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M Idea Snippets from China | Asia Pacific October 4, 2024 03:23 PM GMT Policy Tipping Point Threshold, Government Revenue, What's Next, Exporters' FX Conversion Onshore investors have become very enthusiastic about the stock market following the policy actions last week. We discuss the policy tipping point threshold, the government's fiscal situation, events to watch and exporters' FX conversion. Onshore investors have become very enthusiastic about the stock market following the policy actions last week – ...

Investment Rating - The report does not explicitly state an investment rating for the industry or companies analyzed [2]. Core Insights - The report investigates the use of deep sentence-level analysis of earnings calls to extract insights that can serve as investment signals, addressing the issue of "rational inattention" [2]. - The SmartBuzz on Transcript signal shows promising performance with a Sharpe Ratio of up to 0.8, indicating a balance of low alpha and low volatility [2]. - Weekly to monthly frequencies are recommended for analyzing earnings call transcripts, favoring average scores to avoid rewarding longer calls [2][4]. - The Corporate branch of the SmartBuzz taxonomy is identified as the strongest performer, followed by ESG and Macro themes, while External Events are less effective for stock-specific insights [2][32]. Summary by Sections SmartBuzz Introduction - SmartBuzz is an NLP framework that tracks market themes and their exposure to stocks, sectors, and countries, utilizing a taxonomy of over 3,000 financial terms [4][5]. SmartBuzz Backtesting - The backtesting results indicate a strong correlation between SmartBuzz signals and subsequent returns, particularly for the Corporate and ESG themes [8][20]. Results – SmartBuzz from Transcripts - Weekly backtests from 2010 to 2024 show that portfolios using SmartBuzz Aggregate scores with a decay of 0.9 achieved a Sharpe Ratio of 0.85 and returns of 6.87% [21][24]. - Monthly backtests indicate that a decay of 0.5 with a 6-month forward fill yields a Sharpe Ratio of 0.70 and annual returns of 5.01% [26][29]. SmartBuzz Transcripts at Lower Theme Levels - At Level 2, the Corporate branch is the most significant, followed by Macro and ESG, with External Events being less impactful [32][41]. Performance Metrics - The report provides various performance metrics for different themes, indicating that Corporate themes generally outperform others in terms of returns and Sharpe Ratios [41][44].

Investment Rating - The investment rating for African Rainbow Minerals is Overweight with a price target set at ZAc 22,000 [1][3]. Core Viewpoints - The report expresses increased confidence in manganese prices due to Chinese stimulus measures, which are expected to drive prices higher before GEMCO restarts [1][6]. - The report anticipates a 17% upside to spot revenues through 1Q25, driven by manganese price increases [1][19]. - The earnings estimates for FY25 have been reduced by 43% due to lower commodity prices and a stronger ZAR [1][19]. Summary by Sections Price Target and Valuation - The price target for African Rainbow Minerals has been adjusted from ZAc 250,000 to ZAc 220,000 based on updated commodity price forecasts [1][19]. - The report indicates that ARM trades at an attractive P/E ratio of less than 5x based on the revised EPS estimates [1][19]. Earnings and Revenue Projections - For FY25, the expected EPS is ZAc 38.59, reflecting a significant decrease from previous estimates [1][19]. - Revenue projections for FY25 are expected to be ZAR 11,788 million, with EBITDA estimated at ZAR 9,085 million [1][19]. Commodity Price Outlook - Manganese prices are projected to reach $12/dmtu by 1Q25, influenced by Chinese alloy prices and supply disruptions [1][14]. - The report highlights that manganese ore prices have significant upside potential, with expectations of a 50% increase from current levels [1][10]. Market Dynamics - The report notes that manganese is essential in steel production, with no substitutes available, making it susceptible to supply disruptions [1][6]. - The relationship between manganese ore and alloy prices is emphasized, with current ore prices being relatively low compared to historical levels [1][12]. Financial Metrics - The report provides detailed financial metrics, including projected sales volumes for iron ore and manganese, as well as platinum and palladium sales for the upcoming years [4][5]. - Key earnings inputs include iron ore sales volumes projected at 14,723,000 tons for 2024 and manganese sales at 4,432,000 tons [4].

