SEYGEM News

Thursday, May 14, 2009

Turkish Banks: Q1 Even Stronger

Some positive news coming out of Turkey.

On interest rates: The Central Bank of Turkey (CBT) cut just 50bps this time to 9.25%. This is in line with the consensus, but is getting very attractive for banks and domestic names. Expect rates to be down to 8.5% in June and bottoming around 8% (historically first!)

On the banking results: They are out, strong and even better than high expectations. The street has lagged and will upgrade soon.

Turkish banks are now up to 8.6/7.9x 09/10 PE, 1.25/1.1x PBV, with the upside to go. Garanti Bank (GARAN.IS) is your highest quality name. It posted a 44 percent net profit Thursday. The only negatives are at the loan loss provisions level, which were pretty much expected.

TUR is a Turkish ETF, which is heavily weighted to banks and is the cleanest play for U.S. investors. Otherwise, these banks typically only trade locally.

[Let us know if you are interested in trading local Turkish markets (only serious inquiries please, as we may be beta testing this feature.)]

Three Peruvian Stocks Added to MSCI EM

MSCI has announced the following changes in the MSCI Emerging Markets, according to the May semi-annual review:

Country Stock Weight Change (%) Proforma Weight (%)
Chile Cencosud 0.008 0.092
Chile Gener 0.03 0.03
Chile Copec 0.031 0.231
Peru Buenaventura -0.211 0
Peru Southern Copper -0.186 0
Peru Credicorp -0.166 0
Peru Milpo -0.048 0
Colombia Suraminv 0.008 0.076

In addition, three Peruvian companies worth watching have been added through its American Depository receipts (ADRs):

Buenaventura (BVN), a mining company which recently posted $100.3 in Q1 profits despite low metal prices; Southern Copper (PCU); and financial services holding company Credicorp (BAP).

Global Demand for Food Originates in EM

Nobody seems to talk about the global food shortage anymore, but the secular trends behind it remain intact. The world may not need as much steel or copper over the next few years, but the number of diets in emerging market countries and demographics are changing rapidly, especially towards beef, poultry and higher protein.

Fertilizer demand has been under pressure but will return as well; demand is only delayed - not avoided. Farmers have been skipping re-ordering as they work off inventory and are not ready to blink ahead of Chinese price negotiations.

Nutrients drained from the soil each year, require replenishing or else yields suffer. The U.S. Department of Agriculture this week predicted grain inventories would fall to multi-year lows, so higher prices will encourage farmers to break out the checkbooks.

The longer the wait, the sharper the demand backlash becomes. Big players include K+S (SDF), Europe's largest supplier of fertilizer who reported strong demand and good numbers yesterday, Potash Corp of Saskatchewan Inc (POT), ICL (TASE:ICL), Intrepid Potash Inc (IPI), Uralkali (URKA:MM) and Silvinit (SILV:RTS) in Russia.

Wednesday, May 13, 2009

SEYGEM News - May 14, 2009

Emerging Confidence in EEM

A good sign for emerging markets as 29 puts (with a Friday expiration) went through on the iShares MSCI Emerging Markets Index ETF (EEM), which shows that investors want to stay long and are protecting their books. Emerging markets have had a great run and are not done, so this may be a good buy at these levels. EEM closed Wednesday at $29.93.

Also watch EM FX for continued breakdown. EM currencies were the key to the last pullback – they will be key again. South Korean won (KRW), Brazilian real (BRL), Turkish lira (TRL), and the Russian ruble (Rub) will tell you the story. EM was trading weaker this morning and a move lower overnight in oil and other commodities will not help sentiment further into today’s trading.

View the full EEM chart at Wikinvest

China’s Growth Eases in April

China’s industrial production was weaker than expected for April, according to a new report released this week by the government statistics bureau. Factory output rose 7.3 from last year, down from 8.3 percent recorded in March.

While growth slowed in industries like computers, iron and steel, it was stronger in automobiles, cement and chemicals.

Data points from the past few days show that the current economy recovery is mainly driven by government-led fixed-asset investments (up 30.5 percent in the first four months of 2009), but today's IP number suggests that the pace of corporate sector recovery is weak.

“Until the corporate sector picks up steam, the economy as a whole cannot be recovering on a sustainable basis," said Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong.

We think the final, sustainable corporate sector recovery (led by company FAI) will occur in the second half of next year.

Exports fell 22.6% from a year earlier, but retail sales were up 14.8 %.

The next big numbers to watch are the Purchasing Managers Index (PMI) reports due out May 31. These will give you the next read on the economy. Despite positive data, the question remains on sustainability. The Shanghai index traded well last night despite the continued pullback in global and merging markets. Shanghai is now 44% off the lows.

Taiwan Tech Hurting From Sluggish Electronics Performance

In the U.S., Intel (INTC) shares were flat following the news that the E.U. has fined the chipmaker for antitrust violations (paying firms not to use Advanced Micro Devices), even with comments from the CEO condemning the accusations.

