Tag Archives: china

Will $20 Crude Soon Be A Reality? Short These ETFs

Oil has been the most perplexing commodity of 2015, with big busts and occasional rises seen in a very short period of time. In particular, oil tanked to a seven-year low on Monday after the Organization of the Petroleum Exporting Countries (OPEC) failed to address the growing supply glut. Crude plunged 6% to $37.50, and Brent oil tumbled more than 5% to $40.73. What Happened? At its meeting on Friday, OPEC members decided to continue pumping near-record levels of oil to maintain market share against non-OPEC members like Russia and U.S. in an already oversupplied market. Iran is also looking to boost its production once the Tehran sanctions are lifted. As per the Iran oil minister, Bijan Namdar Zanganeh, production will likely increase by 500,000 barrels a day within a week after the relaxation in sanctions and by 1 million barrels a day within a month. Oil production in the U.S. has also been on the rise, and is hovering around its record level. Further, the latest bearish inventory storage report from the EIA has deepened the global supply glut. The data showed that U.S. crude stockpiles unexpectedly rose by 1.2 million barrels in the week (ending November 27). This marks the tenth consecutive week of increase in crude supplies. Total inventory was 489.4 million barrels, which is near the highest level in at least 80 years. On the other hand, demand for oil across the globe looks tepid given slower growth in most developed and developing economies. In particular, persistent weakness in the world’s biggest consumer of energy – China – will continue to weigh on demand outlook. Notably, manufacturing activity in China shrunk for the fourth straight month in November to a 3-year low. The International Monetary Fund (IMF) recently cut its global growth forecast for this year and the next by 0.2% each. This is the fourth cut in 12 months, with big reductions in oil-dependent economies, such as Canada, Brazil, Venezuela, Russia and Saudi Arabia. That being said, the International Energy Agency (IEA) expects the global oil supply glut to persist through 2016, as worldwide demand will soften next year to 1.2 million barrels a day after climbing to the five-year high of 1.8 million barrels this year. In addition, a strengthening dollar backed by the prospect of the first interest rate hike in almost a decade as soon as two weeks is weighing heavily on oil price. This suggests that the worst for oil is not over yet, with some forecasting a further drop in the days ahead. Notably, the analyst Goldman and OPEC predict that crude price will slide to $20 per barrel next year. How to Play? Given the bearish fundamentals, the appeal for oil will remain dull in the coming months. This has compelled investors to think about shorting oil as a way to take advantage of the strong dollar and commodity weakness. While futures contract or short-stock approaches are possibilities, there are host of lower-risk inverse oil ETF options that prevent investors from losing more than their initial investment. Below, we highlight some of those and the key differences between them: PowerShares DB Crude Oil Short ETN (NYSEARCA: SZO ) This is an ETN option, and arguably the least risky choice in this space, as it provides inverse exposure to WTI crude without any leverage. It tracks the Deutsche Bank Liquid Commodity Index – Oil, which measures the performance of the basket of oil future contracts. The note is unpopular, as depicted by its AUM of $17.2 million and average daily volume of nearly 20,000 shares a day. The expense ratio came in at 0.75%. The ETN gained 17.5% over the last 4-week period. ProShares UltraShort Bloomberg Crude Oil ETF (NYSEARCA: SCO ) This fund seeks to deliver twice (2x or 200%) the inverse return of the daily performance of the Bloomberg WTI Crude Oil Subindex. It has attracted $126.8 million in its asset base, and charges 95 bps in fees and expenses. Volume is solid, as it exchanges nearly 1.3 million shares in hand per day. The ETF returned 38.8% over the last 4 weeks. PowerShares DB Crude Oil Double Short ETN (NYSEARCA: DTO ) This is an ETN option providing 2x inverse exposure to the Deutsche Bank Liquid Commodity Index-Light Crude, which tracks the short performance of a basket of oil futures contracts. It has amassed $67.1 million in its asset base, and trades in a moderate daily volume of around 59,000 shares. The product charges 75 bps in fees per year from investors, and surged about 34% in the same time frame. VelocityShares 3x Inverse Crude Oil ETN (NYSEARCA: DWTI ) This product provides 3x or 300% exposure to the daily performance of the S&P GSCI Crude Oil Index Excess Return. The ETN is a bit pricey, as it charges 1.35% in annual fees, while it trades in heavy average daily volume of 1.6 million shares. It has amassed $174 million in its asset base, and has delivered whopping returns of nearly 61% in the trailing four weeks. Bottom Line As a caveat, investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing, when combined with leverage, may make these products deviate significantly from the expected long-term performance figures (see all Inverse Commodity ETFs here ). Still, for ETF investors who are bearish on oil for the near term, either of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance and a belief that the “trend is the friend” in this corner of the investing world. Original Post

