Kenanga Investor - Weekly Market Updates 19.8.2016

[kenanga.my]

MALAYSIA

Bumi Armada ties up with Indian firm for FPSO bids. Bumi Armada Bhd is teaming up with India’s Shapoorji Pallonji and Co Pte Ltd (SPCL) to bid for contracts in the floating production, storage and offloading (FPSO) vessel business. In a filing with Bursa Malaysia, Bumi Armada said the company and SPCL’s unit, Shapoorji Pallonji Oil and Gas Pte Ltd, would set up a joint venture (JV) to be known as Shapoorji Pallonji Bumi Armada Godavari Pte Ltd in India. It said the setting up of the JV involved the interests of a director of Bumi Armada, Shapoorji Pallonji Mistry, which would design, fabrication, installation, charter, deployment, and operations and maintenance of a FPSO facility.

MMC Corp and Petra Energy plan collaboration. MMC Corp Bhd and Petra Energy Bhd, through their respective units, have signed a memorandum of understanding (MoU) with the intention to team up on oil and gas (O&G)-related engineering and design projects. Both companies announced to Bursa Malaysia on Friday that their wholly owned subsidiaries MMC Oil & Gas Engineering Sdn Bhd and Petra Resources Sdn Bhd planned to combine resources and expertise to pursue selective opportunities in the O&G brownfield activities in the country.

YTL Corp proposes to take unit private. YTL Corp Bhd has proposed to take its information technology unit, YTL e-Solutions Bhd, private at 55.0 sen per share through a voluntary share exchange offer. This will enable YTL e-Solutions’ shareholders to exchange their stake in the company for shares in YTL Corp. Theengineering conglomerate said the offer would be undertaken at an offer price of 55.0 sen for every YTL e-Solutions’ share to be satisfied through the issuance of ordinary shares of YTL Corp at an issue price of RM1.65.

Cahya Mata – Bina Puri JV clichés RM1.4b Pan Borneo Highway job. A joint venture (JV) between Bina Puri Holdings Bhd and Cahya Mata Sarawak Bhd has received and accepted a letter of award from Lebuhraya Borneo Utara Sdn Bhd for the proposed development and upgrading of Pan Borneo Highway in Sarawak for a contract sum of RM1.4b. The award is for Phase 1 of the highway, for the construction of roads and bridges from Sg Awik to Bintangor Junction. The contract is for a period of47 months.

Court dismisses Scomi's request for proceedings against Prasarana. Scomi Engineering Bhd’s unit Scomi Transit Projects Sdn Bhd (STP) has failed to launch court proceedings against Prasarana Malaysia Bhd for giving it a notice to terminate the RM494.0m Kuala Lumpur Monorail expansion contract, but the contract remains in effect for now. Scomi Engineering said the High Court had dismissed last Friday the originating summons that STP filed to start legal proceedings against the KL Monorailoperator, which issued the notice of termination on June 9.

SapuraKencana banks on transformation process, small jobs. SapuraKencana Petroleum Bhd is banking on its transformation process, which involves integrating expertise across the group and cost-saving measures, as well as taking on small jobs, to weather the challenging times in the oil and gas (O&G) industry. The president/group chief executive officer said the company has so far saved about RM500.0m from the transformation process and was looking to squeeze savings by as much as RM250.0m by year-end.

Yinson completes disposal of non-O&G units. Yinson Holdings Bhd has announced the completion of the disposal of its non-oil and gas (O&G) subsidiaries to Liannex Labuan Ltd, and has proposed a special dividend of up to RM160.0m. The group said the proceeds of RM223.2m from the exercise comprises the disposal consideration of RM161.0m, which is based on the pro forma consolidated net assets of the disposal companies of RM158.0m, and inter-company loans of RM62.2m owed by the disposed subsidiaries.

FGV attracts suitors. From going on an acquisition spree, Felda Global Ventures Holdings Bhd (FGV) is now a target company. Having aborted the stake acquisition ofIndonesia’s Eagle High Plantations Tbk, FGV has attracted suitors who are looking at a possible corporate exercise with the plantation group. Among them is a strategy investment company affiliated with the Tradewinds Group, which is mulling over a stake purchase in FGV. It is believed that there are overtures to FGV on a tie-up with Tradewinds, although it is still at a preliminary stage. This could involve, among others,a stake sale from one of FGV’s substantial shareholders, said a source.

Fitch downgrades Petronas' long-term credit ratings to 'A-', after M'sia's downgrade. Following the Malaysian government's local bond downgrade, FitchRatings has decided to also downgrade Petronas’s long-term foreign- and local-currency issuer default ratings to A-, from A, although the international rating agency has maintained the short-term foreign-currency issuer default ratings at F1. At the same time, Fitch said it has downgraded Petronas' foreign-currency senior unsecured rating and the rating on debt issued by Petronas Capital Ltd and guaranteed by Petronas to A- from A.

