Wednesday, September 12, 2012

Weekly Update - of Stimulus and Steel

The market has turned pretty optimistic since ECB's bond buying initiative was announced last Thursday. In response, China also issued a stimulus packaged that was unveiled over the APEC meetings over the weekend that aimed to restart its national rail projects that were in limbo ever since last July due to the Wenzhou rail incident. 

Now, the flooding of money into this global malaise does seem to require some sort of concerted shake given the lengthy 'depression-like' conditions that the world has endured since 2008. Similar to the response in 2008, a flood of money from major superpowers would definitely give the economy a good boost in the short run in order to allow it to prop up and get moving on its own again. Cynics against the stimulus idea must surely take lessons from the 2008 crash that such a organised effort may will be required this time around. We must not forget that all talk but no action on the fundamental restructuring required for our global and local economies to get moving again is going to be a protracted process, cynically, may not even occur in time to come.

Then, surely, Mr Bernanke and his aides, after declaring and hinting that a stimulus package is not far-fetched in their latest Fed meeting minutes, will be putting together their pieces for a follow up to the week's actions. No wonder the market has been responding optimistically, rallying day to day. It is coming, after way too long.

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On a side note, steel play has clearly been dominant again with Midas, a steel producer with strong business foothold in China's rail industry. Its share price has already risen some 16% over the last 5 trading days on the back of very strong volumes. OCBC research has Midas at a TP of $0.435, which was just revised. Maybank just upgraded Midas to Buy with a TP of 0.48. Also, I had written a blog post over the weekend on my own analysis of Midas, with a TP of 0.45.

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