Is the earth moving in China? Chinese stocks tumbled this week (the Shanghai down 13.9% on the week including last night’s 6.4% decline) and the headlines are talking Bubbles but maybe earthquakes. According to Bloomberg, 25 IPOs were priced in the country this week with more than $1 trillion worth of bids! I note however that an article quoting a Blackrock Chief Strategist is considerably different than the financial institution’s own very large report on the country “Climbing China’s Great Wall of Worry”. While the quote talked bubbles, the big report noted “It is tempting to simply dismiss buying Chinese assets: too much debt, too little growth and too policy-driven. This is a mistake, in our view. One can worry about the economy and rising risks in the long run but be bullish on markets in the short to medium term.” They recommend buying Chinese “H” shares where valuation is more attractive that Chinese “A” shares.
Chinese weakness aside, the bull market is alive and well in the rest of the world. European stocks are up (but now off their highs) as Alexis Tsipras says a deal can get done and special meetings are planned. The Nikkei is close to its cycle high again. And of course, yesterday, the Nasdaq surpassed its intra-day high yesterday (5132.52 versus last night’s close of 5132.949). The S&P 500 is again within spitting distance of its all-time high. And everything is good!
What am I reading this morning? Today’s Globe & Mail has an interesting article on how banks and other institutions have to alter the way they raise funds because there is currently no appetite for the previous issue of choice – rate reset preferred shares. They have plummeted in price as government rates stay low and concerns rise about the floating rate coupon when these preferred shares reset. More interestingly, perhaps, is the fact that even on a reset basis, the running yields at today’s low rates would be in the area of 4%. Add in the benefit of the dividend tax credit, the equivalent fixed income yield would be 5.2%. There are risks of course. These are perpetual preferred shares and rates could go lower (these preferred shares re-set their yield against, usually, a 5-year bond). But rates are historically low and there could be some interesting income oriented opportunities for people doing their homework.
On BNN, we’re talking gas prices (why are they so high?), spin-offs (big banks in the U.S. could be candidates for parts being broken off), BlackBerry (is it set to rise?), IPOs (how much is money raised for companies and how much is exits from Venture Capital and Private Equity), gold (BMO initiated coverage this week with a buy on Goldcorp and Barrick and a strategist told us earlier in the week that resource stocks today are as cheap now as they were at the peak of the technology bubble in 2000), Egyptian Cotton (on Commodities), the telecom pricing in the G7 (how much does your phone service cost?). Oh, and we just might talk a little bit about Greece too.
It is the end of the week. Traders say the weekend trade is setup for dollar bulls – so watch the currency markets. And according to history, the week after quadruple witching tends to be soft. Today, we get the S&P 500, Russell indices and the S&P/TSX rebalancing today. Additions to the TSX include Computer Modelling Group, Enghouse systems, Mitel, Intertain and Seven Generations (out AGF, Canexus, Capstone and RMP Energy). For the S&P 500, according to S&P Capital IQ, the rebalancing will result in an estimated 1% reduction in Apple’s weight while Alexion Pharma could see a more than 10% increase in its weight. 232 issues will see weighting increases while 248 will see declines. The biggest weight reduction will be in telecom while energy, interestingly is estimated to have the largest increase as a sector (although very small).
And it is Father’s Day this weekend – celebrate with your own or someone else’s. Enjoy.
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