Leading Index up 0.9% in May. The Leading Index (LI), which monitors Malaysia's economic performance in advance, rose 0.9% in May 2016 to 116.4 points from 115.4 points in April 2016. The Coincident Index (CI), which measures the current economic activity, decreased slightly by 0.2% in May 2016. "Concurrently, the diffusion index for LI was above 50.0% while CI was below 50.0%. This implies that Malaysia's economy will continue expanding at a slower rate in the months ahead," it added.

Government mulls stimulus programme to spur growth. The government is mulling the possibility of introducing a stimulus programme to spur economic growth, Second Finance Minister said. He said such action, however, is still in the preliminary phase as the government is going through the engagement process with some focus groups. “We also have to be very mindful that in anything we want to do, there is a need to look at our capacity, (which is) the government’s ability to ensure the revenue needed,” he said.

MIER expects domestic demand to remain Malaysia's growth engine. The Malaysian Institute of Economic Research (MIER) expects domestic demand to continue to be the engine of Malaysia's growth, which is forecast to expand 4.2% this year. MIER Executive Director said the global economic growth failed to get its momentum as recoveries for some economies were still fragile. On the domestic front, he said domestic demand is expected to increase in favour of private consumption.

Businesses still in cautious mood - MIER. MIER recorded improvements in the business conditions index (BCI) for 2Q16, but believes businesses are still cautious on their outlook due to several key events recently. “With the external Brexit and internal 1MDB issues that indirectly affect the confidence on ringgit, we expect to see an impact through our financial channel, including the stock market and exchange rate,” MIER executive director said. MIER BCI registered a gain of 13.6 points to 106.4 in 2Q16.

GLOBAL


Oil near a two-month low as U.S. drillers ramp up operations. Oil traded near the lowest close in two months as U.S. oil producers continued to revive drilling in the shale patch, adding rigs for the fourth consecutive week. Rigs targeting oil in the U.S. rose by 14 to 371 last week, Baker Hughes Inc. said. US crude for September delivery fell as much USD0.2 to USD44.0 a barrel on the New York Mercantile Exchange. Brent for September settlement dropped as much as 0.3% to USD45.6 a barrel on the London based ICE Futures Europe exchange.

G20 will use 'all policy tools' to lift growth as Brexit weighs. The world's biggest economies will work to support global growth and better share the benefits of trade, policymakers said. A communiqué issued by the G20 ministers at the end of the meeting said Brexit had added to uncertainty in the global economy where growth was "weaker than desirable". "We reiterate our determination to use all policy tools monetary, fiscal and structural – individually and collectively to achieve our goal of strong, sustainable, balanced and inclusive growth," it added.

World Bank’s President sees disappointing growth on Brexit. World Bank President said continued uncertainty following the U.K.’s vote to leave the EU could hurt global growth. “We actually thought the U.S. was solid, the Eurozone seemed to be getting better, even Japan seemed to be doing a little bit better,” he said. “Brexit was a big hit, and we’re still trying to understand exactly what the implications are, but it looks like global growth will be disappointing again.”

Rock-bottom rates creates fiscal space for G20 - OECD. The world's leading economies have discussed how to take advantage of their lower debt costs to spend more on investment as a way to boost weak economic growth, the head of the OECD said. "Already lower interest rates create more fiscal space," OECD Secretary General said. The focus has turned to what governments can do through increased spending and reforms to make their economies more efficient.

ASIA

World Bank said to plan Special Drawing Rights bonds in China. The World Bank is planning to sell bonds in China denominated in the International Monetary Fund’s Special Drawing Rights, people familiar with the matter said. Issuance of the securities may be as soon as next month. They would be the first in SDR from the lender, according to data compiled by Bloomberg. The People’s Bank of China Governor had said earlier this year that Chinese officials want to gradually increase use of the funding tool.

IMF sets new SDR calculation method for prepare for Yuan’s entry. The IMF said it adopted a new methodology for calculating the currency amounts in the Special Drawing Rights (SDR) the fund uses for transactions, partly to ensure that China's Yuan meets the IMF Board's intended weighting. The relative amounts of dollars, euros, yen, pounds and Yuan to achieve these weightings in the SDR basket will be set on Sept. 30 and will be fixed for five years. The IMF said its previous method of calculating currency amounts in past rebalancing had caused deviations from the intended weights due to complex rounding calculations and other issues.

Borrowing costs for Chinese firms is key obstacle to private investment. Borrowing costs and access to funding are the key obstacles to private investment in China, a senior official at the top economic planning agency said on Monday. Growth in investment by private firms fell to a new record low in the first half of the year as businesses retrench in the face of a sluggish economic outlook and weak exports. The head of the NDRC's investment office said that difficulty in obtaining financing is the prominent problem that companies face now.

Japan to miss FY2020 GDP target of JPY600.0t, retreats further from goal. Japan will not meet its goal of reaching nominal GDP of JPY600.0t (USD5.7t) in fiscal 2020, and may not achieve it even by fiscal 2024 if growth stays sluggish, the government's projections showed on Tuesday. Japan now expects nominal GDP of JPY551.0t in the fiscal year beginning in April 2020 assuming the current pace of growth, the Cabinet Office said. Japan also expects to have a primary deficit of JPY9.2t if growth remains weak.

