Taiwan exports orders beat forecast as tech sector growth picks up

TAIPEI (Reuters) – Taiwan’s export orders growth beat forecasts in April, as the island’s technology sector recovered from a weak first quarter, with goods such as auto electronics driving growth although communications products remained a soft patch.

FILE PHOTO: People fish in front of an Orient Overseas Container Line container ship, at Kaohsiung Port, Taiwan August 7, 2017. REUTERS/Tyrone Siu/File Photo

Orders for the trade-reliant economy rose 9.8 percent to $39.1 billion from the same period a year earlier, data from the Ministry of Economic Affairs showed on Monday. That was stronger than more modest growth of 3.1 percent in March and higher than the median forecast of 8.85 percent growth for April in a Reuters poll.

From the previous month, export orders declined 7.7 percent.

The overall on-year growth was driven by a 12.1 percent increase in electronics orders and an 18.6 percent increase in machinery orders. Information and communications products, which includes smartphones and PCs, declined 0.3 percent.

The ministry said in a statement orders for information and communications products were hit by “the weak season for smartphones and computers, and weak market demand”.

However, economists said strong growth in traditional industries outside of technology offset some of the weakness in the information and communications products.

“If you look at the breakdown, the electronics exports in addition to the traditional export orders, for example base metals and plastic products and machinery, all grew by double digits,” said Betty Wang, an economist at ANZ in Hong Kong.

“I think that helped to offset weakness in the ICT sector which still contracted for the third consecutive month,” she said.

Looking to May, the ministry said it projects the on-month change in value of export orders to range between a 0.3 percent contraction to 2.3 percent growth.

Orders from the United States, where Apple Inc (AAPL.O) is a major customer for major Taiwanese technology component makers, rose 9.6 percent in April from a year earlier.

Orders from China, the island’s biggest trading partner, rose 13.6 percent last month compared with the same period a year ago.

April orders from the European Union and Japan climbed 4.9 percent and 4.6 percent, respectively.

The ministry expects the softness in smartphone demand to be mitigated by firmer growth in products such as for the internet of things, auto electronics and artificial intelligence.

Reporting by Roger Tung; Writing by Jess Macy Yu; Editing by Sam Holmes

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Regretting It Already

Last Sunday, I wrote a fun little something for this platform called “Jerome Powell May Live To Regret These Statements“, in which I flagged a series of comments the newly appointed Fed chair made at an IMF/SNB event earlier this month.

Here, for anyone who missed it, is what Powell said about the likely resilience of emerging markets (EEM) as the Fed normalizes policy:

Monetary stimulus by the Fed and other advanced economies played a relatively limited role in the surge of capital flows to (emerging market economies) in recent years.

There is good reason to think that the normalization of monetary policy in advanced economies should continue to prove manageable for EMEs. Markets should not be surprised by our actions if the economy evolves in line with expectations.

In the first piece linked above, I gently suggested that while rising U.S. rates and the ongoing rally in the dollar (UUP) needn’t necessarily lead to a broad-based unwind in EM, past a certain point it won’t be possible to contend that the only real issues here are a recalcitrant Erdogan in Turkey and a crisis of confidence with regard to the Argentine peso.

In other words, there’s only so long you can lean on the idiosyncratic, country-specific stories excuse when the pain is spilling over to other locales amid a continual rise in U.S. rates and still more dollar strength. Although it’s really only possible to know this in hindsight, often (and this doesn’t just apply to emerging markets) we discover that what we thought were “idiosyncratic” stories were in fact coal mine canaries or, to mix metaphors, the wobbliest dominoes.

As I noted last Sunday, “what you’ve seen recently in the Brazilian real and also in Indonesia is evidence of contagion.” I started talking at length about the Indonesia story weeks ago and around the same time, BofAML’s Michael Hartnett (he’s the guy who told you to sell based on his “perfect” indicator back on January 26, a week before things got dicey), said this about the Brazilian real:

EM FX never lies and a plunge in Brazilian real toward 4 versus US dollar is likely to cause deleveraging and contagion across credit portfolios.

Well, this week, Indonesia hiked rates for the first time since 2014 and Brazil’s central bank eschewed what would have been a 13th consecutive rate cut in an effort to put the brakes on the currency pressure.

