Posts Tagged ‘trade’

YUAN …. “KNEE-JERK REACTION”

The Chinese New Year has only just started, and already trade tensions are ratcheting up. The strength of China’s Yuan gave the world a confidence to end the peg & acted as a cushion for reviving from the fears of the global financial crisis, especially with European debt worries in the background.

.

China’s yuan soared at 6.7980, its highest level against the US dollar since its July 2005 revaluation after the central bank signaled it would allow the yuan to continue its rise.

.

REVALUATION OR REVOLUTION???

.

The yuan policy change signaled that the Chinese economy “the world’s third-biggest economy” is on a more solid footing. China has been under intense global pressure, especially from the US, to introduce more flexibility between the yuan and the dollar to encourage the cash-rich Chinese to buy more from the heavily indebted West.

.

Needless to say, a stronger yuan would allow China to lower the cost of its imports, particularly commodities.

.

Even a small rise in the yuan could shave billions off the cost while raising the volume of China’s commodity purchases. China’s economy is still in a cycle towards overheating.

.

China’s inflation accelerated in May to 3.1%, the quickest pace in 19 months, highlighting overheating risks in the fastest-growing major economy. Inflationary pressures may convince China to allow its currency to appreciate. A stronger yuan is in China’s interest to satisfy its appetite for resources.

.

Yuan appreciation should benefit China’s importers of bulk commodities like soybeans, cotton, copper and various mining products including iron ore and other metal ores as these commodities, priced in the dollar, will be cheaper. The appreciation will support commodities prices in dollar terms in global markets as China will be able to accept higher prices in the dollar terms.

.

Following is a list of some likely winners and losers from any yuan appreciation.

.

WINNERS

.

·Foreign resource companies – On hopes China’s move would increase its resource imports.

.

·Foreign heavy machinery makers – The U.S. sells billions of dollars worth of machinery and products to China each year.

.

·Foreign automakers – Foreign automakers that sell cars in the world’s largest vehicle market, should also gain.

.

·U.S. companies such as General Electric Co and Procter & Gamble Co are likely to make currency exchange gains when their China profits are converted into U.S.dollars.

.

·Chinese airlines – China’s three top carriers, Air China China Eastern Airlines and China Southern which borrow in foreign currencies to pay for aircraft, but generate reveyuan, could benefit the most. Airlines also use dollars to buy fuel.

.

·Foreign luxury firms – A firmer yuan would likely boost other Asian currencies as a strong yuan is seen by investors as a pledge of confidence for Asia’s growth. That should help luxury goods makers, whose imported products will be cheaper across the region, just as more Asians benefit from increased wealth.

.

LOSERS

.

·Foreign retailers- Companies signed earlier memorandum of understanding for projects to build, would have to spend more in U.S. dollars to fund investments.

.

·Chinese commodity firms – Companies with dollar-linked prices for their output, but their costs are in yuan, would find their revenues falling while their costs remain steady, if yuan strengthens.

.

In a nut shell, China is not shying away from commodity consumption any time soon.They still have roads to pave, factories to build, and cities to expand. China is thinking ahead in terms of commodity demand. The shift toward a stronger exchange rate may give more purchasing power to its people. Chinese consumers might buy more while their counterparts in the U.S. may have to pay more & cut back on their spending as the cost of goods imported into America rises. This move is a net plus for the world economy.

.

OUR Websites:  http://www.smcindiaonline.com,http://www.smccapitals.com,http://www.smctradeonline.com
,http://www.smcwealth.com

Standard Chartered IDR : “Opportunity in Crisis”

Standard Chartered IDR : “Opportunity in Crisis”

By Jagannadham Thunuguntla

.

.


The bad market conditions are putting pressure on the ongoing IPO of Standard Chartered IDR. However, if one closely observes, there is some opportunity emerging in the Standard Chartered IDR.

.

What’s the trade?

.

When the price of Indian IDR was fixed, the trading price of the Standard Chartered Plc share on London Stock Exchange was trading in the range of GBP 15.5.

.

However, thanks to the stabilization of the global equity markets in the past 2 to 3 trading sessions, the price of the Standard Chartered Plc on London stock exchange has reached to the tune of GBP 16.82 on Thursday closing. Hence, the Indian rupee translation of the trading price in London stock exchange works out to the equivalent price of Rs 1140. As, there is 10:1 exchange rate, the effective equivalent price of Standard Chartered Indian IDR works out to Rs 114.

