Category: Equities

India Elections: Modi muddles … NIFTY shudders … INR falters

Asianmacro1 Comment

Asianmacro loves trading & positioning in the Indian markets across FX, rates, equities & credits from time to time when special situations & catalysts comes about in this country.  As it has such a messy democratic process, coupled with unpredictable weather (*rainfalls & weather is such a big thing for such an agrarian society).  India also has a superstitious & chart crazy technical driven domestic market (*the Indians religiously follow candlesticks & all forms of chart studies including financial astrology) …  and it all comes to a boil every now & then!

The massive depreciation of INR from 52 against USD to about 70 in 2013 together with the appointment of the well respected Raghuram Govinda Rajan as the Reserve Bank of India (RBI) governor in September 2013 when $/INR was 70 marked the peak & turnaround of the FX pair.  Indian stock market, NIFTY rallied strongly since as well.

Presently, Asianmacro is worried about the impending return of El Nino http://www.livemint.com/Politics/JpJfZbdhAmV1qT3qWkVeoO/El-Nino-alert-issued-by-Australia-as-event-seen-developing.html  & also the Indian elections is really a muddling headache for India whichever way it goes, where Modi while serving well within India is not viewed favourably in the West, http://blogs.ft.com/beyond-brics/2014/05/05/india-elections-four-pitfalls-for-modi-and-the-bjp/

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From the chart above, it just make sense to me that unless there is really some good news coming out in weather or politics; having a short INR and short NIFTY position will be my favoured play to wear diamonds soon!

Demise of trading revenues in banks & in hedge funds

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Barclays announced earlier today a poor set of results mainly due to a 41% drop in revenues over at its FICC (Fixed Income Currencies & Commodities) business division. As reported here http://www.ft.com/intl/cms/s/0/f9dd1338-d4e6-11e3-adec-00144feabdc0.html#axzz30wtGgbfE & here http://www.ft.com/intl/cms/s/0/fe1c811c-d50a-11e3-9187-00144feabdc0.html#axzz30wtGgbfE in the Financial Times.

Hedge funds were not spared as April 2014 was reportedly the worst month for many (http://www.zerohedge.com/news/2014-05-05/cruelest-month-april-was-bloodbath-most-hedge-funds) in a long while especially for CTAs & Macro strategy funds that rely on heightened volatility & gyrations in market with trends to serve them well.  Even the legendary Paul Tudor Jones was lamenting last night at the Ira Sohn conference on the need for a ‘Central Bank Viagra’ to bring excitement back to the markets http://www.bloomberg.com/news/2014-05-05/-tudor-s-jones-said-macro-funds-need-central-bank-viagra-.html .

It is the recognition of such ‘dampened’ volatility and lack of trend breakouts or mis-pricings in the markets that saw Asianmacro laying low for a number of months.  From the chart above, where the upper panel white line is the JPM G7 FX vols minus VIX; has gone back close to zero since H2 2013 till present.  Typically VIX as a simple measure of S&P500 implied vols is usually much higher than FX vols especially during periods of financial market stress where equities tend to plunge faster & a lot more than FX directionality.  The bottom panel in the above chart is the normalised vol price of VIX & JPM G7 vols from 2006 before the pre-2008 crisis period till present. FX vols is in fact going back to almost the lows in 2007 just before the onset of the financial crisis.

Are we facing once again the calm before the storm? We could well be when the last crowded positions capitulate & it seems like the consensus strong USD & short US Treasuries trades of 2013 going into 2014 are being forced to unwound at great loss by banks & hedge funds …. we are getting close to the last inning.

 

Where to on Social Media … Facebook, Tencent or Rakuten ?

Asianmacro1 Comment

Before AsIanmacro takes his sip of this evening single malt whisky, time to snap a pic & share it on social media … Now wait, so should it be on Facebook, Whatsapp, Viber, WeChat, Instagram, …. the list goes on and it is definitely a chore these days on which to use!