Neither effort was effective. In Indonesia’s case, the rupiah plunged to its lowest since October 2015 on Friday:

(Heisenberg)

Have a look at the selloff in bonds (benchmark yields for Indonesia are up some 65 bps this quarter, that would be the largest quarterly jump since late 2016):

(Heisenberg)

In short, the rate hike is not going to be enough. Capital flight is accelerating.

As for Brazil, the “hawkish” decision to forgo another rate cut similarly failed to assuage concerns and worse, it deep-sixed Brazilian equities. The real continued to fall, hitting a two-year low on Friday and I think you’ll agree that what you see in the following chart looks like trouble:

(Heisenberg)

And look, if you’re in the camp that’s predisposed to suggesting none of this matters until it spills over into developed markets, do your friends who hold the popular iShares MSCI Brazil Capped ETF (EWZ) a favor and don’t feed them that line, ok? Have a heart. Empathize. Because they just had their worst week since the circuit breakers were tripping last May:

(Heisenberg)

When it comes to Brazil there’s probably no need to panic just yet. There’s some electoral uncertainty, but nothing that should justify what you see in the currency.

“BRL is slightly weak but not too devalued. This is not an overshooting,” Goldman’s Alberto Ramos told Bloomberg in an e-mail, adding that this is a reflection of external shocks (think: stronger dollar and rising U.S. rates) that “are common to other EM currencies.”

He did go on to note that we could see 4.00 on the BRL, but that “would require the intensification of global EM FX pressures and more concern about the October election.”

Right. Well when it comes to “the intensification of global EM FX pressures” (i.e., when it comes to the kind of 30,000 foot view), the MSCI EM FX index has fallen for six of the past seven weeks:

(Heisenberg)

It was down every day this week.

The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) has also fallen for six of the last seven weeks:

(Heisenberg)

And how about the iShares JP Morgan EM Local Government Bond UCITS ETF? Well, it’s down handily, has seen some $550 million in outflows this month alone, and as Bloomberg notes, hasn’t seen a net inflow since March:

(Heisenberg, Bloomberg)

Look at the slide in its market cap just over the past two months:

(Bloomberg)

Now, let me take a moment to remind you that I have been persistently warning about Turkish President Recep Tayyip Erdo?an’s penchant for pushing a laughably unorthodox “theory” about how higher interest rates cause inflation and currency depreciation. If you follow Turkey, you know all about this. Here’s what I said in the post linked here at the outset:

In case you were under the impression that Erdo?an is going to be inclined to moderating his stance on interest rates (which, in his bizarre version of economics, cause inflation if they’re too high), he is going out of his way to ratchet up the rhetoric and disabuse you of that idea on a daily basis.

Well, do you know what he did this week? He went on Bloomberg TV and all but confirmed that once next month’s election is out of the way, he’s going to effectively commandeer monetary policy. You can watch that interview for yourself here and/or read my longer commentary here, but suffice to say it pushed the beleaguered lira to a fresh all-time low and confirmed everyone’s worst fears about what’s going to happen once he officially consolidates power:

(Heisenberg)

As an amusing aside, if you’re following along on Twitter, you knew that Bloomberg interview was bound to cause trouble:

All of this played out in a week that saw 10Y yields (TLT) in the U.S. hit their highest since 2011 and 30Y yields touch 3.25%.

Oh, and remember how the dollar rally stalled last week? Yeah, well it resumed this week, rising for the fourth week in five:

(Heisenberg)

What you’re seeing here is not only notable, but extremely important for what it says about how the environment is shifting as the Fed normalizes. As I’ve been keen on noting for at least a year, everything became one trade as QE drove everyone down the quality ladder in a relentless hunt for yield and as dovish forward guidance kept rates vol. anchored. That’s now reversing.

How violent that reversal will ultimately be is debatable. Some folks think it wouldn’t be the worst thing to just let emerging markets go. The following excerpts are from the latest by former trader turned Bloomberg columnist Richard Breslow:

These positions can be put to the test without necessarily having negative implications for the broader asset classes. In fact, it may represent a very positive development. A big chunk of these trades weren’t originally done because people were feeling chuffed. They were just desperately searching for yield and following the bidding of the central banks.

