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2015-04-27 15:32:53

Posted by
Russ Koesterich, CFA
BlackRock
Contributor
Stocks

As Milestones Are Crossed, Be Selective

Weekly Commentary Overview

  • Stocks around the world rewrote the record books last week. In the United States, the Nasdaq Composite Index eclipsed its 2000 peak. In Japan, the Nikkei Index climbed above 20,000 for the first time in 15 years, while China’s equity market continues to defy gravity.
  • Such milestones are just numbers, but they do offer an opportunity to assess where we are.
  • Our take is that U.S. technology stocks are not in a bubble, unlike in 2000. In reality, valuations in the sector look more sober today than back in 2000.
  • However, we would exercise some caution, or at least selectivity, particularly with respect to China, where the A-Share market appears increasingly frothy.

A Record-Setting Week for Stocks

Stocks around the world rewrote the record books last week. In the United States, the Nasdaq Composite Index eclipsed its 2000 peak, advancing 3.26% to close the week at 5,092. In Japan, the Nikkei Index climbed above 20,000 for the first time in 15 years, while China's equity market continues to defy gravity. Meanwhile, the S&P 500 Index rose 1.72% to 2,117 and the Dow Jones Industrial Average was up 1.42% to 18,080. As for bonds, the yield on the 10-year Treasury rose from 1.87% to 1.91% as its price correspondingly fell.

Such milestones are just numbers, but they do offer an opportunity to assess where we are. Our take is that U.S. technology stocks are not in a bubble, unlike in 2000. However, we would exercise some caution, or at least selectivity, particularly with respect to China, where the A-Share market appears increasingly frothy.

2015 Is Not Y2K

Last week, U.S. stocks were once again aided by merger-and-acquisition activity, with Teva Pharmaceuticals making an unsolicited $40 billion bid to take over Mylan. "Good enough" earnings also provided a measure of support. While IBM and Facebook missed analysts' expectations, partly due to the dollar's strength, Caterpillar, Amazon, Microsoft and Morgan Stanley all posted strong numbers.

The rally in stocks that has pushed the Nasdaq Composite to new highs is seen by some as a sign of another tech bubble. In reality, however, valuations in the sector look more sober today than back in 2000.

The current multiple on the sector is roughly 19.5 times trailing earnings, only about 5% higher than the broader market and not much changed over the past year. In contrast, in March of 2000, the U.S. technology sector was trading at over 72 times earnings, more than double the market's valuation. The year leading up to the bursting of the tech bubble in 2000 was marked by relentless multiple expansion, a one-year climb of more than 50%.

Another key differentiator today: The tech sector represents a more modest portion of the overall stock market. At their peak, technology stocks accounted for roughly 30% of total U.S. market capitalization; today, the weight is around 20%. Technology actually is once again the largest weighting in the S&P 500, but it is far less dominant than it was back in 2000. Still, while we continue to favor the technology sector, we would focus on the mature tech companies with real earnings.

Pick Your Spots in Asia

The milestones were not limited to the U.S. last week. Recently, Japan's Nikkei 225 Index closed above 20,000 for the first time in 15 years. Stocks in Taiwan also hit a 15-year high on hopes for a direct trading link with China.

Despite more negative news from China––a soft manufacturing number and the first default by a state-owned enterprise––Chinese A-Shares, which are traded in Shanghai, continued their advance. The catalyst was a full one percentage point cut in the reserve requirement ratio (the amount of cash a bank is required to hold relative to its assets), the second such reduction since February. While this was the biggest cut since 2008, it mainly counteracts the loss of liquidity from recent capital outflows.

Still, hopes for further stimulus continue to ignite China's equity market. But we are seeing some worrisome signs of increasing speculation on the part of investors. For example, following a rule change allowing for multiple accounts, mainland stock investors opened 3.25 million new accounts, a record. In addition, margin debt––in other words, borrowing to buy stocks––has risen sharply in recent weeks.

While we continue to believe Asian equities represent an interesting opportunity, we would be selective. For example, we favor shifting our China exposure to the H-Share market, which is traded in Hong Kong. We are not seeing the same excesses in this part of the market and valuations are much more reasonable. H-Shares are trading at less than half the current valuation of the A-Share market.

 

Russ Koesterich, CFA, is BlackRock's Chief Investment Strategist and Head of the Model Portfolio & Solutions business. He is a founding member of the BlackRock Investment Institute, delivering BlackRock's insights on global investment issues. For more of Russ’s weekly commentaries, visit the BlackRock site.

 

This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any security in particular.

©2015 BlackRock, Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries. All other marks are the property of their respective owners.

