Cachet's Insight 30/06/2020


Market Observation - Large Numbers of U.S. Retail Investors

During the 2019-COVID pandemic, home quarantine became a part of people's daily lives. The US government carried out unlimited quantitative easing, and even directly sent money to Americans to stimulate the real economy. For many people who are unemployed, investing the subsidies from the government in the stock market has become a daily "recreation."

 

According to the statistics of an online broker, as of the first quarter of 2020, there were about 610,000 new margin accounts, an increase of 249% from the same period last year. In March alone, new, and old retail customers opened a total of about 430,000 margin accounts. The average daily customer transaction volume in June reached 3.5 million orders, more than 3 times higher than the same period last year.

 

Cachet’s View

The US stock market adjusted last week (the S&P 500 index fell by about 3%). New economy companies such as Facebook (FB.US), Netflix (NFLX.US), etc., or tradition companies such as American Airlines (AAL.US), Carnival Cruises (CCL.US), etc. which are popular among retail investors face huge adjustment pressure. Some companies on the verge of bankruptcy, such as Hertz Car Rental (HERTZ.US) and Waiting Oil (WLL.US), have become the targets of speculation.

 

The retail investors who speculate the stocks and options with very low transaction fees of online brokers has greatly exacerbated the volatility of the market and increased the range of price movement of stocks. US stocks have rebounded strongly since March, and the market expects retail investors to drive this wave of gains. The bull market in history ended with the "shoe-shine boy" entering the market. When the second wave of outbreaks in US broke out, people's lives were further tightened, and the government's cash subsidies was unsustainable. The market begins to correct. Investors should reduce the proportion of positions and use a more flexible position to cope with the sudden changes in the market environment.


Market Observation - ADP Employment Report

This week , all eyes will be on U.S. weekly jobless claims Thursday morning. Other key U.S. data releases include pending home sales on Monday, and consumer confidence and Chicago PMI on Tuesday.


On Wednesday, we get the ADP employment report, Markit and ISM manufacturing indexes, construction spending and the release of the latest FOMC minutes. And Thursday brings June nonfarm payrolls, unemployment and hourly wages, as well as the trade deficit and factory orders. The market will be closed on Friday in observance of the Independence Day holiday in the U.S.


Cachet’s View

Stocks sank this week as investors appear to be taking the re-emergence of Covid-19 seriously -- something Dr. Anthony Fauci is urging Americans to do. The S&P 500 fell almost 3% over the five sessions and now sits at 3009, meaning as the month nears its close the entire gain for June is gone. Not surprisingly, the big winners have included bonds and gold. The yield on10-year Treasuries is the lowest it’s been in over a month, and gold is on a three-week winning streak and up 5% over the same time. Seeing big winners in bonds and golds, We keep our overall overweight position in bonds, focused on emerging market high yield.

Market Observation - Global Food Supply

The global epidemic has not yet eased. The second wave of locust crises has hit the Horn of Africa. This time the locust’s army has spread to mainland China and India, exploding millions of victims. Many desert locusts have swept through Africa, Asia, the Middle East and other places with strong endurance and destructive power in recent months, plunging the region into a serious food crisis. According to the news, this locust plague is the worst in India in the past 30 years and has hit five states in western India. Countries affected by the locust disaster this year include China, Ethiopia, Kenya, Uganda, Somalia, India, Pakistan, Iran, Yemen, Oman and Saudi Arabia, and the extent of agricultural losses caused is difficult to estimate.

 

Cachet’s View

The locust plague and epidemic situation have led to a sharp decline in food production, and food prices have been further pushed up by inflation. In US, Beyond Meat (BYND.US) rose more than three times from the bottom of March to the present. The valuation of Impossible Foods, which is not yet listed, has also reached US$4 billion. Investors can pay more attention to relevant sectors and seize investment opportunities. (We have Impossible Foods old stock for sale, please contact us if you are interested.)



Product of The Week

- Aglie 8.375 12/04/2023 PERP CORP

- Rating: Ba3 (Moody’s)

- Min Piece: 200,000 (USD)

- Indicative Price: 101

- Indicative yield to worst: 8%

- Next call date: 2023 with a very high - Step up of 11.254% if not called, makes chance of call very high.

 

*Please noted that product prices are indicative only subject to refresh before trade, the prices change subject to market conditions.


Agile Group's modest cash balance, higher leverage and a ratings risk after its expansion are mitigated by its access to multiple funding channels and management's good track record. An expected increasing contribution to revenue via policy relaxation in Hainan Island will support topline line and margin recovery, in addition to its exposure in the Greater Bay Area and Yangtze River Delta.


While Agile Group's recurrent revenue from property management, hotel, and environmental businesses contributed over 10% of the total for the first time, property development still accounts for the lion's share. 2019 property sales were largely generated from the Pearl River Delta (32%), including the Greater Bay Area (26%), and Yangtze River Delta (24%). Hainan and Yunnan accounted for 12%, followed by Beijing-Tianjin-Hebei's 8%. EBITDA margin dropped to 21% from 36% a year ago, as Hainan was affected by tighter policy measures. Hainan's recent loosening of policy and more contribution from recurrent revenue from increased capacity of property management and ramping up of environmental protection should help margins and sales this year.


Agile Group's rating risk, recent negative outlook by Moody's and S&P, may be alleviated by additional contributions from Hainan and joint ventures, along with a restrained land-banking policy.


The negative outlook reflects the developer's weakened credit metrics and uncertainty over its ability to execute its deleveraging plan. The two rating agencies expect Agile Group to control its debt growth over the next 12-18 months via capping its land banking at 30-40% of its pre-sale’s proceeds.


Moody's downgrade triggers include: 1) Ebit/interest coverage failing to trend 3-3.5x (2019: 2.3x) or revenue/adjusted debt failing to trend back to 65-70% (2019: 51.2%). S&P's expects its debt/ EBITDA to improve to 5.2x this year from 5.8x in 2019.


S&P's downside indication would be a debt/ EBITDA ratio not improving to below 5x in 2020.

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