Japanese Prime Minister's plan for USD265b in stimulus puts pressure on BOJ to ease. Japanese Prime Minister said his government would compile a stimulus package of more than USD265b next week to reflate the flagging economy. It will consist of JPY13t in "fiscal measures," which likely includes spending by national and local governments, as well as loan programs. The Prime Minister’s announcement pressures the Bank of Japan to match his big spending plan with additional monetary easing at its rate review ending on Friday.

Japan to raise minimum wage by 3.0% to ignite consumer spending. Japan's government said on Wednesday it will raise the minimum wage by 3.0% this fiscal year as part of a stimulus package intended to strengthen domestic demand. Raising wages is an urgent task for policymakers as Japan’s Prime Minister is keen to ramp up consumer spending, which is seen as crucial to boosting domestic demand and pulling the economy out of 15 years of deflation. The government is drafting a stimulus package that could be unveiled in coming days.

South Korea GDP growth quickens pace. South Korea’s economy improved slightly in the second quarter, helped by private consumption and construction investment, although slowing global trade continued to weigh on the export-dependent nation. GDP expanded 0.7% QoQ in the April to June period, after growing 0.5% in the first quarter. The annual growth rate was 3.2%. Private consumption rose 0.9% from the previous quarter while construction investment and capital investment jumped 2.9% each.

South Korea plans USD9.7b addition to budget. South Korea announced Friday a USD9.7b supplement to its budget to support its lacklustre economy, as the risk of corporate restructuring and huge layoffs weighs heavily on growth. The additional government spending plan comes as the export-led economy is losing steam on sluggish global trade and weak domestic demand. The additional budget will focus on financing corporate restructuring by bolstering a capital buffer against bad loans and creating jobs for laid off workers, the ministry said.

South Korea to expand tax benefits for R&D spending. South Korea's government plans to expand tax benefits for research and development of robotics and other technologies as it seeks out industries that could become new economic growth engines. Up to 30% of R&D expenses will be tax deductible for companies across 11 key sectors starting 2017, the Ministry of Strategy and Finance said in its annual review of the tax code.

Australia inflation slowdown sets scene for rate cut. Australian consumer prices rose at the slowest annual pace since 1999 last quarter while core inflation remained at a record low, setting the stage for a cut in interest rates as early as next week. The headline CPI index rose just 1.0% in the year to June, while key measures of underlying inflation held at 1.5%, all well below the Reserve Bank of Australia's (RBA) target band of 2.0 to 3.0%. The Australian Bureau of Statistics reported its headline CPI rose 0.4% last quarter, from the first quarter when it fell 0.2%.

Singapore Q2 job layoffs hit 7-year high. Job layoffs in Singapore hit a seven-year high in the second quarter while the jobless rate edged higher, in a sign of growing labour market slack at a time when economic growth has been sluggish. Singapore's unemployment rate rose to 2.1% in the second quarter, a level last seen in the first quarter of 2014, preliminary labour market data from the Ministry of Manpower showedon Thursday.

Singapore central bank: current policy appropriate. The Singapore central bank's current monetary policy stance remains appropriate and only a worsening in the global economy or significant shift to the inflation outlook would prompt a change, its managing director said. The Monetary Authority of Singapore (MAS) expects headline inflation to turn positive in the near future. Economic growth was expected to remain sluggish, reflecting global weakness. The MAS was closely watching risks related to Brexit, the U.S. economic recovery and China’s slowdown.

Thai finance ministry cuts export forecast, maintains GDP outlook. Thailand's economy is still expected to grow 3.3% this year as higher government spending and investment helps offset weaker exports, the finance ministry said on Thursday. But the ministry now expects exports, a key driver of the economy, to contract 1.9% this year, worse than the 0.7% fall it predicted three months ago. Exports, worth about two-thirds of Thailand's economic output, have declined each of the past three years.

Indonesia brings back veteran Indrawati as finance minister. Indonesian President picked Sri Mulyani Indrawati as his new finance minister, returning her to a post she held six years ago in which she built up a reputation as a tough technocrat and reformer. She will replace Bambang Brodjonegoro in the second cabinet reshuffle since the president took office under two years ago. It signals his commitment to push through an ambitious infrastructure program to transform Indonesia’s economy, and meet a pledge of boosting growth to 7.0%.

USA

U.S. Markit manufacturing PMI hits 9-month high in July. Activity in the US manufacturing sector registered a larger-than-expected expansion to a 9-month high in July. Markit said that its flash manufacturing PMI rose to 52.9 in July from the prior month's final reading of 51.3. That was the highest level since October 2015. The report further indicated that new business volumes expanded at the fastest pace since October 2015, while showing the strongest increase in manufacturing payroll numbers for 12 months.

US trade gap widens in June. The advanced trade gap widened to a seasonally adjusted $63.3 billion from $61.1 billion in June and some of the imported goods boosted retail inventories, the Commerce Department said Thursday. The June trade gap was wider than the $61.0 billion gap estimated in a poll of economists. Both import and exports grew in June with imports rising faster. Imports rose $3.3 billion to $183.5 billion while exports rose $1.1 billion to $120.2 billion. The advanced report excludes services, a category that tends to work in the US’s favour.

