Thread Rating:
  • 0 Vote(s) - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5
June 2016
#1

Hmm, some not so good news from China, although apparently Jinko isn't the main casualty.


Solar stocks decline as Roth frets Chinese demand


Solar stocks are lower today alongside Roth Capital's bearish report on the sector: Trina Solar (NYSE:TSL) is off 6%, JA Solar (NASDAQ:JASO) is 6.4% lower, Yingli Green Energy (NYSE:YGE) is down 2.4%, and JinkoSolar Holdings (NYSE:JKS) is down 2.5%.

“Heading into H2’16, we are cautious on our entire group of upstream manufacturers given the threat of overcapacity in Q3 as demand in China weakens,” says Roth's Philip Shen.

The firm downgraded Trina Solar to Neutral with concerns about ASP declines, and lowered its price target to $8 from $12 (now implying 6% upside from today's lowered price). Exposure to the U.S. market might give Trina some protection against the Chinese demand threat.

Meanwhile, a difference in exposure has Roth very concerned about JA Solar -- also downgraded to Neutral with an $8 price target (now 9% upside from today's lower price). There's limited visibility into second-half bookings, and again: “As a Tier 1 manufacturer, we believe the company will be able to sell all the product it produces. The issue will be one of ASPs, in our view."

JinkoSolar fares better, maintained at Buy but with a lower price target as well (to $30 from $35, implying 41.7% upside). Margins and improving geographic diversification put the firm in better position than peers, Shen says. Demand's still a worry “given the potential for an air pocket due to the FIT cut in China expected at the end of June."

Reply

#2

Markets at record highs, they are too relaxed about this:

Britain is the world’s most vulnerable state on a key measure of short-term debt and credit markets might suddenly seize up if voters opt for Brexit, Standard & Poor’s has warned. The US credit rating agency is crystal clear that Britain will be stripped of its coveted AAA status immediately and may face a double-barrelled downgrade if the country takes a leap in dark, jeopardizing its trading and financial ties to its biggest market. “We are categorical about this,” said Moritz Kraemer, the agency’s head of sovereign ratings.

Brexit might trigger run on Britain's record financial debts, S&P warns

Reply

#3

The best argument for a bear market:

The 2016 calendar year may well see productivity growth in the US economy slumping to around 0.5 per cent, a catastrophic outcome for an economy in the middle of a cyclical upturn. This is part of a worldwide phenomenon which began some decades ago, and shows no sign of ending.
The rise in the profit share in the US, and the decline in the bond yield, have together had a greater effect on equity prices than the opposite effect from the productivity slump.
So does this mean that investors can sit back and relax in the face of a productivity crisis that will clearly damage the outlook for the global economy very seriously? I doubt whether this aberration can last forever. The decline in the real bond yield may be reaching its limits in some economies. And the sharp falls in the unemployment rate, especially in the US, could cause greater wage pressure and a decline in the profit share in GDP. In fact, if investors come to the view that future growth in corporate earnings will be depressed below the growth of nominal GDP as the share of wages in the economy reverts to its long term mean, then earlier declines in productivity might suddenly come home to roost. In the past year, unit labour costs have been rising more rapidly than output prices, and profit margins have been falling [4].

Why hasn’t the productivity crisis caused a bear market (yet)? | Gavyn Davies

Reply

#4

We have been looking to buy Ctrip (CTRP), however, it's expensive, there is a weakening yuan, and then tourism seems to be slowing down:

Chow Tai Fook Jewellery Group rode Hong Kong’s luxury boom on the way up, earning the equivalent of nearly $1 billion in its best business year. The slump that followed has taken a toll. Chow Tai Fook reports results Tuesday, and analysts expect the smallest profit in six years. Fewer mainland tourists are visiting Hong Kong, spending less on luxury while there.

Chow Tai Fook May Post Second Straight Profit Decline: Chart - Bloomberg

But tomorrow they'll present quarterly figures, we'll know more then.

