Solar Energy Powers Silver Demand To Record High

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Strengths

• Silver stocks had a huge bounce this week after experiencing severe oversold conditions. News of China’s rate cut boosted silver stocks as well, given the metal’s industrial use. The Global X Silver Miners ETF closed up 6.26 percent this week, with Tahoe Resources Inc. rising 1.57 percent.
• An improvement in investor sentiment concerning the global growth outlook and fresh monetary stimulus in China caused a rally in metals and mining stocks this week. The S&P/TSX Capped Diversified Metals and Mining Index rose 6.34 percent this week. Nevsun Resources Ltd. closed up 15.61 percent on a rise in merger and acquisition expectations.
• Refining stocks came back this week with positive gains for six-straight days. The S&P Supercomposite Oil & Gas Refining & Marketing Index rose 6.25 percent this week. Tesoro Corp. closed up 7.60 percent this week.

Weaknesses

• The dry ships industry underperformed this week due to the continued depression of iron ore prices. The Bloomberg Dry Ships Index fell 1.02 percent this week.
• Concerns of overproduction in global steel caused iron and steel stocks to underperform for most of this week. The stocks did, however, rally on Friday after the news of China’s rate cut.
• Paper and forest stocks sold off this week after a strong run alongside a rising dollar. The underperformance is most likely attributable to profit taking, despite the dollar making new highs on Friday. The S&P Supercomposite Paper & Forest Products Index fell 1.38 percent this week.

Opportunities

• The long awaited OPEC meeting is a week away. Given the current state of oil prices and their effect on producing economies, there is a real chance that production cuts will be made. If so, the rise in oil prices would cause a large bounce in energy stocks.
• China’s unexpected rate cut this week is already having positive repercussions in the commodities space. The new monetary stimulus should continue to boost the energy and metals space, especially if purchasing manufacturers’ index (PMI) numbers rise as a result.
• China and Australia signed a free trade deal, removing an 8 percent import tariff on aluminum. In addition, China may remove some of the export tax it has in place on certain aluminum products.

Threats

• The dollar reached its highest level since the middle of 2010 this week. The recent breakout is the result of China’s monetary stimulus and comments from ECB President Mario Draghi stating that the bank will do whatever it takes to boost inflation and growth.
• The Fed may place new restrictions on Wall Street commodity businesses after accusing the firms of engaging in unfair trading practices. The restrictions could include ownership limits, which would restrict the amount of revenue derived from commodities.

Emerging Markets

 

Strengths

• Greece officially ended last week one of the worst recessions the country has ever experienced. Third-quarter gross domestic product rose 0.7 percent, causing year-over-year non-seasonally adjusted GDP to grow at 1.7 percent. The political environment in Greece is showing signs of improvement as well, as Finance Minister Gikas Hardouvelis told reporters that the country will reach an agreement with the Troika on time. The Athens Stock Exchange was up an astonishing 11.71 percent this week.
• Brazil’s annual inflation declined to 6.42 percent this week, coming in lower than the estimated 6.54 percent. The updated inflation figures are within the government’s target range, which provides more flexibility to the central bank which has been struggling to address the country’s low growth, depressed currency, and high inflation. The Ibovespa Brasil Sao Paulo Stock Exchange Index closed up 8.33 percent this week.
• Indonesia was the best-performing Asian country this week, as president Joko Widodo fulfilled his campaign promise by cutting gasoline and diesel subsidies, resulting in around 1 percent of GDP in fiscal savings set aside for more productive use.

Weaknesses

• Investors are fleeing Russia. The steep decline in the ruble, induced by sanctions and depressed oil prices, caused capital outflows in Russia to jump to $28 billion in October, the largest monthly outflow this year. In fact, the amount of outflows from Russia last month is almost half of last year’s total outflows.
• Hong Kong was the worst-performing Asian country this week, as the first five days’ liquidity inflow after the official launch of the Hong Kong-Shanghai market integration program did not live up to market expectations.
• Polish stocks closed down slightly this week. Inflation data came in less than expected, while global growth fears pushed down government bond yields. Furthermore, the fee Polish banks must pay to protect the industry from potential bankruptcies increased, causing financial stocks to decline.

Opportunities

• China’s first interest rate cut since mid-2012 pleasantly surprised the market and introduced the potential for more cuts, given weaker economic activity, lukewarm order flows from the Shanghai-Hong Kong market linkage, and disappointing November flash PMI driven by factory closures during the APEC summit.  Bullish for Chinese equities overall, this government policy change should benefit rate-sensitive property and financials sectors and highly leveraged power producers the most.

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• Indonesian President Joko Widodo’s bold decision to cut the fuel subsidy less than one month in office and use partial fiscal savings to accelerate infrastructure spending sets the country on the right path for further economic reform.  Lower domestic fuel demand should help improve Indonesia’s current account balance and strengthen its currency, and more infrastructure investment bodes well for construction material makers.
• Brazil’s central bank announced that it could recalibrate monetary policy, implying the bank may raise interest rates again. A further increase in rates would boost the real, which sold off significantly during the months leading up to the election.

Threats

• Increasingly challenging exports pressured by a stronger Korean won versus Japanese yen, weaker corporate return on equity as well as negative earnings revision, and above decade-average price to earnings valuation may continue to weigh on investor sentiment towards South Korean equities in general.
• This week, Russia’s Finance Minister, Anton Siluanov, said that a recession is inevitable if the price of oil drops to $60 dollars a barrel. While Russia faces many threats, its economy and currency are directly linked to the price of oil. Further decreases in oil prices could prove disastrous.

• The dollar climbed to the highest level since mid-2010 on Friday as the ECB reiterated its intention on expanding its balance sheet and China cut two of its benchmark rates. The growing strength of a dollar continues to act as a headwind to emerging markets.

Leaders and Laggards

The tables show the weekly, monthly and quarterly performance statistics of major equity and commodity market benchmarks of our family of funds.