Emerging Markets Radar (July 9, 2012)

Sunday, July 8th, 2012

Emerging Markets Radar (July 9, 2012)

Strengths

• China cut interest rates again this Thursday, effective Friday, July 6. The one-year benchmark lending rate was cut by 31 basis points to 6 percent, and the one-year benchmark deposit rate was cut by 25 basis points to 3 percent. In the meantime, the People’s Bank of China (PBOC) lowered the floor of lending rates to 70 percent of the benchmark rates from 80 percent, which was just lowered from 90 percent in the previous rate cut. It’s another asymmetric cut, but much less asymmetric than the previous cut.
• According to China International Capital Corporation, of the 16 cities it monitors, housing sales volume increased last week by 33 percent week-over-week, and 15 percent month-over-month. Year-to-date, average sales volume has risen 18 percent. Also in the housing market, Shanghai existing home sales surged 20 percent in June to a 17-month high of 19,300 units, Shanghai Daily reported, citing Century 21.
• Brazil’s inflation rate in June fell to the lowest level in nearly two years by rising 0.08 percent from a month earlier.

Weaknesses

• Macau’s gambling revenue for June rose 12.2 percent to 23.3 billion patacas, versus market expectations of 15.3 percent.
• January to May profits at large and medium-sized Chinese iron and steel companies fell 94 percent year-over-year to Rmb 2.53 billion, the economic Information Daily reports.
• The Guangzhou government unveiled a purchase limit on some mid- and small-sized passenger vehicles license plates from July 1, with a yearly quota of 120,000 units or 10,000 units a month.
• Turkey, the fastest-growing economy after China and Argentina, saw its GDP shrink 0.4 percent (up 3.2 percent year-over-year) in the first quarter from the previous three months, promoting the market to believe an interest rate cut by its central bank.

Opportunities

• With further rate cuts, mortgage rates are lowered again. Particularly, PBOC has encouraged banks to lend to first-time home buyers. The best mortgage rate is a 30 percent discount to the benchmark rate. The chart below shows a downtrend in the ratio between monthly mortgage payments to income, showing improvement in housing affordability.

Threats

• Even with another rate cut within a month by China’s central bank, the market is still muted in Hong Kong and China. The best explanation might be the lack of liquidity in the banking system due to the lower Loan to Deposit (LTD) ratio, currently at 75 percent, and high bank requirement reserve ratio (RRR), currently at 20 percent. The market consensus is for China to cut RRR or reduce LTD soon. Also adverse to the economy is the weak loan demand this year, which might be improved by starting infrastructure projects and increasing consumption spending assisted by fiscal policy.

Tags: Bank Of China, Basis Points, Benchmark Rates, Century 21, China International, Economic Information, Emerging Markets, Existing Home Sales, First Time Home, Housing Market, Housing Sales, Inflation Rate, Iron And Steel, License Plates, Market Expectations, Mortgage Rates, Passenger Vehicles, Pboc, Sales Volume, Steel Companies
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Emerging Markets Radar (May 14, 2012)

Sunday, May 13th, 2012

Emerging Markets Radar (May 14, 2012)

Strengths

• China’s April Consumer Price Index (CPI) was 3.4 percent, 0.2 percent lower than March but equal to market consensus. This is below the government target of 5 percent, leaving room for further monetary easing if needed.
• Passenger vehicle sales in April were up 13 percent to 1.28 million units, the China Association of Automobile Manufacturers said Wednesday. Sales were forecast to increase 11.3 percent.
• Indonesia’s real GPD rose 6.3 percent for the first quarter, in-line with market expectations. In spite of a slowdown from the previous quarter’s GDP growth of 6.5 percent, the market was satisfied with the outcome considering the headwinds faced by the economies elsewhere.
• Standard & Poor’s stable outlook on Turkey’s long term rating is supported by the agency’s view of the country’s generally effective policymaking and institutions, its moderate and declining public debt burden, and its monetary policy flexibility, said S&P analyst Eileen Zhang.
• Separately, Sam Zell spoke at the annual CFA conference in Chicago.  He mentioned that one of his key theses in emerging markets is to invest in a country 3 to 4 years before it attains investment grade, because the process keeps policy makers honest in the run up to the upgrade.