But the sluggish growth in electronics, PCs, and telco equipment overall is have a negative effect on chipmakers globally, including Taiwan where we are seeing a lot of selling off. FBR analyst Mehdi Hosseini is encouraging taking a profit on Taiwan Semiconducter (TSM) in particular. And the recent news of weak industrial production (especially on computers and mobile phones) coming out of neighboring China isn’t helping the sector.

Hard Times for Steel

Steel prices are down 10-15% over the past 6 weeks, 51% year-over-year, and Nucor Corp. (NUE) CEO Dan DiMicco thinks the downward trend is far from over saying that “we have not hit bottom in the drop-off in steel demand.”

Brazilian steelmaker Usiminas (USIM5.SA) posted a loss for Q1, China’s output was weaker than expected, and big names are pulling back resources like Luxembourg-based ArcelorMittal (MT) which just announced major layoffs in the US.

The prolonged global crisis is also resulting in increased dumping. A number of domestic producers in the U.S. including U.S. Steel Corp. have already filed a trade complaint against China alleging $2.7 billion of Chinese pipe steel was unfairly imported into the U.S. market in 2008.

View the full MT chart at Wikinvest

Keep an Eye on BHP

These are your three top global integrated miners: Companhia Vale do Rio Doce (VALE), Rio Tinto (RTP) and BHP Billiton Limited (BHP) which was down 5.26% Wednesday, but would be a good buy when it drops 10% lower.

The current pullback affords opportunities to own the biggest miners in the world. Pick targets closer to the 50 moving day average for return to entry points. RTP continues to roil investors with its plans to raise new capital as an alternative to doing a deal with China’s Chinalco. Stay clear of this name until there is clarity on the balance sheet and its alternate plans on going to bed with the Chinese. VALE remains.

View the full BHP chart at Wikinvest

Petrobras Closer to Digging into OPEC

Brazil's state-controlled oil company Petrobras (PBR) could be ready for drilling rig bids on the Tupi field in the Santos Basin in as early as four months, according to the energy giant’s CFO Almir Barbassa.

Two companies that could benefit from this news are Diamond Offshore Drilling, Inc. (DO) and Transocean (RIG), the second-largest offshore drilling contractor in the world which is looking to construct new rigs in Brazil to satisfy a requirement from Petrobras that they are domestically built.

Transocean reported a lower quarterly profit for Q1, but shares rose as earnings beat estimates.

Petrobras recently uncovered what it believes holds 5-8 billion barrels of oil and gas in the area, which CEO Jose Sergio Gabrielli now also says is not as difficult to tap as was earlier predicted.

With a successful dig, Brazil is poised to become a bigger oil producer than 90% of the Organization of the Petroleum Exporting Countries (OPEC) in five years. The United States needs this oil, and it will be developed.

View the full DO chart at Wikinvest

View the full RIG chart at Wikinvest

Global Crisis Presents A Golden Opportunity in ETFs

The deep economic crisis is being fought with global monetary and fiscal reflation, which will lead to a devaluation of the U.S. dollar and an appreciation of the Chinese Yuan.

As a result of the uncertainty on Wall Street, gold as a monetary asset is going though the early stages of investment diversification and proving to be a popular hedge helped by liquidity through the creation of exchange traded funds (ETFs). Gold prices rose to a six-week high above $925 on Wednesday an ounce on the COMEX division of the New York Mercantile Exchange.

There are currently about 1.6 thousand tonnes of gold in these ETFs (equivalent to the sixth largest commodity basket) according to the World Gold Council, but this is expected to grow to about 8-10 thousand tonnes of gold in investor diversification.

Gold mine production is at an 8-year low, and China is aggressively buying and stockpiling gold. The country announced back in April that it had secretly doubled its gold reserves to 1,054 tonnes, up from 600 tonnes in 2003. China now ranks fifth in global gold reserves, behind the United States, Germany, France and Italy.

The dollar index (DXY) recently broke below the 200-day monthly average and is at a four-month low. Gold is the only asset that is not someone else’s liability so there’s no credit risk.

Market Vectors Gold Miners - ETF (GDX) has been seeing gains, but was down 2.62% Wednesday closing at $37.94 and has not been upgraded on the Street.

One of the world's largest gold producers based in South Africa, Gold Fields Limited (ADR), is cheapest on p/npv, closing at 12.25 down 3.01%.

Tuesday, May 5, 2009

SEYGEM News - May 6, 2009

EM Markets Up, Currency Weak

Emerging markets were up for the sixth day in row with strong follow through coming in today off the People's Bank of China (PBOC) announcing Q1 better-than-expected earnings and the stimulus package working. Dollar strength gives some macro pressure. Oil is flat and awaits inventory data in the U.S. while earnings in Russia and Latin America continue to be decent.