5 China ETFs Up At Least 20% In Q4

Though the Chinese economy and securities have seen the height of volatility so far this year, the final quarter of 2015 seems quite steady, rather upbeat. This is quite a different picture from Q3 backed by compelling valuation after a bloodbath in August following currency devaluation and several cool economic data. China started to recoup losses from October with its A-Shares ETFs once again seeing runaway success in November. Apart from cheaper valuation, plenty of policy easing to jumpstart its ailing economy and hopes for further easing (as the economy is still reeling under pressure) helped Chinese equities ETFs to rule the top-performers’ list in the quarter-to-date frame (as of December 3, 2015). In October, China reduced the key interest rates by 25 bps, which marked the sixth slash since last November. Not only monetary policy easing, Beijing went on to enact a demographic reform and put an end to the country’s decades-long infamous one-child policy. Investors should note that China has long been working on stepping up domestic consumption, shedding focus on exports and intending to move to a ‘slower and more balanced growth’ economy. If this was not enough, the Chinese currency, the yuan, received a privileged reserve currency status from the IMF recently and joined the league of the major currencies, namely U.S. dollar, pound, euro and yen. China’s currency will have a weight of 10.92%, higher than the yen (8.33%) and the pound (8.09%), in IMF’s reserve currency basket from October 2016. As per the IMF, the step was the outcome of reformative measures presently being undertaken in China, which gives the “freely usable” tag to the yuan. It’s not that China investing is devoid of glitches. In fact, news about the Chinese securities regulators being stricter in their investigation into brokerages led the country’s stocks to suffer the deepest plunge on November 27 since the August uproar. Still, relentless constructive measures by regulators have saved China equities every time. One of China’s latest measures to calm the jittery market will be to launch a “circuit breaker ” on a benchmark stock index of the country next year. Per the new norm, a 5% one-day gain or loss in the CSI300 index (before 2:30 p.m.) would close trading in the country’s all equity indices for 30 minutes. Shifts of over 7% would result in closed trade for the rest of the day. In such a backdrop, investors might want to know about the top-performing China ETFs so far in Q4. For them, we highlight five Chinese equities ETFs that are still up at least 20%. KraneShares CSI China Internet ETF (NASDAQ: KWEB ) – Up 30.2% This product provides concentrated exposure to the Chinese Internet market by tracking the CSI China Overseas Internet Index. In total, the fund holds about 60 securities in its basket. The ETF has amassed $154.4 million in AUM and charges 71 bps in annual fees from investors. P owerShares Golden Dragon China Portfolio ETF (NYSEARCA: PGJ ) – Up 27.7% The $185 million ETF holds about 77 securities. The expense ratio of the fund is 0.70%. The fund is heavy on IT (46.4%) and Consumer Discretionary (38.2%). As far as individual holdings are concerned, Ctrip.com (NASDAQ: CTRP ) takes the top position with a 10.27% weight followed by NetEase (NASDAQ: NTES ) (9.8%) and Baidu (NASDAQ: BIDU ) (9.0%). Guggenheim China Technology ETF (NYSEARCA: CQQQ ) – Up 27.3% This fund targets the overall technology sector in China and follows the AlphaShares China Technology Index, holding 76 stocks in its basket. Alibaba dominates the fund’s return with a 21.5% share while other firms hold no more than 9.4% of assets. In terms of industrial exposure, about 65% of the portfolio is allotted to Internet mobile applications while electronic components and semiconductors round off to the next two spots. The product manages an asset base of $58.4 million. The expense ratio comes in at 0.71%. KraneShares CSI New China ETF (NYSEARCA: KFYP ) – Up 24.1% This fund tracks the CSI China Overseas Five-Year Plan Index, holding about 140 securities in its basket. About one-third of the portfolio is skewed towards Consumer Discretionary, closely followed by Information Technology. The fund is unpopular as depicted by its AUM of $3.2 million. The expense ratio comes in at 0.71%. Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap ETF (NYSEARCA: ASHS ) – Up 22.4% This product is a combination of China A-shares and smaller capitalization. This ETF attempts to replicate the performance of the CSI 500 index, which tracks 500 small cap companies on the Shanghai and Shenzhen stock exchanges. This $35.8 million fund charges 80bps in fees. Industrials (24.3%) and Consumer Discretionary (15.9%) are the top two sectors. Link to the original post on Zacks.com