Weaknesses

• Russian electricity distribution companies were denied transition to Regulated Asset Base (RAB) pricing by the Federal Tariff Service, throwing utility sector reform into disarray.  The Eastern European Fund has no exposure to Russian utilities.
• Taiwan exports disappointed again in April, falling at a faster pace of 6.4 percent vs. 3.2 percent in March, partly due to holidays in China. China’s April trade number was also weak. China’s exports were up 4.9 percent vs. the estimate of 8.5 percent, while imports were up 0.3 percent vs. the estimate of 10.9 percent.
• China just released April economic data. April industrial production was up 9.3 percent year-over-year, vs. the estimate of 12.2 percent; retail sales were up 14.1 percent, vs. the estimated 15.1 percent; new loans were RMB681.8 billion, vs. the estimate of 780 billion; M2 money supply grew 12.8 percent vs. the estimate of 13.3 percent; and fixed asset investment was up 20.2 percent year-to-date, vs. the estimated 20.5 percent. Due to the weak economic numbers, the market speculation this morning was that the People’s Bank of China (PBOC) will cut the bank reserve ratio tonight.
• The bank of Korea maintained its benchmark rate at 3.25 percent for the 11th successive month as expected, while Indonesia also kept its benchmark rate at 5.75 percent, but raised the central bank rate and term deposits to absorb excessive liquidity.
• Elsewhere in Asia, Malaysia’s industrial production gained only 0.6 percent in March, vs. the estimated 3.3 percent; Philippine export unexpectedly dropped 1.2 percent in March.
• China’s home sales transaction value fell 16 percent in April from the previous month as the government reiterated it will keep curbs on the property market.

Opportunities

• A significant portion of global equity returns comes from the local market currencies effect.  The chart below from BCA Research plots country equity valuation along the horizontal axis and proprietary “currency valuation” along the vertical axis.  From that perspective, China, Taiwan, and Emerging Europe markets look undervalued, while Indonesia, South Korea, and Latin America look overvalued.

• In April, China’s power production growth was less than 1 percent, one of the lowest monthly numbers. If the past is any guidance, the Chinese equity market will rally following a dismal monthly power generation.

Threats

• One of Russian President Vladimir Putin’s first acts in his new/old job was to sign a directive for the government to implement affordable and comfortable housing. Among the tasks set to be achieved by 2018, the government must bring down the spread between average mortgage rates and inflation to a maximum of 2.2 percent.  If implemented as such, net interest margins at the banks would come under pressure.
• Weaker-than-expected April economic numbers strongly suggest the People’s Bank of China needs to cut rates or bank reserve ratio to provide liquidity to the economy.

Tags: Asset Base, Automobile Manufacturers, China Association, China China, Consumer Price Index, Debt Burden, Electricity Distribution Companies, GDP Growth, Gpd, Headwinds, Holidays In China, Index Cpi, Investment Grade, Market Consensus, Market Expectations, Sam Zell, Sector Reform, Stable Outlook, Target, Utility Sector
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Gold Market Radar (April 30, 2012)

Sunday, April 29th, 2012

Gold Market Radar (April 30, 2012)

For the week, spot gold closed at $1,662.75 down $19.82 per ounce, or 1.2 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 1.5 percent. The U.S. Trade-Weighted Dollar Index slid 0.61 percent for the week.