All major foreign exchange currencies (Brazilian Real, Mexican Peso, South Korean Won, Russian Ruble, South African Rand...) were .50-1 percet weaker today. Watch for any extended weakness for signs of trouble.

Stress Tests Spark Caution with Commodities

Aluminum was up about 3 percent, while Copper prices fell around 3.3 percent after a two week high on Tuesday as new reports on the government stress tests indicated that 10 U.S. banks may need additional capital. The results are scheduled to be released on Thursday. The CRB is still only 15 above its 20 year low.

Tim is liking silver plays here and is expecting continued outperformance in the sector. Despite any derailiment from banks – we are at very early stages of cyclical recovery, or at worst in a pause from a long term structural commodities boom cycle. There is great value here if you believe this theme.

This morning, Brazil claims it found the world's third largest potash deposit. Brazil normally imports 90 percent of its potash needs. The bottom line here is very negative for pricing of potash if the size is accurate. Potash Corp of Saskatchewan Inc. (POT) has long been coverted by BHP Billiton Ltd. (BHP), could this merger happen? BHP has been thwarted in other recent takeover efforts – but they may be hungry.

Federal Reserve Chairman Ben Bernanke also offered a little optimism this week, however, saying that the housing market is bottoming out. The CRB had its first down day in a week and the DXY surged up above 84.129, from 83.753 from Monday.

Seymour also says to watch out for the latest earnings report from mining giant Companhia Valedo Rio Doce (VALE), the world’s largest producer of iron ore, to get a good indicator on the actual demand for the metal (as well as coal) from China. Vale saw production fall about 37 percent for the first quarter as it shut down mines because of lower demand and a decline in steel production. China has said it would hold out for lower prices. The company also had a big run up 49 percent from March 9, and Goldman is predicting that steel destocking is waning and could end in Q3.

Latin American steelmaker Ternium SA (TX) rallied Tuesday on decent earnings and an improvement in its balance sheet.

The company, based out of Mexico, Argentina and Venezuela, reported poor revenue, but also a free cash flow of $341 million (up from a negative $98.8 million in Q1 of last year) to pay off $1.8 billion in debt. (down $345.4 million from December 2008). It's a cheap buy at $9.78, and was up 3.1 percent at close Tuesday. TX had been a victim of President Hugo Chavez interference last year, and this Venezuelan hanover still weighs on the stock. Any improvement there is a catalyst to a bigger upside.

View the full TX chart at Wikinvest

Both silver and gold gained earlier this week with news of the stress tests and and a weakening dollar. Seymour says gold isn't likely to stay in the position.

Dryships' Ship Has Sailed

Seymour says he has sold his shares of Dryships Inc (DRYS) after positive reverberation from a $630 million, 3-year deal with Petrobras (PBR) to explore drilling in the Black Sea, as well as a better-than-expected Q1 earnings report. Dryships was up 2.64 percent at close on Tuesday.

Signs of Easing in Latin America

Expect the strong performance in Latin America to continue, says Seymour, with a focus on domestics and a target of 900 (up 36 percent) on the MSCI EM Index (MXEF). Valuations are not stretched, and only a 30 percent rally has people scratching their heads. In the absence of technicals, buyers would be lining up on fundamental valuation and demand resurgence.

Israeli Drug Maker Looks Good Long Term

Teva Pharmaceutical Industries Ltd. (TEVA) reported better than expected Q1 earnings Tuesday with an EPS of $0.71 but with lighter revenues from a negative foreign exchange effect of about $200 million on its top line.

This was the first quarter that included consolidated results with U.S.-based, generic-drug maker Barr Pharmaceuticals, which it acquired in mid-2008 for $7.5 billion.

It was a solid beginning to the year despite the negative foreign exchange impact, making it difficult to forecast. The U.S. continues to be driven by Copaxone, ProAir and several key generic products including Lotrel, Yasmin, Protonix, and the launch of Solodyn while growth overseas was very solid with strong performances in Spain, Poland, Germany, Russia and Croatia. The Barr acquisition had a better-than-expected impact on the gross margins (58.4 percent) and quarterly profits tripled.

Teva didn't do much in the recent market rally as investors rotate away from defensives (down .63 percent at close). This may continue in the near term. However, Seymour thinks the stock will move slowly higher in the long term as the company keeps putting up numbers throughout the year.

View the full TEVA chart at Wikinvest

China Emerging as Top Auto Market

The Japanese car manufacturer Toyota (TM) plans on easing cuts in Camry and RAV4 sport-utility-vehicle production as the auto market slump stabilizes. It decreased its output last year from its plants in the U.S., Canada and Mexico in anticipation of weak demand.

And in China, General Motors (GM) has seen sales hit a new high up 50 percent from last year. Vehicle sales in China have thus far outpaced those in the United States and could eventually bump China up as the world's largest auto market. But Congress is also actively working to implement a "scrappage" plan (which GM has agreed upon) which would provide vouchers in exchange for older automobiles and potentially boost new sales.