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I have always been a techie & have pretty much every other social media app installed across my iOS, Android & Windows devices.  But when it comes to interacting with pretty much anybody in China, it’s Wechat (owned by Tencent – 700 HK)… forget about everything else.

Viber is just so sluggish eversince the recent updates & also the purchase by Rakuten (4755 JP) probably will turn it into another drive-by blasting of spam marketing everytime you use Viber in due course.  Facebook (FB US) even with its purchase of Whatsapp is just so yesterday … good for recording your life-story everywhere else except China & that Whatsapp .. come on, does not even have VOIP calling now & other features available in so many other messaging apps. From above normalised charts of FB US, 4755 JP & 700 HK; you can see FB & 4755 skyrocketed & outperformed 700, probably due to the wider investor base due to the listing in USA & Japan chasing them exuberantly.

This brings me to a ‘gun-to-head’ showdown, where despite the lofty valuations applied to FB US,, 4755 JP & 700 HK; if I need to own just one social media company to ‘pay-to-play’ & get on the boat … it will be 700 HK! From the chart below, look at the decent 25% correction from the recent highs & it has real revenues that continue to grow with monetisation of all the services and paid extras that people foot up in China to use. It’s a no brainer .. except at what levels to jump onto the bandwagon.

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For Asianmacro, it will be between 450-462 just shy of current 492 level.  It can easily come with any ‘Sell in May & go away!” portfolio adjustments soon in markets.  Stop loss sell will be < 425 not because I want to get out per se but purely from risk-management, but decent buying levels after will be 380-400 which I will be interested in getting back on again.

 

Sell in May & Go Away … the question is what?

Asianmacro2 Comments

It is May now and the famous ”Sell in May & Go Away!” mantra always resonate in financial markets.  The question this time is a challenging, what to really sell?

The top 10 & bottom 10 performers in global equity indices are shown here.  You will notice that the top performers are really those marginal frontier markets mostly that nobody really invest in a big way. While the bottom performers are some of the bigger markets that have sold down substantially already like Nikkei 225 (Japan) and Hang Seng (Hong Kong).

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Similarly in currencies below, besides NZD (New Zealand dollar) & Gold that have gained more than 5% against USD, the best spot returns are from relatively illiquid currencies that nobody owns much of; while major currencies like EUR, GBP, CHF are only 1% up for the year which is almost a rounding error.

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If there is something that I want really want to sell or short in May, I guess I am now looking at cheap downside bets in NZD, Gold and IDR.  Asianmacro never like the frothy levels of milk anyway and prefers soy latte rather than regular milk latte coupled with an exuberant Kiwi banking sector holding up the economy http://blogs.wsj.com/economics/2014/05/06/new-zealand-banks-arent-playing-ball-with-rbnz/ .  For Gold, I can find more things that glitters like LED lights & the safe haven bid due to the Russian / Ukraine fears are overplayed.  Lastly in the case of IDR, well the Jokowi feel good effect in Indonesia is all but played out.  The follow on Presidential elections will take on a more complex Javanese shadow puppet play that will mean more uncertainty http://www.thejakartapost.com/news/2014/05/05/prabowo-desperately-seeking-partners-jokowi-flexes-muscles.html that the markets will not like soon.

 

 

 

Making a home run

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Asianmacro has not posted since the 1st week of May to smell the roses into early summer and also in travels across Europe.  Looking back in the past where I have been in the futures open outcry pit, a bank market maker and then proprietary trader, followed by stints as a hedge fund portfolio manager … I came to realise that the most amount of money is only made slowly over time when you can sit comfortably on a position and for your investment thesis to bear out (*assuming that you have correctly done your homework and not stopped out way beforehand).

This meant that position sizing must be such that for longer term trades to bear out and perform well to make that home run, it must not be over-leveraged such that you cannot sleep at night with all the gyrations and noise that the market will invariably move like a butterfly flapping its wings at the slightest breeze!