Strengths

• So when you thought the investment case for gold was all over in March with no imminent QE3 coming from the Fed, guess who was buying gold? – Central banks who fully understand you can’t park your reserves in the currencies of countries that are mired in an endless wall of debt. Overall, central banks apparently purchased no less than 58 tonnes in March. The three largest buyers were Mexico, which increased its holdings by 16.81 tonnes to a total of 122.58 tons, Russia with purchases of 16.55 tons giving it total reserves of 895.75 tons, and Turkey with 11.48 tons taking it to 209.6 tonnes in reserves. Some suggest an acceleration in central bank purchases could continue throughout the year as first quarter economic growth numbers are looking a bit flaccid. Last year, central banks bought 439.7 tonnes of gold, the biggest annual increase in almost five decades.
• Agnico-Eagle Mines reported first quarter results that handily beat market expectations. CEO Sean Boyd noted that Agnico-Eagle produced more gold in the first quarter of 2012 than in the first quarter of 2011, which included production of the now suspended Goldex mine. Compared to its peers, Agnico-Eagle has one of the highest quality resource statements and has a great corporate culture, so we expect the company to continue to gain market respect for the rest of the year.
• Gold Standard Ventures reported two drill holes from its Railroad project in Nevada. Drill hole 12-1 hit 164 meters at 3.38 g/t gold while the second one about 100 meters south of drill hole 12-1 netted 56 meters of 4.29 g/t Au. Gold Standard’s share price finished the week up 59 percent.

Weaknesses

• Pessimism in gold stocks may have reached a peak. In a recent marketing trip, Stephen Walker, a top gold mining analyst at RBC, noted investor sentiment still seemed a bit depressed as investors appeared to be waiting for a catalyst to bring gold off the bottom, such as emerging market inflation, QE3, or central bank buying, before stepping back into gold stocks. As a point of contrast, IAMGOLD came to the table on Friday to buy Trelawney Mining, sending the share price up 41 percent. It is interesting to note that Barrick Gold just sold its 20 percent stake in Highland Gold the day before. Barrick Gold has been criticized in the past for doing deals when price points hit painful levels, such as buying both a copper company and an oil company at peak copper and oil prices. Interestingly, IAMGOLD was one of the few companies to make an acquisition when gold stocks plummeted in late 2008 through early 2009.
• Feedback from the Zurich gold show is that company attendance outnumbered investor attendance by a good margin, again reflecting some of the discontent with buying gold companies. One participant we spoke with noted there was even some talk about industry participants coming to terms, when it comes to marketing the profitability of the company, with using cash cost versus all-in costs or total production costs.
• Cash cost is a concept that is a legacy measure which companies used to figure out if they were going to go bankrupt the next week. It says nothing about whether the company is profitable and that is what investors are concerned with today. For the senior gold miners, investors want to know if the company is making a profit and can grow its dividend. When companies espouse low cash cost numbers that don’t reflect the full cost to produce an ounce of gold, it just becomes a lightning rod for governments to increase taxes.

Opportunities

• Bob Hoye of Institutional Advisor published a report on Friday titled “Gold Consolidation Approaching an End.” The report shows that the relative strength of mining shares to the price of gold bullion is at extremes only seen five times in the past one hundred years. The report also notes that, historically, investors should look to the junior tier names to exhibit the greater price action relative to their senior peers.
• Goldman Sachs noted it expects to see higher gold prices up to its previous target of $1,840 an ounce this year. With real GDP adjusted for the build in inventories coming in at only 1.6 percent in the first quarter, some form of quantitative easing may be in the cards.
• Quatar Investment Authority (QIA), the Gulf state’s aggressive sovereign wealth fund, noted it has more than $30 billion to spend on investments this year and sees commodities as a key target.

Threats

• Has anything been learned by the government? We had a tech boom partially driven by Y2K spending. We had lending standards relaxed so that anybody who wanted to buy a home could get one at an inflated price. We have health care reform which will increase the patient load on the medical system, but does nothing to incentivize an increase in the supply of doctors and nurses which we will surely need. And now the government wants to continue to give loans to college students at below market rates? Student debt has now reached $1 trillion dollars and jobs are scarce, but is this the solution?

