Opportunities
- Renowned technical analyst Carter Worth, chief market technician at Sterne Agee, reports gold’s chart pattern is “extremely” bullish as prices continue to post higher lows. In addition, the 150-day moving average appears to have bottomed out as markets enter a period that historically has provided seasonal support for gold, silver, and related equities. With this background, it is not surprising that Goldman Sachs Asset Management, which runs India’s largest gold ETF, issued a note to investors explaining that the risk profile of the investment had changed since the issuer (i.e. Goldman Sachs) may not be able to return the physical gold. Dhirendra Kumar, CEO of Value Research states Goldman Sachs has probably lent the gold out, and will be unable to deliver physical gold for early redemptions.
- Dundee Precious Metals announced that Bulgarian authorities have moved the company’s Krumovgrad permitting application to the final step toward full permitting. The Krumovgrad deposit is a high quality open pit project with above average 4 gram per tonne ore, and potential to produce 80,000 ounces per year at very low cost. In addition, the company reported its recently refurbished Tsumeb smelter processed 60,332 tonnes of concentrate in the second quarter, a 23 percent improvement from the previous quarter.
- Lawrence Roulston, a renowned mining industry authority, referred to Klondex Mines in a recent interview with Streetwise Reports. In his interview, Roulston agrees that Klondex is on its way to developing very profitable underground operations, while warning that management is critical for advancing projects and adding value. However, he is not concerned with existing management at Klondex; instead, he praised their efforts to acquire Midas, which gave the company a clear short-term path to profitable production. As a matter of fact, Klondex has constantly sought to enhance its management team, and recently appointed Mike Isaak, ex-Barrick, Henry Follman, ex-Coeur, and Rosa Whisenand, ex-Barrick as high-caliber additions to its senior team.
Threats
- Gold futures fell this week as analysts anticipate an earlier rise in U.S. interest rates. The Fed minutes released this week led analysts to revise their forecasts. Goldman Sachs, for example, now predicts increases to borrowing costs will take place in the third quarter of 2015, rather than its previous estimate the first quarter in 2016.
- Rising interest rates, bond yields, and low inflation expectations are creating a perfect storm with strong headwinds for gold in the future, according to Morgan Stanley analyst Joel Crane. According to Crane, it is highly unlikely that gold will continue to rise in the coming quarters given current market conditions and the expected improvement going forward.
- BCA Commodity strategists have reiterated their underweight gold call within the commodity complex. According to BCA, the strength of the dollar and the stabilization of the U.S. equity risk premiums suggest gold will remain trendless in the second half of the year. Volatility in the aforementioned areas has been a key driver for gold in the past, thus their stabilization implies that it is unlikely gold prices will rise much further.
Energy and Natural Resources Market
Strengths
- Gold’s break above the April high to $1,338 helped related mining shares post a gain of 3 percent on the week. Royalty companies led the advance as Franco-Nevada, Royal Gold and Silver Wheaton made new 52-week highs this week with an average gain of 2.7 percent.
- Shares of Africa Oilfield Logistics (AOL) bucked the negative trend of the FTSE AIM exchange in London with a 5 percent gain this week. The sub-Saharan support services and logistics company gained 19 percent this quarter following news of a successful expansion at its Adran subsidiary.
- Despite a pullback in clean energy stocks this week, SunEdison Inc. gained nearly 6 percent the week, reaching a new 52-week high, on news of the company’s plan to spinoff TerraForm Power via an initial public offering.
Weaknesses
- Dry bulk shipping rates remain weak and remain just above multi-year lows. The BDIY freight index is down over 49 percent from its high set in March. Knightsbridge Tankers Ltd. declined 6 percent for the week.
- Oil service and equipment stocks generally underperformed the broader energy sector following strong gains in the prior two weeks. CHC Group Ltd declined 12 percent this week after reducing futures revenue and earnings growth forecasts that came in below analysts’ expectations.
- The price of WTI crude oil and NYMEX natural gas declined by 3 and 6 percent, respectively this week as supply risks eased in Libya and Iraq, and cooler weather across much of the country this week. Suncor Energy and Sanchez Energy fell by 5 and 8 percent, respectively.
Opportunities
- The International Energy Agency has reported that global oil demand will rise at the fastest pace in five years, climbing 1.5 percent to a record 94.1 million barrels a day in 2015. The dramatic increase is primarily the result of China and other emerging market growth.
- Through recent press releases, Indonesian Economic Minister Chairul Tanjung has implied that an agreement has been reached between the government and Freeport-McMoRan. The ongoing export disputes over concentrates at Grasberg, which have dropped Freeport’s production to roughly 40 percent of its nominal capacity over the last two quarters, may soon be at an end.