Notice how Warren Buffet always appear to be such an investment stud with most of his positions reaping home runs more often then not and covering his losses or ”mistakes” elsewhere.  Mr. Buffet has the ultimate advantage in having a ”cheap & almost free float” of investment capital via the perennial annuity premiums collected from his insurance business (where the cost is even lower than deposits obtained by banks who similarly will lever up to make loans & other investments).  This allowed him to almost ”never cut loss or stop out of his positions” and we all know that even a broken clock will tell the correct time twice in a day … Mr. Buffet can in fact be proven right most often than not as ”in the long run, we are all dead” does not apply to his investment style.

Asianmacro certainly do not have the good fortune of owning an insurance company and also with the capital size of Mr. Buffet.  Nevertheless, as highlighted above, from the 20 years of cutting my teeth and learning from the losses made while accepting with humility that I was probably more lucky than smart with my winners … In any given year, there are probably about 1-3 real serious tradable themes that you can express via a trade that is ”medium” term of 3-12 months of more in investment horizon that will be the 10-baggers.   Most of the other time when you are fiddling & twiddling your fingers, you should not be doing anything much unless you have the systems, tools, inclination and skills to do some short term noise & gyration trading … you could be expending more energy than ever for very small incremental returns.

If you look at my postings this year, my 3 medium term thematic trades consistently were:

  1. Long USD preferably via DXY futures on medium term U.S. economic recovery.
  2. Short AUD/USD where the lucky chaps down under end their spell of good fortune.
  3. Short China and/or underperformance of Asian equities.

They have all performed well YTD 2013 and there is no reason to close out the trades or a change in the theme.

Asianmacro will probably be eating, drinking, lazing and snoozing a lot more over summer.  But will try to wake up from my stupor now & then and post again (*on shorter term gyration noise opportunity) and potential medium term thematic trades as I start my re-assessment for H2 2013 into 2014 outlook in deploying my capital again.

Good luck!

 

 

 

*Asianmacro is a beach bum managing his own wealth. Besides deciding what to have for lunch (or hitting the gym sometimes), he is mostly found listening to loud music while trading and investing for himself. While every care has been taken in preparing the information in and/or materials, such information and materials are provided “as is” without warranty of any kind, either express or implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials. The opinions expressed do not constitute investment advice and independent advice should be sought where appropriate. In no event will Asianmacro be liable to you for any direct or indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials attached herewith. Asianmacro may already have or intend to have a trading or investment position in the financial instruments or products referred to in this communication. This is not intended as an offer or solicitation for the purchase or sale of any financial instrument and Asianmacro may also have interests different from or adverse to your interests.

The EUR/AUD FX Cross and VXO alarm bells are ringing

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Illustration 1: EUR/AUD FX cross exhibit high correlation & R-square with VXO … predictive ability of unknown stresses ahead in financial markets when both heads higher?

There are a number of price movements of various financial instruments that Asianmacro had observed before that I simply do not have a logical explanation that satisfy either a scientific mathematical finance approach or a qualitative explanation.  Perhaps I do not have the eloquence nor knowledge of those strategists or economist in coming up with convincing arguments for everything that happens since my pursuit is simply on whether to buy, sell or hold in making profits as the sole objective.

One phenomena that I chance upon is the propensity for EUR/AUD FX cross together with VXO (http://www.cboe.com/micro/vxo/) to always head higher when markets enter into some uncertainty especially when negative events start occur or develop in the financial markets.

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Illustration 2: EUR/AUD FX cross heads higher post Gold collapse since 12 April 2013 & Boston bombings …. sign of potential further negatives ahead to develop in markets?

I will be very cautious and on a somewhat ”sell risk on rally” mode across various asset classes especially stocks and commodities as this unexplained EUR/AUD & VXO indicator is flashing on my radar screen.  Whether it is due to AUD/USD coming off and under pressure due to poor China economic data (http://www.scmp.com/business/money/markets-investing/article/1215611/investors-dump-stocks-poor-china-economic-data) …. or EUR/USD heading higher … Damn how can that be with uncertainty in EU still smarting from Greece, Cyprus, …… ?  It does not matter … I rather be lucky than smart!

