While flipping through the rolling 12-month relative strength charts for the 138 subindustries in the Standard & Poor's Composite 1,500 index [which consists of the large-cap S&P 500, MidCap 400 and SmallCap 600 indices], I noticed a smooth-looking turnaround in momentum for the S&P Wireless Telecom group. Year-to-date through June 20, the subindustry index rose 16.2%, vs. an 8.6% advance for the S&P 1,500 index. In 2006, the subindustry index was down 1.1%, vs. a 13.3% advance for the broader market.
Wondering if this was a turning point for the subindustry, I retrieved the fundamental outlook on the group from S&P's Advisor Insight service. Todd Rosenbluth is S&P's equity analyst for the wireless telecom group, and this is his most recent review of the group's prospects.
"Our fundamental outlook for the wireless telecommunications subindustry for the next 12 months is neutral, as we believe major wireless service providers in developed countries will have stable cash flow despite high wireless market penetration in their territories, while wireless providers in emerging markets should continue to realize double-digit subscriber and revenue growth in 2007 with improving margins and profitability."
Slight Premium to Peers
"We see increased pricing pressure in the U.S. wireless market this year, with available funds directed more to sales and marketing to retain or acquire new subscribers. Also, there are increasing differences among the four national wireless carriers. With Cingular Wireless (T) and Verizon Wireless (VZ, VOD) moving significantly ahead of their peers in market share and aided by new handsets, we believe there are competitive risks that Sprint Nextel (S) and T-Mobile USA (DT) will aggressively price their services and products to regain lost market share.
"In May 2007, Alltel's directors approved the sale of the company to private equity firms for $27.5 billion, subject to necessary approvals. We estimate the proposed buyout of Alltel (AT) is at eight times our 2008 EBITDA estimate, a slight premium to peers. In our view, other smaller carriers are trading at similarly high multiples, given the scarcity of investments.
"While 2007 EBITDA and net earnings should increase in the mid- to high-single digits compared to the historical double-digit rate, we see opportunities to use rising free cash flow to invest in advanced technologies, especially broadband wireless data and video services. Strong promotion of family plans has leveled off [average revenue per user], but has resulted in lower monthly customer churn to date."
Competitive Risk
"In emerging wireless markets, we continue to see double-digit subscriber and revenue growth. In 2007, wireless carriers are investing in their networks mostly for geographic expansion, but in many cases, wireless carriers are investing in 3G-enhanced networks.
"We view mobile WiMAX as a competitive risk to the incumbent wireless providers with the startup of new carriers such as Clearwire (CLWR), which recently went public. Sprint Nextel also plans to invest $3 billion in a new WiMAX network in the next two to three years."
The market-weighted average S&P STARS ranking is 2.3 [vs. 3.7 for the S&P 1,500 Index]. There are three companies in the S&P 1,500 Wireless Telecommunications Services subindustry index: Alltel (AT; $67; ranked hold), Sprint Nextel (S; $22; ranked sell), and Telephone & Data Systems (TDS; $72; ranked sell). Non-index members include China Mobile (CHL; $59; ranked buy), Vodafone (VOD; $33; ranked hold), and China Unicom (CHU; $18; ranked sell).
Despite the group's improving relative strength, it appears as if the fundamental outlook does not support this optimism.
Industry Momentum List Update
Here is this week's list of the industries in the S&P 1,500 with Relative Strength Rankings of five [price performances in the past 12 months that were among the top 10% of subindustries in the S&P 1,500], along with a stock with the highest S&P STARS [tie goes to the highest market value].
Thursday, July 26, 2007
Wednesday, July 18, 2007
Foren Exchange Market (FOREX)
The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest market in the world, in terms of cash value traded, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The trade happening in the forex markets across the globe currently exceeds US$1.9 trillion/day (on average). Retail traders (individuals) are currently a very small part of this market and may only participate indirectly through brokers or banks and may be targets of forex scams.
The foreign exchange market is unique because of:
its trading volume,
the extreme liquidity of the market,
the large number of, and variety of, traders in the market,
its geographical dispersion,
its long trading hours - 24 hours a day (except on weekends).
the variety of factors that affect exchange rates,
According to the BIS study Triennial Central Bank Survey 2004, average daily turnover in traditional foreign exchange markets was estimated at $1,880 billion. Daily averages in April for different years, in billions of US dollars, are presented on the chart below:
Global foreign exchange market turnover:
$621 billion spot
$1.26 trillion in derivatives, ie
$208 billion in outright forwards
$944 billion in forex swaps
$107 billion in FX options.
Exchange-traded forex futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Forex futures volume has grown rapidly in recent years, but only accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).
Average daily global turnover in traditional foreign exchange market transactions totalled $2.7 trillion in April 2006 according to IFSL estimates based on semi-annual London, New York, Tokyo and Singapore Foreign Exchange Committee data. Overall turnover, including non-traditional foreign exchange derivatives and products traded on exchanges, averaged around $2.9 trillion a day. This was more than ten times the size of the combined daily turnover on all the world’s equity markets. Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues such as internet trading platforms has also made it easier for retail traders to trade in the foreign exchange market.[1]
Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 32.4% in April 2006. Other large centres include the US (with a 18.2% global share), Japan (7.6%) and Singapore (5.7%) (Chart 2). Most of the remainder was accounted for by trading in Germany, Switzerland, Australia, Canada, France and Hong Kong.
The ten most active traders account for almost 73% of trading volume, according to The Wall Street Journal Europe, (2/9/06 p. 20). These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually only 0-3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203. Minimum trading size for most deals is usually $100,000.