 

This article is from BlackRock and is being posted with BlackRock’s permission. The views expressed in this article are solely those of the author and/or BlackRock and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

2015-04-27 15:01:40

Posted by
IB Securities Lending Desk
Contributor
Securities Lending

Voltari persists on hard to borrow list

Voltari Corp (Ticker: VLTC) continues to be one of the most difficult and expensive borrows out there. The lack of borrowable supply has kept rates quite high and short sale execution has been sporadic, all this despite the price of VLTC coming down from its recent highs. The stock is off 14% on Monday to trade at $9.89, and is down 55% since reaching a high of $21.75 on April 22. Despite halving in the span of less than one week, shares in VLTC are still up more than 800% since the end of March. Recalls and close-outs were prevalent last week; traders seeking to short hard to borrow names could look to pre-borrow the security, thereby arranging a borrow the same day to reduce the likelihood of settlement date exposure and reducing the potential for close-outs.

Chart – Three-month chart of Voltari Corp.

Table - These were the 15 hardest to borrow securities during the week of 04/20/15 - 04/24/15

2015-04-27 13:54:10

Posted by
Neil Azous
Founder & Managing Member
Rareview Macro LLC
Contributor
Macro

Sight Beyond Sight: Market Thoughts

By now the professional community is receptive to the trend shocks in the major asset themes of the last 9-months – Long US dollar, short Crude Oil, and UST 5-30 year flattener – continuing to cause “inconvenience”. The consensus view remains that these trend shocks are just cyclical adjustments in a medium-term secular theme given the performance runs they have had over that period of time.

The next two-weeks will test whether this remains just an “inconvenience” or a larger capitulation and follow on transition will unfold.

The naysayers want to argue that the FOMC meeting this Wednesday is a non-event and if we get a weak April non-farm payroll report and year-over-year wages are flat again, then the conversation becomes “the Fed is not hiking in 2015, the DXY Index has made its high for 2015 and is establishing a range between 95 – 100, and the S&P 500 will release its pent up energy to the upside led by EM-related strength and energy stocks".

We have been highlighting this chart for the last few weeks. While it varies across asset classes, being bearish on Brazil and bullish on India on a relative value basis is a consensus view among emerging market managers. Brazil is 'worst of', and India is 'best of breed' and representative of the net importer/exporter crude oil relationship. Alongside crude oil strategies, investors are very much offsides.

As you can see, the ratio of India SENSEX divided by Brazil BOVESPA and overlaid with WTI crude oil continues to accelerate downwards. Alongside the price action and sentiment on further monetary stimulus in China leading to a cyclical upturn, there will be greater sympathy for EM-related strength and energy sector leadership as highlighted above. Add in the S&P 500 index option skew argument (i.e. extremely steep) and it is easier to understand why the path of least resistance remains higher in equities.

 

Sight Beyond Sight® is a global macro trading newsletter written daily by Neil Azous. With close to two decades of institutional experience across asset classes, Neil interprets the day-to-day economic, policy and strategy developments and provides actionable trading ideas for investors. We invite clients of Interactive Brokers to sign up for a free trial in Account Management. If you are not a client of IB, you can sign up for a free trial by visiting our website.

 

This article is from Rareview Macro and is being posted with Rareview Macro’s permission. The views expressed in this article are solely those of the author and/or Rareview Macro and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

2015-04-27 13:41:53

Posted by
Russ Koesterich, CFA
BlackRock
Contributor
Macro

Why International Diversification Matters Today

The tendency of U.S. investors to invest close to home is understandable, but it’s not optimal. Russ has three reasons why international diversification matters now more than ever for U.S. investors.

 

Given the breadth and diversity of the U.S. economy and market, it’s understandable that many U.S. investors feel comfortable keeping their money within U.S. borders. Indeed, over the past six years, U.S. investors have been rewarded for staying close to home.

Since the start of this bull market in March 2009, one of the longest in history, a 60/40 split of U.S. stocks and bonds would have been hard to beat. The S&P 500 has gained roughly 200% during this time period, while U.S. bonds have been surprisingly resilient.

However, while the tendency to invest close to home is understandable, it may not be optimal. Case in point: A big U.S. equity overweight has been less successful year-to-date, given the recent pullback in U.S. equities and particularly strong performance from Europe and Japan. While three months of relative performance shouldn’t change anyone’s long-term asset allocation, recent events are a useful reminder that U.S. outperformance isn’t pre-ordained and that it’s important to consider having exposure to international stocks. In fact, as I write in my new Market Perspectives paper, “Innocents Abroad: The Case for International Diversification,” there are three reasons why international diversification matters now more than ever for U.S. investors.