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North America Credit Research 04 October 2024 J P M O R G A N High Yield Energy Oily E&P Model Book Update Putting out an oily E&P model book in the context of current geopolitical tensions is a bit of an exercise in self-hatred. Nonetheless, we think the focus on the sector is likely to remain high, and getting our models (and sensitivities) out to investors is worth it despite the likely potential volatility in coming days. It has been some time since energy investors have seen this sort of bifurcation in ...

Investment Rating - The report maintains a price forecast of $80 for crude oil in 4Q24 [1] Core Insights - The current geopolitical situation suggests a sustained geopolitical premium in crude prices due to low oil inventories, differing from previous months [1][14] - Brent oil futures are trading in line with their fair value, with a record high volume of bullish Brent call options indicating a bullish risk bias [2] - The ongoing conflict between Israel and Iran is expected to influence oil prices, with potential for a disproportionate Israeli response to Iranian attacks [6][9] Summary by Sections Geopolitical Context - The report assumes that Israel is unlikely to target Iran's energy facilities directly, viewing such actions as secondary responses [1] - Recent diplomatic ties between Iran and Gulf Arab states reduce the likelihood of Iran targeting energy flows from these states [1] - The situation is characterized by low global crude inventories, which are at their lowest since January 2017, suggesting a potential for price increases [14] Market Dynamics - Oil prices have been rising in anticipation of Israel's response to recent Iranian missile strikes, with the market reaction considered excessive [1] - The report notes that the closure of the Strait of Hormuz is viewed as a low-risk event, as it would harm Iran's economic interests [1] - The report highlights a shift in market dynamics, with consumers opting to wait rather than restock inventories, potentially realigning prices with fundamental levels [15] Supply and Demand Outlook - Global crude inventories are below last year's levels, with OECD crude and liquids inventories also below their five-year averages [14] - The report provides a detailed forecast for oil supply and demand, indicating a balanced market in 2024 with total oil demand projected at 103.4 million barrels per day [25] - The report anticipates that the geopolitical situation may create urgency for consumers to replenish inventories, impacting oil prices [15]

Investment Rating - The report assigns an "Overweight" rating to Apple (AAPL) [1]. Core Insights - Apple's App Store revenue for September showed a year-over-year increase of +13.8%, marking the eighth consecutive month of double-digit growth [2]. - For the third quarter of fiscal year 2024 (C3Q24), App Store revenue rose +4.6% quarter-over-quarter, supporting the forecast for Apple's services revenue [2]. - App Store downloads increased by +7.1% quarter-over-quarter in C3Q24, exceeding historical averages [2]. - Average Selling Prices (ASPs) for the App Store declined by -2.3% quarter-over-quarter in C3Q24, although they rose +7.5% year-over-year [2]. Summary by Sections App Store Revenue Trends - September App Store revenue declined -2.7% month-over-month, which is better than the historical average decline of -3.6% [2]. - Year-over-year revenue for September increased by +13.8%, compared to +13.6% in August [2]. - C3Q24 App Store revenue increased by +4.6% quarter-over-quarter and +13.2% year-over-year [2]. App Store Downloads - Downloads rose +7.1% quarter-over-quarter in C3Q24, compared to a historical average increase of +2.5% [2]. - Year-over-year downloads increased by +5.4% in C3Q24, marking the ninth consecutive quarter of growth [2]. Average Selling Prices (ASPs) - ASPs declined -2.3% quarter-over-quarter in C3Q24, contrasting with a historical average increase of +2.8% [2]. - Year-over-year ASPs rose +7.5% in C3Q24, marking the seventh consecutive quarter of increases [2].

