Football, short funds offer Asian investors new volatility hedges

In Stock News 11/03/2016

Increasing volatility in traditional asset classes has given rise to a new range of hedge fund-type products in Asia marketed at individual investors, from short-selling funds to football-backed securities.

In particular, an unusually high correlation between stock and bond prices has driven investors to so-called liquid alternative funds, which employ hedge fund strategies but are more easily available to high net worth and retail investors.

Assets under management of liquid alternative funds in Asia jumped 25 percent to $47 billion in the first 11 months of 2015, according to analytics firm Cerulli Associates. That compared with a 5 percent increase in 2014 and an almost 10 percent decline in 2013.

“In the current market, traditional asset allocation has become a zero-sum game,” said Madeline Ho, Asia-Pacific head of wholesale fund distribution at Natixis, which offers liquid alternative funds in both Hong Kong and Singapore, and plans to add more this year.

The 60-day rolling correlation between the FTSE World index .FTWORLDSU and benchmark 10-year Treasury bond, for example, has been climbing since late December, and has reached its highest level since August, according to risk-management firm Axioma.

New hedging products, such as Franklin Templeton’s K2 Alternative Strategies fund and Natixis’s H2O Allegro fund, employ strategies such as shorting, or selling borrowed securities with a view to buying them back when prices fall; relative value, or seeking to profit from price differences between securities; and global macro, or taking positions based on economic and political expectations.

Other products, such as Singapore-based Swiss Asia’s Football Finance Note, which listed in Frankfurt in January, invest in non-traditional asset classes. Investors in the note purchase future revenues from the television broadcasting rights of English Premier League games at a discount.

HEDGE FUNDS FOR THE MASSES

Unlike traditional hedge funds, most liquid alternatives are subject to mutual fund regulations so investors can enter and exit quickly. They are increasingly open to ordinary investors thanks to falling minimum investment requirements.

Franklin Templeton’s K2 fund in January won regulatory approval to reduce minimum investments in the fund to $1,000 from $100,000 in Singapore. This fund had a negative total return of 8.5 percent in the year through January after sales charges versus the MSCI World index’s negative return of 6 percent.

Even for products aimed at sophisticated investors, the minimum investment is often lower than the more than $1 million hedge funds typically require. Swiss Asia’s Football Finance Note, for instance, requires only $250,000.

A 2015 survey by Natixis found 80 percent of individual investors in Hong Kong and Singapore said they would consider alternative investments.

Liquid alternatives can be added to a portfolio of stocks and bonds to reduce volatility, said Ernest Low, head of investment and wealth management at AXA Life Insurance in Singapore, which began offering Natixis’ H2O Allegro fund in the city state in May.

H2O Allegro, which invests in bonds and currencies using long- and short-trading and global macro strategies, has outperformed its benchmark over the past year but has underperformed more recently.

AXA plans to add more funds this year, employing strategies such as long- and short- equity trading, Low said.

But while the liquidity of such funds makes them safer than many hedge funds, the strategies they use carry new sources of risk.

These funds’ daily liquidity requirements also mean that their investment scopes are more limited than those of traditional hedge funds, which could curb their ability to reduce volatility, said Wing Chan, director of fund research at Morningstar.

“Having something that’s less correlated with traditional asset classes can improve the risk-adjusted returns of the overall portfolio,” Chan said.

“But finding something that’s genuinely uncorrelated in this environment, that’s probably the biggest risk.”

Source: Reuters (Reporting By Nichola Saminather; Editing by Sam Holmes)

OPEC cuts unlikely before U.S., Russia, Iraq reduce output – FGE

In Oil & Companies News 11/03/2016

The Organization of Petroleum Exporting Countries (OPEC) is unlikely to cut production to support oil prices until it sees output declines in the United States, Russia and Iraq, an energy consultant said Thursday.

