reach into both consumer and industrial spending, but also because that reach is global, including EMs - and you will be in a somewhat good mood going into Bernarke’s speech amid speculation that the Federal Reserve will take steps to spur the economy.

If you ask me to name one important figure from yesterday, it will be the premium investors demand to buy Spanish government bonds rather than benchmark German Bunds - which fell to its lowest level in almost two months in the wake of the successful Treasury bill sale. That in my view is more important to market confidence than all building permits massed up together It is only the dented confidence that is stopping the “intrinsic” liquidity in the market to propel it.

RUSSIA: Yesterday right after the opening we had good orders to buy TRNFP, SBER, were size sellers of FEES; we continue to have careful buyers in GAZP who keep on loading with the stock scaling down each day. Still have buyer in electricity distribution names, though selective one – we can bid for a size in MRKU; have sellers in MRKY, Z, S, V. Were sellers of TGK-1.
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Old Jul 22, 2010, 8:38am   #35
 
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Morning Comment - 22.07.2010.

china white started this thread Good morning! A lovely set-up for a guy who is bullish to write his morning comment, you’d perhaps agree

However, yesterday’s price action just added ammo to my bullish stance as a matter of fact. 1) I’ve been round for some time now – about a decade – and from what I’ve seen on the days of Fed comments that market journalists call “negative” 14 points south is really nothing, ESPECIALLY given it is a thin summer market that can be easily “swung”; 2) I cannot but like to trade the market where central bankers “remain prepared” to act as needed to aid growth; and 3) it is the “unusually uncertain” outlooks whence the biggest oaks grow

Of course it’d help if Bernarke elaborated how exactly the central bankers “remain prepared”, and it’d help even more even more if he announced concrete plans to stimulate US economy. But again, at a closer look I can’t but think such summer-market dips are just providing better entry points going into the Fall.

What’s more important for Russia is inventories and oil price tanking on the back of that. However if you just look at CL1 on say a 10-day horizon, we are firmly in an ascending channel. If you ask me – so far it is a non-event.

RUSSIA: We continue to see extremely low volumes in blue chips, but after many observations of this summer-market swings one could easily benefit playing against the market after such attempts of a rebound that we saw yesterday in Gazprom and other chips. As we wrote yesterday, SBER becomes very predictable to trade for intraday traders – yesterday we saw the same scenario – slow take off after opening and profit taking closer to the bell; Lukoil is strong due to absence of serious sellers; yesterday we saw buyers in SNGS / sellers in SNGSp. Having traded more or less flat (in a wide range) for several weeks now, we view the Russian market as stable. However, we think that metallurgy and utility companies could be the first in the line for reduction in many portfolios. Yesterday we had sellers in VSMO, buyers in NLMK; in utilities we had sellers in IRAO, FEES, HYDR, VRAO, MSNG, TGKA, TGKD, at the same time were still buyers in a couple of TGKs, IRGZ; we also had good 2-way flows in NNSI, URSI.

Good trading to you!
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Old Jul 23, 2010, 8:37am   #36
 
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Morning Comment - 23.07.2010.

china white started this thread Good morning! Just a snippet today on the back of our yesterday’s morning comment – see previous post.

A bit of positive sentiment that we got yesterday spreads around the world. That of course is a good momentum support for us – emerging markets - with crude oil staying at $79 level. But let us wait for stress-tests results. And here we go… The first news I got this morning on the wires was – ‘SEVERAL SPANISH SAVINGS BANKS FAIL STRESS-TESTS’. Wow!… we thought to pass those tests a bank should have a license and a handful of clients’ deposits…. Did they really start to monitor the system??? Would there be an unexpected cold shower for the markets??? The success of the EU bank stress tests hinges on how much detail regulators provide about the basis for their conclusions, not on the number of lenders that fail – let us not forget that the assessors haven’t even provided full details of their criteria so far!

Anyway, on a “pan-European” stress-test results day you can of course expect anything, but the general direction is quite clear in my opinion – it is a northbound train into the Fall. As a bit of a “fashion victim” what I like loads is that both Burberry Group Plc and Marks & Spencer are in for higher retail sales – meaning that both up- and downmarkets in consumer spending are indeed spending There is money in this market and I can’t see how it can fail to “float the boat”.

RUSSIA: Yesterday we had mostly buyers in a thin market, had buy-discretion orders during the day in blue-chips, but were asked to be more aggressive after US data: kept on buying a couple of electricity distribution stocks, though we were 2-way here; had buyers in RAO-UES substitutes HYDR & IRAO; in TGKs had several bidders for the same names, but no serious supply could be found recently even on negative days; were sellers in a handful of telecoms.

