Emerging Stocks Decline to 6-Week Low on Fed as Rupee Slumps

Emerging market shares dropped to 6-week low after Fed minutes showed wide support for stimulus cuts, fueling concerns capital outflows will accelerate. Indian rupee weakened to record low. SM (SM Investments Corporation) tumbled 8.4% in Manila, dragging Philippine Stock Exchange Index to the steepest intraday plunge since 2008. Philippine peso weakened 1.1% against dollar, whereas govt. bonds yields rose to one-month high. Malaysian stock index headed for longest losing streak since 2010 after government cuts its economic growth forecast. MSCI Emerging Markets Index fell 1.1% to 913.80 in Hong Kong heading for 6^th day of declines. The faltering growth outlook of Asia and prospect of reduced United States stimulus fueled a selloff of developing-country shares that have lost around $1 trillion in 2013.

Fed officials were comfortable with Ben Bernanke, Chairman’s plans to begin reducing bond purchasing in 2013 should the economy improve. Laurentia Amica Darmawan, Fund Manager at First State Investments said it is a signal to investors to reduce their emerging markets exposure. The tapering could see the American dollar reinforcing so what’s the point of investing in emerging market assets?

Industry Groups

All ten industry groups in developing nation index of MSCI slid, led by consumer staple and industrial companies’ shares. The broad measure has dropped 13% in 2013, unlike 11% increase in MSCI World Index of developed country shares. The developing country index trades at 9.7 times projected 12-month earnings, lower than 13 times of MSCI World. Philippine Stock Exchange Index lost as much as 6.9% as local markets resumed trading after 3-day closure. The stock exchange was closed and trading of debt and currencies was halted this week due to public holiday yesterday and floods in Manila. SM Investments, owner of the largest shopping mall operator in Philippines headed for lowest close since 25^th June.

Growth Forecast

FTSE Bursa Malaysia KLCI Index declined 1.7%, poised for the lowest close since 3^rd May. That’s the gauge 7^th day of declines. Central Bank of Malaysia cut its 2013 forecast for growth yesterday after 2^nd quarter expansion missed economists estimates. Rupee slumped to an all-time low and Indian shares swung between profits and losses. International funds have cut holdings of Indian debt by $10.1 billion since Ben first flagged the paring of stimulus on 22^nd May.

Hariyanto Wijaya, Analyst at PT Mandiri Sekuritas said that Indonesian coal producing companies – PT Tambang Batubara Bukit Asam surged 6.4% and PT Indo Tambangraya Megah jumped 5.3% in Jakarta as demand from China is expected to enhance. SHCOMP (Shanghai Composite Index) added 0.1% as a report signaled Chinese manufacturing expanded in August and added to signs the 2^nd largest economy of the world is reinforcing after a 2-quarter slowdown. The preliminary reading of 50.1 for Purchasing Managers’ Index released by Markit Economics and HSBC Holdings Plc compares with 48.2 median estimates in Bloomberg News survey of 16 economists.

JCI (Jakarta Composite Index) tumbled 2.3%, dropping about 20% from its 20^th May peak. SET Index of Thailand slumped 1.9% to the lowest level since 30^th November. Taiex index of Taiwan fell 0.4% as markets resumed trading today after tropical storm. Trading volumes on KLCI were 114% above its 30-day average and 75% higher for Indonesian index.

Emerging Stocks Fall as India’s Sensex Leads World Losses

Emerging stocks fell, trimming a weekly advance, as Indian stocks plunged the most amongst global indexes and trading error roiled Chinese markets. Brazil’s real posted the largest decline in nearly 15 months. MSCI Emerging Markets Index slid 0.3% to 958.11. India’s Standard & Poor’s 500 BSE Sensex Index dropped the most amongst 94 world gauges as rupee slid to a record. Shanghai Composite Index posted the largest swings since 2009. The real capped the worst performance amongst all currencies tracked by Bloomberg as Guido Mantega; Finance Minister said slump was good for local industry. Egypt’s bonds capped the steepest 3-day drop in 14 months after deadly government crackdown.

A trading error by Everbright Securities Company drove Chinese shares to largest swings since international financial crisis, threatening to erode confidence in the 2^nd worst performing share market after Greece during the past 4 years. Indian shares plunged amid concern that govt. efforts to stem rupee’s slide to record low will curb economic growth. Mark Luschini, Chief Investment Strategist at Janney Montgomery Scott said that these events like you are seeing aren’t doing anything to instill any kind of confidence towards why they feel the need to go into emerging market equities. The slide in MSCI Emerging Markets Index was led by utility and financial companies and trimmed a weekly gain to 0.7%.