Oil has risen about 50 percent from 12-year lows hit less than two months ago after Saudi Arabia, Qatar and Venezuela, along with non-OPEC exporter Russia, pledged to freeze supply at January’s levels if others cooperated. The U.S., Russia and Iraq are three of world’s top five oil producers.

“Everybody knows at some point in time you have to cut but the time hasn’t arrive and it is highly unlikely to be in the near future,” Fereidun Fesharaki of energy consultancy FGE said at the Thomson Reuters Asia Petroleum Lunch.

“What they want to achieve is to see production declines in several areas,” he said.

“The three which in my view are important are to see some declines in the U.S., … Russia, and to see a commitment, as far as the Iraqis are concerned, to a limited growth in production.”

In the United States, low oil prices is expected to cut production by at least 500,000 barrels per day (bpd) this year, Fesharaki said.

For Russia, he said: “I don’t see any chance of deliberate action, but maybe economics and just the decline rates that you’re seeing at several fields will end up reducing production by 200,000 barrels per day to 300,000 barrels per day.”

Iraq has little incentive to cut, he said, while the Iranians are timing the release of another 500,000 bpd of oil to avoid a battle with the Saudis.

“Their position is that I come in, but I’m not going to come in to destroy the market because anybody who is accused of being responsible for lower oil prices is despised and hated, not only outside of their own country, but inside their country,” Fesharaki said.

The global oil surplus will narrow this year on lower production in the U.S. and Russia and as demand growth is forecast to remain robust at 1.3 million bpd. By the end of 2016, FGE expects oil inventories to be 50 percent lower than at the beginning of the year.

“By end-2016, it’s hard to imagine the price at less than $50 a barrel,” Fesharaki said.

Source: Reuters (Reporting by Florence Tan; Editing by Christian Schmollinger)

Oil slides on U.S. refinery maintenance, OPEC meeting doubts

In Oil & Companies News 11/03/2016

O

il prices fell on Thursday, with U.S. crude retreating from three-month highs as refinery maintenance looked set to boost record domestic crude stockpiles, while an OPEC meeting aimed at freezing output appeared unlikely without Iran’s participation.

Crude prices drew support as the dollar weakened versus the euro. Trading was also volatile toward settlement on buying by funds aiming to keep prices at or near $40 a barrel, market participants said.

Global oil benchmark Brent LCOc1 settled down $1.02, or 2.5 percent, at $40.05 a barrel, after hitting a session low at $39.63.

U.S. crude CLc1 fell 45 cents to finish at $37.84, having recovered from an intraday low of $37.21.

On Wednesday, oil rallied as much as 5 percent, with U.S. crude hitting three-month highs of $38.51 a barrel as a big gasoline inventory drawdown overshadowed record high crude stockpiles. [EIA/S]

On Thursday, some analysts said the gasoline draw, which was triple expectations, could be partly due to the market transitioning from winter-grade to summer-grade motor fuel. They also said the U.S. refinery maintenance season could push crude stockpiles even higher.

Some said that despite the big U.S. draw, there was ample gasoline on both sides of the Atlantic, which could undercut a sustained recovery in crude prices.

U.S. gasoline futures RBc1 fell 2 percent on Thursday, after a 6 percent rally the previous session.

“The gasoline drawdown is great but we still have record high crude stocks. The question is whether we are just going to depend on falling U.S. production to bring that down, or OPEC will also get its act together on an output freeze,” said David Thompson at Washington-based commodities brokerage Powerhouse.

A meeting between oil producers to discuss a global pact on freezing production was unlikely to take place in Russia on March 20, so long as Iran refused to cooperate, sources familiar with the matter said.

Iranian President Hassan Rouhani’s Chief of Staff said Tehran must regain its share of the global oil market before participating in any deal restricting supply.

“The idea that meeting may not happen at all is definitely weighing on the market,” said Tariq Zahir, who mostly trades U.S. crude oil spreads for Tyche Capital Advisors in New York.