Fed leaves rates unchanged, says risks to outlook reduced. The Federal Reserve left interest rates unchanged on Wednesday but said near-term risks to the U.S. economic outlook had diminished. The U.S. central bank said the economy had expanded at a moderate rate and job gains were strong in June. It added that household spending also had been "growing strongly," and pointed to an increase in labour utilization. The Fed noted, however, that inflation expectations were on balance little changed in recent months, and gave no firm indication of whether it would raise rates at its next policy meeting in September.

EUROPE

Solid Eurozone lending supports ECB's cautious stance. Lending growth to Eurozone companies and households picked up last month, suggesting the bloc's slow but steady economic recovery remains on track and easing pressure on the ECB to boost monetary stimulus further. Lending growth to households and companies both picked up to 1.7% in June from 1.6% in May. The annual growth rate of the M3 measure of money picked up as expected to 5.0% in June from 4.9% in May.

Brexit rewrites UK budget rules as borrowing set for first big rise since 2010. Britain could borrow nearly GBP65.0b (USD85b) more than planned in the next couple of years as new finance minister Philip Hammond seeks to 'reset' government budget policy to ease the shock of last month's vote to leave the EU. Ratings agencies and economists widely expect borrowing to rise materially next year for the first time since 2010. Hammond said the darker post-Brexit outlook meant policies the Conservative government had pursued since 2010 needed to change.

UK economy picks up speed in Q2. Britain's economy picked up during a second quarter that concluded with the vote to leave the EU, helped by the biggest upturn in industrial production since 1999. Second quarter GDP grew by 0.6%, up from 0.4% in Q1, the Office for National Statistics said. Economists polled had expected growth to hold steady at 0.4%. Output in the three months to June was 2.2% higher than a year earlier, the strongest annual growth in a year. The ONS said industrial production expanded 2.1% QoQ - its best performance since 1999.

British PM: Immigration control must be part of EU-UK deal. British Prime Minister Theresa May says any future deal on cooperation between her country and the European Union has to take into account "a clear message" from the Brexit vote over immigration control. After meeting Thursday with her Slovak counterpart Robert Fico, whose country holds the rotating EU presidency; May says Britain also wants "the best possible deal on trade in goods and services."

German private sector growth brushes off Brexit, hits year-high in July. German private sector growth hit its highest level so far this year, suggesting Germany’s economy is brushing off Brexit uncertainty. Markit's flash composite PMI rose to 55.3 from 54.4 in June. This was the highest reading since December 2015 and beat a consensus forecast for 53.7. The PMI sub-index for manufacturing inched down to 53.7 as companies added staff at a slower rate. The sub-index for services rose to 54.6 helped by an increase in business activity.

Moving Forward

The local bourse was fluctuating rather sharply this week for several reasons. US authorities’ probe into 1MDB might have dictated Malaysian stock market sentiment a little. Falling crude oil prices dampened sentiment, as investors reassessed US data underlining the glut in petroleum and Iraqi crude exports were also on the rise. The Ringgit weakened throughout the week in tandem with crude oil prices.

The local bourse still showed signs of resilience and climbed 10.84 points mid-week as investors bargain hunted beaten-down stocks. It is believed that US and emerging markets like Malaysia will continue to benefit from funds flowing out of Europe. As European and Japanese bond yields have plunged deeper into negative territory, investors are rushing to US and emerging markets where yields are higher and economic prospects look better.

Later in the week foreign investors took profit and cold cautiously ahead of the outcome of the US Federal Reserve and Bank of Japan’s meetings. Asian markets remained steady after the Japanese Government announced further economic stimulus package and the Federal Reserve left rates unchanged and provided a positive assessment of the US economy. Both were good news for the local bourse but KLCI was down however on news Fitch downgraded Malaysia’s long-term ringgit denominated bonds to A- from A. It also prompted Fitch to downgrade the debt of government-linked companies including Petronas.

Gradual pick up. Based on our current assessment, the rather tepid and prolong economic growth trend is expected to bottom out by mid-2016. Our preliminary analysis showed a possibility of higher GDP growth in 2017 of 4.9%. But the caveat is that it all depends on how fast the regional economies, mainly its major trading peers, recover from the fast changing global economy.

External conditions such as continued weak demand from a slowing Chinese economy, slower than expected recovery in developed economies due to adverse events such as Brexit, volatile commodity prices, escalating geopolitical risks are among other factors that could delay the cyclical recovery expected in regional economies.

A better Long-Term outlook. As the global economy may see some creeping improvement following the outcome of various measures by both advance and developing countries to prop up growth in their respective countries, it is also expected to partly contribute to an incipient recovery in the domestic economy beginning in 2H16or early 2017. These combined factors shaped our long term viewpoint of further improvement in the Malaysian economy going forward.

Hence, it would be fairly reasonable to expect Malaysia’s economic growth to fall within 4.5% to 5.0% in 2017 and slightly higher in the subsequent years barring any unforeseen risk to global growth.

