On 17 September last year, shares in Tanganyika Oil were trading at just C$14.5 each. In just over a week, they had soared to C$29.1 – a gain of 101%. Over the same time, the Toronto Stock Exchange rose by just 6%.
The trigger that sent Tanganyika’s shares soaring came from the other side of the world. Chinese oil giant, Sinopec, launched a take-over bid for Tanganyika in order to secure its oil fields in Syria.
Now Syria isn’t a place most investors would go looking for profits. But the smart ones who did made a killing while global share markets were tanking. The deal cost the Chinese $2 billion. But they were happy to pay it. $2 billion is pin money for the Chinese these days. By the time the deal was done, investors who held on booked a gain of 117%.
This wasn’t a one-off event either.
On 5 June, shares in Addax Petroleum were trading at C$36. And then came the announcement that it was in takeover talks. Once again China had pounced. On 24 June, Sinopec launched a take-over offer at C$52.80 per share – a 47% premium. They’re now finishing-up that deal. And they will get control of Addax’s valuable oil fields in Africa and Iraq. The price tag this time was C$8 billion. The Chinese are clearly ramping-up their take-over operations.
It isn’t just the Chinese either. India’s national oil-company ONGC outbid the Chinese to snap-up London-listed Imperial Energy for £1.3 billion last December. That netted them top-class Russian oil fields and resulted in a 62% windfall gain for Imperial’s shareholders.
Asia’s cash-rich and energy-hungry resource companies are on the prowl. The take-overs that we have seen so far could just be the tip of the iceberg. They are trying to take advantage of lower share prices to buy-up natural resources companies on the cheap.
The big question is who is next? Get that right and you could clean-up. So let me just show you where the really big opportunities are.
Falling markets will speed-up the pace of takeovers
Asian energy companies are set to increase the speed of their takeover plans in the coming months. And here’s why – energy prices have dropped sharply in the last two weeks. And, as I will show you in a moment, global stock markets look set to tank. That combination of lower energy prices and cheaper shares is going to open-up a window for aggressive, cash-rich energy companies from Asia to snap-up their battered rivals on the cheap.
The price of oil has fallen from $73 per barrel to $59 over the last two weeks. While we are bullish on the price of oil over the medium-term, there is room for it to drop further over the next couple of months.
And share markets around the world have started wobbling over the last two weeks. Asian markets have fallen for five straight days for the first time since October. Russia is now officially in a bear market. Its MICEX share index is down by 21% over the last month. Brazil has fallen by about 8% over the last month. And the US is down by 7%.
You can bet that they have a lot further to fall. Because global markets are still looking over-valued relative to earnings.
Here’s where to look for quick profits
Just like us here at The Right Side, the Asians are betting on the sharply higher energy prices over the medium-term. That is why a sharp pull-back in stock and energy prices might give them a window of opportunity to get in on the cheap. You can bet that they are going to take it.
China is going to be in the lead on this. The country is sitting on almost $2 trillion in foreign exchange reserves. They’ve got more than enough money to buy-up whichever energy companies they want. But they are being careful about what they buy. They aren’t going for the biggest oil companies. Because launching a take-over for something like Shell or BP would quickly turn in to a political headache. Instead, they are focusing on mid-sized companies that operate in off the beaten track areas – like Africa, Syria, Iraq and Kazakhstan.
Once you have grasped the strategy that they are using, it becomes a lot easier to start spotting potential targets. Here are three London-listed companies that are definitely worth looking at. Heritage Oil (ticker: HOIL) and Tullow Oil (ticker: TLW) which operate in Africa and have substantial oil reserves. They are the sort of company that the Chinese have been stalking.
Dragon Oil (ticker: DGO) operates in Uzbekistan and is in takeover talks with the Emirates National Oil Company. Its share price has already risen sharply. But if the takeover does go through, there could be an easy 15-20% gain in there over the next couple of months.
The Asian energy-grab is coming and we’re on the look out for the next way to play it.
Best regards,
Manraaj Singh
For The Right Side
P.S. Subscribers to my Profit Hunter service booked a gain of 137% on Addax Petroleum as China prepared to pounce. I am now looking at several energy companies that I believe could be next in line as targets as the great Asian energy-grab gathers pace. Click here to join me.