Crude prices came off their lows after buyers using the euro EUR= benefited from its rally. The single currency surged when the European Central Bank ruled out further rate cuts after bringing key lending rates to zero. [FRX/]

Buying from funds believed to be running algorithmic trading models, which can execute massive orders at a time, also helped.

“The funds have turned bullish and the market seems determined to stay at or around $40,” said Pete Donovan, broker at Liquidity Energy in New York.

Source: Reuters (By Barani Krishnan; Additional reporting by Sarah McFarlane in LONDON and Henning Gloystein in SINGAPORE; Editing by Marguerita Choy and David Gregorio)

Here’s How Crude Can Keep Rebounding, and These Three Stocks Can Surge

In Oil & Companies News 11/03/2016

It takes courage to be an energy investor these days. It seems that every oil rally fails when report after report screams “oversupply”. Investors buy, thinking that prices can’t go any lower, and the market promptly proves them wrong by heading south. Given the recent history of failed sustained recoveries, many investors must wonder if the current rally that has sent oil prices from the mid-$20s to $40 per barrel is sustainable.

Although no one knows what will happen to crude prices in the near term, there are three potential upside catalysts that can sustain the rally, and shares of three companies, ExxonMobil (NYSE:XOM) , Chevron (NYSE:CVX) , Schlumberger (NYSE:SLB) will each benefit if any of the events occur.

Summer is coming

SOURCE: U.S. ENERGY INFORMATION ADMINISTRATION

Summer driving season is a positive catalyst for crude, as consumers drive more in summer. For example, crude inventories fell to 460.8 million barrels in September 2015 from 479.4 million barrels in May 2015, despite the oil glut. With gasoline prices so low, many consumers could drive more in 2016 than they did in 2015, and inventories could draw down faster than expected. With the market so focused on the inventory number, faster than expected inventory drawdowns would send crude prices higher. Falling inventories will also reduce the probability of the worst-case inventory-overflow scenario.

Russia’s “uncle” point

Russia, the second largest crude exporter in the world, may be in worse shape than Saudi Arabia. In part because crude prices are so low, Russia’s economy is in shambles, and its leaders are nervous. Russia needs higher crude prices to sustain its budget and to finance its energy investments for the future. Because of its situation, Russian Energy Minister Alexander Novak said on January 28 that his country is ready to discuss a potential crude output cut with OPEC after many months of refusing to come the table.

Although the odds are still against a coordinated OPEC-Russia cut, the fact that Russia is willing to talk about potential cuts increases the probability of a solution. Russia and some major OPEC nations are next scheduled to meet on March 20 to discuss a potential production cap to stabilize crude prices.

Syria is a flash point

With crude prices below $38 per barrel, the geopolitical premium for crude is pretty much nonexistent. Geopolitical premium could make a comeback, however, if the tentative ceasefire in Syria falters and things get out of hand. Currently Iran and Russia are indirectly fighting for the Assad regime, and Saudi Arabia is indirectly supporting the Assad rebels. If there is a confrontation between Saudi Arabia and Russia, the number one and number two largest crude exporters in the world, the resulting newspaper headlines could cause crude to spike.

Three stocks that would benefit

As I mentioned in another article, ExxonMobil, Chevron, and Schlumberger each have excellent balance sheets, attractive dividends, and will survive a prolonged downturn. All three stocks will also benefit if any of the above scenarios occur and crude prices rebound.

Although ExxonMobil and Chevron have substantial downstream businesses that won’t benefit as much if crude prices rise, their upstream businesses will benefit enormously if crude prices recover. ExxonMobil’s upstream business made $857 million in profits when Brent averaged $43.42 in the fourth quarter of 2015, versus the $5.4 billion it earned in the fourth quarter of 2014 when Brent averaged $76 per barrel. Chevron’s upstream unit lost $1.36 billion in Q4 of 2015, versus the $2.67 billion in profit the unit made in Q4 of 2014 when crude prices were $32 higher.

