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A New Year Rally In The Making?
Econowatch, Tradeable | 03 January 2013
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By: Simeon Ang
Articles (125) Profile

It was a cold and bitter winter evening when politicians of the House of Representatives huddled at Capitol Hill on the second day of the new year. Roughly 24 hours earlier, the US Senate had just approved overwhelmingly, of a budget plan that would stave off the worst tax increases from the Fiscal Cliff. A few hours later, those huddled politicians would commence debate, vote and subsequently approve the Senate bill.

The so called “Fiscal Cliff”, which was essentially created by the same US government in 2011 during the debt ceiling fracas, was averted by the exact same people yesterday with the passage of the Senate bill in both houses of government. This brought a collective sigh of relief across the US and the world. Asian markets that were open, reacted with much glee and Wall Street ushered in 2013 by piling into stocks, cheering US politicians’ ability to reach a last minute deal to avert the Fiscal Cliff.

The Bulls Charge In
With the budget overhang removed from the markets, bullish exuberance set in. Wall Street saw its three primary stock indices rally with the Dow Jones gaining 2.4 percent, the S&P 500 putting on 2.5 percent and the Nasdaq spiking 3.1 percent.

European markets closed more than 2 percent higher while Australia’s stock index jumped 1.3 percent. In Asia, South Korea’s KOSPI gained 1.4 percent and the Hong Kong Hang Seng added 1.9 percent. Back home in Singapore, the Straits Times Index hit a high of 3,210.02 before settling at 3,201.74, solidifying its gains of around 1.1 percent.


Source: Factset, chart comparing 1 month returns of KOSPI, HSI and STI.

Beaten Down Stocks Stage A Comeback
An industry report showed American manufacturing expanded more than forecast in December as commodities rallied. Local commodity stocks such as Wilmar International, Noble Group and Golden-Agri all saw broadside gains as investors scoffed at previous sell-downs and piled on risk.


Source: Factset, chart comparing 1 month returns of STI, Wilmar, Noble and Golden Agri.

Olam – Best Shape Since Muddy Waters?
In a press release that seemingly coincided with the feel-good sentiment of yesterday, Olam International iterated its “comfort” with its current levels of debt. Olam mentioned that as of 30 September 2012, it had over $10.7 billion in liquidity and said it’s in the best financial health since its 2005 initial public offering.

Olam had offered $750 million in bonds and around $500 million worth of warrants to investors on 3 December 2012. It’s two largest shareholders, Kewalram and Temasek pledged support to that issue with the latter going as far to say that it will buy any rights not taken up by other investors.

Subsequent to this most recent issue, Olam said that it doesn’t need any further new equity and does not need to access the debt capital markets until the end of its 2014 financial year.


Source: Factset, chart comparing 1 month returns of STI and Olam.

Onward 2013!
Although Wednesday’s deal by the US government has prompted a rally in markets, it is interesting to note what has not been addressed. The debt ceiling that has already been hit on 31 December 2012, will come into focus when the “extraordinary measures” taken by the US treasury wanes in effect in late February and early March. The US government could head into upheaval as the GOP (a political party in the US) might again attempt to hold the US hostage like they did two years ago.

The last time that happened, Standard and Poor’s cut the US’s perfect credit score by one notch. While that first cut did not affect demand for US debt, another cut so soon after the first, could have an impact on the US’s ability to raise debt, increasing debt funding costs unnecessarily.

Till then, as one analyst put it, the party may continue awhile until the debt ceiling negotiations begin.

Author’s note:
Have any thoughts/comments or feedback regarding this article? Reach out to me on my twitter account, @Tradeable. I will also discuss and tweet about various other investment and economic related news in Singapore and beyond, there.

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Simeon, an LSE graduate, is currently the editor of Aspire. He specialises on topics surrounding trading psychology, politics and macroeconomics.

Please click here for more information about this author.

Wilmar Int'l  3.920 +0.05 +1.29%   
Business: Co's integrated agribusiness model encompasses the entire value chain of the agricultural commodity processing biz, from origination and processing to branding, merchandising and distribution of a wide range of agricultural pdts.

Insight: May-19, 1Q19 revenue fell 6.2% to US$10.4b driven ... Read More
Golden Agri-Resources  0.270 -0.005 -1.82%   
Business: Co is engaged in cultivating & harvesting oil palm trees, processing fresh fruit bunches (FFB) into crude palm oil (CPO) & palm kernel (PK), & refining CPO into industrial & consumer pdts.

Insight: May-19, 1Q19 revenue fell 11% due to softer crude ... Read More
Olam Int'l  1.820 -- --   
Business: Co is engaged in sourcing, processing, packaging and merchandising agricultural products. [FY18 Turnover] Food staples & packaged foods (47.6%), confectionery & beverage ingredients (23.4%), industrial raw materials, infrastructure & logistics (14.9%), edible nuts & spices (14.1%).

Insight: May-19, 1Q19 revenue rose 16.7% due to increased t... Read More


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