The broad measure dropped 9.2% in 2013 compared with 13% surge in MSCI World Index. The gauge of developing countries is trading at 10.1 times estimated earnings, below the valuation of developed markets of 13.7.

Emerging ETF

The iShares MSCI Emerging Markets Index ETF (exchange traded fund) slid 0.9% at $39.30, whereas the Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on fund and expectations of price swings, rose 2.3% to 23.62. India’s Standard & Poor’s 500 BSE Sensex Index dropped 4% in Mumbai as SBIN (State Bank of India) tumbled to the lowest level in 4 years. ICICI Bank Limited slumped 5.2%. The rupee touched an unprecedented 62.0050 per dollar on Saturday before closing 0.3% weaker from 14^th August in Mumbai. Shanghai gauge jumped from a loss as much as 1% to gain of 5.6% in 2 minutes during morning session.

The index fell 0.6% at the close. Around 15.3 billion shares of Shanghai Composite firms changed hands, versus the 30-day average of 10 billion.

Brazil’s Real

Brazil’s real dropped 2.2%, the most in 15 months/. The Ibovespa posted a 2^nd weekly gain as Fibria Celulose SA, a pulp producer led commodity producers higher amid bets that the pickup in international growth will boost exports of Brazil. Egypt’s 5.75% dollar denominated notes maturing 2020 fell 4.3% in the past 3 days. The Micex Index (INDEXCF) lost 0.8% in Moscow as state-run power company OAO RusHydro fell 1.8% after sliding 3.6% on Friday. Benchmark gauges in Hungary, Turkey and Czech Republic added at least 0.4%, while stocks in Poland retreated. The premium investors demand to own emerging-market debt over U.S. Treasuries slid 0.05 percentage point to 319 basis points.

Rupee hits a record low of 62 per dollar; Sensex tanks over 700 Points

BSE benchmark Sensex tumbled by over 700 points in afternoon trade today on renewed selling pressure, triggered by fall in international markets and expectations, which Federal Reserve might begin reducing its stimulus in September amid growing signs of recovery in American Job market. Rupee depreciation against US dollar also dampened market sentiment and hit record low of 62 per dollar on Friday on heavy US currency demand. Formerly, it had hit all-time low of 61.80 on 6^th August. The 30-share index that has gained nearly 703 points in the previous 4 sessions fell by 744.58 points to 18,623 with all sectoral indices led by banking, realty, consumer durables and metals coming under pressure.

In similar fashion, the wide based NSE (National Stock Exchange) index, Nifty fell by 216 points to 5526. Sectorally, the banking sector fell the most by declining 4.94%, followed by realty (4.38%), metals (4.49%), power index (3.69%) and oil & gas (4.19%). Major losers on Bombay Stock Exchange include BHEL (7.46%), Maruti Suzuki (4.82%), HDFC (4.58%), HDFC Bank (4.13%) and Sterlite Industries (3.94%). According to analysts, all round selling amid a weak trend on Asian bourses in line with overnight losses on American markets, led to the decline on Dalal Street. Reserve Bank of India’s decision for reducing the limit for ODI (Overseas Direct Investment) under automatic route for all fresh ODI transactions from 400% of the net worth of Indian Party to 100% of its net worth also supported market participants to trimmer their positions.

In Asian region, Nikkei Index of Japan fell 0.8%, whereas broadest index of Asia-Pacific shares of MSCI outside Japan slipped 0.2%. Compared to Wall Street, the falls were moderate where S&P 500 Index shed 1.4%, its largest fall since mid-June to 5-week lows. Asian stocks stumbled today after some worries and weak earnings that Fed would soon pare its bond purchases slammed Wall Street. Key benchmark indices in Hong Kong, China, Singapore, Indonesia, Japan and South Korea were down by 0.51% to 1.35%.

Asian Stocks Swing From Gain to Loss as Hong Kong Closed

Asia’s benchmark stocks index swung between profits and losses amid low trading volumes as Hong Kong canceled trading because of a typhoon and earnings at Leighton Holdings Limited missed estimates. The biggest builder of Australia, Leighton sank 5.6%, whereas Hokuetsu Kishu Paper Co. dropped 4.9% after Japan’s No. 3 paper maker by market value cut its profit forecast. The largest producer of India, Tata Steel Limited gained 4.4% after posting its best quarterly earnings in 2 years, whereas CPU (Computershare Limited) sank 5.9% in Sydney, the most in 2 years, after share registry firm reported profit fell.

