S&P downgraded 14 US banks, upgrade China bank

Bank of America Corp., Goldman Sachs Group Inc. and Citigroup Inc. had long-term credit grades reduced to A- from A by Standard & Poor’s after the ratings firm revised criteria for dozens of the world’s biggest lenders. S&P made the same cut to Morgan Stanley and Bank of America’s Merrill Lynch unit today. JPMorgan Chase & Co. was reduced one level to A from A+. S&P upgraded Bank of China Ltd. and China Construction Bank Corp. to A from A- and maintained the A rating on Industrial and Commercial Bank of China Ltd., giving all three lenders higher grades than most big U.S. banks.(Source: Bloomberg)
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How often do you see 14 US banks downgraded by S&P in one go with 2 China banks upgraded?
Here's my thought on the news:
1. This is negative on KLCI as Asian market likely to react negatively to this news. Downgraded banks include those big banks like Bank of America, Citibank and Goldman Sachs will need to put higher collateral in their trading and pay higher yield for their next bond raising. Hence these banks may be more cautious in lending, causing growth outlook dimmer in 2012.
2. Although Malaysia banks are generally not directly exposed to US banks, today's leading decliner for KLCI should be banks. Reason: banks may be more cautious on lending in view of higher global uncertainty, lower loan growth means lower earnings growth, hence lower share price.
3. Welcome to the new world... where the economy power is clearly shifting from West to East. But in the short term, we may have to go through another year of volatility in 2012...

3 reasons to take profit from some of plantation stocks

1. CPO prices should drop below RM3,200 soon (probably today) as soybean oil retreated 2.0% to 51.7 cents per pound overnight at CBOT market. Crude oil price also tumbled 3.7% to US$98.8 overnight. Concern on Europe is getting bigger as Spain bond yield is set to cross 7%.
2. 3Q result should be weaker QoQ as CPO prices has weakened in the quarter July-September. Among the big cap plantation company, IOI will kick start the result season today, which should register decline QoQ. Look for more QoQ decline...
3. Technically, some of plantation stocks has reach overbought level. For example, Genting Plantation 14-day RSI has touched 72 at closing price of RM8.02 yesterday. Rimbunan Sawit 14-day RSI reached 75 at closing price of RM0.94 yesterday.

The next country after Italy is Spain?

The recent market meltdown is caused by Italy bond yield which has increased more than 7%. What is the next country that may have its bond yield increased above 7% soon? Spain maybe the next... Here's why.

1. Currently, Spain 10-year bond yield is 5.82%, it will only need another 118 basis points to breach that 7%. Well, Italy bond yield used to be around 5.8% last month in mid-October. Then the pressure come to force its Prime Minister to resign. Within 1 month, Italy bond yield shoots up more than 7%.
2. Spain unemployment rate of about 22% is significantly higher than Italy's 8%.
3. Political scenario in Spain does not look good as well. The country will be having its election on 20th Nov, about 2 more weeks from now. Opposition party (Popular Party or PP) seems to have good chance to win. This is based on recent local and regional elections held on 22 May 2011, in which PP won 38% popular vote compared to 28% won by the current Socialist government.

Why KLCI should drop 25-35 points today?

1. Everyone knows DJIA down almost 400points yesterday. But the difference is gold also drop 1.2% to about US$1770. In normal drop, investor will flock to gold. But this time with gold also down. What does this mean? The fear is so great that investor choose to hold cash. Be prepared... this may just be the start of another major correction.
2. Futures open at about 1455-1460 points, representing 30-35 points discount to yesterday close.
3. From technical view, KLCI 14-day RSI is at 63, very close to overbought level of 70. It is also has pretty much downside to at least below 50.

DJIA up 101.79p after Berlusconi plans to resign

What's the indication?

1. Market sentiment may have turned positive, eyeing 1,500 this week which is also its 5-year average historical PE of 16.2x. Today should try to test 1,490 points.

2. Although Europe problem has not been fully resolved, market seems to have priced in the risk from Europe. Greece is gone case, but as long as Italy does not go into bailout, things should be OK.

3. Some of the KLCI stocks which RSI still below 50:
a. AMMB (44)
b. Maxis (45)
c. Maybank (46)
d. Hong Leong Bank (48)
e. MMC (48)

3 reasons KLCI may not increase above 1480 today

1. Foreign investor trading was actually at net selling of RM85m last Friday despite the increase of 15 points. Unless foreign investor come in strongly, it may be hard for KLCI to continue its uptrend.
2. Uncertainties in Europe has spread to Italy. As Italy's bond yield has increased above 6%, the market will be watching closely whether it will hit 7%. (This is the level that requires Portugal, Ireland and Greece to start receiving bailout). The market will watch closely the outcome of today's vote on the 2010 budget report.
3. From technical view, KLCI will need to retest 1500 level this week after failing to do so last week. As the RSI is at 59.5 (70 is the overbought level), it appeared that index needed more momentum to surpass 1500.

UMA query on Harvest

Subject	:	HARVEST-Unusual Market Activity ("UMA") query by Bursa Securities
Contents	:	Bursa Malaysia Securities Berhad has on 4 November 2011 issued an UMA query on the trading of the Company’s securities. In this respect, investors are advised to take note of the Company’s reply to the above UMA query which will be posted at Bursa Malaysia’s website under the company announcements, http://announcements.bursamalaysia.com when making their investment decision. The contents of the UMA query is as follows:- We draw your attention to the sharp increase in price and high volume of your Company’s securities recently. In accordance with the Corporate Disclosure Policy on Response To Unusual Market Activity pursuant to paragraph 9.11 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad ("Main LR"), you are requested to furnish Bursa Malaysia Securities Berhad ("Bursa Securities") with an announcement for public release after making due enquiry with your directors and major shareholders seeking the cause of the unusual market activity in the Company’s securities. In this respect, you are also required to publicly confirm, amongst others, the following:- 1. whether there is any corporate development relating to your Group’s business and affairs that has not been previously announced that may account for the unusual market activity including those in the stage of negotiation / discussion. If yes, kindly provide the details including the status of the corporate development to enable investors to make informed investment decision; 2. whether there is any rumour or report concerning the business and affairs of the Group that may account for the unusual market activity and in this respect, you are required to comply with paragraphs 9.09 and 9.10 of the Main LR; 3. whether you are aware of any other possible explanation to account for the unusual market activity; and 4. your compliance with the Main LR, in particular paragraph 9.03 of the Main LR on immediate disclosure obligations. Please note that the contents of the announcement must be endorsed by the Board of Directors of the Company and the announcement must reach Bursa Securities immediately via Bursa LINK.