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16 Dec 2014
Energy assets now extremely oversold – BAML
FXStreet (Barcelona) - The Bank of America-Merrill Lynch Team notes that energy assets – oil, stocks, credit and currencies, are now extremely oversold, inexpensive and very contrarian heading into 2015.
Key Quotes
“As we pointed out last week, energy assets (oil, stocks, credit, currencies) are now extremely oversold, inexpensive and, very contrarian heading into 2015. We think the dramatic increase in interest rates by the Russian central bank from 10.5% to 17% should allow Russia and other oversold energy assets to catch a short-term bid (note the Russian CB hiked to 150% in 1998).”
“But we believe the energy sector is only likely to attract big, long-term capital after a credit "event". Potential candidates range from Russian corporates, Middle East equity markets (stocks in Dubai are down 29% in 22 days), the US energy space where small cap stocks are down 55% since Jun’14, HY bonds yields are up to 10.1% and default risks as measured by CDS are rising.”
“Collateral damage is now shifting across Emerging Markets e.g. Mexico, as well as to Canada. As of yet, there is no sign that oil producers have the need to sell their huge holdings of US Treasuries or the US dollar.”
“In our view, investors looking for second-derivative ideas should look to sell assets related to shale producing US states and Canada (banks, munis, corporate bonds).”
“In addition, our views that volatility is on the rise remain unchanged. And we continue to forecast rotation to large from small cap, following the unambiguous fixed income rotation from HY to IG in recent months. Note that most oil importers have outperformed in recent weeks. The exception is Korea.”
Key Quotes
“As we pointed out last week, energy assets (oil, stocks, credit, currencies) are now extremely oversold, inexpensive and, very contrarian heading into 2015. We think the dramatic increase in interest rates by the Russian central bank from 10.5% to 17% should allow Russia and other oversold energy assets to catch a short-term bid (note the Russian CB hiked to 150% in 1998).”
“But we believe the energy sector is only likely to attract big, long-term capital after a credit "event". Potential candidates range from Russian corporates, Middle East equity markets (stocks in Dubai are down 29% in 22 days), the US energy space where small cap stocks are down 55% since Jun’14, HY bonds yields are up to 10.1% and default risks as measured by CDS are rising.”
“Collateral damage is now shifting across Emerging Markets e.g. Mexico, as well as to Canada. As of yet, there is no sign that oil producers have the need to sell their huge holdings of US Treasuries or the US dollar.”
“In our view, investors looking for second-derivative ideas should look to sell assets related to shale producing US states and Canada (banks, munis, corporate bonds).”
“In addition, our views that volatility is on the rise remain unchanged. And we continue to forecast rotation to large from small cap, following the unambiguous fixed income rotation from HY to IG in recent months. Note that most oil importers have outperformed in recent weeks. The exception is Korea.”