OPEC is back (or not?)

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After coping with falling prices for more than a year, OPEC members have finally struck a deal to reduce oil production, but will they stick to it? For our investment competition at least, the introduction of the M2 measurement has had more impact, causing the number one to drop a staggering 32 places.

From this week onwards, the ranking will be based on the Modigliani M2 risk adjusted return, whose formula can be found here. The relative high volatility of their portfolio is quite a burden to our previous number one, Audacity, who lost 32 places. CFQ instead has conquered the top of the ranking, even though their investments in the Aerospace & Defense sector and Heineken have yielded losses.

Although most investment groups made a loss this week, almost all outperformed the benchmark indices. Metrics Fund was unfortunate due to their investment in Alibaba, the Chinese E-commerce giant, which decreased quite a lot in value, while Hercules sees an opportunity to buy the stock cheaply. Aequitas lost on their position in Facebook, Tesla and Microsoft.

Rising commodity prices have had an extra impulse by the deal that has been struck between the member states of the OPEC to reduce the supply of oil. The question is whether it will be effective, given a poor compliance record. Also, half of the 1.2m barrels/day cut has to come from major producing countries that are not members of the OPEC, but it is still not sure who will take what part. Markets reacted clearly, as Brent crude went up 8.8% as the news came out and US shale companies surged almost 11%, the biggest one-day gain in eight years.

The unemployment rate in the US did well too and has fallen to its lowest level since August 2007. European unemployment rate is also descending, albeit very slowly. The Governing Council of the ECB will meet next week and it is expected that it will extend its policy of quantitative easing to reach its goal of 2% inflation, which is expected to take at least another two years.

Apple has publicly acknowledged that it has plans to develop a self-driving car. It has promised to bring “significant societal benefits” by developing life-saving technology that should prevent millions of car crashes each year.

Glencore, the miner and commodities trader, said it will return at least $1billion to its shareholders next year. Due to improved market conditions, the company has improved its financial health and has seen its share price soaring more than 200 per cent.

Happy trading!

Written by Lemeng Li



S&P500 hits all-time high!

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A month has passed since the opening of the competition and Audacity is still leading the investment competition, closely followed by Midas Investments. Already 15 groups made a profit, but few beat the AEX this week, which gained 1.62%. 18 investment groups still have not started trading and missed out on global stock markets rallying throughout the week.

Aequitas Capital is trying to make up for their earlier losses by gaining 2.5% this week, having the largest weekly return in the competition. Algorithm, the biggest loser this week, lost their place in the top 3. MBA Investors lost the most places due to an unsuccessful turbo on Google.

Audacity, even though leading, were overtaken by the S&P hitting all-time highs together with the Dow, Nasdaq and Russel 2000 for the first time since 1999! This may be attributed to a continuation of previous week’s Trump rally, but rising commodity prices at the start of the week didn’t hurt. Primus profited from the rally with a S&P Trust and Natural Gas ETF and rose from place 38 to 13.

Besides commodities, clean energy got a boost on Wednesday as Donald Trump after all thinks “there is some connectivity” between humans and climate change and said he is “keeping an open mind” on whether to pull the plug on the Paris agreement. Make up your mind Donald!

Bad news from the other side of the pacific. Japan sees eight consecutive months of falling consumer prices. The BOJ keeps struggling to beat the deflation and stagnant growth.

Better news in Europe. This month business in the Eurozone grew at the fastest rate this year, mainly due to strong manufacturing activity and growing orders. However, tension is building as Turkish president Erdogan threatened to break its agreement with the EU and open its borders for refugees if the EU was to freeze Turkish EU membership talks.

Elon Musk knew how to fuel Tesla’s hype train again with the news that the solar roofs implemented in future Tesla models will be cheaper than regular roofs, even before the savings on the power bill. Aequitas gained from that together with a position in Facebook. Mark Zuckerberg announced that progress is being made in the battle against fake news. More importantly, after a seven-year ban in China, he announced Facebook has developed a new censorship tool. This might be a possibility to re-enter the world’s second largest economy.

The race for the growing datacentre market continues as Alibaba and IBM both announced to open new datacentres. Both are stepping up competition against Amazon and Microsoft to gain ground in the fast growing cloud computing market.

Written by Wout Konings


Fortune favours the bold

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As the third week of the Flow Traders Investment Competition has concluded, many groups have already acted in their search for alpha. Audacity has overtaken Algorithm and the S&P 500 to lead the ranking, while others were less fortunate, such as Liquid Gold despite their profitable straddle on Delta Lloyd.

The positive returns of Audacity came from their positions in a structured product on the Eurostoxx 50 and in DR Horton, the largest American home construction company. ATC Investments secured some nice returns on their well-diversified portfolio of ETFs and acquired the title of biggest jumper of the week.

In general, equity markets over the world had neither big gains nor big losses. The widely feared ‘Trump dump’ had been overtaken by a seemingly more stoic sentiment towards the new President-elect of the US. Ford even cancelled a plan to move some production out of the US to Mexico.

However, there is more going on in the car world. After admitting it cheated on diesel emission tests last year and the crash of its stock price that followed, Volkswagen still faces billions of euros in costs (fines) relating to the scandal. Now the car manufacturer has decided to take action by announcing that it will cut 30,000 jobs by 2020, which is roughly 5 per cent of its entire workforce. This move is part of a new restructuring strategy that focusses more on the development of new electric cars and digital services. Well, no cheating if there is nothing to cheat on, right?

As we are speaking of malpractices, J.P. Morgan Chase is paying US regulators $264 million to settle a probe into its practices of hiring Chinese “princelings”, i.e. sons and daughters of well-connected politicians. It is supposed that the hiring of these “princelings” have helped the bank secure lucrative deals with Chinese state-owned companies. What would these regulators think of Manuel Barroso joining Goldman Sachs?

In Europe, more is coming. Matteo Renzi, the Italian Prime Minister since 2014, is waging his political career in favour of a referendum on a constitutional reform. On the 4th of December, Italians may (dis)approve a reform of the constitution which limits the power of the senate and makes governing the country easier. The Prime Minister has promised to step down if the public does not approve his reform, which could again lead to political instability and possible market turmoil after two years of relative stable governance. Opinion polls indicate a defeat for Renzi, but they don’t always turn out as people think. We shall see.

Written by Lemeng Li