- Coldelco, a Chilean mining company, is likely to cancel shipments of around 10,000 tonnes of refined copper due to problems in its new Ministro Hales mine. Totaling roughly 3 percent of its 2014 contracted term shipments to China, the cancelled orders will likely lead Chinese importers to purchase spot refined copper on international markets. The result would be supportive for copper prices, which have already risen more than 10 percent since March.
Threats
- Non-commercial speculative positions in the oil futures market now stand near the highest level on record. If this unwinds abruptly it could materially weaken oil prices near term.
- News of increased supply coming out of Libya and new pipelines in the U.S. has created a negative forecast on oil prices through the rest of the year. Futures could weaken further on news of additional supply gains.
- Old and decrepit highways in southern Texas and North Dakota are hindering thousands of 18-wheel trucks. The crumbling roads threaten billions of dollars of investment in oil production in the U.S.
China Region Fund – USCOX • Emerging Europe Fund – EUROX
Emerging Markets
Strengths
- Indonesia was the best performing country in Asia this week, driven by the apparent victory of Jakarta’s governor, Joko Widodo, in the presidential election. The victory was a preferred outcome for the financial markets, as eight of the 12 unofficial quick-count polling sources showed favorable results.
- Utilities was the best performing sector in emerging markets this week, led by one of China’s five-largest power producers, Datang International Power Generation Co. The company has plans to restructure its coal-to-chemicals business, which has been holding back its earnings and valuation since 2008.
- Turk Traktor, a Turkish manufacturer and retailer of agricultural tractors, rose to a 52-week high following better-than-expected sales volumes. According to the company, domestic sales in June rose 9.1 percent, while exports surged 34 percent as the company expands beyond Europe and into Africa as well as the Middle East. In addition, Turkish sell-side analysts have reiterated their buy ratings on the stock, forecasting improving margins due to the company’s recently completed capacity expansion.
Weaknesses
- Greece was the worst performing emerging market for the week, falling around 7.1 percent after comments by European Union (EU) officials at the monthly meeting of Eurozone Finance Ministers, urging Greece to make more efforts to meet the bailout program requirements. The statements resulted in rumors that Greek banks would need more capital in the form of a third bailout. The speculation, together with weak trading volumes, led to outsized selling pressure.
- South Korea was among the worst performing countries in Asia this week, as Samsung Electronics Co., the single-largest company in the index, announced disappointing second-quarter results. The competition for Samsung is intensifying from local Chinese smartphone makers and a rising Korean won.
- Consumer discretionary was the worst performing sector in the emerging market complex for the week, led lower by Indian automakers as analysts forecast earnings to remain under pressure. Automobile demand in the region was “a mixed bag,” leading analysts to revise revenue growth numbers lower to 5 percent, while earnings’ growth is now expected to remain flat year-over-year. In addition, investors were disappointed by the government’s decision to extend export duty concessions until December, rather than to reduce them permanently as initially expected.
Opportunities
- HSBC raised the emerging market region to overweight within its global portfolio, arguing that we are beginning to see signs of improvement in both the near-term outlook, and the longer-term structural story for the complex. According to the bank’s analysts, the region has fared better in 2014, performing broadly in line with developed markets year-to-date, and outperforming by over 5 percent since March. HSBC believes this period of outperformance will continue. The strength is evidenced by operating margins in emerging markets stabilizing relative to developed markets, along with recent data showing outperformance from here on.
- According to International Data Corporation, unit growth of installed smart devices, thanks to the advent of Internet of Things, is expected to more than triple by 2018. Internet connectivity is proliferating from telecommunications to more traditional industries such as durable goods and infrastructure. Taiwanese technology manufacturers in cloud servers, semiconductor foundries and various connected devices should benefit from this emerging global trend.
click to enlarge- Emerging markets equity funds attracted solid inflows this week, mainly to broad-mandate global emerging markets funds and Asia ex-Japan equity funds. Out of the reported inflows of $1.35 billion, Indonesia, India and Malaysia reported the largest inflows relative to assets under management. China reported the largest absolute inflows for this week.
Threats
- UBS is recommending investors to sell Gazprom given the upcoming headwinds for the Russian stock. The main reason is gas prices in the EU have fallen around 40 percent year-to-date, mostly due to a massive increase in storage levels resulting from a record warm winter. Even if Gazprom can retain its premium pricing, its volumes should weaken as excess inventories are sold to the market. In addition, the stock came under pressure as the Russian