Tags: Bank Purchases, Central Banks, Currencies Of Countries, Dollar Index, Drill Hole, Drill Holes, Eagle Mines, Endless Wall, Gold Market, Gold Miners, gold stocks, Growth Numbers, Market Expectations, Market Radar, Nyse Arca, Nyse Index, Qe3, Quality Resource, Railroad Project, Spot Gold
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The Economy and Bond Market Radar (April 16, 2012)

Sunday, April 15th, 2012

The Economy and Bond Market Radar (April 16, 2012)

Treasuries rallied this week, sending yields sharply lower. The nonfarm payrolls report that was released on Good Friday disappointed and with negative rumblings out of Europe, it was a “risk off” week. China reported first quarter GDP growth below expectations, which increases the likelihood of additional policy accommodation from the Chinese authorities in the near future.

Strengths

• Natural gas fell below $2 this week, providing consumers with some relief to higher gasoline prices.
• Several inflation data points were released this week and were overall in line with expectations. This is generally supportive of the existing Federal Reserve policies.
• Wholesale inventories rose 0.9 percent in February, indicating continued restocking that should boost first quarter GDP in the U.S.

Weaknesses

• March nonfarm payrolls grew a modest 120,000, well below market expectations.

• Weekly initial jobless claims jumped to 380,000 this week, the highest reading since January.

• Spain remains in the spotlight as yields spike higher and investors remain nervous about long-term solutions for the country’s financial woes.

Opportunity

• The weak Chinese GDP number implies that the current global easing policies are likely to remain in place for the foreseeable future.

Threat

• Rising oil and gasoline prices, combined with liquidity implications of global easing led by Europe, may raise the prospect of higher inflation going forward.

Tags: Bond Market, Chinese Authorities, Federal Reserve, Financial Woes, Gasoline Prices, GDP, GDP Growth, Good Friday, Inflation Data, Initial Jobless Claims, liquidity, Long Term Solutions, Market Expectations, Market Radar, Nonfarm Payrolls, Quarter Gdp, Reserve Policies, Rumblings, Treasuries, Wholesale Inventories
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Print-Or-Panic: TrimTabs On The Market’s Meltup

Friday, January 20th, 2012

As retail investors continue to appear significantly pessimistic in their fund outflows ($7.1bn from US equity mutual funds in w/e January 4th – the largest since the meltdown in early August) or simply stuff their mattresses, David Santschi of TrimTabs asks the question, ‘who is pumping up stock prices?‘ His answer is noteworthy as a large number of indicators suggest institutional investors are more optimistic than at any time since the ‘waterfall’ decline in the summer of 2011. Citing short interest declines, options-based gauges, hedge fund and global asset allocator sentiment surveys, and the huge variation between intraday ‘cash’ and overnight ‘futures market’ gains (the latter responsible for far more of the gains), the bespectacled Bay-Area believer strongly suggests the institutional bias is based on huge expectations that the Fed will announce another round of money printing (to stave off the panic possibilities in an election year). The ability to maintain the rampfest that risk assets in general have been on (and the cash-for-trash short squeeze that has been so evident) must be questioned given his concluding remarks.

While we fully expect QE to come, we can’t help but question the willingness to meet market expectations so head on (remember when the Fed used to like to surprise) but with ever blunter (and seemingly weaker) tools, what more can they do – leaving a market (and note here we did not say economy as that is clearly not benefiting) that needs exponentially more ‘juice’ (EUR10tn LTRO?) just to keep from the post-medicinal crash.

Tags: Asset Allocator, Believer, Declines, Early August, Election Year, Futures Market, Institutional Bias, Institutional Investors, Market Expectations, Mattresses, Meltdown, Money Printing, Qe, Retail Investors, Short Interest, Short squeeze, Stock Prices, Trimtabs, Waterfall, Willingness
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Gold vs. Gold Stocks – Goldman Releases “2012: A Gold Odyssey? The Year Ahead…”

Monday, January 9th, 2012

(Yes, this is arguably the most gratuitous use of the word “gold” in a headline ever).