.

If one observes, the Standard Chartered IDR issue book is getting built at the lower end of Rs 100.

.

So, the institutional investors and large HNIs can take this opportunity, by simply applying for IDRs in the Indian public issue; and shorting the share in the London stock exchange. Hence, there is a spread of Rs. 14 (that is, between Rs. 114 and Rs. 100), that is 14%.

.

This trade is more fascinating, especially, on the back of the fact that recently the listing days from the closure of the issue have been reduced to 12 days from the erstwhile 22 days. So, 14% is the spread available for a trade of just 12 days.

.

Further, it is appearing that the IPO book will at best get barely subscribed one time. Hence, there is no risk of oversubscription. So, whoever applies is assured of allotment. Hence, as there is no spill-over risk due to oversubscription, this trade can really work well.

.

It seems there is a clear 14% opportunity in just 12 days for institutions and large HNIs.

.

Even if we assume that the final issue price will be in line with the Rs 104 per IDR, as applied by the Anchor investors, still there is Rs 10 spread (that is, between Rs 114 and Rs. 104), that is to the tune of about 10%.

.

The couple of assumptions that need to be highlighted are:

.


(a) The IDR issue will be able to get closed successfully and will not get called off; and

(b) The currency risk is properly hedged

.

Conclusion

.


As this is the first ever IDR issue in India, the learning curve will be steeper for every one associated in the value chain, regarding the concept and nuances of the modus operandi. As always, the “first mover advantage” can prove to be invaluable.

Weekly Update 29th March – 02nd April

The domestic markets had a mixed week; it started weak following RBI hiking the repo and reverse repo by 25 basis points each and growing concerns from the 16-nation Euro zone—first over conflicting signals from the currency bloc on resolving Greece’s debt problems and second over Fitch Ratings lowering Portugal’s sovereign credit outlook.

.

But, concluded the week on green zone buoyed by continued liquidity inflow and earnings optimism; both the indices Sensex & Nifty, saw the highest closing levels in more than two years. FIIs bought stocks worth Rs 12125.81 crore this month till 25 March 2010.

.

On the whole, over the last few months the confidence of global & domestic investors has resulted in an excellent run up in the domestic markets. Closer home, further rate hike together with hike in CRR is expected in order to anchor inflationary expectation in the next RBI meet which is scheduled on 20th April.

.

Increasing capacity utilisation and rising commodity and energy prices are exerting pressure on overall inflation. Taken together, these factors heighten the risks of supply-side pressures translating into a generalised inflationary process. Food inflation in India dipped marginally falling to a five-month low.

.

Inflation for the Food Articles group dropped to 16.22% in the week ended March 16, as compared to 16.3% in the previous week. While it is largely anticipated that this time around the increase in interest rates would not be a spoil sport for the markets as the signs of recovery in the growth are promising. Data on Industrial production & more specifically the acceleration in the growth of the capital goods sector points to the revival of investment activity.

.

Expectations of the good corporate results as indicated by buoyant advance tax figures & the forecast for the southwest monsoon for 2010 is likely to play a catalyst role for the next direction of the market. On the global economic front; in a bid to restore confidence in their common currency, all 16 euro zone leaders have reportedly agreed to provide joint financial assistance to the debt-laden Greece in tandem with the IMF.

In the US front, Unemployment increased in 27 states in February and dropped in seven, a sign the labor market needs to pick up across more regions to spur consumer spending and sustain the economic recovery.

.

Trend of world stock markets is up though China is showing some weakness along with some weakness in commodities. US dollar index rise above 81 has brought uncertainty in world markets and the Euro zone problem in Greece is giving uncertainty to Euro. One should trade carefully in such markets. Nifty has support between 5150-5050 and Sensex between 17200-16800 levels..

.

Commodities are moving on their own fundamentals. Recent blow up in dollar index could not give much impact on the commodity prices as it was expected earlier in market. However, with the recent rise in dollar index, upside in commodities seems to be limited. Commodities are now expected to trade in a range after a volatile week. Expected improvement in employment data from US is likely to cap the downside. Agro commodities can perform mix. Spices, especially turmeric and pepper may trade in a range after an upside rally. Same trend may go with chana futures as well whereas guar may firm further.

.

Stay Tuned for More Updates :)

China May Become World Largest Economy by 2030 : Report

China May Pip USA to Become World largest Economy by 2030

.

