Good Morning,
For some reason or other certain entities prefer to call EMC
commentary as negative rather than realistic on Chinese growth. We'll ignore
how numbers are reported and 'massaged' within the Chinese GDP focal-points.
China's premier Li Keqiang (FT) has reiterated a more relaxed approach
to growth with the terminology of 'around 7%.'
China and those better versed in the politics and industry
know full well there's significant wastage, which is symbolically represented
by the housing slump in China. With industries reliant on stimulus for growth,
when in reality, after such a sustained period of growth consolidation would be
wiser.
The emphasis is on the 'around' terminology. China are logically accepting
a slowdown/cooling in specific sectors and resetting expectations. Investors would be wise to consider
this a cautionary note of things to come. The contradictions are already there, with such measures as increasing financial liquidity of mortgages but cunningly
increasing the down-payment requirements for home purchases.
Li (EMC not the direct line to the premier) has concerns for how resilient Shanghai and Beijing house
prices and rental yields are, as they are already showing a larger housing price decline than expected.
This is solely in part due to the exponential demands on house price to wage
ratios, the latter being 50% above any other city in China, at circa 15 and 22%
respectively. Raising questions about growth in the cities when
balanced against affordability and wages which are slowing. China has surpassed western economies with an
emphasis on home-ownership, with the lovely term fangnu meaning 'house
slave'. In essence working just to keep the house.
With oil in decline, and commodities significantly lower,
China will feel the benefits in the short-term, but deflation is a significant
risk in China. Along with excess capacity, wage-stagnation and limited FDI.
It's wise to ignore the recent jump in China inflows of FDI, on the basis of
the lunar cycle being near one month earlier for the Chinese New Year. With
China very much in the throes of Japan's 1980's models. Its becoming more
evident that China are wary of excessive stimulation save for a populous of
discontent that may force the Government to 'keep their comrades happy.' Those
Chinese mega-bulls might be wise to revisit their expectations.
Inmarsat plc (ISAT) updating the market that they're
out of fashion with Government spending, down a whopping 20+%. ISAT will
benefit from a trend in flight tracking and the Global Xpress system
(specifically from London.) With a fairly decent run since October it would be
sensible to take profits. Results likely to suggest a few downgrades to circa
850 pence.
Vedanta have given some Cairn
India guidance. We will save the debate on what proactive means, as Cairn
recently updated us with Q3FY15 and
"in light of the current oil price environment, Cairn is taking a
proactive approach to capital allocation and shareholder returns." With an
element of sarcasm, its positive that VED acknowledge they have "a"
shareholder. I'm sure Anil Agarwal knows there's a few others on the
register.
Its with bemusement that the LEX column couldn't have been
further off the market with their coverage of Glencore. One is resisting the
urge to educate them some more, as Roger Bade rightly points out, "net income before extraordinary items might
have fallen only 7% to US$4.3bn last year, but net income was only $2.44bn,
after the significant items." LEX need educating about bottom and top
line (Glencore: Trading Place) and what to allow for in
deductions. It’s easy to spot crap, GLEN's results were crap and with some hope of a recovery in oil trading, GLEN
might get some respite.
Sirius Minerals (SXX) holders need to learn to avoid
becoming the eternal short on their own stock. Holders simply won't learn nor will the
management if they continue to utilise this type of funding in future. Near 40% of
the fall (aided by impatience and an idiotic understanding of the planning
process) is as a result of warrants and the flipping of said stock.
Genel (GENL) full year results, suffice to say GENL expect significant
growth in the future. Perhaps aided with an all share purchase? Despite
exploration costs being just shy of $500M, depreciation being $141M, GENL
remain bullish for the future with revenues even at $50/bbl being
positive for the bottom line. As such, GENL can potential leverage or
alternatively, take on leveraged assets. Is it enough to stop
the rot in the SP? In the short-term yes.
Sinclair Williams (SNCL) continue their historic trend
of disappointment with the CEO falling on his sword today. As asked last year
about SNCL, my flippant comment that I hope you aren't composting your
share certs created upset. Perhaps now they'll have a group hug! Over
to SNCL to sum up trading above their "poor start to the
season."
William Sinclair has had a difficult season so far. While
some progress has been made in the ramp up of production, we are not as well
developed as we had expected to be at this stage. We have also seen a slow
start to the season with sales to retail and professional customers below last
year. There has been margin pressure in both professional and retail sectors.
Consequently the Board expects that the result for the year on an underlying
basis will be materially worse than last year.
Allowing for debt, SNCL will have to pass the cap around
soon, the read across to B&Q (Kingfisher/KGF) might not be as favourable if
one measures compost against KGF sales. It would be very unwise to bet against
KGF with the current buyback in progress. With a few savvy investors spotting
the money for old rope long. SNCL benefited with the hope value in the
recessionary grow your own that failed to materialise. With the younger
generations avoiding any form of home horticulture and DIY, the future isn't so
rosy, quite how they’ll turn around this business remains to be seen. Price perception of compost and gardening materialise is amazingly difficult with older generations being the driver rather than the youth of today.
Daily Mail + Cyprus Mortgages. Talk about reactive
reporting, wasn't yours truly reporting on this in FTML a few months ago
pre-CHF debacle? What the article does not say is the lengths the Cypriot banks
will go to seek recovery of their money. With UK holders with property in the
UK potential having to sell / lose their homes to repay their potential obligations.
For those with potential obligations over there, they'd be wise to
contact Christofi Law, who are conducting a class action.
We have the excitement of the Bank of England rate
decision today, which I'm sure will thrill people with no change!