As one can glean from the title, in this comprehensive report by Goldman’s Paul Hissey, the appropriately named firm deconstructs the divergence between gold stocks and spot gold in recent years, a topic covered previously yet one which still generates much confusion among investor ranks. As Goldman, which continues to be bullish on gold, says, “There is little doubt that gold stocks in general have suffered a derating; initially with the introduction of gold ETFs (free from operational risk), and more recently with the onset of global market insecurity through the second half of 2011. However, gold remains high in the top tier of our preferred commodities for 2012, simply because of the extremely uncertain macroeconomic outlook currently faced in many parts of the world. The official sector also turned net buyer of gold in 2010 for the first time since 1988, and has expanded its net purchases in 2011.” And so on. Yet the irony is, as pointed out before, that synthetic paper CDO, continue to be the target of significant capital flows, despite repeated warnings that when push comes to shove, investors would be left with nothing to show for their capital (aside from interim price moves of course), as opposed to holding actual physical (which however has additional implied costs making it prohibitive for most to invest). Naturally, this is also harming gold stocks. Goldman explains. And for all those who have been requesting the global gold cash cost curve, here it is…

• We feel there are some obvious solutions to the flight to physical gold ETFs. In order to entice investors away from the gold ETFs, producers
  must
  • Reduce perceived operational risk
  • Deliver to market expectations (which includes managing those expectations)
  • Demonstrate volume- (not just price-) driven EPS growth
  • Return cash to shareholders
  • Continue to replenish resources and reserves
• It is also likely that some of the derating we have seen recently has been as a result of changing sentiment towards sovereign risk. With a skittish view toward equities in general, and a decreasing willingness to pay for future earnings, it appears as though the market is less inclined to favour exposure to companies in locations where the perceived risk is higher – rightly or wrongly (West Africa, Philippines, etc.).

Investment View:

• However, we would continue to favour exposure to gold companies in the current global financial climate.
• In particular, we would look for those companies which are trading at a discount to valuation AND which we believe to be operationally sound
  (thereby minimising the risk of further derating).
• Those companies with little/no debt would also be favourable, given the reduction in financial risk and good cash margins (at least currently…).
• Alternatively, we would be comfortable pursuing those stocks that are trading around NPV, but are well managed, have low execution risk and a growth profile that we believe is not at risk of being deferred.

And the chart that lays it all out:

In summary, here is what needs to happen, according to Goldman, to end the flow into ETFs and redirect it back into stocks.

We feel there are some obvious solutions to the flight to physical gold ETFs. In order to entice investors away from these funds, producers must reduce perceived operational risk and provide something that a fund cannot (in this instance growth and capital return).

1. Consistent operational delivery

First and foremost, companies need to deliver on quarterly operational production and cost performance. Companies which fail to meet market expectations (or appropriately manage expectations…) provide investors with an easy excuse to deploy capital elsewhere. We provide further exploration below for specific companies, however in general many of the producers in our universe have released consecutive downgrades in either costs or production volumes in the last 3-4 quarters.

2. Volume-driven EPS growth

In our view, one of the key drivers of outperformance is EPS growth, driven by an increase in volume (hopefully with stable unit costs). Whilst price-driven growth is also beneficial, clearly pricing outcomes are not certain, particularly given the recent volatility of the gold price. Several gold companies in our coverage are building or commissioning expansion projects which should deliver volume growth – however, execution risks are also present.

3. Yield/capital management

The current gold price should be yielding excellent cash margins (see chart below) for many of the gold stocks in our coverage universe. Some of the companies have significant capital projects which will require cash, however there are also others which should be able to consider meaningful returns to shareholders in lieu of expansion opportunities. This chart clearly highlights the various margins by comparing C1 (direct) and total operating costs along with the gold price over the same period.