Managements Leading Companies Off A Cliff

By Tim Maverick The quickest and surest way for investors to lose money is to invest in companies where the management is, to put it politely, incompetent. Numerous instances exist throughout history. But we’re perhaps seeing the worst example ever, and it’s from the global mining industry . The level of incompetence being displayed is simply astonishing. Chinese Steel Collapse China has the world’s biggest steel industry, producing half of all steel. Crude steel output there soared more than 12-fold between 1990 and 2014. But now, thanks to overcapacity, the Chinese steel industry has shifted into reverse in a big way. Prices have fallen by nearly 30%. Steel rebar prices in China on the Shanghai Futures Exchange are at all-time record lows. Rebar prices are down 30% this year alone. As losses continue to mount for the industry, even Xu Lejiang, Chairman of giant steelmaker Shanghai Baosteel, said that the industry’s output will collapse by a fifth in the not-too-distant future. Forecasts are for a drop in production of at least 23 million metric tons (mmt) over the next year. The China Iron and Steel Association is in general agreement. It says that output probably permanently peaked in 2014 at 823 mmt. In effect, we’ve seen peak steel. Iron Ore Dreams That’s bad news for the major iron ore miners – Vale S.A. (NYSE: VALE ), Rio Tinto PLC (NYSE: RIO ), and BHP Billiton (NYSE: BHP ). China will cut back on its imports of iron ore, a key ingredient in steelmaking. The evidence is already there. The Baltic Dry Index, which includes ships that carry ore, hit its all-time low on November 20 at 498. Iron ore itself hit an all-time low – spot pricing began in 2008 – about a week ago at $43.40 per metric ton. Logic would dictate the miners cut back production. So does Economics 101. But the managements at the big three continue to live in a fairy tale. They continue clinging to their forecast – that Chinese steel output will rise 20% over the next decade – like drowning men to a life preserver. In fact, Rio Tinto still forecasts that annual Chinese steel production will hit a billion tons by the end of the decade. So the three blind mice (iron ore miners) continue raising output, using a scorched earth policy to eliminate the competition. In fact, next year, Vale will open the world’s largest iron ore mine (Serra Sul in Brazil). And the iron ore sector isn’t alone. Other mining segments – including copper, zinc, and nickel – continue to produce as if there’s no tomorrow. How to Spot the Bottom Eventually, the long nightmare for shareholders in mining companies will end. So how do you spot the signs that a bottom is coming and brighter days are ahead? Output cuts will help. But if Company A cuts its production, the dreamers at one of the big three miners will simply raise their output even more. A true signal will be the removal of one of these totally incompetent management teams. That should start the ball rolling towards real change. I then expect the big miner that made the change to finally say “uncle.” And I don’t mean just deciding to finally cut back on output. I mean throwing in the towel completely, walking away from a segment like iron ore, and permanently shutting down production. If a permanent shutdown doesn’t occur, miners will be in the same boat as shale oil producers. As soon as the price blips up a few dollars, a flood of supply hits the market. A commodities version of Sisyphus, if you will. That may happen sooner rather than later. In iron ore, for example, the price is quickly approaching the break-even level for some of the big miners. This is despite falling freight, oil, and currencies helping to lower miners’ costs. Until the permanent shuttering of mines occurs, the sector will remain in its downward spiral. Original Post