Investment Rating - The report does not explicitly provide an investment rating for the industry or specific companies [1]. Core Insights - The report highlights a significant increase in energy trading derivatives volumes due to geopolitical tensions, particularly the conflict involving Iran and Israel, which has led to a spike in oil prices [2][5]. - Average daily volumes (ADV) for energy derivatives, specifically WTI and Brent futures, increased by approximately 20% to 30% week-over-week (WoW) [2]. - CME trading volumes rose by 11.9% WoW, driven by higher equities volumes, with a quarter-to-date (QTD) increase of 3.9% compared to the full quarter of 4Q23, led by a 55.0% increase in energy and a 34.6% increase in agricultural commodities [2][5]. - ICE futures and options volumes increased by 1.5% WoW, with a year-over-year (YoY) increase of 44.8%, primarily due to an 80.8% rise in oil volumes [2][5]. - Cboe VIX options and futures volumes saw a QTD increase of 39.2% and 5.9% YoY, respectively, while SPX options volumes decreased by 10.6% QTD [2][5]. - US cash equities volumes decreased by 8.8% WoW, but QTD volumes are up 9.6% YoY, with Cboe's market share expanding to 11.3% [2][5]. - US cash Treasuries volumes increased by 25.6% YoY, with cash investment grade credit volumes up 34.7% YoY and high yield credit volumes up 29.1% YoY [2][5]. Summary by Sections Energy Trading - Energy derivatives volumes surged due to geopolitical events, with WTI and Brent futures ADV increasing by 20% to 30% WoW [2]. - CME QTD volumes for energy are up 55.0% compared to the previous quarter [2][5]. - ICE QTD volumes for oil increased by 80.8% YoY [2][5]. Equity Markets - US cash equities volumes fell by 8.8% WoW, but QTD volumes are up 9.6% YoY [2][5]. - Cboe's market share for cash equities expanded to 11.3% [2][5]. Options and Futures - Cboe VIX options and futures volumes increased significantly, with QTD VIX options up 39.2% [2][5]. - SPX options volumes decreased by 10.6% QTD [2][5]. Treasury and Credit Markets - US cash Treasuries volumes increased by 25.6% YoY [2][5]. - Cash investment grade credit volumes rose by 34.7% YoY, while high yield credit volumes increased by 29.1% YoY [2][5].

Investment Rating - The report does not explicitly provide an investment rating for the industry or specific assets covered [6]. Core Insights - The report emphasizes the integration of positioning dynamics and price momentum in cross-asset futures trading, enhancing the effectiveness of investment strategies [2][6]. - It highlights the importance of Commodity Futures Trading Commission (CFTC) positioning data for understanding supply-demand dynamics in derivative markets [6]. - The report demonstrates that combining hedging pressure metrics with momentum signals significantly improves Sharpe ratios in back-testing scenarios [3][12]. Summary by Sections Introduction - The report analyzes positioning indicators from futures markets using CFTC data across 42 futures in commodities, equities, fixed income, and FX [6]. - It aims to improve trading and risk management decisions through back-testing the effectiveness of these indicators [6]. Indicators Construction - Hedging pressure is defined as the net short position of commercial traders, which can be reformulated as the net long position of non-commercial traders [7]. - A standardized indicator tracking the spread between short-term and long-term averages of hedging pressure is developed, showing robust return-generating capabilities [8][12]. Time-Series Based Portfolio - A time-series based long-short portfolio is constructed based on historical performance, with positions taken according to the hedging pressure indicator [14]. - The combination of hedging pressure and price momentum signals results in a Sharpe ratio of 0.73, outperforming individual strategies [15][16]. Cross-Sectional Based Portfolio - A cross-sectional long-short portfolio ranks assets based on their hedging pressure score, with higher scores indicating lower forward returns [18]. - The report shows that combining hedging pressure and price momentum in this approach leads to substantial performance improvements [20][26]. Current Recommendations - The report provides trade recommendations based on the latest signals, focusing on the top and bottom quantiles for hedging pressure and momentum scores [27].