MSCI Asia Pacific Index slid 0.1% to 134.90 in Hong Kong, reversing an increase of as much as 0.4%. Eight of ten industry groups fell on the gauge, which rose for past 4 days, its longest stretch of gains in a month. Seiichiro Iwamoto, who helps oversee around $33 billion at Mizuho Asset Management Company, Tokyo said investors are on holiday so the market is much quieter than usual. The Topix index of Japan sank 0.3%. Daily trading volume on Topix fell to the lowest in 2013 on 12^th August and remained near that level yesterday, with fewer than 2 billion shares changing hands during the summer vacation.

Best Performer

Topix Index surged 35% in 2013 through yesterday retaining its position as the best performing developed stock market of the world, amid Shinzo Abe, optimism Prime Minister will push through reforms, whereas Bank of Japan offers record stimulus for spurring a recovery in the 2^nd biggest economy of Asia. Trading in Hong Kong was canceled after the city issued a No. 8 storm signal, the 3^rd highest. Over 200 flights were delayed or canceled at HK airport as Typhoon Utor brought maximum wind speeds of 74 miles (119 kilometers) an hour. Gavin Parry, Managing Director at Hong Kong based brokerage Parry International Trading Limited said it is like a ghost town, everything is closed.

Retail Sales

United States retail sales advanced for the 4^th month in July, data showed on Tuesday after other reports showing German investor confidence and Japanese machinery orders topped estimates and euro-area factory output expanded in June. Around 50% of firms on MSCI Asia Pacific gauge, which have posted profits this earnings season beat analysts’ estimates. Hon Hai Precision Industry Company, ST (Singapore Telecommunications Limited) and CBA (Commonwealth Bank of Australia) all retreated today after posting earnings. The gauge traded at 14 times for Stoxx Europe 600 Index and 13.1 times estimated earnings on Tuesday, compared with 15.4 for S&P 500 Index.

NZX 50 Index of New Zealand advanced 0.1% as statistics office said retail sales accelerated last quarter, whereas S&P/ASX 200 Index of Australia sank 0.3%. Taiex Index of Taiwan sank 0.7% and Straits Times Index of Singapore lost 0.2%. Kospi index of South Korea rose 0.2% after country’s jobless rate remained unchanged in July for the 3^rd month. S&P BSE Sensex Index of India was little changed. Futures on S&P 500 Index slipped 0.2% today, while Standard & Poor’s 500 rose 0.3% yesterday as data on U.S. retail sales strengthened signals the biggest economy of the world is expanding moderately.

Undervalued And Overvalued Stocks

Undervalued Stock

As for the criteria/methodology for undervalued stock, the general rule is to discern intrinsic value of an organization and compare it to its enterprise value. An undervalued stock is defined as stock, which is selling at a price drastically below what is assumed to be its intrinsic value. For instance, if the stock is selling for $50; however can be determined to be worth $100 based on predictable future cash flows, then it is an undervalued stock. A number of famous books discuss undervalued stocks; these include The Warren Buffet by Robert Hagstrom and The Dean of Wall Street. Warren Buffet also called The Oracle of Omaha stated that value of business is the sum of cash flows over the life of business discounted at an appropriate interest value.

For instance, if the risky stock has 5 PE ratio and the organization becomes bankrupt, this wouldn’t be an undervalued stock. Some qualities of firms with undervalued stocks are as follows:

The company doesn’t specialize in high technology, which can become obsolete overnight.

The earning history of company is stable.

The low PE ratio of company isn’t because of profits realized from capital gains.

The company is not in the middle of some financial scandal.

The PE ratio of company is below its average PE ratio for last decade.

The low PE ratio of company is not because of major decline in profitability.

The trailing 3-years earnings of company have risen over the past decade.

The company is selling at a price below its tangible asset value.

The company didn’t have a loss during the last recession.

The credit rating of company is A, AA or AAA, or even better, there is no rating as there is no debt at all.

Overvalued Stock

A stock with current price which is not justified by its P/E (price/earnings) ratio or earnings outlook and is expected to drop in price is known as overvalued stock. Overvaluation might result from emotional buying spurt, which inflates the market price of the stock or from deterioration in the financial strength of the company. Potential investors don’t want to overpay for a stock. A few factors they might look at are the PEG (price to earnings growth) ratio and the P/E (price to earnings) ratio in comparison to company’s peers for determining if the stock is overvalued. There are other factors also, which investors look at.