Similarly, Schlumberger’s profits should be higher if crude prices rise. Because oil producers will spend more on capital expenditures and oil field services if crude prices rebound, Schlumberger’s fortunes should improve if crude prices head to $60 per barrel or higher. Schlumberger reported pre-tax operating income of $1.29 billion in Q4 2015, down from the $2.78 billion it earned in Q4 2014 at much higher oil prices.

Investor takeaway

Given that summer driving season is rapidly approaching and Russia is actively looking to stabilize the crude market, the recent rally might have some legs. If OPEC holds steady production, non-OPEC production falls faster than expectations, or if tensions in Syria get worse, crude prices could rally substantially. ExxonMobil, Chevron, and Schlumberger will each survive even if oil prices stay down longer, but will make substantially more profits when crude prices rise again.

Source: Fool

Kazakhstan balks at freezing oil output

In Oil & Companies News 11/03/2016

Kazakhstan indicated on Thursday it had no plan to freeze oil output, as suggested by a group of major producers, and would instead ramp up production to its original target of 77 million tonnes per year if the oil price stayed above $40 a barrel.

Energy Minister Vladimir Shkolnik also signalled that the biggest ex-Soviet oil producer after Russia had not been invited to take part in a planned meeting of OPEC and non-OPEC oil producers to discuss freezing output.

“If we are invited, we will (take part in the meeting),” Shkolnik told reporters. Kazakhstan is not a member of the Organization of the Petroleum Exporting Countries.

An Iraqi oil official was quoted on Wednesday as saying the world’s biggest oil exporters in and outside OPEC planned to meet in Moscow on March 20. Russia’s energy ministry, however, has since said no date or place had been set yet for such talks.

The Kazakh government in its budget in November had targeted oil output of 77 million tonnes in 2016, assuming an average oil price of $40 a barrel, but it lowered the target to 74 million tonnes last month as Brent crude hovered nearer $30.

“If the average price is about $40, the output will be 77 million tonnes,” Shkolnik said.

That would still be lower than production last year of 79.5 million tonnes.

“We have reduced our output a little and hope that if other countries follow our example this will positively affect the global markets,” Shkolnik said.

“We are not freezing anything.”

Oil is Kazakhstan’s main export. The drop in crude prices forced the authorities last August to stop pegging the national tenge currency to the dollar, letting it lose nearly half its value against the greenback within just a few months.

Some Kazakh fields are old and production there stops being feasible at certain price levels.

However, at the end of this year the Central Asian nation hopes to launch commercial output at the giant Kashagan field located off its Caspian coast.

Source: Reuters (Reporting by Raushan Nurshayeva; Writing by Olzhas Auyezov; Editing by Susan Fenton and Dale Hudson)

EU Sugar-Price Surge Spurs Imports From Brazil as Sucden Ships

In Commodity News 11/03/2016

Surging European Union sugar prices are spurring imports from northeast Brazil under a system that allows supplies to enter at reduced rates.

Trader Sucres et Denrees SA booked a vessel to ship 30,000 metric tons from Brazil’s northeast port of Maceio to Romania, data from shipping agency Williams Brazil showed. The Daiwan Wisdom ship is the first seen on line-ups since speculation emerged about deals being struck to send sweetener to the bloc last month.

EU sugar prices have jumped more than 10 percent since the season started in October as the bloc’s harvest drops to the smallest in more than 40 years, said Stefan Uhlenbrock, an analyst at F.O. Licht GmbH in Ratzeburg, Germany. Prices in western Europe of 550 euros ($604) a ton are 43 percent higher than futures traded in London, according to Bloomberg calculations using F.O. Licht data.

“Prices in the European Union are rising more or less by the day,” Uhlenbrock said by phone. “The quota is now attractive for Brazilian producers from the north, northeast region, so I would expect it to be filled by the end of the season.”

The EU is importing sugar from northeast Brazil after failing to ship in any supplies last season, according to European Commission data. The bloc, which may be facing shortages of the sweetener this year, can import as much as 334,054 tons a year from the Brazilian region at a reduced duty.