These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100 / 1.2300 for transfers, or say 1.2000 / 1.2400 for banknotes or travelers' checks. Spot prices at market makers vary, but on EUR/USD are usually no more than 5 pips wide (i.e. 0.0005). Competition has greatly increased with pip spreads shrinking on the major pairs to as little as 1 to 1.5 pips.
Market participants
Financial markets
Bond market
Fixed income
Corporate bond
Government bond
Municipal bond
Bond valuation
Junk Bond
Stock Market
Stock
Preferred stock
Common stock
Stock exchange
Foreign Exchange Market
Retail forex
Forex Scam
Derivative market
Credit Derivative
Hybrid security
Options
Futures
Forwards
Swaps
Other Markets
Commodities market
OTC market
Real estate market
Spot market
Valuation and Theories
Market Valuation
Financial market efficiency
Finance series
Financial market
Financial market participants
Corporate finance
Personal finance
Public finance
Banks and Banking
Financial regulation
v d e
Top 10 Currency Traders
% of overall volume, May 2006
Source: Euromoney FX survey[1]
Rank Name % of volume
1 Deutsche Bank 19.26
2 UBS 11.86
3 Citigroup 10.39
4 Barclays Capital 6.61
5 RBS 6.43
6 Goldman Sachs 5.25
7 HSBC 5.04
8 Bank of America 3.97
9 JPMorgan Chase 3.89
10 Merrill Lynch 3.68
Unlike a stock market, where all participants have access to the same prices, the forex market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest investment banking firms. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. As you descend the levels of access, the difference between the bid and ask prices widens. This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the forex market are determined by the size of the “line” (the amount of money with which they are trading). The top-tier inter-bank market accounts for 53% of all transactions. After that there are usually smaller investment banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail forex market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001-2004 period in terms of both number and overall size” Central banks also participate in the forex market to align currencies to their economic needs.
The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.
Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems, such as EBS, Reuters Dealing 3000 Matching (D2), the Chicago Mercantile Exchange, Bloomberg and TradeBook(R). The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.
The foreign exchange market is unique because of:
its trading volume,
the extreme liquidity of the market,
the large number of, and variety of, traders in the market,
its geographical dispersion,
its long trading hours - 24 hours a day (except on weekends).
the variety of factors that affect exchange rates,
According to the BIS study Triennial Central Bank Survey 2004, average daily turnover in traditional foreign exchange markets was estimated at $1,880 billion. Daily averages in April for different years, in billions of US dollars, are presented on the chart below:
Global foreign exchange market turnover:
$621 billion spot
$1.26 trillion in derivatives, ie
$208 billion in outright forwards
$944 billion in forex swaps
$107 billion in FX options.
Exchange-traded forex futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Forex futures volume has grown rapidly in recent years, but only accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).
Average daily global turnover in traditional foreign exchange market transactions totalled $2.7 trillion in April 2006 according to IFSL estimates based on semi-annual London, New York, Tokyo and Singapore Foreign Exchange Committee data. Overall turnover, including non-traditional foreign exchange derivatives and products traded on exchanges, averaged around $2.9 trillion a day. This was more than ten times the size of the combined daily turnover on all the world’s equity markets. Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues such as internet trading platforms has also made it easier for retail traders to trade in the foreign exchange market.[1]
Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 32.4% in April 2006. Other large centres include the US (with a 18.2% global share), Japan (7.6%) and Singapore (5.7%) (Chart 2). Most of the remainder was accounted for by trading in Germany, Switzerland, Australia, Canada, France and Hong Kong.
The ten most active traders account for almost 73% of trading volume, according to The Wall Street Journal Europe, (2/9/06 p. 20). These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually only 0-3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203. Minimum trading size for most deals is usually $100,000.
These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100 / 1.2300 for transfers, or say 1.2000 / 1.2400 for banknotes or travelers' checks. Spot prices at market makers vary, but on EUR/USD are usually no more than 5 pips wide (i.e. 0.0005). Competition has greatly increased with pip spreads shrinking on the major pairs to as little as 1 to 1.5 pips.
Market participants
Financial markets
Bond market
Fixed income
Corporate bond
Government bond
Municipal bond
Bond valuation
Junk Bond
Stock Market
Stock
Preferred stock
Common stock
Stock exchange
Foreign Exchange Market
Retail forex
Forex Scam
Derivative market
Credit Derivative
Hybrid security
Options
Futures
Forwards
Swaps
Other Markets
Commodities market
OTC market
Real estate market
Spot market
Valuation and Theories
Market Valuation
Financial market efficiency
Finance series
Financial market
Financial market participants
Corporate finance
Personal finance
Public finance
Banks and Banking
Financial regulation
v d e
Top 10 Currency Traders
% of overall volume, May 2006
Source: Euromoney FX survey[1]
Rank Name % of volume
1 Deutsche Bank 19.26
2 UBS 11.86
3 Citigroup 10.39
4 Barclays Capital 6.61
5 RBS 6.43
6 Goldman Sachs 5.25
7 HSBC 5.04
8 Bank of America 3.97
9 JPMorgan Chase 3.89
10 Merrill Lynch 3.68
Unlike a stock market, where all participants have access to the same prices, the forex market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest investment banking firms. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. As you descend the levels of access, the difference between the bid and ask prices widens. This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the forex market are determined by the size of the “line” (the amount of money with which they are trading). The top-tier inter-bank market accounts for 53% of all transactions. After that there are usually smaller investment banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail forex market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001-2004 period in terms of both number and overall size” Central banks also participate in the forex market to align currencies to their economic needs.
The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.
Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems, such as EBS, Reuters Dealing 3000 Matching (D2), the Chicago Mercantile Exchange, Bloomberg and TradeBook(R). The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.
Commercial companies
An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.
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