DUBAI, Oct 20 — Saudi Aramco said today the timing of its long-awaited stock market debut “will depend on market conditions,” after the latest delay in the blockbuster initial public offering. The IPO forms the cornerstone of a reform…
UNDERSTANDING “volatility” can help you unlock many opportunities. At extreme levels, “volatility” brings great risk to all market participants. But try to remember, risk is related to reward. A manageable level of volatility helps people make money in the stock market. Greater and more frequent price movements create more opportunities for traders. Understanding how it works, and what instruments you can use can help make you a stronger investor.
The “Mini” Mid 70
One of the key instruments you can wield is “futures”, a kind of derivative for hedging, trading and arbitraging. The Mini FTSE Bursa Malaysia Mid 70 Index Futures – the FM70 – is a “younger brother” of the FTSE Bursa Malaysia KLCI Futures (FKLI). While the FKLI provides exposure to the top 30 stocks on the market by market capitalisation, the FM70 exposes investors to the next 70 stocks. With a lower entry cost than FKLI, FM70 is more accessible to a wider range of retail investors. Investors who have less capital now have a chance to participate and harness market volatility. Furthermore, by trading both FKLI and FM70 contracts, investors can gain exposure to all of the top 100 companies in Malaysia.
The FM70 contract value is equivalent to the index points of the FBM Mid 70 multiplied by RM2, which is the price set by Bursa Malaysia for each index point. For example, the FBM Mid 70 on Oct 9, 2019 at 12.30pm is at 13,814 points. Therefore, the FM70 contract value on Oct 9, 2019 at 12.30pm is: 13,814 x RM2 = RM27,628.
Where do I start?
To trade in the FM70, all you need is to deposit an initial margin into your futures trading account with a licensed futures broker approved by Bursa Malaysia. The initial margin for the FM70 starts at RM900. Using the example above, with RM900 you can trade one FM70 contract worth RM27,628, effectively giving you a leverage of 30.7 times. In layman terms, it means having an investment exposure of RM27,628 with an investment of just RM900.
Contracts, Leverage, Margins – How does it work for me?
A contract is simply a promise, either to buy or sell at a predetermined price and level. Let’s assume the market is at 13,814 points. You expect it to fall. You sell one FM70 contract at 13,814. Assuming the market declines, and FBM70 comes down to 13,508. You now buy back one FM70 contract at 13,508 to close out your initial sale. Based on a value of RM2 per point of movement, your gross profit is RM612 (excluding brokerage fees) using this calculation: 13,814-13,508 = 306 points x RM2. As a result, with an investment of only RM900, which is the margin requirement, you are able to generate a 68% rate of return on your investment.
In reverse, where you expect a market rally, you buy one FM70 contract at 13,814. Assuming the market goes up to 14,355 points. You now sell back one FM70 contract at 14,355 points. The difference in points is 541, and that is multiplied by RM2 giving you a profit of RM1,082 (excluding brokerage fees).
Furthermore, if you have a portfolio comprising stocks that make up the FBM Mid 70 index, you can protect these assets and reduce the risk of unfavourable price movements by hedging and arbitraging with this futures contract.
Get started, and harness it to create more opportunities.
Brokers at Affin Hwang Investment Bank report that more young investors are entering the market to trade derivatives as the FM70 contracts are more affordable, and offer more trading opportunities on a daily basis. Both the low entry cost and exposure to greater volatility offer an attractive opportunity to generate short-term returns, and more and more investors are seeking opportunities like this. You could be one of them.
Learn more about this subject by speaking to your broker or following Bursa Malaysia’s investor education programmes on www.bursamarketplace.com.
Part of a series of articles by Bursa Malaysia to educate, develop and empower everyday investors.
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SEOUL: Oil prices slid on Friday on jitters over demand from China after the world’s largest oil importer recorded its weakest quarter of economic growth in nearly three decades, dragged down by a trade dispute with the United States.
Global benchmark Brent crude oil futures fell by 21 cents, 0.4%, to $59.70 a barrel by 0646 GMT.
U.S. West Texas Intermediate (WTI) crude futures edged down by 4 cents, or 0.1%, to $53.89 per barrel.