4. Continual resource/reserve replacement

Although less important for large companies with >20 years or resources and reserves (such as NCM), in our view it is important that companies continue to replace ore through resource and reserve additions. The two tables below highlight the significance of resource growth on gold majors, with Barrick (top) replacing reserves through both acquisition and exploration.

Much more in the complete report:

Tags: Commodities, Curve, Divergence, Global Gold, Global Market, Gold Etfs, gold stocks, Goldman, Insecurity, Irony, Macroeconomic Outlook, Market Expectations, Odyssey, Operational Risk, Price Moves, S Paul, Shareholders, Spot Gold, Synthetic Paper, Target
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Citi Downgrades Global Growth And Expects EFSF ‘Grand Plan’ Disappointment

Thursday, September 29th, 2011

Citi’s Economics team downgraded global growth expectations once again, expecting 3.0% this year (versus 4.0% last year) with more aggressive downgrades next year to only 2.9% (from 3.2% expectations last month and 3.7% two months ago). Growth revisions were downgraded for every major global economy as expectations move with Goldman’s coincidentally-timed discussion of stagnation (also tonight) with advanced economies cut more than developed though Eastern Europe saw the most significant reductions. They note that ‘the recent pace of GDP forecast downgrades is among the greatest of the last ten years’ and extends the recent run of lower forecasts to four months-in-a-row. In a secondary note, Willem Buiter and team also pour cold water on market expectations for the EFSF pointing out, as we have done for a few weeks now at every suggestion, that all the different options have their shortcomings and are unlikely to be implemented quickly.

From Citi’s September 2011 Global Economic Outlook and Strategy:

Global growth prospects continue to deteriorate quickly, both for advanced economies and emerging markets.

 

This month, we are again cutting our 2011-12 GDP growth forecasts for many countries, including the Euro Area, UK, Japan, US and Canada, with a modest downgrade for China and sharper cuts for Eastern Europe, Singapore, Hong Kong and South Africa.

 

 

We expect early sovereign debt restructuring in the Euro Area, and for the Euro Area overall to slip back into recession in coming quarters. The following table outlines progress so far on the initial increase:

 

 

Against this backdrop, Citi’s Macro Strategy team are cautious on risk
assets and bullish core fixed income. Citi equity strategists believe
that markets are oversold, but that stock prices are unlikely to move
convincingly higher until there are clearer signs of stability in
economic activity and profits growth. Citi rate strategists expect lower
yields and flatter curves in core EMU markets and the UK. Citi FX
strategists expect the USD and JPY to gain.

Source: Citi

Tags: Buiter, Canadian Market, Downgrades, Economics Team, Efsf, Gdp Forecast, GDP Growth, Global Economic Outlook, Global Economy, Global Growth, Gold, Growth Expectations, Growth Forecasts, Growth Prospects, Initial Increase, Market Expectations, Outlook, Singapore Hong Kong, Sovereign Debt Restructuring, Stock Prices, Strategists, Strategy Team, Table Outlines
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Goldman’s Take: “A Bold Twist”

Thursday, September 22nd, 2011

A Bold Twist

BOTTOM LINE: Fed “does the twist”, announcing plans to sell short-term securities and buy longer-term Treasury securities through mid-2012. Though IOER remains unchanged, overall the move is more aggressive than expected given a) a relatively large share of purchases at the long end of the yield curve, b) plans to reinvest prepayments of agency debt and MBS back into agency MBS, rather than in Treasuries.

MAIN POINTS:

1. As we had expected, the Federal Open Market Committee decided to “do the twist” and increase the duration of its securities holdings by selling shorter-maturity securities ($400bn of Treasuries with maturity of 3 years or less) and buying longer-maturity securities ($400bn of Treasuries with maturity 6-30 years).