 

 

*Asianmacro is a beach bum managing his own wealth.  Besides deciding what to have for lunch (or hitting the gym sometimes), he is mostly found listening to loud music while trading and investing for himself.  While every care has been taken in preparing the information in and/or materials, such information and materials are provided “as is” without warranty of any kind, either express or  implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials. The opinions expressed do not constitute investment advice and independent advice should be sought where appropriate. In no event will Asianmacro be liable to you for any direct or indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials attached herewith.  Asianmacro may already have or intend to have a trading or investment position in the financial instruments or products referred to in this communication.  This is not intended as an offer or solicitation for the purchase or sale of any financial instrument and Asianmacro may also have interests different from or adverse to your interests.

Bird Flu .. better be worried … How can Singapore stock market be unconcerned?

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Illustration 1: Bird flu onset in Jan 2003 … Hang Seng & Straits Times Index plunge 15% to March-April 2003

Asianmacro remembered the dark days of SARS / bird flu onset circa January 2003.  That was when there was a real sense of doom that is palpable in the air,  especially in Singapore where NOBODY ever voluntarily wears a mask over one’s nose and mouth when he/she has a cold or flu (unlike in Japan or Hong Kong) … you can actually see people in that period in 2003  (if you are lucky to spot a few brave ones out doing grocery shopping!) wearing them.

From Illustration 1, both Hang Seng and Strait Times index plunged about 15% within the next 2 months.  There is a new strain of bird flu with some deaths reported in China http://uk.reuters.com/article/2013/04/05/uk-birdflu-idUKBRE93402H20130405.  Hang Seng is currently off by 600 points (approx -3%) while Straits Times is holding up very well and off only -0.10%.  Looks like there must be a lot of ‘safe haven’ flows buying into Singapore stocks holding them up according to all the brokers!

Maybe it is an opportune time to remind ourselves, firstly, Singapore is not as good a safe haven as before both from an economic, political and geographical stand point.  Secondly, when it comes to bird flu, it is different from bringing your money over from Cyprus, Luxembourg or any other tax-haven of dubious origins to Singapore as the bird flu virus do not differentiate between Hong Kong or Singapore.  In fact, Singapore as a major transportation hub and also with a great number of its residents doing business in China and its companies depending on China, it is just as exposed to Hong Kong to such an exogenous event.

As the 2003 SARS / Bird Flu impact on Singapore stocks has proven before … this time, it shall not be any different.  Anybody who claimed otherwise had better remember the last episode.  as Singapore stocks is far too high up to justify its insulation from what that is panning out whether this bird flu is going to get worse or better, you can be sure that it is not going to get any better first and China always play down negative events!

Short SIMSCI April futures at current 372 level to 360 region as this represent a good risk-reward proposition now!  *This is either a hedge against your underlying cash stocks or outright bet on a decline.

*Asianmacro is a beach bum managing his own wealth.  Besides deciding what to have for lunch (or hitting the gym sometimes), he is mostly found listening to loud music while trading and investing for himself.  While every care has been taken in preparing the information in and/or materials, such information and materials are provided “as is” without warranty of any kind, either express or  implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials. The opinions expressed do not constitute investment advice and independent advice should be sought where appropriate. In no event will Asianmacro be liable to you for any direct or indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials attached herewith.  Asianmacro may already have or intend to have a trading or investment position in the financial instruments or products referred to in this communication.  This is not intended as an offer or solicitation for the purchase or sale of any financial instrument and Asianmacro may also have interests different from or adverse to your interests.

