Safe Heaven in Current Markets

Nova Ljubjanska Banka
  • It is the largest Slovenian bank.
  • In 2013 taken over by the Slovenian Government, fully restructured and recapitalized
  • IPO closed last week. Launched at 51.5 Euro per share, now trading at 56.6.
  • Just spoke to Wood analyst (I can get you his contact details). He called the stock “Safety Heaven in current markets”. The reason is it is still very cheap. 
  • NLB now trades at 0.7 P/B. With RoE of 18%  and Div Yield at 12% it should trade at least around 1.1 P/B. That is what Wood analyst thinks. The reason for this is simple – there is no research coverage, yet. The syndicate members (JP Morgan, Citigroup, Deutsche and Wood) are in blackout period (until 20/12) – they can issue research only after that date. There are three catalysts in pipeline which should help to rerate the stock:

    • There is a CEE Equities conference early December organized by local broker Wood and Co in Prague. 150 CEE oriented investors are attending and NBL is one of the presented companies. Last year I saw 30% price increase on similar situations during the conference
    • The research reports will be published on 20/12
The prospectus and other documents can be found here:
 Peers ratios for comparison
NLB Valuation based on Peers
Per share data
NAV 30/6/18 89,85
Dividend paid 13,5
Earnings 2H18 5
NAV E2018 81,35
Share price 56,5
Price to book 0,69
Net profit 2018E 10
Yield 18%
payout ratio 70%
Dividend yield 12%
P/E 2018E 5,7
RoE 2018 14%
Target P/BV Price per share
0,9 73
1 81
1,1 90
1,2 98
1,3 106
1,4 114
1,5 122


Trump will fight strong USD.

Who is the best to predict USD movements? I like Gundlach´s view on this:

“It seems”, Jeff continued, “that the U.S. president wants a weaker dollar.” There’s another characteristically insightful observation for you. After all, there’s no way you could have surmised that without Jeff’s help…

Donald J. Trump
Donald J. Trump
China, the European Union and others have been manipulating their currencies and interest rates lower, while the U.S. is raising rates while the dollars gets stronger and stronger with each passing day – taking away our big competitive edge. As usual, not a level playing field…

Gundlach continued his latest state-the-obvious-a-thon by noting that if the burgeoning crisis in emerging markets worsens, it “could be a global market problem.” He, like everyone else, doesn’t think this is sustainable:


A weaker dollar would help, he added.

Jeff of course addressed his Treasury short squeeze tweet. Specifically, he’s not convinced that 10Y yields will fall to 2.25% (nobody else is either, considering that’s a full 72bps lower than where we are now), but if you’re wondering how we could “get there”, Gundlach has this to offer:

What could get you there is a monumental short squeeze, because the speculative short positioning in the 10-year is off the charts.

By “off the charts”, he just means it’s sitting near a record. It’s not literally “off the charts” because, well, because here’s a chart of the short in the 10Y:



He used that “monumental” short squeeze theory to reiterate the threat of a curve inversion, which he said could be the result if that position does in fact get squeezed.

As far as why nobody has been squeezed yet, Jeff has a simple answer:

Because it’s not moving.


And while he acknowledges that there is no written rule that says yields have to fall just because specs are short, anything that sparks a rally in Treasurys could start tipping dominos or, as Jeff puts it, “if something’s a catalyst to get a rally, you can just imagine the stampede to cover those shorts”.

Yes, “just imagine” that. If a bunch of people are short, and the market moves against them, they might have to cover. Again, penetrating insight.

For what it’s worth, what Jeff (and everyone else) thinks they’re seeing in that short position might not in fact be what they’re actually seeing. We talked about this on Monday evening, citing several recent notes from Deutsche Bank in “What’s Really Going On With That ‘Massive’ Treasury Short?”

In any event, you get the idea. Jeff is still a bit perturbed at U.S. fiscal policy, he’s sticking with the short squeeze call on Treasurys, he thinks that prospective squeeze could take 10Y yields all the way down to 2.25% on the way to inverting the curve and he thinks the dollar might have peaked for the time being.

all the above is from:


My no brainer trade is working out

Two weeks ago I published a no brainer trade. Buying Saudi in anticipation of its inclusion into MSCI. It was announced today. Expect significant re-rating.

MSCI adds Saudi Arabia, in line with consensus, acknowledging impressive reforms; Kuwait is next in line
MSCI announced the inclusion of Saudi Arabia in the MSCI Emerging Markets Index effective June 2019, representing a weight of approximately 2.6% of the index with 32 securities. This will follow a two
step inclusion process, the first of which will coincide with the May 2019 SemiAnnual Index Review, while the second will be in August 2019 Quarterly Index Review. MSCI also announced the reclassification of the MSCI Argentina Index from Frontier Markets to Emerging Markets status. In addition, MSCI announced that it will include the MSCI Kuwait Index in its 2019 Annual Market Classification Review for a potential reclassification from Frontier Markets to Emerging Markets status.

