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Thursday, 1 December 2016

The next big rally

12:58 Posted by szcszc No comments
As the Malaysian Ringgit drops to record lows, it may imply a lack of economic stability in the country. However, there seems to be an opportunity that lies within this cheap currency, and as all standard economics students would tell you that cheap currency valuation would tend to highlight cheaper exports value relative to other countries. Malaysia is one of the top exporters for crude palm oil and naturally, with palm oil being the most used vegetable oil globally in consumer products.

With positive outlook from the Malaysian Palm Oil Board (MPOB) director-general, where global consumer demand will still outpace supply, and the natural climate effects (El Nino and El Nina) pressuring supply and production levels, palm oil prices are bound to increase, especially after being beaten badly by the market in the past few years.

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Besides the above reason, there is also signs of increasing demand in China, evident from the recent metal prices rally and, real estate and domestic infrastructure spending within China. Given Trump's Presidential win in US, where one of his campaign promises is also to increase infrastructure spending in US, this also adds to further speculation on increasing demand.


Source: Bloomberg

So how are the current performances of palm oil companies?


























Source: Chart Nexus

The above charts are Golden Agri, Bumitama Agri and Wilmar International respectively. As you can see, all 3 of them are hammered badly over the past few years but have made higher highs recently with Golden Agri breaking through the descending trendline which forms a descending triangle. The other 2 seems poised to do the same as well. This suggests bullishness in terms of technical analysis. Another possible catalyst is the reduction of short sellers in Golden Agri, leading to its break out.

However, there must be caution in undertaking positions in these companies as there are still risks in investing.

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Note: the author currently has an investment position in Golden Agri.


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