Meanwhile, with the expectation of the first phase of the Mass Rail Transit project to be up and running by the 2H16, it would help to push-up the multiplier effect another notch higher and bring about a much needed boost in productivity and growth.

At this juncture, we remain steadfast to outperforming the index again this year and are cautiously optimistic on the 2H16. Stock picking remains key for outperformance in these global market conditions.

 

[kenanga.my]

5.8.2016

MALAYSIA

AirAsia in JV to develop regional data analytics business. AirAsia plans to enhance its marketing capability by entering into a joint venture (JV) with Scotland-based data analytics firm, Big Data for Humans Ltd (Bd4h), to build a software-for-service data analytics business in Asia- Pacific. BD4H's data science platform will be able to automate insights for it to better understand its passengers preference, and to generate action plans that work across channels, besides creating new business opportunities for the group.

FGV unaware of potential suitors looking into stake purchase. Felda Global Ventures Holdings Bhd (FGV) has clarified that it is not aware of any potential suitors, either from Tradewinds Group or other companies. The company said any interest is a testament that FGV is a world-class company with a positive outlook. In the meantime, the company remains committed to its transition plans to focus on improving efficiencies, cost rationalisation measures and enhancing the full potential of their existing assets.

Malaysian firms, PT Hanson sign MoU for RM3.5b affordable housing project. Sime Darby Berhad, I&P Group Sdn. Berhad, S P Setia (Indonesia) Sdn Bhd and PT Hanson International Tbk have signed a Memorandum of Understanding (MOU) to jointly develop about 500.0 hectares in Maja, Tangerang, which is about 80km from Jakarta. The project has a gross development value of IDR11.3t (USD862.3m) (RM3.5b). A memorandum of understanding (MoU) was signed on August 2 between the companies on the side-lines of the 12th World Islamic Economic Forum (WIFE).

Money supply growth slows in June on weak credit growth in the private sector. Money supply growth moderated in June after two consecutive months of improvement. Broad money or M3 growth slowed to 1.9% YoY from 2.2% in May, mainly due to weak private sector demand for credit. Narrow money supply or M1 registered a lower 0.9% YoY growth compared to 1.2% in previous month, reflecting the weakness in consumer spending. System-wide loan growth grew at a slower pace of 0.5% MoM (May: 0.7%), while total banking system deposits grew marginally at 0.2% MoM (May: 0.7%). As a result, loan-to deposit ratio edged up to 87.8% from 87.6% in May.

Malaysia's economy recorded RM1,1571.1b in 2015. Malaysia’s economy recorded a value of RM1, 157.1b in 2015 compared to RM1,106.6b registered in 2014, said the Department of Statistics. Gross Operating Surplus held the largest share in income components at 60.5% while Compensation of Employees contributed 34.8% to Malaysia’s economy, it said.

Index at 4-month high as manufacturing contraction softens. The Nikkei Malaysia Manufacturing PMI showed an early sign of improvement in operating condition for the manufacturing sector, raising hopes for a slow recovery ahead. Despite remaining in the contraction zone, the headline PMI reading rose to a 4 month high of 48.1 in July from 47.1 registered in June. Both production and new orders fell in July, but at a slowest pace in months. Meanwhile, employment decreased in July after holding firm in the previous month and new export orders fall for the second month.

Malaysia ranks 28th globally in consumer confidence. Malaysian consumer confidence gained momentum in Q2, climbing eight spots to make the country the 28th most confident globally, according to a Nielsen poll spanning 63 countries. The latest Nielsen Global Survey of Consumer Confidence and Spending Intentions found that Malaysian consumer confidence shot up eight points to 87 in Q2. “The nation’s consumer confidence outlook is returning, with most Malaysians believing that the economy was more resilient than a year ago,” said Nielsen Malaysia country manager.

GLOBAL


U.S. crude breaks below USD40.0, oil ends down more than 3%. U.S. crude tumbled below USD40.0 per barrel on Monday for the first time since April, as oil prices settled down nearly 4.0% on heightened worries of a crude glut despite peak summer fuel demand. A nearly 15% slump in U.S. crude prices in July, the biggest monthly loss in a year, also triggered liquidation as trading began for August. U.S. crude plumbed to USD39.9, its lowest since April 20, before settling at USD40.1, down 3.7%. Brent closed down USD1.4, or 3.2%, at USD42.1 a barrel.

World food prices fall 0.8% in July - FAO. World food prices fell slightly in July after five straight monthly increases, as sliding grains and vegetable oils outweighed firmer dairy, meat and sugar prices, the United Nations food agency said. The Food and Agriculture Organization's (FAO) food price index averaged 161.9 points in July, 0.8% below a marginally revised 163.2 points the month before. The index was 1.4% below July last year, a slight dip in the recent recovery from a near seven-year low hit in January.

ASIA PACIFIC


China's July official services PMI rose to 53.9 from June's 53.7. Activity in China's services industry expanded in July at a faster pace than the previous month, an official survey showed on Monday. The official non-manufacturing PMI stood at 53.9 in July, compared with the previous month's reading of 53.7. China is counting on growth in services to offset persistent weakness in manufacturing that is dragging on the economy.