Relative valuations

A willingness to pay up for U.S. equities has resulted in several years of steady multiple expansion. While the current premium on U.S. stocks makes some sense in the context of low inflation and low rates, valuations look stretched relative to stocks in the rest of the world. This is particularly true based on the price-to-book (P/B) measure. Currently the P/B on the S&P 500 Index is roughly 75% higher than for the MSCI ACWI-ex U.S. Index. This is the highest premium since the market bottom in 2003. Longer-term metrics, such as cyclically adjusted price-to-earnings, or CAPE, ratios, are even more troubling, suggesting that U.S. stocks are likely to produce, at best, average to below-average returns over the next five years. The U.S. may have the best fundamentals, but U.S. equities have rarely posted stellar returns from today’s valuation levels, as I note in my Market Perspectives paper.

U.S.’s declining share of world GDP

While the U.S. is still arguably the world’s most dominant economy, its relative share of the global economy is shrinking. Thirty years ago the United States accounted for roughly one-third of global output. Today the number is closer to 20%. Depending on the exact methodology, China is now the world’s largest economy or soon will be. While China’s rate of growth is slowing, China along with India, Indonesia and many other emerging markets may continue to outgrow the United States and other industrialized countries for the foreseeable future. This suggests that owning a predominately U.S. portfolio underweights the potential dominant and fastest growing portion of the global economy.

The basic tenets of portfolio construction

Finally, owning a portfolio solely focused on the United States may lead to sub-optimal risk-adjusted returns. In other words, investors may be taking on risk that could otherwise be managed with diversification. This is a particularly important point today as stock correlations have fallen to their pre-crisis level, suggesting a greater benefit to diversification. To be sure, diversification isn’t a magic elixir, and it may not protect against market risk or loss of principal. The biggest caveat is that it’s least likely to work when most needed, i.e. during a crisis. Instead, the benefits are derived, almost imperceptibly, over a multi-year time frame. But given the state of the U.S. market and economy, while international diversification may be a sensible idea for most U.S. investors, its benefits are even more likely to accrue in the coming years.

Source: April 2015 Market Perspectives

 

Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock. He is a regular contributor to The Blog and you can find more of his posts here.

 

This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any security in particular.

International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/developing markets and in concentrations of single countries.

The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.

Index returns are for illustrative purposes only. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

©2015 BlackRock, Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries. All other marks are the property of their respective owners.

 

This article is from BlackRock and is being posted with BlackRock’s permission. The views expressed in this article are solely those of the author and/or BlackRock and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

2015-04-27 12:47:05

Posted by
Barron's

Contributor
Options

Goldman: Buy Wyndham Options Ahead of Earnings

For years, traders have done well to buy calls going into earnings. Goldman sees the trend continuing.

 

Goldman Sachs is telling clients to temporarily check-in to Wyndham Worldwide, a time-share company.

With Wyndham Worldwide Corp. (ticker: WYN) scheduled to report first-quarter earnings on Tuesday, Goldman is telling clients to buy May $92.50 calls that cost $1.70 when the stock was at $90.23.

The trade expresses a view that Wyndham will rally on earnings. The company is expected to report 92 cents a share on revenue of $1.24 billion.

History is on the side of Wyndham earning’s bulls.

Goldman’s strategists, Katherine Fogertey and John Marshall, estimate that buying the closest out-of-the-money one-month call five days ahead of Wyndham’s earnings report has produced an average profit of 93% almost 60% of the time since 2010. If the stock climbs to $95 before expiration, the call would be worth $2.50.

“We believe the upcoming earnings could be positive given our analyst’s bullish view and expect the stock to trade up on the earnings release,” they advised clients Wednesday.

Steven Kent, Goldman Sachs’ consumer analyst, expects Wyndham’s stock will rise 14% over the coming year. His investment rating: Buy. Of perhaps greater significance, Wyndham is part of Goldman’s Conviction Buy List, meaning the stock has essentially run the gauntlet in Goldman’s research department, exposing the analysis to a greater level of scrutiny.

Kent favors Wyndham because he believes the timeshare sector, and especially Wyndham, are poised to benefit from the strength of high-end customers. Goldman is telling clients that U.S. leisure travel trends are strong, and that Wyndham is the timeshare industry leader and thus poised to “harness industry tailwinds.”

Wyndham’s options imply the stock will move 4%, up or down on earnings. Last quarter, the stock moved 9% in reaction to earnings, compared to a 1% move for the Standard & Poor’s 500 Index that day.

The recommended trade may seem sanguine but it is an aggressive position predicated on the stock making a sharp move. If everything works as hoped, the trade will be have a sweet outcome. If Wyndham’s stock sinks on the news, or never rises above the call strike price, the money spent on the call will be lost.

 

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This article is from Barron’s and is being posted with Barron’s permission. The views expressed in this article are solely those of the author and/or Barron’s and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

2015-04-27 12:07:10

Posted by
Singapore Exchange

Contributor
Futures

SIMSCI Index Nears 400, Highest Level Since 2008

  • Singapore’s non-oil domestic exports surprise on the upside with a 18.5% year-on-year surge.
  • The Monetary Authority of Singapore (MAS) unexpectedly left the NEER policy band unchanged on 14 April. Since then, the Singapore dollar has appreciated 1.5% against the US dollar, while the three-month Singapore Interbank Offered Rate (Sibor) has plunged below 1.0%.