But if you’re fascinated by big names, then you might note that Carmen Reinhart is concerned. Here’s what she said this week about emerging markets:

The overall shape they’re in has a lot more cracks now than it did five years ago and certainly at the time of the global financial crisis. It’s both external and internal conditions. This is not gloom-and-doom, but there are a lot of internal and external vulnerabilities now that were not there during the taper tantrum.

And then there was this from El-Erian (via Twitter):

Now look, if what you want to do is pretend as though this is all immaterial for developed market investors, then by all means, but just know that this is one of those scenarios where the old adage about being “entitled to your own opinions but not your own facts” applies. As Heisenberg readers know, I generally despise old adages, but that one is apt here.

This is absolutely material for all investors and the whole point of documenting the spillover from Turkey and Argentina into other locales and charting the decline in various indices and funds is to demonstrate that rising U.S. rates and the stronger dollar are the proximate cause of the problem.

This is all a consequence of the buildup of imbalances in the QE era. It was always a matter of how smoothly the unwind of all the trades that are part and parcel of the global hunt for yield would be and the verdict from emerging markets right now is: “not smoothly”.

Trade accordingly. Or don’t. It’s up to you. But don’t say you don’t have the information you need to make an informed decision.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Bank Of America: This 6.00% Preferred Stock Has Begun Trading On The NYSE

In this article, we want to shed light on a new Preferred Stock issued by Bank Of America Corporation (BAC).

Our goal is purely to inform you about the product while refraining ourselves from an investment recommendation. Even though the product might not be of interest to us and our financial objectives, it definitely is worth taking a look at.

The New Issue

Before we get into our brief analysis, here is a link to the prospectus.

For a total of 48M shares issued, the total gross proceeds to the company are $1.2B. You can find some relevant information about the new preferred stock in the table below:

Source: Author’s spreadsheet

Bank of America Corporation 6.000% Non-Cumulative Preferred Stock Series GG (BAC-B) pays a qualified fixed dividend at a rate of 6.00%. The new preferred stock has a BBB- Standard & Poor’s rating and is callable as of May 16, 2023. Currently, the new issue trades close to its par value at a price of $25.09 and has a current yield of 5.98% and yield-to-call of 5.92%.

Here is what the stock’s YTC curve looks like right now:

Source: Author’s spreadsheet

The Company

As per Reuters:

Bank of America Corporation, incorporated on July 31, 1998, is a bank holding company and a financial holding company. The Company is a financial institution, serving individual consumers, small- and middle-market businesses, institutional investors, corporations and governments with a range of banking, investing, asset management and other financial and risk management products and services. The Company, through its banking and various non-bank subsidiaries, throughout the United States and in international markets, provides a range of banking and non-bank financial services and products through its business segments: Consumer Banking, Global Wealth & Investment Management, Global Banking, Global Markets and All Other.

As it is the one of the most famous and the second biggest U.S. banks, there is no need for a very in-depth presentation. So, it’s better to move on to the dividend and profitability information about the common stock, BAC.

Source: FastGraphs.com

And here’s the market opinion:

Source: Tradingview.com

The dividend paid by BAC is constantly increasing, from $0.04 in 2013 to $0.39 in 2017. There’s a bullish expectation for the next couple of years as well. As an absolute value, for the last year, the company paid an almost $4B yearly dividend. In addition, the market capitalization of the company is around $306B, which makes Bank of America the second largest money center bank.

Capital Structure

Below you can see a snapshot of Bank of America’s capital structure as of its last quarterly report in March 2018. You can also see how the capital structure evolved historically:

Source: Morningstar.com

As of Q1 2018, BAC had a total debt of $270.3B ranking senior to the newly issued preferred stock. The new Series GG preferred shares rank junior to all outstanding debt and equal to the other outstanding preferred stocks, which total $24.6B.

The Bank of America Corporation Family

The company has 16 more outstanding preferred stocks and a third-party security, listed on a National Exchange under the umbrella of BAC:

Source: Author’s database

Recently, the company announced the redemption of Merrill Lynch Capital Trust III (MER-P*) and Countrywide Capital V (CFC-B*) on June 6, 2018, and the redemption of its 6.625% Non-Cumulative Preferred Stock, Series I (BAC-I*) on July 2, 2018; as such, they will not be a part of the following bubble chart. Furthermore, Bank of America has submitted a redemption notice of approximately three-fourths of its 6.204% Non-Cumulative Preferred Stock, Series D (BAC-D).

