Week 4 of 2014
An ugly week and perhaps long overdue. Economic data via the US and Asia has been less than supportive of a sustainable recovery. Asia has certainly had a great run but like all fast sharp upward curves, there comes a point where gravity comes into play. Some corrective action and disappearance of market ‘froth’ is a good thing long term. Short term it’s painful but it has been a very healthy 2 year rally. It may not be over just yet – but reasons to go higher are diminishing and reasons to go lower increasing. With currency wars already underway, interest rate hikes look inevitable. Hence – the cocktail of QE3 taper and corrective market conditions does not bode well for equities especially when fundamental earnings numbers are coming in on the low side. The next few weeks could set the stall out for the rest of 2014.
The Dow closed week 4 down a hefty 580 points at 15879. The FTSE closed week 4 at 6664 down 165pts. Last week the FTSE 100 was flirting with all time highs. For now, those highs remain elusive.
A virtual portfolio has been set up using the 2013 final trading day close figures as a starting point and £1000 has been invested in each stock. This does not include buying fees or stamp duty and is purely intended to be used as a benchmark or summary for each week. Two newspaper top ten picks for 2014 have been included to help monitor/compare against.
Week 04 stock picks summary:
Some long overdue bubble bluechips took the pin prick test in week 4 and some survive but many tumbled. The blue chips have been living a charmed QE3 life for the last two years and with the weening phase very much in its infancy – the signs of 2014 without stabilises looks rocky.
The Telegraph remains top of the league and is the only list to have no 2014 losers – yet! The independent picks are in the blue only by virtue of Fusionex, which got off to a flyer knocking out a 50% return in under a few days of 2014.
TheShareHub Hotlist overtakes the Independent for probably the first time in almost 2 years. Like the latter, the performance was driven by one stock which ironically was 2013’s worst performer – Antrim Energy. The near 50% bounce suggests there is life in the old dog yet and predators might be circling as production begins to ramp up after operational improvements. Furthermore, the company is expected to file a new FDP on the 11mmboe FYNE licence by end of Jan 2014.
Other stocks did not fair as well. GKP suffered after talks between Baghdad and Kurds broke down resulting in a rather all too familiar stand off. With elections due in April, the horse trading could continue for sometime yet which will be of no help to GKP as they are desperate to seal 2014 operational funds via RBL. Most banks will only lend on 1P reserves and rarely give anything for 2P. The challenge for GKP is book reserves with a sizable 1P base. In a field that is very much in early production with limited well performance data, this might not be very easy. In time – it should not be a problem. But GKP do not have buckets of time. They have a target of 20 wells to drill by around End of 2015 based on sustained oil exports.
In today’s market, even north sea oilers are finding funding options limited as banks continue to hoard cash and play safe. Hence – Kurdistan which is part of one of the most corrupt regions in the world (Iraq) is certainly not going to appeal to alot of risk assessment departments in many banks around the world. That said – one bank might be interested and that’s Turkey’s Halk Bank. It has already been muted to handle the Kurd oil revenue from exports but was also recently dragged over the coals on corruption charges which might see it handcuffed short term on making any sizable loans – especially to international companies in Kurdistan.
Weakness across all Kurdistan focused stocks was visible with Afren and Genel also suffering. Of course, any news that looks a little more cheery and shows some progress between Baghdad and the Kurds (inc Turkey) could see all stocks bounce back sharply. For now, the market sees more risks ahead than rewards.
Current standings / Week 04 Results
1. The Telegraph’s Top Ten 2014 +4.77% (Weekly loss of 4.54%)
2. TheShareHub’s 2014 Hotlist +4.30% (Weekly gain of 0.04%)
3. The Independent’s Top Ten 2014 +3.66% (Weekly loss of 3.29%)
4. TheShareHub’s 2014 B-List –2.76% (Weekly loss of 4.85%)