As per the latest report by Deutsche Bank, the economic and financial status of emerging market economies such as India and China will continue to do well in the future and the recent downturn will help accelerate the trend.

.

Report also suggests that the (BRIC) economies” increasing size will be making itself increasingly felt in the world markets, ranging from trade and investment to commodity markets.

.

Meanwhile, the BRIC economies of Brazil, Russia, India and China are likely to achieve significant growth in future.

.

Meanwhile, BRIC nations are already ranked among the top 10 on a PPP (Purchasing Power Parity) basis.

.

The impressive economic growth rates and greater participation in global trade and financial flows by the BRIC economies are re-shaping the global economic and financial architecture of these economies.

.

It is expected that with the constant present growth of the BRIC economies, political, economic and financial realities  of the world is going to change to the extent that China will replace the US as the World’’s largest economy by 2030.

.

All the four big BRIC economies carry at least one investment grade rating, currently, at the same time.

.

Moreover, China’’s and Russia’’s international status has been enhanced due to their substantial holdings of government controlled foreign assets.

.

China May Pip USA to Become World largest Economy by 2030 : Report

China May Pip USA to Become World largest Economy by 2030

As per the latest report by Deutsche Bank, the economic and financial status of emerging market economies such as India and China will continue to do well in the future and the recent downturn will help accelerate the trend.

.

Report also suggests that the (BRIC) economies” increasing size will be making itself increasingly felt in the world markets, ranging from trade and investment to commodity markets.

.

Meanwhile, the BRIC economies of Brazil, Russia, India and China are likely to achieve significant growth in future.

.

Meanwhile, BRIC nations are already ranked among the top 10 on a PPP (Purchasing Power Parity) basis.

.

The impressive economic growth rates and greater participation in global trade and financial flows by the BRIC economies are re-shaping the global economic and financial architecture of these economies.

.

It is expected that with the constant present growth of the BRIC economies, political, economic and financial realities  of the world is going to change to the extent that China will replace the US as the World”s largest economy by 2030.

.

All the four big BRIC economies carry at least one investment grade rating, currently, at the same time.

.

Moreover, China”s and Russia”s international status has been enhanced due to their substantial holdings of government controlled foreign assets.

.

🙂

RBI, Monetary Projections And Indian Economy

Hello Friends,

Just an extension of our previous blog ”RBI And Its Policies – Part 1″.

RBI, Monetary Projections And Indian Economy

RBI, Monetary Projections And Indian Economy

In this Blog we would touch upon the aspects as that of Monetary projection from RBI, assessment of economy scenario at present and relevance of RBI policy on economy.

Monetary projection:

For policy purposes, money supply (M3) growth for 2009-10 is placed at 17.0 per cent, down from 18.0 per cent projected in the Annual Policy Statement.

Consistent with this, aggregate deposits of scheduled commercial banks are projected to grow by 18.0 per cent.

The growth in adjusted nonfood credit, including investment in bonds/debentures/shares of public sector undertakings and private corporate sector and Commercial Papers (CPs), has been revised downwards at 18.0 per cent as in the Annual Policy Statement.

🙂

Economy:

Since the last review in July 2009, there has been a discernable improvement in the global economy.

The recovery is underpinned by output expansion in emerging market economies, particularly in Asia.

World output has improved in the second quarter, manufacturing activity has picked up, trade is recovering, financial market conditions are improving, and risk appetite is returning.

🙂

A sharp recovery in equity markets has enabled banks to raise capital to repair their balance sheets.

If we talk about the home country then there are definitive indications of the economy attaining the ‘escape velocity‘ and reverting to the growth track.

🙂

The performance of the industrial sector has improved markedly in recent months.

Domestic and external financing conditions are on the upturn.

Capital inflows have revived.

Moreover activity in the primary capital market has picked up and funding from non-bank domestic sources has eased.

Liquidity conditions have remained easy and interest rates have softened in the money and credit markets.

Growth projection for GDP for 2009-10 on current assessment is placed at 6.0% with an upward bias, the same as the previous policy review.

But some darker parts also persist.

There are clear signs of rising inflation stemming largely from the supply side, particularly from food prices.

Private consumption demand is yet to pick up.

Agricultural production is expected to decline.

Services sector growth remains below trend.

Bank credit growth continues to be sluggish.