March Exports Turn Around

In what appeared to be a positive signal for the Singapore economy, non-oil domestic exports (NODX) rose 18.5% year-on-year in March, after falling 9.7% year-on-year in February, according to data from International Enterprise (IE) Singapore.

The March performance was driven by strong shipments of pharmaceuticals and electronics, with the EU 28, United States and Malaysia contributing most to the growth.

Electronics exports also grew 10.4% year-on-year in March, rebounding from February’s 12.5% decline, largely due to higher demand for integrated circuits, PCs, diodes and transistors.

Despite the improvement, some economists say it might be too soon to celebrate. “The strong export growth in Singapore for March was in stark contrast to the recent spate of poor export numbers across a number of Asian economies,” UOB Research wrote in a note. But this strong growth is only the result of a weak base in electronics and pharmaceuticals in March last year, the bank cautioned.

Singapore Dollar Strengthens, Export Competitiveness may be Squeezed

Despite an improvement in exports, the outlook may not be all rosy. In an unexpected move, Singapore's central bank chose to stand pat on monetary policy.

In a statement issued on 14 April, the Monetary Authority of Singapore (MAS) announced it would keep unchanged the slope, width and band it uses to guide the local dollar. The US dollar weakened to S$1.3605 against the Singapore dollar after the announcement. One week later, the USD/SGD is trading at S$1.3513.

The move to support the currency and refrain from further easing is taken as a sign of strength by some analysts. On the other hand, others have expressed a different view.

The recent decision by MAS to refrain from further easing was to prevent Singapore Interbank Offered Rate (Sibor) from shooting through the roof. Singapore interest rates are now tied to the strength of the US dollar and will rise further even without a rate hike from the Federal Reserve.

The 3-month Sibor fell below 1.0% following the MAS’ move. As illustrated in the chart below, Sibor has risen sharply as the Singapore dollar depreciated against the greenback.

Performance of USD/SGD, 3-Month Sibor and USD 3-Month Libor Rate

Source: Bloomberg

Advance estimates showed the Singapore economy grew by 2.1% on a year-on-year basis in the first quarter of 2015, unchanged from the previous quarter. On a quarter-on-quarter seasonally-adjusted annualised basis, the economy expanded at a slower pace of 1.1%, compared with 4.9% in the preceding quarter, the Ministry of Trade and Industry (MTI) said.

SGX SIMSCI Index Futures Post Higher Volumes in 1Q

The MSCI Singapore Index (“SIMSCI Index”) has shown more resilience than its regional counterparts. After Beijing’s surprise margin curbs announcement on 17 April, the Hang Seng and FTSE China A50 Indexes sank 2.0% and 2.3% respectively when trading resumed on 20 April. However, the SIMSCI Index only surrendered 1.92 points.  Prior to this, SIMSCI Index has achieved strong upward momentum, peaking at 399.93 on 16 April, near the 400 level. This is the highest since 2008.

Candlestick Chart of SIMSCI Index

Source: Bloomberg

The first three months of 2015 saw higher volume and open interest for the SGX SIMSCI Futures. Volume rose more than 10%, with 921,300 contracts changing hands in the first 3 months compared with the same period last year.  This translates to an average daily futures notional volume of S$1.1 billon, which was almost on par with the average daily turnover in the Singapore securities market.  Similarly, the average month-end open interest in the first quarter of 2015 is 17% higher than the previous quarter.

Volume and OI of SGX SIMSCI Index Futures

Source: SGX

 

This article is from Singapore Exchange and is being posted with Singapore Exchange’s permission. The views expressed in this article are solely those of the author and/or Singapore Exchange and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

2015-04-27 11:28:25

Posted by
IB Securities Lending Desk
Contributor
Securities Lending

SLB Update: Hardest to Borrow per Sector

The following table shows the hardest to borrow securities per sector during the week of 04/20/15 - 04/24/15.

2015-04-27 11:26:43

Posted by
IB Securities Lending Desk
Contributor
Securities Lending

SLB Update: Hardest to Borrow

These were the 15 hardest to borrow securities during the week of 04/20/15 - 04/24/15.

2015-04-27 11:22:10

Posted by
IB Securities Lending Desk
Contributor
Securities Lending

SLB Update: Largest Short Value Per Sector

The following table shows the top five securities with the largest short value per sector held by IB customers on 04/23/15.

2015-04-27 11:18:50

Posted by
IB Securities Lending Desk
Contributor
Securities Lending

SLB Update: Largest Short Value

These 15 securities had the largest short value held by IB customers on 04/23/15.

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