Highlights of the Week of April 27, 2015

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 April 27, 2015:

• Ping An Insurance Group’s stock at an all-time High.
• Disappointed US, Q1-2015, GDP figures.
• Shares of LinkedIn and Twitter down with more than 25% in the week.

PING AN INSURANCE GROUP AT AN ALL-TIME HIGH:

About Ping An:
Ping An Insurance (Group) Company of China, Ltd. is a holding company, which was founded 1988 and has its headquarters in Shenzhen and Shanghai, with a focus on insurance, banking, and investment businesses in China.

The company began as only a casualty insurance company. Since the mid-1990s Ping An has been diversifying into financial services from its core business of insurance and began taking investments from overseas firms.

Since June 24, 2004 Ping An has been listed on the Hong Kong Stock Exchange under the symbol 2318.hk.

Ping An has operations across all of the People’s Republic of China, and in Hong Kong and Macau through Ping An Insurance Overseas. Ping An has branches or a representative agent in 150 countries.

The Hang Seng Index Services Company announced on May 11, 2007 that Ping An will join as Hang Seng Index Constituent Stock (Blue Chip Stock) since 4 June 2007.

As can be seen from below chart on Thursday, April 29th, the company’s stock closed at an all-time high of HKD 111.14 a share.

DISAPPOINTED US Q1-2015 GDP:
On Wednesday, April 29, the USA department of Commerce reported that, the country gross domestic product grew between January and March at an annualized rate of 0.2 percent. The pace fell well shy of the 1 percent mark anticipated by analysts and marked the weakest quarter in a year as can be seen from below chart.

The only good news: the massive inventory build, the largest since 2010, boosted GDP by nearly 3.0%. Without this epic stockpiling of non-farm inventory which will have to be liquidated at some point (and at a very low price) Q1 GDP would have been –2.5%.

Below chart shows a breakdown of the GDP figure by its components.

LINKEDIN & TWITTER CRASHED WIHT MORE THAN 20%:
As can be seen from below chart, shares of LinkedIn (NYSE: LNKD), operator of the most popular social network for professionals, fell 20 percent in early trading on Friday, May 1st, wiping out more than US$6 billion of market value, after the company slashed its full-year forecast.

As a consequence of the weak results of Twitter’s (NYSE: TWTR) on Tuesday, April 28, Twitter’s stock fell by as much as 24 percent, slicing about US$6 billion off its market value as can be seen from below chart.

PGM CAPITAL COMMENTS:

Ping An:
As can be seen from above all time chart of the company, its share price has increased with approx. 976 percent since it went public in June of 2004.

With a P/E ratio of 18 and a strong balance sheet we can consider the company fairly valued. As can be seen from below chart, the company has increased its dividend steadily during the last 5 years, for which its current dividend pay out ratio is only 15.12 percent, which makes its current dividend payout extremely safe and gives the company room to further increase its dividend in the future.

Based on the above we have a BUY rating on the stocks of Ping An Group

USA Economy stalls in Q1-2015:
The slow down reflected lower consumer spending, declining exports, lower business investment and less state and local government spending. The declines were offset by lower-than-expected imports, inventory build-ups by private business and an increase in federal spending.

As can be seen from below chart, the biggest factor was a deterioration in net exports, with lower exports subtracting nearly 1 percentage point from the annual growth rate and rising imports subtracting another quarter point. The strengthening dollar, which ended the quarter 8% higher than it had started and 20% higher than it had been a year earlier surely contributed to this.

Hours after the fresh data was released the Federal Reserve said that winter slowdown was “in part” reflective of “transitory factors” and that “economic activity will expand at a moderate pace” going forward. Economists expect that the central bank will hold off until the second half of the year, gauging the direction of the economy, before raising interest rates for the first time in 6½ years.

We  believe that the Federal Reserve won’t be in any hurry to increase interest rate in parts, because of the softer U.S. economy at the start of the year and the zero to negative yield in Europe.

Twitter & Linkedin:
Regarding the massive sell-off, of the shares of both Twitter and LinkedIn we can be very short, this is something we have been predicting for a longtime. Chances are that the sell-off of these stocks are signalling the first signs that the current bubble in the US stock-market is about to burst.

Until next week.

Yours sincerely,

Eric Panneflek