Sunday, February 21, 2010

China's possible currency revaluation: Advantage Gold!

An upward revaluation of its currency by China is being widely speculated in recent weeks. The rationale being to discourage Chinese exports by making them less competetive resulting in lower economic growth and hence lower inflation. The Chinese government and central bank seem exceedingly concerned lately with bringing down inflation. A valid concern given that the Chinese economy expanded by 10.7 percent in the fourth quarter of 2009, the fastest increase in two years. The Chinese central bank has already tried raising bank reserve requirements, clearly showing its intent.

Avoiding the economy from over-heating appears to be the number one priority for China. In early 2008, consumer price inflation jumped to a 10-year high of 8.7 percent. If the trend continues in 2010, inflation could be even higher. And indications are that the Chinese are continuing to spend. Household savings in 2009 was USD 48 billion less than the previous year, despite a 9.8 percent increase in real disposable income.

A stronger Chinese Yuan would make gold cheaper for Chinese traders and spur demand, boosting gold prices. Moreover, the Euro, already weakened by the Greek tragedy, doesn't look like its about to rebound soon with Portugal, Ireland, and Spain, other EU members, being in high debt situations similar to Greece (though to a lesser degree).

The USD has been gaining strength more on account of USD-EURO and USD-GBP pairs arbitrage strategies dumping the Euro/GBP rather than on account of improved fundamentals of the US economy.

In such a scenario, people looking for store of value would certainly find merit in investing in gold, I would think. I for one, surely do and only foresee an uptrend in gold prices over the next six months with positive (economy) newsflows from US doing the occasional damage and noises from Iran and North Korea providing the periodic thrusts.

Sunday, February 14, 2010

Thank-you Iran, lets make some money!

As Iran commemorates its Islamic revolution, Ahmadinejad has announced the order to increase the grade of its uranium stockpiles from the 3 percent used for energy to the 20 percent needed for weaponization. Political pundits in the US congress are busy trying to figure out next moves with dominant strategies being: Regime change - put Moussavi in charge of the country; Military strike by Israel, tougher UN sanctions, and Military strike by US.
Whichever way uncle sam decides to go, one thing appears very likely - commodity prices could get a fresh boost after many days of drubbing.

Sunday, February 07, 2010

NTPC FPO: Subscribe Target: Rs.235

NTPC's FPO is available at 201 for retail investors. Having had the opportunity to do a fairly detailed analysis of this company, I arrived at FY 2009-10 EPS estimate of 11.2 on a consolidated basis. Since NTPC debuted, on the bourses, the P/E multiple accorded to it my the market has averaged at about 18. The average multiple over the last 8 quarters stands at 22 with an uptrend over the last 3 successive quarters. At a multiple of 21,the stock should be worth Rs. 235 by the end of this fiscal year. This earnings estimate does not include the potential additional upside from a possible government move allowing the company to sell the 15% power, which is reserved for the center, in the open market.

Considering the recent market down-trend, if somebody is to ask me whether the stock will decline post its FPO to a level lower than Rs. 201, my answer is, I dont know. But I do have a two word strategy for those who expect such a scenario to play-out. Average-out! Of the sum you have set aside for investig in NTPC, deploy a bigger portion in the FPO and hold the rest for to buy on dips post the FPO.