2. The Fed chose to maintain the interest rate on excess reserves (IOER) at 25bp, contrary to our expectations of a small cut, but overall the details of today’s action were more aggressive than expected in two respects: First, a relatively large portion of the purchases will occur at the long end (29% in the 20-30 year maturity bucket), implying a total impact of more than $400bn in 10-year equivalents, versus market expectations of perhaps $300-350bn. Second, the Fed will reinvest maturing and prepaid agency MBS and agency debt in agency MBS, rather than Treasuries, suggesting a bit more support for the housing sector. The statement retained an easing bias, noting again that the FOMC “is prepared to employ its tools” to “promote a stronger economic recovery in a context of price stability”.

3. Consistent with the more aggressive policy easing, the statement emphasizes the weak state of the economy, suggesting “continuing weakness in overall labor market conditions” and “only a modest pace” of growth in consumer spending. The FOMC notes the moderation in (headline) inflation in recent months and, as before, expects it to “settle…at levels at or below those consistent with the Committee’s dual mandate”. While the FOMC still forecasts some improvement in the pace of growth, “there are significant downside risks to the economic outlook, including strains in global financial markets”.

4. Once again, three FOMC members–Dallas Fed President Fisher, Minneapolis Fed President Kocherlakota, and Philadelphia Fed President Plosser–dissented, with the statement noting only that they “did not support additional policy accommodation at this time”.

Source: Goldman

Tags: Aggressive Policy, Dual Mandate, Economic Recovery, Equivalents, Excess Reserves, Federal Open Market Committee, Fomc, Gold, Goldman, Headline Inflation, Large Portion, Market Expectations, Maturity, Moderation, Open Market Committee, Outlook, Prepayments, Price Stability, Respects, Treasuries, Treasury Securities, Yield Curve
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Gold Market Cheat Sheet (August 2, 2011)

Monday, August 1st, 2011

Gold Market Cheat Sheet (August 2, 2011)

For the week, spot gold closed at $1626.02, up $24.75 per ounce, or 1.5 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, fell 6.6 percent. The U.S. Trade-Weighted Dollar Index slid 0.51 percent for the week.

Strengths

• The gold price advanced to a record high of $1,632.80 per ounce on Friday morning after news that U.S. GDP rose at a 1.3 percent annualized pace in the second quarter, well below market expectations. The gold price was also boosted by the fact that President Obama and the House Republicans remain unable to forge an agreement to raise the debt ceiling.
• India’s physical demand for gold remains high despite the spike in prices, wealth management firm UBS has said, adding that gold sales to India increased 23 percent from the start of the year until July. Also, gold sales rose 76 percent in May as compared to sales in April and a thumping 161 percent from a year ago, UBS said in a report.
• Newmont Mining Corporation, the largest U.S. gold producer, boosted its dividend this quarter by 50 percent to 30 cents. The company raised the dividend as gold prices continue to reach record highs. Newmont said it will raise dividends by 5 cents for each $100 increase in the average price of gold during the previous quarter.

Weaknesses

• South African gold mine workers and the major producers were due to meet on Friday for wage talks, in a bid to end a strike that could halt daily output worth up to $25 million at a time when the price of bullion is near record highs.
• Goldcorp, the world’s second largest gold producer, cut its production guidance for the year to between 2.50 million and 2.55 million ounces, from 2.65 million to 2.75 million ounces, due to production problems at three mines.

Opportunities

• Mining mergers and acquisitions transactional value in the first half of 2011 reached $96.3 billion, almost overtaking 2010’s value of $113.7 billion. Ernst & Young predicts that in the remainder of 2011 and in the whole of 2012 global mining merger activity will rise, with increases in transaction values.
• Sovereign debt worries in Europe and in the United States could push the gold price up to $2,500 per ounce, and possibly even as high as $5,000 per ounce, according to research from Citigroup. “It is difficult to argue that gold is going to $5,000 an ounce on the basis of equivalence with the seventies bull market. However the drivers are the same—the debasement of fiat currencies as a store of value and fear over the outlook for the global economy,” Citigroup said.
• Reuters’ biannual poll of precious metals price forecasts found that over half of the respondents expect prices to average $1,500 an ounce or more this year. Analyst responses indicated that continued eurozone debt concerns, a weak dollar, and increased demand from emerging economies and central banks will support the gold price.