First Signs

Data from the commission, the bloc’s regulatory arm, showed in February no applications to bring in sweetener under the so-called CXL duty of 98 euros a ton, even though there had been speculation of traders buying sugar to ship to Europe.

Sugar output in the EU will drop to 13.6 million tons in the 2015-16 season ending in September, the lowest since 1971, F.O. Licht estimates. The commission needs to take action to boost supplies and avoid shortages, the Committee of European Sugar Users, a group representing more than 15,000 companies, said last month.

EU officials officials met with representatives from the sugar industry last week to discuss a possible supply crunch as imports may fall short of the bloc’s forecast, people who attended the meeting said. The region may bring in 150,000 tons less than it had expected, the commission told representatives, according to the people.

While filling import quotas at reduced duty would be an improvement from a year ago, shipments from nations with preferential access to the EU market are lagging behind last year’s pace “significantly” and not expected to change throughout the rest of the season, Uhlenbrock said.

Source: Bloomberg

South Africa: Mining production falls in January

In Commodity News 11/03/2016

Output in the mining sector fell sharply in January this year compared with a year ago, indicating economic growth got off to a slow start this year.

Mining production decreased significantly by 4.5% year on year in January after contracting by 1.2% year on year in December.

Declining mining production and rising input costs could encourage more job losses in the sector.

The decline was mainly due to lower iron ore, copper and manganese ore production. The slowdown in Chinese demand for these commodities, coupled with low global commodity prices, is negatively affecting the mining sector.

Gold production was higher and was a significant positive contributor in January, Statistics SA reported.

Seasonally adjusted mining production decreased by 4.9% in January 2016 compared with December 2015 (month on month). This followed a month-on-month decline of 0.5% in December 2015 and a 1.9% increase in November 2015.

Seasonally adjusted mining production was down 0.6% in the three months to end-January compared with the previous three months, Stats SA said.

Mineral sales were up 2.8% year on year in December, partly reflecting a weaker rand. The sale of other non-metallic minerals, gold and coal supported mineral sales, which were offset by significant declines in the sale of iron ore and manganese ore.

Source: BDLive

India’s Wheat Crop Seen at Risk for Second Year on Rainfall

In Commodity News 11/03/2016

India’s wheat crop, the world’s second largest, is at risk from rain and hail forecast over the next four days after unseasonably wet weather shrunk the previous crop to the smallest in five years.

Northwest and central regions of India, the main wheat-growing areas, will get thunderstorms accompanied by strong wind and hail over the next three to four days, the India Meteorological Department said in a statement. The agency advised farmers to reap matured crops at the earliest and secure already-harvested grain. Harvesting normally starts in April and ends by June.

A smaller Indian crop may help alleviate a global wheat glut that sent prices to a third annual loss in 2015. Production will be 86.53 million metric tons this year, down from last month’s forecast of 88.94 million tons, the U.S. Department of Agriculture said Wednesday. Indian imports may increase if the crop is damaged, according to Kotak Commodity Services Ltd.

“Any unseasonal weather pattern, especially during February-March, is not good for the crop,” said Faiyaz Hudani, associate vice president at Kotak in Mumbai. “Sentiments should definitely turn bullish on the price front and a lot will depend on how much damage the hailstorm does to the crop.”

About 19 million hectares (47 million acres) of crops from wheat to rapeseed and vegetables were damaged last year as rainfall more than double the 50-year average in February and March drenched fields, according to government data. The main wheat-producing regions had almost five times the average, data show. That discolored the grain and raised moisture content.

India’s agriculture ministry estimates wheat production to rebound to 93.8 million tons in 2015-16 from 86.5 million tons a year earlier, which was the smallest harvest since 2009-10. That compares with the 84.5 million tons median forecast in a Bloomberg survey in February.

Wheat for May delivery lost 0.1 percent to $4.6775 a bushel on the Chicago Board of Trade. Prices are 0.5 percent lower this year after posting a 20 percent loss last year.

Source: Bloomberg