Overvalued stock describes a share for which the market price is considered too high for its fundamentals. Some metrics used for evaluating whether a security is overvalued include: growth potential, P/E ratio, balance sheet health and more. A stock that’s considered to be overvalued is likely to experience a price decline and return to a level which better reflects its fundamentals and financial status. Investors try to avoid one-month annualized overvalued stocks as they are not considered to be a good buy.

Asian Stocks Fall on Japan as Yen Climbs for 4th Day

Asian stocks fell with regional benchmark index heading for its largest drop since 20^th June as Japanese shares led declines across the area after Yen gained for a 4^th day and metals prices slid. The largest mining company of the world, BHP Billiton Limited dropped 2% in Sydney after copper futures declined; alternatively MSCI Asia Pacific Index decreased 2% to 133.08 in Tokyo with over 5 shares falling for each that rose. Pioneer Corporation sank 8.7% in Japan after the maker of car stereo systems lowered its full-year profit forecast. Nikkei 225 Stock Average of Japan tumbled the most in almost 2 months at the close in Tokyo as Yen touched a 6-week high against the dollar.

United States trade deficit narrowed more than forecast in June, driving the S&P Index lower as traders weighed whether the stronger data would encourage Federal Reserve to begin reducing its monthly bond purchases. Yoji Takeda, Head of Asian Equities at RBC Investment Asia Limited, Hong Kong said markets are entering a period of uncertainty. There is a policy vacuum in Japan and the govt. is not going to come up with new policies till parliament resumes sessions in September. Bank of Japan will be maintaining its asset buying program at 2-day meeting, which started on Wednesday.

Regional Indexes

Topix Index of Japan dropped 3.2%, while Taiex Index of Taiwan and Kospi Index of South Korea both slipped 1.5%. NZX 50 Index of New Zealand lost 0.6%, while S&P/ASX 200 Index of Australia fell 1.9%, its largest decline since 3^rd July. Hang Seng index of Hong Kong decreased 1.5%, whereas Shanghai Composite Index of China slipped 0.7%. Straits Times Index of Singapore gained 0.2%. MSCI Asia Pacific Index advanced 1.3% in July, its first such gain since April. Shares on gauge traded at 13.2 times estimated earnings on Tuesday unlike 13.8 times for Stoxx Europe 600 Index and 15.4 times for Standard & Poor’s 500.

U.S. GDP

Charles Evans, President at Fed Bank of Chicago said he would clearly not rule out a decision to start dialing back bond purchases in September. Economists at Barclays PLC and Goldman Sachs Group Inc. raised their estimates for 2^nd quarter. German factory orders increased by the most in 8 months and United Kingdom industrial production beat forecasts in June.

Earnings Season

IHI Corporation, a manufacturing company of ships and jet engines dropped 5.8% to 409 Yen after its earnings outlook missed estimates. On the other hand, Pioneer dropped 8.7% to 178 Yen in Japan after cutting its full year net income forecast by 92% as sales of optimal disc drives and car audio systems declined and profit margins dropped.

Exporters Decline

Raw material producing companies dropped as copper futures fell. BHP slipped 2% to A$34.90 in Australia. The 2nd biggest mining company of the world, Rio Tinto Group decreased 2.1% to A$58.60. The biggest automobile manufacturing company of South Korea, Hyundai Motor Company decreased 3.2% to 225,000 won. Kia Motors Corporation fell 3.7% to 60,500 won after union negotiators walked out of wage talks and said they would ask workers to vote on a strike. The biggest automaker of Asia, Toyota Motor Corporation dropped 2.4% to 6230 Yen. The No. 1 camera manufacturing company, Canon Inc. slipped 2.5% to 3130 Yen. Sony Corporation that designs and manufactures PlayStation game consoles and Bravia televisions fell 4.3% to 1952 Yen.

Asia Stocks Fall as Topix Drops, U.S. Jobs Miss Estimates

Asian stocks fell with benchmark regional index on course for its first loss in 3 days as yen’s gain weighed on Japanese exporters and American jobs data missed estimates. Mazda Motor Corporation, a Japanese automobile manufacturing company, which gets 30% of its sales in North America dropped 4.1% in Japan. Fontera Shareholders Fund tumbled 3.7% in Wellington after Russia and China halted imports of milk powder from the biggest dairy exporter, Fontera Cooperative Group Limited. A manufacturer of storage batteries, Tianneng Power International Limited tumbled as much as 19% before it was suspended from trading in Hong Kong.