Good Friday trading to you!
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Old Jul 29, 2010, 8:37am   #37
 
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Morning Comment - 28.07.2010.

china white started this thread Good morning! My apologies for dropping off the radars for a couple of days – joys of looking after some good potential IPOs in transport/infrastructure department Fantastic sector if you ask me – but obviously well outside the scope of this morning comment.

Back in the saddle now – and what did I miss? FTSE closed yesterday at exactly the level of last Friday when I had to hop on the plane to London, identical story with S&P, Russian RTS looking better, up marginally from Friday’s close. I can’t see much changing until the missing “summer-time” liquidity component is back to the game really…. The only thing that I will mention here is that again – same as after last Bernarke’s speech – on a bad durables orders number, in thin summer market, you could expect a bigger swing south. Which tells you a thing or two

RUSSIA: Bulls tried rushing out of the gate at yesterday’s open but quickly returned to their quarters. Fertilisers – buoyed by planned consolidation from Mr Kerimov – held out well with URKA and SILV clocking up 2.5% ish each. LUKs shined closing the blue chip star of the day on the back of Conaco stake. PIK looked good – hard not to – the way they sell up the storm in Russia housing market – see our most recent flashnote on PIK attached. OGK-5 shareholders were also cheered up by the company’s results. All that could not stop broad market to follow the dynamics of big Western boys.

Good trading to you!
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Old Aug 2, 2010, 8:25am   #38
 
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Morning Comment - 02.08.2010.

china white started this thread Good morning! I hooked up with one of “me old china” back in the day over the weekend, who makes a living intraday-trading S&P and FTSE – I know him well enough to attest to him doing that without bigging himself up out of proportion He cracked a witty snippet – “in this summer jibbering about – why being a bull or bear, when you can just run with a pack of wolves?” He is spot-on – this market is perfect for scalpers, swingers etc…. – ‘em lot who do not even try to form a bullish a bearish bias going into the next session, leave alone next month.

We however, do want to have a think how it is all gonna pan out when the missing “summer liquidity” is back in the market – not just the dribs’n’drabs we are having now. I spoke much before about “intrinsic” liquidity which has all the potential to “float any boat”. However, one can easily try to slap me with a wet trout saying – look, one can have loads of dosh in his pockets but just sit and wait without investing it, in which case markets will fall over, right? 2 important counters to that thought here:

1. Chip and gadget makers are strong – and they are pivotal in gauging “willingness to spend” as they reach out to a) both commercial and individual comsumers; and b) to consumers globally.

2. Look at confidence index – it is the lowest in 5 months, falling to about 50, far below its 20-year average of about 94. However, one wise man has recently analysed the correlation between the Dow and the confidence index. Counter-intuitive perhaps – but not surprising to market fossils I am sure - when confidence is high (above 113) the Dow gained an average of only 0.2 percent over the next 12 months. When confidence is moderate (between 66 and 113) the index gained 5.9 percent. BUT - the biggest gains came when confidence was low (66 or less), then the Dow plowed ahead by an average of 13.1 percent!

I, for one, loved Bernarke’s definition of present market as “unusually uncertain”. It is from that uncertainty that unusually big oaks grow! When markets are certain – it is always time to ship it out!


RUSSIA: On Friday Russian equity market traded under pressure all day long due to weak world markets and absence of any positive news. We didn’t notice any serious demand for blue chips, at the same time natural sellers were not big at all – several guys were just profit-taking really. At the end of the day some oversold high liquid names started to show signs of recovery. One could see locals and ADRs of Lukoil being sold most actively, shares of TRNFP were traded on extremely high volumes and we do believe the stock will show more strength this week – it has a great potential! We still remain sellers of wholesale electricity generating names, a couple of telecoms, buyers in several less liquid utility names like KRSG.

Good trading week to you!
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Old Aug 3, 2010, 8:32am   #39
 
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Morning Comment - 03.08.2010.

china white started this thread Good morning! Having a view and being wrong on the day makes one think, what I hate about being right on the day (and quite an impressive day up!) is that one tends to let complacency grow

HSBC and BNP were the shining stars yesterday. It is very re-assuring to the markets as a major confidence concern is removed by such upbeat results from 2 flagships of the banking sector. Bears would snap at this saying that it is hard for a major bank which is good operationally (!) not to shine in present market conditions when 1) money is uber cheap; and 2) M&A activity is far from being subdued and growing. Read back the last line – and you will see exactly my answer to those bears – in such environment markets SHOULD fly – UNLESS confidence issues keep them locked behind the gate.