China's state planner: to find appropriate time to cut rates, RRR. China will find an appropriate time to cut interest rates and the reserve requirement ratio, the country's state planner said, without giving further details. The National Development and Reform Commission (NDRC), the country's top economic planning agency, also said it will lower costs for firms and actively encourage private enterprises to raise capital by issuing bonds. China will appropriately expand demand and increase "reasonable and effective investment," the state planner said.

BOJ eases policy by doubling ETF buying, underwhelms expectations. The Bank of Japan expanded stimulus last Friday by doubling purchases of exchange-traded funds (ETF), yielding to pressure from the government and financial markets for bolder action, but disappointing investors who had set their hearts on more audacious measures. The BOJ decided to increase ETF purchases so its total holdings increase at an annual pace of JPY6.0t (USD58b), up from the current JPY3.3t. The decision was made by a 7-2 vote.

Japan cabinet approves USD130b in fiscal steps to boost growth. Japanese Prime Minister's cabinet approved JPY13.5t (USD132.0b) in fiscal measures on Tuesday as part of efforts to revive the flagging economy, with cash pay-outs to low-income earners and infrastructure spending. The package includes JPY7.5t in spending by the national and local governments, and earmarks JPY6t from the Fiscal Investment and Loan Program, which is not included in the government's general budget.

BOJ Governor sees no slowdown in stimulus after policy BOJ review. The Bank of Japan is unlikely to wind back its record monetary stimulus after completing a review of its policy, BOJ Governor said. He reiterated that the central bank’s "comprehensive assessment" of policy, to be completed for the next board meeting Sept. 20-21, is aimed at helping it find ways to reach its 2.0% inflation goal as soon as possible.

South Korea July exports fall for 19th straight month. South Korea's July exports fell at the fastest annual rate in three months to record a 19th straight month of declining exports, trade ministry data showed. Exports fell 10.2% on-year to USD41.0b while imports slumped 14.0% to USD33.3b. Exports posted the biggest fall since April this year. In June exports and imports fell 2.7% and 7.7% respectively. The trade surplus fell to USD7.8b in July from a revised USD11.5b surplus in June. Economists had expected a 4.6% drop in exports and a 9.5% fall in imports.

Taiwan’s economy grows in Q2 on stronger exports. Taiwan’s economy expanded in Q2 - ending three consecutive quarters of contraction - driven by increased demand for electronic goods. GDP rose 0.69% YoY in Q2, preliminary data released by the statistics bureau showed Friday. That compares with the median estimate for a 0.7% gain in a survey. Exports of electronic goods or machinery jumped 5.2% in June as components makers increased supply ahead of the debut of Apple Inc.’s new iPhone model later this year.

Australia cuts rates to record low to spur inflation, jobs. Australia’s central bank cut interest rates to a fresh record low as it moves to counter disinflation and support a labour market hampered by high levels of part-time work and underemployment. RBA Governor and his board lowered the cash rate by 25 basis points to 1.5% Tuesday, as expected, saying “inflation remains quite low. Given very subdued growth in labour costs and low cost pressures elsewhere in the world, this is expected to remain the case for some time.”

India July factory growth at four-month high on strong demand. Indian factory activity grew at its fastest pace in four months in July as export orders jumped, but prices remained muted, giving room to the central bank to ease policy further if needed. The Nikkei/Markit Manufacturing PMI rose to 51.8 in July from June's 51.7. The output and new orders sub-indexes both rose to their highest since March. The export orders rose the fastest since January, driven largely by depreciation in the rupee.
India's landmark tax reform clears parliamentary hurdle. India's upper house of parliament backed a major tax reform on Wednesday that seeks to transform the country into a common market. A bill allowing the constitution to be amended so that a nationwide Goods and Services Tax (GST) could be rolled out was held up for years by political in-fighting. The finance minister vowed to roll out the new sales tax as soon as possible, but refrained from committing to a firm schedule after missing the original launch date of April 2016.

Thailand inflation slightly up in July. Thailand's consumer prices continue climbing, albeit at a considerably slower pace, in July on the back of higher fresh food prices, the Commerce Ministry said Monday. The country's headline consumer price index inched up 0.1% YoY in July, but eased 0.4% on a monthly basis. Meanwhile, core consumer price index went up 0.76% YoY and 0.06% MoM in July, compared with the poll's median forecast for a 0.80% on-year increase and a 0.08% on- month rise.

Thailand keeps benchmark rate unchanged ahead of referendum. Thailand kept its key interest rate unchanged, as expected by most economists, opting to hold fire before an upcoming referendum and allow fiscal policies to take the lead in spurring the economy. The Bank of Thailand held its one-day bond repurchase rate at 1.5%. All but one of the 23 economists predicted the decision. The military government will put a draft constitution up for public vote on Aug. 7. That may give investors more signals on the political and economic outlook for the nation.

