How low will crude oil prices go; unload your oil stocks?

Tuesday, 2 December 2014

http://www.thestar.com.my/Business/Business-News/2014/12/02/How-low-will-crude-go/?style=biz

If you think the bears still have a grip on oil, then you should continue to unload, grab the money and sit on the sidelines waiting for the next entry at cheaper levels.On the other end of the spectrum, if the so-called bear run has completed its course and makes a u-turn heading north again, then one should buy at current levels and buy more.

Light sweet crude, also known as the West Texas Intermediate and traded on the New York Mercantile Exchange (Nymex), started the downward spiral at the US$107.73 level on June 20, owing to an apparent profit-taking activity.

What appeared to be a typical correction process then subsequently turned sour, as news about soft demand and oversupply dampened sentiment.
Soft market: A market that has more potential sellers than buyer; a buyer's market, as the purchasers hold much of the power in negotiations.

Against the negative backdrop, the black commodity continued to bleed in Asia, trading on extended liquidation pressure yesterday.

Liquidating market: Consider a housing bubble, in which real estate prices are continually bid up. Once the bubble bursts, investors stop buying into real estate and begin selling their holdings. This creates the aggregate effect of a sell-off in the real estate market as a whole, which would display relatively low prices on houses and strong selling pressure. In this case, the real estate market would be said to be a liquidating market, as most of the market's participants are chiefly interested in liquidating their assets into cash at that time.

The prevailing trend is overwhelmingly bearish, with prices flirting sharply below the lowest 14-day simple moving average line and the multiple “death crosses” on radar screens staying intact.

Simple Moving Average (SMA): Prices rarely move in a straight line. Therefore, moving-average lines are used to help a trader more easily identify the direction of the trend.

Figure 1: A simple moving average in Google Inc.

The blue line represents a 50-day moving average. You can see that the trend has been moving lower since late 2007. The price of Google shares fell below the 50-day moving average in January of 2008 and continued downward.
When the price crosses below a moving average, it can be used as a simple trading signal. A move below the moving average (as shown above) suggests that the bears are in control of the price action and that the asset will likely move lower. Conversely, a cross above a moving average suggests that the bulls are in control and that the price may be getting ready to make a move higher.

Multiple “death crosses” on radar screens: A crossover resulting from a security's long-term moving average breaking above its short-term moving average or support level.


As long-term indicators carry more weight, this trend indicates a bear market on the horizon and is reinforced by high trading volumes. Additionally, the long-term moving average becomes the new resistance level in the rising market.

Under such circumstances, any rebound due to the grossly oversold reason is not sustainable, only creating an opportunity for bearish investors to sell into strength, unless a clear positive catalyst emerges.

Bearish investors: If an investor were bearish on the S&P 500 they would attempt to profit from a decline in the broad market index. Bearish sentiment can be applied to all types of markets including commodity markets, stock markets and the bond market.

Based on the daily chart, crude oil prices had violated the default measurement of 23.6%, 38.2% and the 50% of the Fibonacci retracement and are now approaching the 61.8% pullback of the previous bull rally, from US$32.40 on Dec 19, 2008, to US$114.83 on May 2, 2011.

Fibonacci Retracement: A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going higher). The Fibonacci retracement is the potential retracement of a financial asset's original move in price. Fibonacci retracements use horizontal lines to indicate areas of support or resistance at the key Fibonacci levels before it continues in the original direction. These levels are created by drawing a trendline between two extreme points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.

Beating for KLSE and ringgit

Beating for KLSE and ringgit

http://www.thestar.com.my/News/Nation/2014/12/02/Beating-for-KLSE-and-ringgit/

December 2, 2014 MYT 12:00:00 AM

The benchmark FBM KLCI, which measures the key 30 stocks of Bursa Malaysia.

US light crude oil – better known as West Texas Intermediate (WTI).

The plunge follows an Opec decision not to cut production despite a huge oversupply in global markets.

If it goes below that level, it could plunge all the way to US$32.40 per barrel – the lowest recorded price in recent years when it hit US$32.40 per barrel on Dec 19, 2008, before rising to US$114.83 on May 2, 2011.

Taking the cue from the plunging oil prices and a chilling warning issued by Petronas on declining revenues, oil and gas stocks on Bursa Malaysia also faced a rout which affected market sentiment as a whole.

Petronas president and chief executive Tan Sri Shamsul Azhar Abbas said that the national oil corporation was cutting its spending for next year by between 15% and 20% and asserted that its contribution to the Government’s coffer in the form of taxes, royalties and dividends could be down by 37% to RM43bil from RM68bil this year.

