Market Update & Important Indicators
U.S. stocks staged an afternoon rally to recover from a second day of losses following China's currency devaluation, though global indexes were broadly lower and investors remained unsettled over the implications of the sudden shift in the second-largest world economy. While growth concerns in China have been present for months, they were brought to the forefront Tuesday after China devalued its tightly controlled currency, causing its biggest one-day loss in two decades. China's devaluation might also complicate the Federal Reserve's decision about when to start raising interest rates for the first time in nearly a decade. That uncertainty pushed the U.S. dollar lower versus the euro and the yen.
The Stoxx Europe 600 index closed 2.7% lower, with Germany's exporter-heavy DAX index falling 3.3%. Shares in car makers, luxury goods firms, and mining companies–sectors highly sensitive to demand from China–were among the hardest hit. A weaker yuan could hurt the competitiveness of firms outside China by making their goods and services relatively more expensive. Companies that export to China could find revenue generated in yuan is worth less in their home currency.
China's devaluation of the yuan hit markets across Asia for the second straight day, sending emerging market currencies to fresh lows and stocks in Hong Kong down more than 2%. The yuan has lost 2.6% over two days against the U.S. dollar, after China's central bank pledged to give markets a greater role in setting the currency's level, having managed it tightly in the past. Within Asia, stocks in Hong Kong suffered most with the Hang Seng Index finishing down 2.4%. Australia's S&P ASX 200 was down 1.7%, Japan's Nikkei Stock Average was down 1.6% and South Korea's Kospi was down 0.6%.
LME metals finished mixed, as some investors bet that China's devaluation of its currency would make its exports cheaper and thus boost its considerable consumption of metal. Gold advanced to $1,124.9/oz. The AUD is buying US$0.738.
In This Issue
Sino Gas & Energy | (SEH) | Market Panic? Time to buy on fundamentals | BUY TP A$0.30/ps
The recent sell off, which has seen SEH fall ~45% since the A$80m capital raising, is overdone. The fundamental story that attracted us to the company remains unchanged. The stock is trading at 30% of our A$0.30/ps valuation and at a significant discount to its listed peers.
Generally the three main concerns regarding SEH are 1) the lack of revenue from gas sales flowing into SGE accounts due to bureaucratic red tape 2) the potential reduction in gas prices received by SGE & 3) the financial position of its SGE equity partner MIE (1555.HK).
Recent Contacts & Presentations
Dacian (DCN), Evolution (EVN), Austal (ASB), Resolute (RSG), Pacifico (PMY), Kingsgate (KCN), Troy (TRY), Northern Star (NST), Sandfire (SFR), Regis (RRL), Saracen (SAR), Sino Gas & Energy (SEH), Buru Energy (BRU), Carnarvon Petroleum (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), Pura Vida Energy NL (PVD), High Peak Royalties (HPR), Karoon Gas (KAR), Austex Oil (AOK), Central Petroleum (CTP), Senex Energy (SXY), Newmont, Coventry (CYY)