This marks a strong acknowledgement of the reforms undertaken by the Saudi government, which included lower restrictions on international investors and the introduction of short-selling and T+2 settlement cycles. The decision was anticipated since the beginning of the year as MSCI praised Saudi’s efforts to introduce capital market reforms that aimed at opening the local equity market to international institutional investors. We recall that index provider FTSE Russell upgraded Saudi to Emerging Market status in March 2018.

Saudi officials expects USD40bn in inflows
The CEO of Saudi bourse expects minimum foreign inflows of USD10bn from passive funds with up to USD40bn over the next year from the inclusion, and he added during an interview with Bloomberg, that Tadawul is aiming to increase the foreign participation in the market from a current 5% to 20-25% in the next two years. We do not only see the inclusion as increasing foreign presence in the market and improving liquidity, but also as enhancing the quality of the flow entering the market, which we believe will be more geared towards long-term institutional investors that will provide a fundamental growth in the Saudi market. This will be magnified by the impressive reform story the country is providing amidst EMs. Aramco IPO will be another key trigger for the market, with a potential USD50bn of assets into the market. Saudi is the third GCC country to be granted MSCI Emerging Market status, as UAE (0.4%, upon inclusion) and Qatar (0.45%) were included in 2013. According to market reports, UAE and Qatar weights are currently much higher than when they were included in 2013.

No brainer trade

I bought 8% weighting of my portfolio in KSA – ishares ETF that tracks Saudi Arabia. MSCI announced that it would include SA in their EM index. SA would become the largest country in the EM space. Each time this happened in the past, there was a 50% run. No brainer trade.


Foreigners ‘to inject billions’ into Saudi on MSCI inclusion

Kingdom could become ninth largest country on index if it wins EM status

Saudi Arabia could become the ninth largest country on the MSCI Emerging Market index if it wins inclusion in 2019, attracting billions of dollars of inflows, according to analysts.

On Wednesday, index provider MSCI announced the addition of Saudi Arabia to the 2018 annual review cycle for potential inclusion in the MSCI Emerging Markets index the following year.

The Tadawul stock exchange jumped 5.5 percent on the announcement – although analysts said this could also have been due to news of Mohammed Bin Salman’s promotion to Crown Prince.

Analysts said the MSCI news was a further positive development for the country but warned that Saudi Arabia has more work to do to modernise its equity market.

A paper from Capital Economics said a listing on the MSCI Emerging Market index would help the kingdom to attract potential inflows of more than $38 billion.

“If upgraded, MSCI has estimated that Saudi Arabia would have a weight of around 2.4 percent,” it said. “Given that around $1.6trn of assets under management track the MSCI EM Index, this could translate into inflows of more than $38bn – equal to around 6 percent of [Saudi Arabia’s] GDP.

“To put this into perspective, inflows on this scale would have funded the current account deficit last year one-and-a-half times over.”

The paper noted that foreign ownership of Saudi equities is currently low at 4 percent, and said an emerging market listing would significantly boost this percentage.

Daniel Salter, head of equity strategy and head of research, Eurasia, at Renaissance Capital, said the kingdom could become the ninth largest country in the index if emerging market status was achieved.

“Using the provisional list of constituents and latest prices, we estimate that Saudi Arabia could have a weight of 2.5 percent in MSCI EM, making it the ninth-largest country in the index and the third largest in EMEA [Europe, Middle East and Africa],” he said.

Fawad Tariq Khan, general manager of SHUAA Capital, said: “Saudi’s inclusion in the MSCI emerging markets stock index will be a welcome boost for capital markets in the region.

“The kingdom’s potential upgrade to emerging market status in 2019 will give access to more international investors and bring greater liquidity to the region’s largest market.

“This will benefit the local banks and financial services’ industry in addition to supporting the kingdom’s 2030 vision to diversify the economy away from oil. It’s a welcome move for Saudi and will have a positive impact for the wider Gulf region.”

Last year, the Tadawul did not make the review list despite having announced a string of reforms intended to achieve emerging market (EM) status.

MSCI said at the time it would “continue to monitor the positive evolution in the opening of the Saudi Arabian equity market for international institutional investors”.

Renaissance Capital’s Salter said: “MSCI’s decision will rest on whether foreign investors feel the current level of opening is sufficient, given the 49 percent foreign ownership limits and investor qualification requirements (which have admittedly become less strict).

“In addition, some of the market framework changes, such as stock lending and short-selling, have yet to be tested.”

Making money is about great ideas.