In the third quarter, China’s gross domestic product (GDP) growth slowed to 6% year-on-year, its weakest pace in 27-1/2 years and below expectations, dogged by soft factory production amid ongoing trade tensions with United States and sluggish domestic demand.
“The (China) GDP print has weighed on short-term sentiment and we have seen regional stock markets and oil contracts edge lower because of that,“ said Jeffrey Halley, senior market analyst for Asia Pacific at brokerage OANDA.
Crude demand growth tends to track economic growth trends, but Halley said China’s need for oil would not recede any time soon.
Underlining that view, Chinese official data released on Friday showed robust refinery throughput in September, rising 9.4% from a year earlier to 56.49 million tonnes, on increases from new refineries and some independent refiners resuming operations after maintenance.
“There’s a lot of demand pessimism already priced into the oil markets … China GDP (growth) was not negative enough (below 6%) to alter the positive effects for the trade talks,“ said Stephen Innes, Asia Pacific market strategist at AxiCorp.
U.S. and Chinese trade negotiators are working on nailing down a Phase 1 trade deal text for their presidents to sign next month, U.S. Treasury Secretary Steven Mnuchin said on Wednesday.
Adding to the downward pressure, U.S. crude oil stockpiles surged last week by 9.3 million barrels as refinery output dropped to a two-year low, while gasoline and distillate fuel inventories decreased, the Energy Information Administration said on Thursday.
Elsewhere, the joint technical committee monitoring a global deal to cut output between the Organization of the Petroleum Exporting Countries (OPEC) and partners, including Russia, found compliance with cuts for September stood at 236%, according to four OPEC sources.
“Concerns about softer growth in the demand for oil and doubts about OPEC’s ability to rebalance the market on the current production cut rate will be key drags on prices in the near term,“ ANZ Research said in a note.
OPEC and its allies have agreed to limit their oil production by 1.2 million barrels per day (bpd) until March 2020.
OPEC lowered its 2019 global oil demand growth forecast to 0.98 million bpd, while leaving its 2020 demand growth estimate unchanged at 1.08 million bpd, according to OPEC’s latest monthly report. -Reuters
NEW YORK: Saudi Aramco plans to push back its initial public offering, which had been expected to be launched next week, a person familiar with the situation said Thursday.
The move could delay stock market trading of the oil giant to December or January instead of November, the person said. The company is expected to be valued at between $1.5 and $2 trillion, making it the biggest ever.
Sources had told AFP in mid-September that the IPO could be pushed back after an attack on Saudi oil facilities curtailed output.
The IPO is part of Riyadh’s efforts under Crown Prince Mohammed bin Salman to diversify its economy away from petroleum.
Aramco has envisioned a two-stage public listing, with about two percent of the capital trading on the Tadawul exchange in Saudi Arabia and an additional listing on a foreign exchange, sources say.
The company intends for about five percent of shares to be available on public exchanges.
The prospect of falling short of the $2 trillion valuation desired by Saudi rulers is widely considered the reason the IPO has been delayed.
A prior initiative to list Aramco was pulled last year due to disappointment over the valuation during a weak period for oil prices. -AFP
BEIJING: China’s economy expanded at its slowest rate in nearly three decades in the third quarter, hit by cooling domestic demand and a protracted US trade war, official data showed Friday.
The Chinese economy grew 6.0 percent in July-September, compared with 6.2 percent in the second quarter, according to the National Bureau of Statistics (NBS).
The reading — in line with an AFP survey of 13 analysts — is the worst quarterly figure since 1992 but within the government’s target range of 6.0-6.5 percent for the whole year. The economy grew at 6.6 percent in 2018.
“The national economy maintained overall stability in the first three quarters,” said NBS spokesman Mao Shengyong.
“However, we must be aware that given the complicated and severe economic conditions both at home and abroad, the slowing global economic growth, and increasing external instabilities and uncertainties, the economy is under mounting downward pressure.”
Services and high-tech manufacturing were the key areas of growth, while employment was “generally stable”, he added.
Propping up economy
Beijing has stepped up support for the economy with major tax and rate cuts and has scrapped foreign investment restrictions in its stock market.
In its latest measure to shore up growth, the central bank said Wednesday it was pumping 200 billion yuan ($28 billion) into the financial system through its medium-term lending facility to banks, which is designed to maintain liquidity in the market.