MARKET NOTES
Nasdaq’s “rehab index” still trading down
BY SHIVVY ARORA
Remember the ‘rehab index’? In early-Jan, Nasdaq launched an index tracking the performance of 24 US-listed companies that received direct government aid of $1 bn or more.
Since US merchant bank Lehman’s went under last year, the US government’s $700 bn Troubled Asset Relief Program (TARP) has funded the likes of Citigroup, JP Morgan and Goldman Sachs. These banks, and many others, needed an emergency bail-out to stabilise their capital situation and boost liquidity.
Take a look at today’s chart, which shows the Nasdaq OMX Government Relief Index (ticker: QGRI, black line) against the S&P 500 (green line) for the year-to-date. You can see that the rescue-seekers have fallen four times as much as the market.
The bailout bunch’s share performance shows a 22% loss since its launch, compared to the S&P 500’s 5% drop for the same period. Clearly, all that capital from Uncle Sam is holding investors off, rather than enticing them to invest.
No recovery yet for the banks in ‘rehab’... 
Source: Bloomberg
On 18 June, JP Morgan returned $25 billion back into Treasury coffers. Goldman Sachs and Morgan Stanley paid back $10 billion. Seven other banks did the same, taking the total to $68 billion. Hurrah? Not so fast…
These banks are still in trouble. Goldman and Morgan have had to change their charter to become commercial banks. It’ll be some time coming before the troubled banks deal with all their loans and declare the write-offs. The recent payback by 10 banks hasn’t helped boost investor interest. We expect the “rehab index” to continue trading down this year. Steer clear of those 24 banks until they go from rehab to recovery.
The Daily Reckoning – Bubble Deniers
BY BILL BONNER
London, England
Friday, 10 July 2009
“In a fundamental shift, consumers are saving rather than spending,” notes the Los Angeles Times.
This is the shift we’ve been talking about for months. The great credit expansion of 1945-2007 is over. Now cometh the great credit contraction.
More about that in a moment. First, let’s listen to some noise.
Yesterday, stocks went nowhere. Oil went nowhere. And the dollar went down as gold went up.
The reason for the dollar’s decline and gold’s rise was given in the front page headline of today’s Financial Times. China launched a “new dig” at the dollar, it says. As near as we could tell, China merely stated the obvious – that the world is going to have to find a better monetary system.
The US dollar won’t be king of the hill forever. And China, which is up to its neck in dollars, would like to find a solution sooner rather than later – that is, before the dollar goes the way of all paper.
The dollar will eventually give way to inflation and devaluation, but probably not soon.
“I’m absolutely worried about inflation,” says John B. Taylor.
But here at the Daily Reckoning, it is not inflation that worries us... it’s the lack of it. Making a long story short, as long as the feds see no inflation they will continue trying to create it. In the end, they will get more than they wanted.
The reason there is no inflation is because there is deflation instead. [Note to grammarians: we’re aware that you’re not supposed to say ‘the reason is because...’ It’s supposed to be redundant. But so what? Try saying that sentence without the ‘because’...]
Today’s New York Times tells us that deflation in Ireland has reached 5.4% - the highest since the Great Depression of the ‘30s.
You know the reasons for deflation as well as we do. The world suddenly has too many people who borrowed too much money, bought too many things they really didn’t need and really couldn’t afford. This caused the world’s producers to greatly over-estimate the ‘real’ demand. Their customers began to disappear in 2007. Their factories are still standing.
After the great expansion, as we said above, comes the great contraction. During the bubble years, more and more credit produced less and less real prosperity. It was as if you were borrowing more and more, to invest in your business or merely to increase your standard of living, but your income didn’t rise fast enough to keep up with the interest payments.
In 2005, Americans saved nothing. Not even aluminium foil or string. Now, the savings rate is approaching 5% of disposable income – a big turnaround.
This is good news to anyone but everyone. That is, we know from logic and experience that saving money is the key to getting wealthier – not spending it. Saving money gives you capital. And it’s capital accumulation – in the form of factories, roads, ships, buildings, machines... and raw savings – that gives people the ability to produce more.
It may take a man with a shovel a whole day to dig a decent grave. Give him capital – in the form of a backhoe – and he can bury everyone in town. That’s why capitalism works. It rewards the fellow who saves his money…
Read on...
To read the Daily Reckoning in full, click here.
P.S. If you enjoyed this article you can find out more about our free email, The Right Side by clicking here.