Indonesian President demands spending restraint as Indonesia budget gap widens. Indonesian President called for spending curbs as the budget deficit in Southeast Asia’s largest economy continues to deteriorate on the back of a shortfall in tax revenue and falling commodity prices. Indonesian Finance Minister revised this year’s fiscal shortfall to 2.5% of GDP and said that the government estimates a revenue gap of IDR219t (USD16.7b). The deficit target was raised from 2.35%, bringing it closer to the mandated ceiling of 3.0%.

ASEAN expects China, Brexit to slow economic growth in 2016. Economic growth in ASEAN countries was expected to dip to 4.5% in 2016 from 4.7% last year due to China's slowdown and uncertainties related to Britain's vote to leave the EU, the member states said in a statement. Economic ministers meeting in Laos said jointly that growth in the 10-nation group's USD2.4t economy should recover to 4.7% next year due to "strong private and public consumption and improved efficiency in infrastructure."

USA


Inventory reduction curbs U.S. economic growth. U.S. economic growth unexpectedly remained tepid in Q2 as inventories fell for the first time in nearly five years and business investment weakened further, offsetting robust consumer spending. GDP increased at a 1.2% annual rate after rising by a downwardly revised 0.8% pace in Q1, the Commerce Department said. Economists expect acceleration in the second half against the backdrop of strong consumption.

Dollar slides to six-week low as U.S. data clouds rate hike outlook. The dollar dropped to a six-week low against a basket of currencies on Tuesday, pressured by expectations the Federal Reserve would delay raising interest rates after recent soft U.S. economic data. The core personal consumption expenditure index grew by a modest 0.1% in June. Against the yen, the dollar declined 1.5% to USDJPY 100.9. The euro, meanwhile, rose to a six-week high against the dollar and was last up 0.5% at EURUSD 1.1227.

EUROPE



Brexit hit U.K. factories harder than initially estimated. U.K. manufacturing shrank more than initially forecast in July, suffering its biggest drop in more than three years. A PMI slumped to 48.2, below the one off flash reading of 49.1, Markit Economics said. The index was at 52.4 in June. The report suggests that Britain’s decision to leave the EU may have a harsher impact on the economy than initially expected.

UK Prime Minister resurrects industrial policy as Britain prepares for Brexit. Prime Minister on Tuesday kick-started her bid to reshape the British economy for a post-Brexit world, reviving the once unfashionable concept of industrial policy 30 years after Margaret Thatcher killed it off. May chaired the first meeting of the "Cabinet Committee on Economy and Industrial Strategy" to set out her vision for a state boosted industrial renaissance. The challenge is to find a formula that arrests a decades-long decline in Britain's manufacturing sector.

BOE battles Brexit with rate cut and new round of money printing. The Bank of England cut its key rate for the first time in more than seven years and will restart the printing presses as it ramps up defences against a Brexit- induced slump. Officials, led by BOE Governor, voted unanimously to reduce the benchmark by 25 basis points to a record-low 0.25%. They also announced a plan to lend as much as GBP100.0b to banks to ensure the measures reaches the real economy. In addition, the Monetary Policy Committee will buy GBP60.0b government bonds over six months and as much as GBP10.0b corporate bonds in the next 18 months.

Eurozone economic growth slows in quarter before Brexit. Economic growth in the Eurozone slowed in Q2 as uncertainty before the British vote to leave the EU swirled, data showed on Friday, and economists said it could be a sign of future weaker growth. GDP in the Eurozone rose 0.3% QoQ in the April-June period, halving from the 0.6% growth in 1Q16, European statistics office Eurostat said. A slowdown was expected after the strong Eurozone growth in the first three months of the year.

'Lop-sided' Eurozone factory growth slowed in July. Manufacturing growth across the Eurozone eased in July, a survey showed on Monday, and signs of a sharper slowdown outside powerhouse Germany may add to calls for the European Central Bank to loosen policy again. Markit's PMI for the bloc fell to 52.0 in July from 52.8, just beating a flash estimate of 51.9. "The problem is that growth is looking increasingly lop sided, which will worry policymakers and add to calls for further stimulus from the ECB," said the chief economist at Markit.

World's economic outlook more uncertain after Brexit vote - ECB. The global economic outlook has become more uncertain after Britain's vote to leave the EU, the European Central Bank said, reaffirming its readiness to act if needed to support Eurozone inflation. ECB said it was awaiting more information, including new staff projections to be published in September, before making any decision on new policy moves.



Moving Forward


The local bourse was range bound all week in tandem with regional Asian markets. The KLCI’s closed lower at the beginning of the week following the Bank of Japan’s decision to increase purchases of exchange-traded funds, which disappointed investors looking for tougher measures to revive Japan’s flagging economy. The decline in oil prices, weakening of the ringgit and the resurfacing of 1MDB scandal contributed to the decline of the KLCI.

Asian shares rallied midweek after the disappointing US economic growth data reduced expectations that the US Federal Reserve will raise interest rates in the next few months. This rally however quickly subsided as profit taking activities took place, driving markets down as investors looked to cash out from the strong rally in July.

Later in the week, oil prices continued to pull our local bourse down before rebounding a little, helped also by investors’ bargain hunting and positive news flow from infrastructure job wins. We expect markets to trade range-bound in the coming week. Low oil prices continue to drag our market down as periodic positive news and data allows for some fluctuations.