US, Saudia Arabia, and Shale Oil
Analysts said the selling could be over-done and expected a relief rebound when oil prices settle.
Oil prices fell to their lowest in five years yesterday due to the production war between OPEC and the American oil boom from shale oil producers. In recent months, the United States has become a major producer of shale oil and gas – fuel that’s extracted from rock fragments – threatening the position of Saudi Arabia as the dominant oil-producing country. In response to the threat, OPEC, which is influenced by Saudi Arabia, has vowed to continue production of oil in a market where supply has outstripped demand. This has led to a free fall in global oil prices that have declined by more than 40% since July this year. Late last night after the opening of the US counters, oil price fell to below US$65 a barrel. Saudi Arabia hopes to break the back of shale oil and gas producers by making their operations not financially viable. It had been reported earlier that at prices below RM80 a barrel, shale oil producers would go bust. However, Bloomberg reported that only about 4% of US shale oil output needs US$80 a barrel or more to be economically viable.

Among the top losers of the Bursa yesterday were SapuraKencana Petroleum Bhd, Bumi Armada, Dialog Group Bhd, UMW Oil and Gas Bhd and Petronas-related counters. The paper wealth wiped out due to the rout on the oil and gas stocks was close to RM8bil.

Low-cost carrier AirAsia Bhd bucked the trend as it stands to benefit from weaker oil prices. AirAsia rose 21 sen to RM2.79.

Investors were also worried about the impact Petronas’ reduced payout would have on the Government that counts on the national oil corporation as a key source of funding for its expenditure.

“However, today’s selling was over­­done and I believe there could be a relief rebound,” he said, based on improving US economic growth and ample liquidity from China and Japan.
Eng said according to reports, Bank of America believed Malaysia’s budget deficit could balloon to 3.8% from a planned 3% while Citi thought the 3% deficit could still be maintained.

Stocks With Likelihood Of Corporate Exercise: MAA Holdings

The Edge Financial Daily, on November 18, 2014

IOI Corp, SapuraKencana among 7 that could fall off Syariah list, says Maybank IB

http://www.theedgemarkets.com/my/article/ioi-corp-sapurakencana-among-7-could-fall-syariah-list-says-maybank-ib

The Edge 18 Nov 2014

From the present list of 666 Shariah compliant stocks, we focused only on those with a market cap of more than RM300 million (247 stocks) which we felt was a reasonable cut-off point, and filtered the list further based on the cash/asset and debt/asset financial ratios of the individual PLCs.


Maybank IB said it remained wary of potential knee-jerk price weaknesses should these stocks be excluded, given that the Syariah funds would have to liquidate their positions if they are sitting on gains from these investments.

Malaysia's Cagamas adds amortisation to bond, sukuk programme

http://www.theedgemarkets.com/en/article/malaysias-cagamas-adds-amortisation-bond-sukuk-programme

The Edge 10 Nov 2014

Cagamas's mandate as the national mortgage corporation and the leading issuer of AAA debt securities in Malaysia is to facilitate home ownership but, is also exploring ways to develop a deeper and more liquid domestic bond market.

Definition: An amortising bond is structured in a way that gradually reduces the value of the bond over a fixed period of time, meaning the borrower pays off the full amount before the final maturity date.

Amortising bonds are commonplace, but the format is rare for sukuk. Last year, Dubai's Emirates airline launched the first such sukuk in the international market, a 10-year $1 billion deal with an average weighted life of five years.

This would not affect the programme's AAA credit rating from RAM Rating Services, the company added.

Unrated Bonds

http://www.thestar.com.my/Business/Business-News/2014/11/12/Rate-hike-pause-likely-on-falling-commodities-This-will-make-it-easier-for-countries-to-juggle-their/?style=biz

The Star Online 12 Nov 2014

1) Falling commodity prices will confer spillover benefits on taming inflationary pressures around the world, and this will pause possible rate hikes.

"Commodity prices are the wild card here. Lower commodity prices reduce inflationary pressures and justify delaying monetary policy tightening. This helps keep policy rates lower for a bit longer, as inflationary pressures are not there to warrant a quicker increase."

2) Many investors today are willing to take up unrated papers because they can actually get better yields if it doesn’t go into the market. Moving forward, unrated papers will pose a challenge to us. One is from the issuer itself. From their point of view, if they are already well-recognised, they would think there may be no need to rate their papers since they are well-recognised in the market. With a rating, the issuer would be subject to the (lower) yields in the market.

http://www.theedgemarkets.com/en/node/169136

RAM: Unrated bonds to erode market share, rating agencies' market position

 Unrated bonds, or debt instruments that have not been assessed by a credit rating agency, will erode the share of the market for rated bonds as well as the credit rating agencies' market position.

"If the [unrated bonds] market becomes too big, RAM Rating Services Bhd might lose the ability to track a company's paper credit risks." Come 2015, unrated papers in the market
- can be traded to create liquidity in the financial market.
- unrated papers are allowed in the market as long as they are not transferred and traded.
- account for about 30% of the total local bond issuance

Capitalism Through The Ages

The Economist | Capitalism through the ages: A grand tour http://www.economist.com/news/books-and-arts/21629211-experts-look-back-economic-system-dominates-western-world-grand-tour?frsc=dg%7Cd via @theeconomist