Previously on Sharpfokus
Shortage! Sharpfokus122
January 17th, 2020
⏰ 2 minute read
⏰ 2 minute read
Climate?
A well known fund manager was quoted the other day as saying that he was taking his funds out of some commodity stock because of something called ESG... not sure what that is but it appears to be the cause de jour ‘climate change’. But the real concern is not climate, it’s a shortage of the most important things which we need everyday. You should be getting into commodities not out. Is there a best one? Yes there is...
100 years
Apple
I’m a huge huge fan of Apple & work only on iPhone & iPad with a pair of AirPods always on. We’ve written before about the amazing performance of AAPL shares & the battle for supremacy between the Indonesian economy & the market value of AAPL. Despite the shares rising to $1.3tn, the strength of the rupiah is starting to pull Indonesia back into the lead. But another battle has caught our attention recently.
Oil
AAPL & MSFT have been battling it out for the the much saught after title of world’s largest listed company. MSFT had it, then AAPL took it away, then MSFT took it back, then AAPL regained the title. The top stocks are all technology related. But suddenly at the end of last year, another stock took the world title, SaudiAramco. Oil is back on top of the world.
XOM
While investment cycles last very long periods of time & clearly technology is an amazing one, over the long term it’s not technology which is the best performer. If you take the stocks which have been around for the very long term, it’s not tech, consumer, retail, finance, pharmaceutical which are best, it’s commodity & specifically oil which is best & it’s not even close.
Best?
Lucky
If you think about, it, that makes sense. Commodity is usually the most difficult & has the largest & most stable demand, which is a great investment combination. As we are measuring the long term performance using the US market, it’s logical oil is the focus. But here in South East Asia we are very lucky to have others to invest in & one which is now most closely linked with oil through biofuel, palm oil.
Average
The reason biofuel has been become popular is because the palm oil price has become at certain points almost parity with the oil price & you can convert it to fuel. But while this has lasted for well over a decade, the longer history tells a very different story. The average ratio of palm oil price to oil price since 1960 is 7x!
Rising
& it’s not all that long ago the ratio was last at 7x, back in 1998. Further back in the 1960s & 1970s the ratio of palm oil to oil was between 20 to 30x..: imagine that for a second. At that time, Africa was the by far the largest producer in the world, but mainly due to policies, taxes & restrictions, plantations had stopped growing. This is exactly what has happened in SE Asia today. Now the ratio of palm oil to oil is at 1.7x & rising very fast....
Glut?
Inventory
The reason why the ratio of palm oil to oil prices fell towards 1X has been of course the increase in supply as plantations in SE Asia grew production starting from the early 1990s. This caused an oversupply which was visible through a steady rise in inventories. In the late 1980s, the Malaysian inventory was just 500k tons & this increased first to 1m by 2000 & then to 2m tons by 2011, 4x.
Flat
By 2012 the Malaysian inventory level had reached 2.6m tons of palm oil & this reflected the higher stocks throughout the industry. In late 2018 the inventory level rose above 3m tons for the first time, ironically exactly at the time when the biodiesel program in Indonesia was doubling from B10 to B20... it looked like inventory which had seemed flat, was still rising.
Falling
But by the end of 2019 which is the latest data, the Malaysian Palm oil inventory has reduced back to just 2m tons. This level is lower than the 2.6m at the end of 2012 & means that the industry has now been in an under rather than over supply for already 7 years... Now it looks like the market is finally waking up to the reality of this shortage.
New adds
Commodities are the best performing stocks over the very very long term. Here in Indonesia we have the opportunity to invest in not only oil, coal, metals, but also in the commodity which is currently less than 1/3 of its long term ratio to the oil price. As it’s now in shortage, it’s likely the price will move back towards that average. This makes it the best investment play there is & Sharpfokus Saham just added 4 new palm oil stocks to our coverage.
Be a great investor!
Sebastian
A well known fund manager was quoted the other day as saying that he was taking his funds out of some commodity stock because of something called ESG... not sure what that is but it appears to be the cause de jour ‘climate change’. But the real concern is not climate, it’s a shortage of the most important things which we need everyday. You should be getting into commodities not out. Is there a best one? Yes there is...
100 years
Apple
I’m a huge huge fan of Apple & work only on iPhone & iPad with a pair of AirPods always on. We’ve written before about the amazing performance of AAPL shares & the battle for supremacy between the Indonesian economy & the market value of AAPL. Despite the shares rising to $1.3tn, the strength of the rupiah is starting to pull Indonesia back into the lead. But another battle has caught our attention recently.
Oil
AAPL & MSFT have been battling it out for the the much saught after title of world’s largest listed company. MSFT had it, then AAPL took it away, then MSFT took it back, then AAPL regained the title. The top stocks are all technology related. But suddenly at the end of last year, another stock took the world title, SaudiAramco. Oil is back on top of the world.
XOM
While investment cycles last very long periods of time & clearly technology is an amazing one, over the long term it’s not technology which is the best performer. If you take the stocks which have been around for the very long term, it’s not tech, consumer, retail, finance, pharmaceutical which are best, it’s commodity & specifically oil which is best & it’s not even close.
Best?
Lucky
If you think about, it, that makes sense. Commodity is usually the most difficult & has the largest & most stable demand, which is a great investment combination. As we are measuring the long term performance using the US market, it’s logical oil is the focus. But here in South East Asia we are very lucky to have others to invest in & one which is now most closely linked with oil through biofuel, palm oil.
Average
The reason biofuel has been become popular is because the palm oil price has become at certain points almost parity with the oil price & you can convert it to fuel. But while this has lasted for well over a decade, the longer history tells a very different story. The average ratio of palm oil price to oil price since 1960 is 7x!
Rising
& it’s not all that long ago the ratio was last at 7x, back in 1998. Further back in the 1960s & 1970s the ratio of palm oil to oil was between 20 to 30x..: imagine that for a second. At that time, Africa was the by far the largest producer in the world, but mainly due to policies, taxes & restrictions, plantations had stopped growing. This is exactly what has happened in SE Asia today. Now the ratio of palm oil to oil is at 1.7x & rising very fast....
Glut?
Inventory
The reason why the ratio of palm oil to oil prices fell towards 1X has been of course the increase in supply as plantations in SE Asia grew production starting from the early 1990s. This caused an oversupply which was visible through a steady rise in inventories. In the late 1980s, the Malaysian inventory was just 500k tons & this increased first to 1m by 2000 & then to 2m tons by 2011, 4x.
Flat
By 2012 the Malaysian inventory level had reached 2.6m tons of palm oil & this reflected the higher stocks throughout the industry. In late 2018 the inventory level rose above 3m tons for the first time, ironically exactly at the time when the biodiesel program in Indonesia was doubling from B10 to B20... it looked like inventory which had seemed flat, was still rising.
Falling
But by the end of 2019 which is the latest data, the Malaysian Palm oil inventory has reduced back to just 2m tons. This level is lower than the 2.6m at the end of 2012 & means that the industry has now been in an under rather than over supply for already 7 years... Now it looks like the market is finally waking up to the reality of this shortage.
New adds
Commodities are the best performing stocks over the very very long term. Here in Indonesia we have the opportunity to invest in not only oil, coal, metals, but also in the commodity which is currently less than 1/3 of its long term ratio to the oil price. As it’s now in shortage, it’s likely the price will move back towards that average. This makes it the best investment play there is & Sharpfokus Saham just added 4 new palm oil stocks to our coverage.
Be a great investor!
Sebastian
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