Reply

#5

We warned (here) last week that markets were too relaxed about Brexit, but they seem to have woken up to the dangers. Opinion polls now seem to favor Brexit, although how this plays out remains to be seen. Here are a few useful bits on what to expect in the aftermath:

Before dawn on June 24, if an exit vote becomes clear, the EU’s top brass from Berlin to Brussels will be forced into damage control. In echoes of the Greek debt crisis, euro-area finance ministers may hold an emergency meeting as soon as that evening. Wild swings in the pound, more aggressive interventions by the Swiss National Bank and a ratcheting up of global instability rank as likely market reactions. Currency markets haven’t priced in the U.K.’s exit from the EU, so if it happens, “a crash is pretty likely,” Lothar Mentel, chief executive officer of Tatton Investment Management in London, said on Bloomberg Television. “We would have to brace ourselves for quite a rough awakening on that Friday.”

EU Referendum: The First 100 Days of Brexit - Bloomberg

David Cameron is scheduled to meet the other 27 EU leaders at a summit in Brussels the following week. It’s at this gathering that the prime minister is likely to trigger the EU’s Article 50 -- the never-before-used law that catapults nations out of the club. That would set a deadline of two years -- until the end of June 2018, during which time the U.K. would have to negotiate its exit. Will Cameron want the U.K. to become like Norway or Iceland and maintain a close working relationship with the bloc as part of the European Economic Area? Or could there be another set-up that means the U.K. would have to trade with the EU under the World Trade Organization framework?

EU Referendum: The First 100 Days of Brexit - Bloomberg

The U.K. would start talks to renegotiate EU agreements in areas as diverse as fishing quotas, financial-services legislation and health and safety standards established over more than 50 years, simultaneously having to start negotiating its own trade deals with the rest of the world. Talks would also have to begin on the relocation of EU bodies headquartered in the U.K., such as the European Banking Authority. Each step of the way must be agreed upon by the EU’s other members and the European Parliament, a process lasting at least seven years and with no guarantee of success, EU President Tusk told Germany’s Bild newspaper. “No one can predict the long-term consequences,” Tusk said in the interview. “I fear that Brexit could be the beginning of the end not only of the EU, but of the entire western political civilization.”

EU Referendum: The First 100 Days of Brexit - Bloomberg

Reply

#6

Besides the Brexit turbulence there is another development worth paying attention to (Bloomberg):

The median U.S. worker enjoyed a pay increase of 3.5 percent year-over-year as of May, according to the Federal Reserve Bank of Atlanta's wage growth tracker.

Wage growth has been accelerating since October, quickening to a pace not seen since January 2009

While this is good for the economy, if this continues, it will be difficult for the Fed not to raise rates more, which is likely to be good for the dollar but bad for stocks..



Attached Files Image(s)
   
Reply

#7

Very good article in The Economist on why Britain should not leave the EU, here a few bits:

Britain initially stood aloof from the project but then spent a decade trying to join, as its poor economic performance became clear; between 1946 and 1965, British GDP per capita grew at half the rate of other industrialised countries. Since joining the EU, Britain’s relative economic performance has improved; GDP per capita has grown faster than France, Germany and Italy since 1973. Is this all down to the EU? Probably not. But it is hard to argue, as some do, that the EU has damaged British growth.

EU referendum: The arguments for voting Remain | The Economist

With 72% of investors citing access to the European single market as important to the UK’s attractiveness, the referendum has the potential to change perceptions of the UK dramatically, posing a major risk to FDI. Our survey indicates that 31% of investors will either freeze or reduce investment until the outcome is known.

EU referendum: The arguments for voting Remain | The Economist

What about the Leave campaign’s arguments? The first is that Britain is overregulated because of EU membership. But that isn’t what international comparisons show (see chart). The World Bank’s survey on the ease of doing business ranks Britain sixth, one spot above the US. Nor is it clear what regulations the Leave campaigners want to scrap; a Daily Express list of the eight worst EU rules includes one on the prevention of cruelty to animals in transport and another on the elimination of excessive packaging, things most Britons would like to see controlled. When the Leave campaign talks of scrapping rules, they may well mean regulations that protect workers; something they don’t mention for fear of alienating their working-class support.

