Check out the key picks for this week by SaxoStrats team

STOCK FOCUS – Working group to analyse Southbound access to Chinese

  • Mainland stock exchanges surprised the market early last week by announcing they would not extend the Southbound Connect programme to Hong Kong to foreign firms, companies with different voting structures and to stapled securities.
  • XIAOMI (01810:xhkg) was the obvious focus point for traders after the announcement but remained fairly resilient after initially trading down heavily on Monday 16th through to then trading new all-time highs by mid-week.
  • The Hong Kong and Mainland stock have announced the establishment of a working group to outline the roadmap for how these Hong Kong-listed stocks may be included for Southbound Connect trading.
  • This ongoing uncertainty is very likely to create ongoing volatility and trading opportunities in related stocks, eg Xiaomi
  • Trade your view with Saxo: Xiaomi HK Equity (01810:xhkg) and Xiaomi Put and Call Options

Xiaomi Options Monitor - Options with a 1 month and 3 months maturities and strike within a 5% move from the current stock price

CALL/PUTSTRIKEEXPIRYIMPLIED VOLATILITY*
CALL2330/8/201854%
PUT2030/8/201853%
CALL2330/10/201849%
PUT2030/10/201851%

* Source: Bloomberg

STOCK FOCUS – TECH TITANS

Amazon (AMZN:xnas) or Apple (AAPL:xnas): the first trillion USD company?

  • The competition is on: could it be Apple or Amazon as the first stock with a USD trillion market cap?
  • At a stock price of $191.45, Apple has a market cap of around $941bn, a +6.4% move to the trillion dollar mark. At a stock price of $1843.93, Amazon has a market cap of around $895bn, a +11.7% move to the trillion dollar mark.
  • From a standard deviation perspective, the +6.4% move by apple would be c. 4.5x StDevs whilst the +11.7% move for Amazon, would be a c. +6.5x StDev move
  • Amazon is due to report before Apple on 27 Jul at around 4am Hong Kong time (after US close). Apple is set to report on 1 Aug, c. 04:30am Hong Kong time (after US close).
  • Trade your view with Saxo: Amazon US Equity (AMZN:xnas) / Apple US Equity (AAPL:xnas) and Amazon and Apple Call and put options

Amazon Options Monitor - Options with a 1 month and 3 months maturities and strike within a 5% move from the current stock price

CALL/PUTSTRIKEEXPIRYIMPLIED VOLATILITY*
CALL190017/8/201829.0%
PUT180017/8/201830.0%
CALL190019/10/201826.9%
PUT180019/10/201827.0%

* Source: Bloomberg

Netflix (NFLX:xnas) – “Strong, but not stellar, second quarter.”

  • Netflix sold off on Tuesday after delivering "strong, but not stellar, second quarter" earnings. Although the stock fell hard in afterhours trading, to put that in perspective, it had still delivered over 100% return YTD, and around 150% in the past year.
  • Netflix forecast that it would add 1.2 million new US subscribers in the second quarter, this missed estimates as subscribers only grew by 674,000, indicating peak saturation levels may have been reached. In the international market, the company added 4.5 million new subscribers in the second quarter, below Netflix's expectations for 5 million. The international miss sparks alarm as the majority of future growth is expected to come from overseas.
  • Investors value Netflix at a premium to other media companies because of the potential for future growth. The big question is whether this result is a short-term blip or the start of a long term trend. How much impact did World Cup viewing have on the most recent numbers?
  • With an EV/EBITDA ratio of 123x and with the stock trading at about 170 forward earnings, Netflix is without a doubt the most expensive US large cap technology stock, raising concerns regarding the risk-reward ratio going forward.
  • As our Head of Equity Strategy, Peter Garnry, notes, on a long enough time horizon, we know that valuation is inversely linked to performance (there are, of course, exceptions to the rule). The reason why investors are willing to pay such a steep premium for the shares is that the fact that Netflix is likely to dominate streaming content for the next decade with no apparent competitor really in a position to threaten that outlook.
  • Trade your view with Saxo: Netflix Equity (NFLX:xnas) and Netflix Put and Call Options

Netflix Options Monitor - Options with a 1 month and 3 months maturities and strike within a 5% move from the current stock price

CALL/PUTSTRIKEEXPIRYIMPLIED VOLATILITY*
CALL40017/8/201835.0%
PUT36017/8/201836.0%
CALL40019/10/201839.0%
PUT36019/10/201840.0%

* Source: Bloomberg

STOCK FOCUS – The Big Australian equity BHP Billiton Ltd (BHP:xasx), results announcement

  • BHP reported on Wednesday 18th with Copper and Coal at the top end of guidance and quarterly iron ore production 10%, exceeding analysts’ estimates.
  • Total iron ore production for 2018 financial year increased 3% to a record 238 million tonnes.
  • This along with a target set to lift output further in 2019.
  • The global growth story, and trade war fears are putting pressure on commodity prices at the moment and this has caused BHP/RIO share prices to come off highs. Iron ore demand is firmly linked to Chinese demand. And this is where the real uncertainty is coming from as the latest figures out of China have pointed to a slowdown in growth momentum.
  • In the event of a cyclical downturn BHP is likely to be in a much better position to handle this compared to say RIO or South32.
  • Trade your view with Saxo – BHP Billiton Ltd AU Equity (BHP:xasx)

FX IDEAS – Yen strong versus other export currencies

  • USDJPY has experienced a technical break-out higher, as a multi-year resistance line has been broken given the weekly close 112.38 (Jul 13). This leaves the next big levels as 113.30 (200W MA) & 115.00 which may open up for a test of the 120.00 level
  • The yen has appreciated (lost competitiveness) vs. its trade export focused cousins, c. YTD its +6% vs. the KRW, c +3.50 to 3.0% % vs. the like of the CNH, TWD & EUR
  • Japanese economic data has deteriorated, given the move into contraction on growth as well as softer inflation numbers vs. the start of the year
  • A weaker yen is seemingly the only elegant option that the Abe & Kuroda have for combating US trade tariffs (including potential tariffs on Japanese auto exports to the US), a weaker Japanese economy & just general global export competitiveness
  • Trade your view with Saxo.
  • FX Options traders who are bullish further JPY upside might consider call options / call spreads. Contact your RM / GST for information.

Weekly Most Traded A shares

Stock CodeStock Name*Saxo CodeAverage Daily Value Traded RMB (12-18 Jul)
000063 CH EquityZTE CORP-A000063:xsec4,470,119,626
600309 CH EquityWANHUA CHEMIC-A600309:xssc2,705,835,147
601318 CH EquityPING AN INSURA-A601318:xssc2,698,393,971
000725 CH EquityBOE TECHNOLOGY-A000725:xsec2,361,417,198
600519 CH EquityKWEICHOW MOUTA-A600519:xssc2,287,505,490
000636 CH EquityGUANGDONG FENG-A000636:xsec2,238,574,374
603799 CH EquityZHEJIANG HUAYO-A603799:xssc1,847,174,701
000651 CH EquityGREE ELECTRIC-A000651:xsec1,749,915,205
000333 CH EquityMIDEA GROUP CO-A000333:xsec1,727,787,382
000858 CH EquityWULIANGYE YIBI-A000858:xsec1,666,077,326

Source: Bloomberg