The central bank has warned of possible asset price bubbles, raised banks’ provisioning requirements for commercial real estate loans and lifted inflation forecast.

WPI inflation for end-March 2010 is projected at 6.5 per cent with an upward bias.

This is once again higher than the projection of 5.0 per cent made in the Annual Policy Statement in July 2009.

🙂

Stay Tuned for more on the topic.

We would look into Monetary Policy stance, more facts about economic indicators and Analysis from the Analyst from monetary point of view.

Note : For More Finance Gyan, Latest Industry, Stock Market, Economy News and Updates, please click here

Know the Basics of Commodity Trading :) Part 2

commodity-trade

Hello Friends,yesterday we discussed about the importance and need for Commodity Trading.

Now its time to understand and know that how can we do commodity trading, what is the process for that and how commodity trading works

🙂

Here we go with first question of the topic for the day 🙂

How do you do commodity Trading?

When you buy a Gold Futures contract, you undertake to do three things.

1. Buy the amount of gold specified in the contract.

2. Buy it at the price specified in the contract.

3. Buy it on the expiry of the contract.

This could be after one month, two months, three months and so on.

Of course, if you sell the Gold Futures contract before it expires, then you don’t have to worry about actually buying the gold.

🙂

Let’s say you buy the Gold Future contract at say Rs 15000 per 10 gm.

Your hunch comes true and the gold prices rally to Rs 16000 per 10 gm.

You can sell the Gold Futures any time before expiry of the contract.

Gold and other commodity futures prices are quoted on the commodity exchanges in exactly the same way in which stock prices or stock futures prices are quoted on a daily basis in the stock markets.

🙂

Now let us see How Commodity Trading works?

They work just like stock futures :).

When you buy a Futures, you don’t have to pay the entire amount, just a fixed percentage of the cost.

This is known as the margin.

Let’s say you are buying a Gold Futures contract.
The minimum contract size for a gold future is 100 gms.
100 gms of gold may be worth Rs 72,000.

The margin for gold set by MCX is 3.5%.
So you only end up paying Rs 2,520.

🙂

The low margin means that you can buy futures representing a large amount of gold by paying only a fraction of the price.

So you bought the Gold Futures contract when it was Rs 72,000 per 100 gms.

The next day, the price of gold rose to Rs 73,000 per 100 gms.

Rs 1,000 (Rs 73,000 Rs 72,000) will be credited to your account.

The following day, the price dips to Rs 72,500.

Rs 500 will get debited from your account (Rs 73,000 – Rs 72,500).

🙂

Things You need to know about Commodities Trading 🙂

Compared to stocks, trading in commodities is much cheaper, because margins are much lower than in stock futures.

Brokerage is low for commodity futures.
It ranges from 0.05% to 0.12%.

Because of this, commodity futures are a speculator’s paradise.

🙂

If you are a hard-core trader who follows the technical charts and do not really care what you trade, and if you are nimble and savvy, then commodity futures could be another asset class that you would be interested in.

The advantages in this line is that there are no balance sheets, no complicated financial statements.

All you need to do is follow the supply and demand position of the commodities you trade in very closely.

🙂

Visit the commodities trading exchanges – NCDEX,NMCE and MCX – to find out which commodities are offered for trading, their contract size and other criterias.

You will have to get hold of a commodities broker but that should not be a problem.

There are lots of brokers that offer commodity trading these days.

🙂

But, it would be wise to avoid commodity trading if you are a rookie or beginner.

A much better move would be always to initially trade in stock futures before opting for commodity futures.

🙂

Just like stock futures (Read How to trade in Futures to understand how futures work).

When you buy a Futures, you don’t have to pay the entire amount, just a fixed percentage of the cost. This is known as the margin.

Let’s say you are buying a Gold Futures contract. The minimum contract size for a gold future is 100 gms. 100 gms of gold may be worth Rs 72,000.

The margin for gold set by MCX is 3.5%. So you only end up paying Rs 2,520.

The low margin means that you can buy futures representing a large amount of gold by paying only a fraction of the price.

So you bought the Gold Futures contract when it was Rs 72,000 per 100 gms.

The next day, the price of gold rose to Rs 73,000 per 100 gms.

Rs 1,000 (Rs 73,000 Rs 72,000) will be credited to your account.

The following day, the price dips to Rs 72,500.

Rs 500 will get debited from your account (Rs 73,000 – Rs 72,500).