Source: Author’s database

If we compare the newly issued Series GG preferred stock with the rest of BAC’s preferred stocks, we can see that it seems to be fairly priced vs. its closest “brothers,” BAC-A and BAC-C. Furthermore, there are a plethora of corporate bonds issued by the company; the picture below presents only a small part of it:

Source: FINRA

For my comparison, I choose a fixed-rate bond that matures almost the same as the call date of BAC-B, May 15, 2023.

Source: FINRA

BAC4126820, as it is the FINRA ticker, is rated an A- and has a yield-to-maturity of 3.676%. This should be compared to the 5.92% yield-to-call of BAC-B, but when making that comparison, remember that BAC-B’s YTC is the maximum you could realize if you hold the preferred stock until 2023. This result is a yield spread of 2.3% between the two securities. This yield margin seems to be a little high, despite the higher rank in the capital structure and the higher credit rating of the bond, especially given how well capitalized BAC seems to be. At these price levels, BAC-B looks like the better security of the two.

Sector Comparison

The chart below contains all preferred stocks in the money center banks sector (according to Finviz.com) that pay a fixed dividend rate and have a par value of $25. It is important to take note that none of these preferred stocks are eligible for the 15% federal tax rate.

Source: Author’s database

Take a look at the investment grades only:

Source: Author’s database

And look at these, with a positive yield-to-call:

Source: Author’s database

The Banking Preferreds

The chart below contains all preferred stocks issued by a bank with a par value of $25 that have qualified fixed dividend rate.

Source: Author’s database

Again, the investment grades only:

Source: Author’s database

And these have a positive yield-to-call:

Source: Author’s database

All BBB- Preferred Stocks

The last chart contains all preferred stocks that pay a fixed dividend rate, have a par value of $25, a BBB- Standard & Poor’s rating and a positive yield-to-call.

Source: Author’s database

The main group:

Source: Author’s database

Redemption Following a Regulatory Capital Event

As per BAC’s 424B5 filing:

At any time within 90 days after a capital treatment event, and at the option of our board of directors or any duly authorized committee of our board of directors, we may provide notice to holders of the Preferred Stock that we will redeem the Preferred Stock in accordance with the procedures described below, and subsequently redeem, out of funds legally available therefor, the Preferred Stock in whole, but not in part, at a redemption price equal to $25,000 per share (…) For purposes of the above, “capital treatment event” means the good faith determination by us that, as a result of any:

  • proposed changes in those laws or regulations that is announced or becomes effective after the initial issuance of any shares of the Preferred Stock; or
  • official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced or becomes effective after the initial issuance of any shares of Preferred Stock,

there is more than an insubstantial risk that we will not be entitled to treat an amount equal to the full liquidation preference of all shares of Preferred Stock then outstanding as additional Tier 1 capital (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the Federal Reserve or other appropriate federal banking agency, as then in effect and applicable, for as long as any share of Preferred Stock is outstanding.

Redemption of the Preferred Stock is subject to our receipt of any required prior approvals from the Federal Reserve or other appropriate federal banking agency.

Use of Proceeds

We intend to use the net proceeds from the sale of the depositary shares representing interests in the Preferred Stock for general corporate purposes, including, but not limited to, the repurchase or redemption of outstanding preferred securities.

Addition to the S&P preferred stock index

With the current market capitalization of the new issue of $1.2B, it is a potential addition to the S&P U.S. Preferred Stock iShares Index (NASDAQ:PFF). If the average monthly volume of BAC-B after its first six months trading on the NYSE is more than 250,000, it would be eligible to be included in the S&P U.S. Preferred Stock Index. With fewer than six months of trading history, issues are evaluated over the available period and may be included if available trading history infers the issue will satisfy this requirement.

Conclusion

This is an informational article about the new preferred stock, BAC-B. With this kind of article, we want to keep you informed of all new preferred stock and baby bonds IPOs. I believe that BAC-B offers good returns when compared to other securities in BAC’s capital structure and to other preferred stocks in its peer group. The issuer company is well capitalized and is poised to increase its profitability in the coming year. Overall, I think that BAC-B offers nice returns for the risks that you are taking.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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