ThxPORTAL - My OnlinE InvestmenT ProgresS

* Middle East: Thursday, July 03 - 2008 at 13:13

In the middle of June UK gilts had their biggest sell-off for years as markets digested the thought of what higher interest rates to tackle inflation might mean for bond prices. Inflation is bad news for bonds. Inflation tends to push up interest rates so fixed interest rate instruments decline in value. In the Gulf that means sukuks.

Sukuks have become very popular in the region, combining the ethical appeal of Islamic banking with exposure to local currencies which are thought likely to revalue upwards.

And international banks have rushed to join the sukuk issuance bandwagon over the past couple of years, sometimes displacing the local banks, even the Islamic ones.

Investors have, from time to time, wondered about the return on offer from sukuks. Earning 2.5% above Eibor on sukuk from the Dubai Electricity and Water Authority does not look like a great return: 4.5% 'profit' as interest on sukuk is termed, despite the geopolitical risk of the Gulf, is not a great deal.

Indeed, with UAE inflation above 10% - some say as high as 20% this year - this is a negative real rate of return on this investment. A few years of inflation roaring at this kind of level and your sukuk is going to be worth a lot less in real terms than you paid for it.

Likely Eibor rise

Disastrous bond investment

Successful US$4.5bil bonds and sukuk issue by Petronas to lead the way

PETALING JAYA: The successful issuance of US$4.5bil conventional bonds and sukuk by Petroliam Nasional Bhd (Petronas) could see large companies tapping the dollar bond market.

Analysts said large companies with high enough credit ratings and were well-known internationally would attract sufficient interest.

“Investors are still picky and concerned. They are picking well-established names and Petronas is one of them,” said Malaysian Rating Corp Bhd vice-president of fixed income research Wan Murezani Wan Mohamad.

“The concern right now is for capital preservation.’’

Petronas’ US$1.5bil sukuk and US$3bil conventional bonds made their debut on Bursa Malaysia and Labuan International Financial Exchange (LFX) respectively on Aug 14. Both securities have a tenure of five and 10 years respectively.

The bonds by Petronas were the largest issuance in Asia over the past five years and the second largest in Asian history. The size of the offering was increased due to high demand. The order book of US$19bil was the largest reported order book ever for an Asian transaction.

The money raised for Petronas was to fund its capital expenditure and operations.

Petronas sold US$4.5bil of bonds at a yield of 162.5 basis points above US treasuries.

Liquidity in the global markets continue to rise on historical low interest rates and huge stimulus programmes initiated by governments to lift economies from a terrible recession that has gripped much of the world.

“As for ringgit-denominated bonds, demand is skewing to AA and above,’’ said Wan Murezani.

A fixed income analyst with a local investment bank said Petronas managed to raise a significant amount of money cheaply with the bond issue.

Although spreads have gone up recently, the price of Petronas’ dollar bonds has also risen.

The increase in spreads was explained by US treasuries rising at a faster rate than the Petronas bonds.

Analysts said that when a giant company such as Petronas made such a move to raise dollar-denominated bonds, it opened the doors for others to follow suit.

However, there is a slight caveat as there are not many companies in the country that have as strong a credit rating.

Furthermore, the deep and liquid ringgit bond market has been sufficient for many companies to raise their money.

“Malaysian credit is still well sought after,’’ said the analyst.

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However, EW consider this as a wrong direction!

U.S. Dollar: Another Piece of the Puzzle?
Individual investors can be wrong about a market trend. But countries?

By Gary Grimes
Wed, 08 Jul 2009 16:30:00 ET
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Wave patterns are like beautiful women, classic cars and great art – you know them when you see them.

EWI analyst Jeffrey Kennedy drives this point home during his live Elliott wave trading tutorial. It's my favorite of his tips for trading with Elliott waves.

"Trade the pattern not the count," Jeffrey says.

If you don't recognize a pattern at a glance, don't trade it – plain and simple. After all, your wave count can be wrong; the pattern cannot.

Does that mean you must know the exact wave count at a glance, as well? No. Simply spotting a pattern you recognize is where you should start.

Jeffrey scans hundreds of charts, clicking through them one by one, spending mere seconds with each. If he doesn't spot a pattern he recognizes, a click of his mouse takes him to another potential opportunity.
Does price action look extended or choppy? Is it trading in a channel? Is it forming a wedge or triangle shape? These are some of the signals Jeffrey's looking for. Each could help him identify – at the quickest of glances – whether price action is impulsive or corrective. This is the first critical step, Jeffrey says, to spotting high-confidence, Elliott wave trade setups.

That brings us to the following chart. Do you see a pattern you recognize? I do.



Look at the downward price action; the moves look decisive, almost in straight lines like impulse waves. Now look at the upward moves; they look indecisive and choppy like corrections. There's also one down move that is clearly longer than the others – that's almost certainly a third wave of some degree.

At just a glance, here are a few things we can determine:

* This is a bearish market pattern, because downward impulses are interrupted by upward corrections.
* The price action from September to November seems to be a pretty clear wave 3 down, followed by waves 4 up then 5 down, completing what appears to be a larger degree wave 1 in early March.
* Wave 2 follows wave 1, so the upward move starting in early March is most likely a larger degree wave 2.
* Wave 3 follows wave 2, so that's what we can expect next.
* Wave 3 is never the shortest and often the longest of all five waves, so we can expect the next impulse move to take prices to new lows.

You see, with just a quick glance, we've put a finger on the pulse of the market. Negative psychology pulls prices down, and brief reversals of mood result in upward corrections – this appears to be a long-term bear market.

If you can gain this much insight simply by glancing at a chart, just think of what else you can glean by spending more time with it. Look at this pattern within a longer time frame, and you can determine the degree of trend (this one appears to be primary). Formulate Fibonacci price and time targets, and you can be confident about when and where prices will most likely turn.

There are literally hundreds of things you can do with a good chart, but none of them mean much unless you can first identify a pattern you recognize.

"The stock market has now fulfilled our forecast made back in February for a rise to 9,000-10,000," says Robert Prechter. In The Elliott Wave Theorist, he now sees increasing risk.

"The rally in the S&P since March has been one of the faster ever, rising 50% in five months, and rapidly carrying the S&P to the lower end of our general target zone of 1000-1100.

"At the same time, optimism has finally reached 'Primary degree' levels. The daily sentiment index recently reported 88% bulls among S&P traders, a reading equal to that on October 9, 2007, the top day of the 'Cycle B wave' when the Dow made its all-time closing high of 14,164. Higher readings are possible, but we are no longer compelled to wait.

"In falling from 14,198 to 6470, the Primary wave covered a large amount of territory: 7728 points. The Fibonacci 3/8 retracement level is 9368, while a 5/8 retracement would carry to 11,300.

"The Dow has essentially achieved the first of these retracements levels. Indeed, at this point, the Dow has also achieved a Fibonacci 3/8 retracement, creating a Fibonacci 50% gain in a Fibonacci 5 months. It would be a nice place for the rally to stop.

"Given that stocks remain in the largest-degree bear market in nearly 300 years, it is not a good idea to bet inordinately on the upside. We should not ask more of the 'stock market gods' than they have already granted us.

"The prudent thing to do is return to a bearish stance now that prices have reached the first Fibonacci retracement level. Investors should continue to keep the bulk of their wealth in case and the safest possible cash equivalents, in the safest institutions.

"If you actively invest in the stock market with money you can afford to lose, it's time to return to the short side. It may be early in terms of both time and price, but that's the cost of insuring that don't miss profiting in the next wave down."

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