Threats

• Barrick Gold, the world’s largest gold producer, raised its capital expenditure estimates for two of its main mines.
• Barrick noted capital expenditures at the Pascua Lama mine could now cost $5 billion, compared to the previous $3.6 billion. Also, Pueblo Viejo will cost approximately $3.8 billion, exceeding the initial $3.3 billion estimate.
• Rising capital costs is a threat to margin expansion for the miners. This has been a headwind to their price performance.

Tags: Debt Ceiling, Dollar Index, Gold Equities, Gold Market, Gold Mine, Gold Price, Gold Prices, Gold Producer, Gold Sales, India, Market Expectations, Mergers And Acquisitions, Newmont Mining, Newmont Mining Corporation, Philadelphia Gold, Price Of Gold, Silver Index, south african gold, Spot Gold, U S Gold, Wealth Management Firm
Posted in India, Markets | 1 Comment »

Turkey Now Growing Faster Than China

Tuesday, July 5th, 2011

While all the focus is usually on the big emerging (or emerged) markets such as those who are members of BRIC, there are quite a few other interesting stories out there such as Chile, Indonesia, and Turkey.  [July 6, 2010: Turkey - Where East Meets West, and Prospects are Improving]  While there are relatively limited choices to invest in these countries, they are certainly part of a secondary group of locales that are helping to boost the fortunes of U.S. multinationals.

Turkey just reported a 11% GDP figure, outpacing that of China*

*how accurate these figures are, are of course up for debate but directionally they do mean something.

Despite this strong GDP growth, Turkey’s market is struggling with fears of a growing current account deficit.

Via WSJ

• The Turkish economy grew by 11% in the first quarter, outstripping China and confirming Turkey as Eurasia’s rising tiger.   Thursday’s official growth figure, compared with the year-earlier period, easily beat market expectations, at a time when many of Turkey’s neighbors in the Middle East and Europe struggle with political turmoil and bailouts.
• But in what is fast emerging as a Turkish paradox, foreign investors aren’t rushing to snap up assets.   A key concern in markets, economists say, is what action the new government will take to control a ballooning current-account deficit that is above 8% of gross domestic product and rising quickly—an imbalance seen as a sign of overheating, despite relatively benign inflation numbers.
• Thursday’s statistics also included trade figures for May, which saw the trade deficit double from the same month last year, adding to the current-account imbalance. Imports to Turkey expanded by 42.6%, almost four times as fast as its exports at 11.7%, according to Turkstat, the state statistics agency.

• Turkey’s growth until now has been dominated by expansion in the financial, retail and construction sectors, driven by rapid demand and credit growth, said Mr. Alkin. Turkey’s banking sector is solid, but the country’s consumption-driven model, as with Spain and China, no longer looks sustainable in the long term. Turkey, he said, has to lower costs, produce more, import less and move up the value chain.
• One sign of investor nervousness is that the Istanbul Stock Exchange has been one of the worst performers among emerging markets this year, down by 9.75% since early May. Currency traders, meanwhile, have been selling off the lira, which has fallen nearly 19% since November.
• The central bank has tried to squeeze bank lending and consumption by raising reserve requirements for commercial banks. But at the same time, it has put its foot on the gas, cutting interest rates as it tried to deter volatile short-term investment inflows that are financing the current-account deficit. That unorthodox policy is increasingly controversial and hasn’t worked. The central bank says that more time is needed to see effects and that inflation, though ticking up, is only just off record lows.
• Still, many economists and bankers believe monetary policy can’t fix what ails Turkey. Turkey produces minimal quantities of oil and gas. Meanwhile, manufacturers face high costs relative to competitors, economists say, and so tend to use imported semi-finished goods rather than produce their own components. As a result, as Turkey produces more, it imports more—85% of Turkish imports are commodities and semi-finished products, according to Mr. Alkin.

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