To get an early indication of this recovery, we can look at the following:
1) China (or, Shanghai's SSEC to be exact);
2) Crude Oil prices (WTIC); and
3) Shipping rates (BDI).
China is now the giant factory, making many of the products that the world craved or needed. A recovery in Shanghai's SSEC would be a sign of some pick-up in China's industrial output. From the chart below, we can see that SSEC is in an early stage of recovery.
Chart 1: SSECI's daily chart as at March 4, 2009 (Source: Stockcharts.com)
Increased production will require increased usage of energy, including crude oil. Thus, the Crude Oil prices should recover. From the chart below, WTIC is now showing signs of bottoming. A recovery would likely commence once WTIC surpasses the USD45 level.
Chart 2: WTIC's daily chart as at March 4, 2009 (Source: Stockcharts.com)
Finally, all the finished products must be shipped to the final destination (probably, American & other OECD countries). Similarly, raw material & semi-finished products need to be shipped to the factories. All these movement of goods & raw material should push up shipping rates. From the chart below, we can see a good rebound in BDI. While this could be just a technical rebound, a re-test of the recent 'low' will give us a better idea the direction of shipping rates in the near future.
Chart 3: Baltic Drybulk Rates' daily chart as at March 4, 2009 (courtesy of Investment.tools.com)
We should track these charts closely for signs of some stability or recovery in the real economy. This stability or recovery could in turn lead to a decent rally in the stock market.
2 comments:
Hi Alex,
I left the comment below on your article on Supermax dated 24 Feb. I am unsure whether you came across it or otherwise, after all I commented on it a week plus or so later.
I would agree with you to an extent that the statement by Supermax on its impairment was misleading. However, for a follower of Supermax's results, it is understood that the impairment will arise in its 4Q08 results as other past quarterly results did not account for this impairment. The way the statement was phrased, at first reading, was pretty vague even for a follower! Poor phrasing should not exists for such public listed companies.
If the management's misleading statement is to be ignored, would you still say that Supermax is a company to watch given the discrepancy between its value and its current unjustified price now?
I have read the other article of yours on Supermax lagging behind its peers. Could you provide some ideas why so?
Your opinion and experience in stock analysis is very much appreciated.
Aaron.Hee.Wy
*Just stumbled across your blog lately. To be honest, I am impressed with the diversity of your industrial coverage and generosity in sharing your expertise and experience in the industry with your readers! Slick effort! =)
Hi Value Investing,
I did not see your earlier comment. You are probably right about the impairment provision not being made in earlier quarters, which one may discover by sifting through the account.
Notwithstanding my displeasure with this stock, I believe that Supermx has a few positives going its way. Jettisoning a loss-making unit in order to concentrate on the profitable business is also a good policy. The industry is stable & its products are in good demand. Its management is very experienced and its valuation is undemanding. If the share price does not drop below RM0.80, there is no serious technical concern.
So, if you have a position, you can hold onto it. Even if you don't have any position in this stock, you may still take a small stake for reasons that I have stated above.
Good luck.
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