Many I speak to share my opinion that it is a northbound train going into the end of the year BUT tend to think there should be a pit stop somewhere 7-10% south. However, it is normally expectations of such a pit stop that stops it from pitting Remember 2H2004 and 2005? I remember 4000 pit stop called every quarter on FTSE, and the more it was called, the more FTSE plowed ahead.

BUT – I will mention one thing that scares me – and very much so. Russian brokers started to give more cash that has not been used yet for margin operations of retail clients, who are always late to catch chips at the take off. People do indeed learn little from past scalds

RUSSIA: Yesterday we saw some liquidity starting to be injected into the market (but as written above, we think that is partly dosh aggressively spent by retail accounts); shorts were being covered across the board; our ‘beloved’ Gazprom was shining all day long (we had big buyers in the name, local and international), while in Lukoil clients were better sellers; after strong rally in TRNFP we had sellers as well, though we DO strongly believe the stock will trade at new highs in the mid-term; URKA, RASP were in buy lists of many brokers (an obvious play); at the same time activity in 2nd tiers was not outstanding – we had local buyers in TGKA,D,G, MRKU; 2-way flows in HYDR, MRKH; had strong interest for helicopter producers.

A couple of trading ideas:


1. Speculative BUY for Ulan Ude Avia (UUAZ, TP $1.8, upside 39%) vs. Kazan Helicopter (KHEL, TP $2.2, upside 20%)
Today KHEL and UUAZ posted financials for 2Q10 net income q-o-q changes:

- Thus, UUAZ posted net income of RUR2.1bn for 2Q10, which implies 4 times increase q-o-q;

- KHEL posted net income of RUR352 mn for 2Q10 – a 3 times decrease q-o-q.

Companies’ 1H10 net income look strong especially vs. 2009 figures:

- Thus UUAZ’s net income for January-June 2010 is already 4% higher than for whole 2009;

- As for KHEL it is already 91% of the company’s net income for 2009.

At the end of last week shares of KHEL rallied by 10%, while UUAZ shares advanced less 5%. Taking into account reported companies’ net income for 2Q10 we see UUAZ shares to outperform KHEL in short-term.


2. Playing spread convergence:

Over the past two weeks, LSR Group (LSRG LI) GDRs added 28%. As a result, local shares discount to GDRs increased from 23% to 38%. We recommend playing on the spread reduction between local and foreign stock exchanges and BUY local shares of LSR Group (LSRG RU). Our end-2010 target price is $11.4 per GDR and $57 per local share suggesting 97% upside from current levels.

Good trading to you!
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Old Aug 4, 2010, 9:36am   #40
 
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Morning Comment - 04.08.2010.

china white started this thread Good morning! A couple of thoughts here:

1. Even a grizzly bear would perhaps agree that we are still on a path to recovery, but it’s going to be a very slow-growth recovery. Equities, especially riskier ones such as technologies and EMs tend to run faster than macro recovery gauges. The scenario I see as most likely is another leg up in equities, full price-in of future recovery at some point (if not overshoot) – well ahead of real economy, and pretty much a wash-out down to “base” recovery curve. Mini-bubble if you like. Same old, same old.

2. Yup, company’s earnings and valuations may or may not disappoint. But as one wise man said yesterday, and I will just quote him – so good is his snippet: “on the whole you have to be very encouraged. When you factor in valuations down in the 12-to-13-times range in a low-inflation, low-interest-rate environment, it makes equities look very attractive” (courtesy of Henry B Smith)

All boils down to LOADS of money in the market, more importantly, loads of CHEAP money in the market. This may actually pan out as an exponential bubble – that scares me most as the following wash-out back to “base” recovery curve may then be brutal.

RUSSIA: We had a quiet day yesterday: trading activity was mostly in liquid stocks (sellers prevailed and turned more active at the end of the day); utilities played the bigger part of our flows in 2nd tiers; we had sellers in infrastructure, construction and a couple of developers.

NOTE: We initiated coverage of Globaltrans (GLTR) with the 12 months target price of $18.8 and a BUY recommendation – see attached. We consider Globaltrans shares as a perfect theme to invest into transportation segment and FOR NOW (!) the only opportunity to buy liquid stocks of a public Russian rail company. Our DCF valuation implies 12 months fair value at $18.8 per GDR that means a 23% upside potential from the current market price.

Good trading to you!
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