Dear PGM Capital Blog readers,
In this weekend’s blog edition we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of October 5, 2015:
- The Chinese Yuan, overtook the Japanese Yen as the world fourth most used payment currency.
- Suncor Energy hostile take over bid for Canadian Oil Sands.
- Central banks around the world are selling U.S. government bonds at the fastest pace on record.
CHINESE YUAN SURPASSES JAPANESE YEN IN GLOBAL PAYMENT:
China’s Yuan has become the fourth most-used world payment currency, overtaking the Japanese Yen, global transaction services organization Swift has said.
The Yuan has surpassed seven currencies in the past three years as a payment currency and now only comes after the US dollar, the Euro and the Sterling.
Overall, global Yuan payments increased in value by 9.13% in August, while payments across all currencies decreased by 8.3%, according to Swift.
Below chart shows how the Chinese Yuan or RMB went form the 7th place in January 2014 to the 4th place in August this year as World Payments Currency.
Based on this, the Yuan reached a record high market share with 2.79% of global payments for the month Augustus 2014, compared with 1.39% in January 2014.
More than 100 countries used the Yuan for payments in August, but more than 90% of flows were concentrated in 10 countries. Singapore processed 24.4% followed by the UK with 21.6%.
Foreign exchange transactions in the Yuan by value also increased by 20% in August from a month earlier.
SUNCORE HOSTILE BID FOR CANADIAN OILSANDS:
On Monday, October 5, Suncor Energy, (TSX: SU) the largest integrated energy company in Canada, announced a hostile takeover bid for Canadian Oil Sands (TSX: COS) taking advantage of plunging crude prices to seek to add production in Alberta.
Suncor is offering to exchange one-quarter of its shares for each Canadian Oil Sands share, a bid it valued at 4.3 billion Canadian dollars. It will also assume 2.3 billion Canadian dollars in debt, which is a 43 percent premium to Friday’s closing share price and promised higher dividends to Canadian Oil Sands shareholders if the proposal is accepted.
Canadian Oil Sands, which owns but doesn’t operate any oil-sands assets, has seen its stock slump due to lower oil prices and its surging debt load. It recently said it was looking at selling some of its future production to shore up its balance sheet.
The Calgary, Alberta-based company responded coolly to Suncor’s proposition, advising shareholders on Monday to reserve judgment until its board has vetted the offer.
CENTRAL BANKS AROUND THE WORLD ARE SELLING US TREASURIES AT FASTEST PACE EVER:
In an article on Wednesday, October 7, the Wall Street Journal reported, that for the 12-month period ended July, sales of U.S. Treasuries by central banks around the world reached a net of US$123 billion, the biggest decline since data started to be collected in 1978.
Below 10-year chart shows, that foreign central banks have started curtailing their purchases of U.S. Treasuries, already in 2013, when the end of the Fed’s QE.
The five (former) large purchasers of US Treasuries – China, Russia, Norway, Brazil, and Taiwan – are now dumping them, at the fastest rate on record, each for their own reasons.
CHINA:
China, the largest foreign owner of Treasuries – its hoard peaking at US$1.317 trillion in November 2013 – has been unloading with particular passion.
By July, China’s pile was down to US$ 1.241 trillion. But in August, China’s foreign exchange reserves, which include a variety of currencies, dropped by a record US$93.9 billion. And in September, they dropped another US$$43.3 billion, to US$$3.51 trillion. It was the fifth month in a row of declines.
RUSSIA, NORWAY & TAIWAN:
- Russia unloaded US$32.8 billion in Treasuries in the 12-month period ended in July.
- Norway, which like Russia was hit by the oil price rout, sold US$18.3 billion.
- Taiwan sold US$6.8 billion of U.S. Treasuries Securities in the 12-month period ended in July.
PGM CAPITAL COMMENTS:
Chinese YUAN, Now World’s 4th Most Currency:
In August 2012, the Renminbi (RMB) was sitting in the 12th spot, with a 0.84 per cent share of the world’s payments currency market. But since then it’s steadily gained more market share.
This August, the Yuan surpassed the Japanese Yen, securing a 2.79 per cent share of the market as can be seen from below chart.
The Chinese Yuan or RMB has surpassed seven currencies in the past three years as a payment currency.
Since 2011, the Yuan, has steadily progressed along its path to become a global currency in international trade.
In overtaking the Yen to break into the world’s top four payment currencies, the Yuan has passed another milestone in its rapid evolution and now looks set to become the leading global currency from Asia.
Growing use of the Yuan for cross-border trade and investment shows that demand isn’t simply driven by China’s domestic markets but that the currency’s becoming deeply embedded into the international economy.
The Yuan is well on its way to become a top three currency and is likely to replace the British pound within three to five years. This is especially true if the Yuan becomes part of the Special Drawing Rights currency basket at the International Monetary Fund.
The Suncor – Canadian Oilsands Deal:
Suncor’s unsolicited bid, if successful, would boost the company’s ownership stake in the Syncrude Canada Ltd. joint venture to 49 percent from 12 percent currently. It comes after Canadian Oil Sands’ board rejected an overture from Suncor executives in April, leading Suncor to reduce its offer as oil prices skidded to under US$50 a barrel through the summer.
Canadian Oil Sands has net oil reserves of 1.4 billion barrels of oil with an estimated production life of over 46 years. Such a long production life is almost unheard of in the oil industry, and is one of the most attractive features of the Syncrude project.
At the end of 2014, these reserves were independently valued at just over CAD 9 billion after income taxes. After deducting Canadian Oil Sands’s net debt of CAD 2.3 billion, this gives them a value of about CAD 14 per share. This is about 60% higher than Suncor’s offer.
The hostile offer, which includes the assumption of CAD 2.3-billion in Canadian Oil Sands’ debt, is an indication that companies are chasing bargains as oil prices at current low oil prices. Suncor’s hostile take overbid can also be seen as an indication that company believes thats the oil price has bottomed.
On Wednesday, October 7, Canadian Oil Sands Ltd. has rejected Suncor Ltd.’s CAD4.3-billion takeover offer, and says it needs more time to consider any similar offers.
Foreign Central Banks Selling U.S. Treasuries:
The fact that China once the biggest buyer of U.S. Treasuries, starts dumping U.S. Government Debt, combined with the fact that China as well as Russia are hoarding Gold, might be a sign that something is cooking.
Keep in mind that for every sale their must be a buyer and if push comes to shove, and Treasuries begin to spiral out of control under toxic selling pressure, the Fed, which stops before nothing, would jump in and buy whatever China is selling.
Until next week.
Yours sincerely,
Eric Panneflek