MSCI Asia Pacific Index fell 0.2% to 135.33 as of 3:29 PM Tokyo time with over 5 shares dropping for every 4 that rose. The gauge rose 0.1% last week capping a 6^th straight week of gains, the longest winning streak since the period ended 4^th January. Mr. Chris Weston, Chief Market Strategist at IG Markets Limited in Melbourne stated that Japan is still quite choppy for me to be honest. MSCI Asia Pacific Index advanced 1.3% in July after China pledged to do more for supporting the transition from reliance on exports to domestic demand in the 2^nd biggest economy of the world.

Regional Measures

Topix Index of Japan lost 1% after Yen gained 0.6% on 2^nd August. A stronger yen cuts the value of overseas earnings at Japanese firms. NZX 50 Index of New Zealand added 0.1%, Kospi Index of South Korea lost 0.4%, Taiex Index of Taiwan rose 0.5%, Straits Times Index of Singapore slid 0.7% and S&P/ASX 200 of Australia fell 0.1%. Hang Seng Index of Hong Kong, the benchmark gauge of the city rose 0.2%. Hang Seng China Enterprises Index of mainland firms listed in Hong Kong gained 0.2%.

China Services

HSBC Holdings PLC and Markit Economics China services gauge was unchanged at 51.3 from June in July. The People’s Bank of China will appropriately fine-tune policies and strike the balance between risk and reform prevention, structural adjustment and stable growth. Futures on Standard & Poor’s 500 Index slipped 0.1% today after measure advanced 1.1% last week, its largest gain in 3 weeks, as central banks vowed to maintain stimulus and data showed economic growth beat projections in the 2^nd quarter.

Exporters Fall

Japanese exporters to United States declined with Mazda losing 4.1% 423 yen. Komatsu Limited, a construction machinery maker manufacturing company which gets around 30% of its sales in America slid 0.5% to 2214 yen. Toyota Motor Corporation, the largest automobile manufacturing company of Asia dropped 1.1% to 6360 yen even after saying on 2^nd August that net income almost doubled to $5.7 billion (562.2 billion yen) last quarter as U.S. sales rose and the weaker yen boosted overseas profit. Fonterra dropped 3.7% to NZ $6.86 after New Zealand Company warned of contaminated ingredient, prompting Russia and China to suspend imports of milk powder. Biostime International Holdings Limited, a supplier of baby products surged 9.6% to HK$43.30 in Hong Kong. China Modern Dairy Holdings Limited, the biggest raw milk producing company of the country jumped 8.1% to HK $2.55.

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INFOSYS! HAS THE UP RALLY JUST STARTED OR IS IT JUST A SHOOT UP BEFORE A DRASTIC FALL?

INFOSYS! HAS THE UP RALLY JUST STARTED OR IS IT JUST A SHOOT UP BEFORE A DRASTIC FALL?

The Stock Market reacted positively to the Infosys First Quarterly Results.  Infosys posted at 3.7% year on year increase in its 1^st Quarter net profit after getting new contracts and foreign Exchange gains boosted earnings. The consolidated profit for the quarter ended June 30 rose to Rs 2374 crore from Rs 2289 crore in the same period a year ago.

Infosys’ top client contributed 3.9% of the company’s total revenues during the first quarter. In the previous quarter, its top client contributed 3.6% of the total revenues. Infosys said it had 836 active clients during the first quarter. Infosys and its subsidiaries added 66 clients during the quarter.

In US dollar terms, its consolidated net profit rose marginally by 0.5 per cent to $418 million in the April-June quarter this fiscal from $416 million in the same quarter of 2012-13.

The Infosys July Fut had already closed above its 200 day EMA on Thursday at 2534, maybe anticipating a better than expected results on the Friday. The Infosys July Fut jumped up with a gap on Friday to close at 2810.05 up by 10.87%.

However it has to be noted that after making an intraday high of 2914.35, it shed most of its gains. If at all Infosys is able to open up and sustain above 2819, then it may be possible for Infosys July Fut to touch 3005. If it crosses 2828 also it can touch 3015. But if Infosys falls below 2819, it may give a correction first. The correction can be severe and drag Infosys to 2627 on the down side.

Infosys July Fut made a high of 2914.35 and a low of 2469.80 this week and was up by 13.94% from the previous week.

Amongst its other IT peers Wipro July Fut looks good and has the ability to go till 391 from the current market price of 376.95.

Daily Market Update 17th June 2013

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