EU referendum: The arguments for voting Remain | The Economist

Then there is the question of the EU budget contribution. Leave has used the £19 billion, or £350m a week, figure which the head of the Statistics Authority has twice slammed as “potentially misleading”. A rebate is applied before Britain sends the money to the EU and then around £5 billion comes back in the form of regional grants and industry subsidies. The remaining contribution is around 1% of government spending. And the IFS, a body that every politician has been happy to quote in support in the past, estimates that the hit to British tax revenues in the event of Brexit will be much larger than £8 billion. There will be no “extra money” to spend, on the NHS or anything else.

EU referendum: The arguments for voting Remain | The Economist

Finally, we come to immigration, which may be swaying the most votes. It is sad that immigrants who play such a positive role in the Britain are being so derided; especially when they make a net positive contribution to public finances. (That is quite a feat when Britain has a big deficit; the rest of us take out more than we put in.) Yes, there are local problems when services get stretched but that is something the British government should be tackling with more resources. Nations that welcome immigrants have prospered; in the early modern era, the British economy took in Huguenots and others fleeing persecution to help establish the textiles industry. This is perhaps the most dishonest part of the whole Leave campaign. Here are a bunch of largely free-market Tories arguing that governments should decide which workers companies should employ. Instead of sweeping away regulations, a points system would involve the imposition of new ones. In any case, last year slightly more people came to the United Kingdom from outside the EU than from within it. Eliminating all EU migration will not get the total down to the “tens of thousands”.

EU referendum: The arguments for voting Remain | The Economist

Reply

#8

We're selling everything. Brexit increases the risk for a global slowdown and more political fallout in the EU. Hope it is contained, but hope isn't an investment strategy. This fallout won't happen overnight (although there already is sufficient drama), but the longer term implications are difficult to foresee and could potentially be rather ugly. The world economy is fragile, the European economic recovery is fragile, the eurozone is very fragile, China is drowning in debt..

Reply

#9

We're not saying the markets will necessarily crash (they could very well recover a bit from the initial blow, they already have as it happens). But in this environment we see limited upside and significant risks to the downside. Holding stuff long-term doesn't really seem a good idea in that environment.

Reply

#10

Here is Morgan Stanley:

Unfortunately, this discounting process may not be finished. Our FX strategists believe that GBP will ultimately fall to 1.25-1.30. Our equity strategists believe that European and UK stocks may need to correct a further 7-10% over the next several months. While these adjustments may seem harsh in light of Friday's moves, we think they're consistent with the uncertainty this vote has created. 1.25-1.30 for GBP would only begin to make the currency look cheap on a trade-weighted basis. A further 7-10% fall in UK and European stocks would simply bring forward multiples down to the long-run average. Both seem reasonable in light of increased uncertainty. And that uncertainty is high and extended, given that leaving the EU is a two-year process under the Treaty of Lisbon. This is likely to delay investment, and will hit consumption if consumers feel less confident about the economic situation or the value of their home.
While the size of the economic impact depends on the political steps taken from here, our economists estimate that it could knock 1.5pp off UK GDP over the next 18 months. This impact is not limited to the UK. After considering the impacts to trade, confidence and investment, they see a potential cost of 0.8pp to euro area GDP. For the global economy, there could be a cumulative hit of ~0.5pp from our baseline between now and the end of 2017. This weakening of the global environment would likely weigh on the Fed's thinking. Our US economists no longer expect the Federal Reserve to raise rates this year, keeping G4 yields lower for longer."

Morgan Stanley says Brexit knock-on effect could take 0.5 points off global GDP - Business Insider

What we're afraid off is not the 7-10% further correction, but what the lower growth will do to financial and political stability, especially in the eurozone. Things are pretty close to boiling points in several countries. Look what happened to the US, which wasn't even in the euro and was doing better economically than almost all eurozone members.

Reply



Forum Jump:


Users browsing this thread: 1 Guest(s)