But the efforts have not been enough to offset the blow from softening demand at home.
The trade conflict and weak domestic demand prompted the International Monetary Fund to lower its 2019 growth forecast for China from 6.2 percent to 6.1 percent on Tuesday.
The long-running trade war with the US has also chipped away at the Chinese economy.
This week, China reported weaker-than-expected import and export figures for September after Washington imposed new tariffs that month, triggering a tit-for-tat response from Beijing.
There were mixed signals for the economy in September.
Industrial output rose 5.8 percent, from 4.4 percent in August, led by a surge in demand for solar panels and electric vehicles, according to the NBS.
But fixed-asset investment slid to 5.4 percent on-year in January-September, from 5.5 percent in January-August, as the government warned against risky borrowing to build roads and bridges that could artificially pump up GDP in the short run.
China’s army of consumers were slowly starting to open their wallets again, with retail sales edging up 7.8 percent on-year in September, compared with 7.5 percent in August.
Let’s make a deal
A “phase one” deal announced by US President Donald Trump last Friday after he met China’s top negotiator Liu He in Washington offers a temporary reprieve from further tariff hikes.
But it did not roll back any of the stinging tariffs already imposed on hundreds of billions of dollars in trade between the economic powers, nor did it address another round of import taxes planned for December.
“A limited agreement will not resolve the underlying areas of disagreement between the two sides as long-term divergence in US and China national interest remains across trade, technology, investment and geopolitics,” said Michael Taylor, a managing director for Moody’s Investors Service.
“We expect further rounds of negotiation to remain challenging, with further potential for financial markets volatility.”
China’s commerce ministry spokesman Gao Feng said Thursday that its negotiators have “accelerated efforts” to hammer out the details of this mini-deal, and the two sides were aiming for an “early agreement”.
Trump had said Wednesday that he hopes to sign the deal with his Chinese counterpart President Xi Jinping at the APEC summit in Chile next month.
But Gao declined to offer details on whether the text of the partial deal, or a full agreement, would be ready before the mid-November deadline. – AFP
PETALING JAYA: The local equity market is expected to pick up momentum moving forward with the return of slight optimism following a “mini trade deal” between the US and China, coupled with the less austerity-sounding Budget 2020.
“We believe the less austerity-sounding Budget 2020 versus its 2019 predecessor, which had a slew of taxes, could provide some optimism to local businesses, resulting in a recovery trend in the local markets moving forward,” HLIB Research said in a report today.
Year-to-date, the FBM KLCI has declined 116.08 points or 6.9%. Today, the key index closed 0.4 points or 0.03% lower at 1,574.50 points.
The research house views Budget 2020 as the main trading catalyst for the fourth quarter (Q4).
“On the back of improving optimism on trade war (amid the phase-one deal between the US and China), coupled with less austerity sounding Budget 2020 which market participants felt the change of tone versus Budget 2019, we opine traders to look out for sectors such as technology, renewable energy, telecommunication, construction and tourism,” it added.
In Q4, it opined that the slightly positive-sounding Budget 2020 as well as window dressing in December (average 10-year December return: 1.98%) would be able to lift the broader market sentiment, although some earnings disappointment may surface in November. In addition, the catalysts would bode well for stock selection in Q4.
“We believe the broad technology sector will be benefiting under the E&E and automation incentives, which could result in higher demand for automation equipment moving forward; under this section we like I-Stone Group Bhd and KESM Industries Bhd.”
With rising demand for rural electrification in Malaysia, HLIB said, Pestech International Bhd would be the favoured pick amid its power transmission infrastructure expertise. For renewable energy stimulus, it likes Pestech International Bhd.
“Given the increase in development expenditure and potentially improving construction sector, we see precast concrete manufacturers such as OKA Corp Bhd and Kimlun Corp Bhd to benefit from the initial stage of construction jobs.”
For tourism, it likes Tune Protect Group Bhd for the travel insurance play, which is a proxy towards tourism industry.
LONDON, Oct 17 — Banks aiding a stock market float for Saudi oil giant Aramco will be “devoid of all sincerity” regarding environmental and social concerns, green and rights groups jointly said today. Addressing directly chief executives of…