Commodity prices have risen significantly ince the start of the year. From Chart 1, we can see that Reuters/Jefferies CRB Index has increased from a low of 275 at the beginning of the year to 306 yesterday, That's an increase of 11% in 2 months!!
Chart 1: CRB's weekly chart as at Mar 5, 2014 (Source: Stockcharts)
This has prompted a slow recovery among the commodity forms, such as Olam, Noble and Wilmar (on SGX) and also PPB (on our local bourse). From Chart 2, we can see that PPB has broken above its downtrend line as well as horizontal line at RM16.00. Its next strong resistance is at the horizontal line RM18.00.
Chart 2: PPB's weekly chart as at Feb 26, 2014 (Source: Tradesignum)
Olam may have broken above its long-term downtrend line but the same may not be said for Noble & Wilmar (an associate of PPB).
Chart 3: Olam's weekly chart as at Mar 5, 2014 (Source: Tradesignum)
Chart 4: Noble's weekly chart as at Mar 5, 2014 (Source: Tradesignum)
Chart 5: Wilmar's weekly chart as at Mar 5, 2014 (Source: Tradesignum)
Based on the bullish technical breakout for CRB index and PPB, PPB could be a trading BUY.
Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, PPB, Olam, Noble & Wilmar.
3 comments:
Hi Alex,
What do you think about Trop?
I have done some study and i think Trop is a good stock to invest based on the financial performance and also the NTAB.
But i can't understand the why this stock keep on dropping.
Please comment
Hi ahtoo
I am also wondering about the same thing with regards to Trop.
I feel that it is relatively safe at RM1.20-1.30 level. However, we do have to be a bit wary of property stocks for the next few quarters, especially those which are highly geared. Trop has borrowings totaling RM1.92 billion vs. total equity of RM2.73 billion. This means its gearing is at 0.7x.
I see a rush by major shareholders to park their private properties in their listed vehicles. This could mean 2 things: firstly, the value of the property is higher relatively to the share price (thus it is positive for stocks) and secondly, the owners rather transfer their personal borrowings to their listed vehicles because in the event of a sharp downturn, listed vehicles are easier to rescue than individuals. You can do multiple rounds of capital reduction or right issue and still be a comeback kid. This is how I see the kind gesture of Danny Tan's parking personal properties in Trop.
My concern is that in the next 2-3 years, interest rates will start to rise. At the beginning, the rise will be slow. Later, the rise will be sharp.
The reversal of the 30 years decline in interest rate could lead to two things: a drop in the value of assets, real & nominal and a rise in the relative value of debt & cash. Those who borrowed to buy properties in the past, had been the winner. Going forward, the table will turn against the borrower. Anyway, I am digressing.
Back to Trop. If nothing bad happens next 1 year, Trop would have been a good buy at current price level. If ugly things happen, then lots of asset would lose their value and the only safe haven is cash or near-cash.
Hi Alex,
Thank you very much for your valuable insights.
Let's monitor the movement of TROP.
Thank you Alex..
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