Be warned ! …. the Ting Hai (丁蟹) effect may kick in

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*Saving General Yang — comes out on 4 April 2013

 

If you think that the weaker than expected China Manufacturing PMI (official figures or those of HSBC) released in Asian morning were the catalysts for the risk off move lower in Asian stocks and AUD FX …. wait till the ”Ting Hai (丁蟹) effect” kicks in if this time is no different from the past!

 

The person and event to watch is Adam Cheng Siu-chow.  Whenever Cheng’s films hit movie and TV screens, the Hang Seng index tends to collapse.  Cheng’s next movie — Saving General Yang — comes out on 4 April 2013.

 

Cheng had shows airing during the Asian financial crisis of 1998 and the tech bubble burst of 2000.  The market fell during 11 of 17 of his television shows since 1992.  It seems that the markets do worse when the series / shows are more tragic.  (*Do note that Saving General Yang is pretty gory and tragic!).

This phenomenon is called the ”Ting Hai (丁蟹) effect” http://en.wikipedia.org/wiki/Ting_Hai_effect named after one of Cheng’s characters who makes money by shorting derivatives and stocks.

 

Check out the unbelievable statistics of the market risk off downturn from Adam Cheng:

1990s

  • October 1992: The drama series Greed of Man made its debut on TVB. During the time it was broadcast, the Hong Kong’s Hang Seng Index dropped 598 to 600 points
  • November 1994: Instinct (笑看風雲) made its debut on TVB. The Heng Sang Index fell more than 2,000 points.
  • September 1996: Once Upon a Time in Shanghai (新上海灘) premiered on TVB. The Hang Seng Index fell 300 points.
  • June 1997: Cold Blood Warm Heart (天地男兒) made its debut on TVB. The Hang Seng Index accumulated 735 points in losses.
  • December 1997: Legend of Yung Ching (江湖奇俠傳) was followed by a fall of 1.4% in the Hang Seng Index.
  • June 1999, Lord of Imprisonment (神劍萬里追) was followed by a fall of 6.5% in the Hang Seng Index.

2000s

  • September 2000: A loose sequel of The Greed of Man, Divine Retribution aired on ATV. Due to the Tech stock bubble at the time, the Hang Seng Index fell an accumulated 1,715 points, with other stock markets around the world falling as a result also.
  • March 2004: Blade Heart (血薦軒轅) premiered in Hong Kong, the Hang Seng Index fell 550 points over 3 days due to high oil prices and instabilities in the Middle East.
  • October 2004: The Conqueror’s Story (楚漢驕雄) premiered in Hong Kong, followed by a 198-point drop in the Heng Seng Index on the day of the premiere.
  • March 2005: The Prince’s Shadow (御用閒人) broadcast of the first episode, the Hang Seng dropped 100 points by noon, then rose back 90 points by the end of the day.
  • July 2007: Return Home (香港傳奇-榮歸) broadcast and the market to fell 1,165 points.
  • March 30, 2009: The King of Snooker (桌球天王) premiered in Hong Kong. The Heng Seng Index fell 663.17 points.

 

Asianmacro is not superstitious by nature and correlations does not infer causality. However if a sufficient number of people choose to believe in this mumbo jumbo ”Ting Hai (丁蟹) effect”, it might just become a self fulfilling prophecy and the markets de-risk and takes on a life of its own …..

 

 

*Asianmacro is a beach bum managing his own wealth.  Besides deciding what to have for lunch (or hitting the gym sometimes), he is mostly found listening to loud music while trading and investing for himself.  While every care has been taken in preparing the information in and/or materials, such information and materials are provided “as is” without warranty of any kind, either express or  implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials. The opinions expressed do not constitute investment advice and independent advice should be sought where appropriate. In no event will Asianmacro be liable to you for any direct or indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials attached herewith.  Asianmacro may already have or intend to have a trading or investment position in the financial instruments or products referred to in this communication.  This is not intended as an offer or solicitation for the purchase or sale of any financial instrument and Asianmacro may also have interests different from or adverse to your interests.