Gradual pick up. Based on our current assessment, the rather tepid and prolong economic growth trend is expected to bottom out by mid-2016. Our preliminary analysis showed a possibility of higher GDP growth in 2017 of 4.9%. But the caveat is that it all depends on how fast the regional economies, mainly its major trading peers, recover from the fast changing global economy.

External conditions such as continued weak demand from a slowing Chinese economy, slower than expected recovery in developed economies due to adverse events such as Brexit, volatile commodity prices, escalating geopolitical risks are among other factors that could delay the cyclical recovery expected in regional economies.

A better Long-Term outlook. As the global economy may see some creeping improvement following the outcome of various measures by both advance and developing countries to prop up growth in their respective countries, it is also expected to partly contribute to an incipient recovery in the domestic economy beginning in 2H16 or early 2017. These combined factors shaped our long term viewpoint of further improvement in the Malaysian economy going forward.

Hence, it would be fairly reasonable to expect Malaysia’s economic growth to fall within 4.5% to 5.0% in 2017 and slightly higher in the subsequent years barring any unforeseen risk to global growth.

Meanwhile, with the expectation of the first phase of the Mass Rail Transit project to be up and running by the 2H16, it would help to push-up the multiplier effect another notch higher and bring about a much needed boost in productivity and growth.

At this juncture, we remain steadfast to outperforming the index again this year and are cautiously optimistic on the 2H16. Stock picking remains key for outperformance in these global market conditions.

 

[kenanga.my]

12.08.2016

MALAYSIA


Mah Sing to invest RM5.0b to build Bandar Baru Meridin East project. Mah Sing Group will invest RM5.0b to build the 531.4 hectare Bandar Baru Meridin East in Kong Kong, Pasir Gudang here. The five-phased development project, expected to be fully completed between 12 and 15 years, aims to meet the needs of the people. Johor Menteri Besar said the project, which is being implemented in eastern Johor, will help improve the people's lives.

Protasco unit and partner get RM315.8m SUKE contract. Protasco Bhd’s subsidiary HCM Engineering Sdn Bhd and bumiputra construction firm Hatimuda Sdn Bhd have received a RM315.8m contract for the joint construction of part of the proposed Sungai Besi-Ulu Kelang Elevated Expressway (SUKE). The engineering and infrastructure services provider said the job given by Turnpike Synergy Sdn Bhd -- a unit of highway concessionaire Projek Lintasan Kota Holdings Sdn Bhd’s (Prolintas) -- would be undertaken by HCM and Hatimuda on a 40:60 basis.

AMMB to boost SME financing collaboration to RM1.0b in six months. AMMB Holdings Bhd (AmBank Group) aims to increase its collaboration with Credit Guarantee Corporation Malaysia Bhd (CGC) in areas of small and medium enterprises (SME) financing to RM1.0b within six months. They currently have some RM12.1b worth of loans to the SME sector within the group, said its group chief executive officer. They are however looking at expanding their collaboration in SME lending with CGC to RM1.0b within the next six months.

HSS Engineering debuts on Bursa Malaysia at 58.0 sen. HSS Engineering Bhd, an engineering and project management services provider, made the debut on the Bursa Malaysia ACE market on August 10 at 58.0 sen, a premium of eight sen from the offer price of 50.0 sen. At the opening bell, 2,000 shares changed hands. The initial public offering (IPO) comprises 63.8m new ordinary shares and offer for sale of 31.9m existing shares at an IPO price of 50.0 sen per share at 10.0 sen par value.

Maybank disposes of Thai subsidiary. Malayan Banking Bhd’s (Maybank) unit has disposed of 26.9m shares, representing a 99.9% stake, in its fund-management subsidiary in Thailand, Maybank Asset Management Thailand Co Ltd (MAMT), to another Thai company at an undisclosed price. The sale, which was completed on August 9 as part of an effort to optimise resources and enhance the group’s regional operations, meant MAMT would effectively cease to be an indirect subsidiary of Maybank.

June exports unexpectedly rises 3.4% YoY. Total export receipts for June turned out much higher than the market expected, rising by 3.4% YoY compared to the consensus estimate of a 3.7% YoY decline. During the same month, imports rose 8.3% YoY, also growing by more than the market expected. The trade balance widened to RM5.5b from RM3.3b in the previous month. The unexpected increase in exports receipts was due to the resilience of electrical & electronics (E&E) exports despite reduced global appetite for semiconductor and related products. E&E exports in June rose 4.9% YoY (May: 3.2%).

BNM names Adnan Zaylani as new Assistant Governor. Bank Negara Malaysia (BNM) has appointed Adnan Zaylani Mohamad Zahid as its new Assistant Governor, effective from Aug 1. In a statement today, BNM said he will be responsible for the investment operations and financial markets, foreign exchange administration, legal and currency management and operations departments. Meanwhile, he will also continue as the director of investment operations and financial markets department.

More demand for high-yield bonds, sukuk since OPR cut - Cagamas. There has been more demand for high-yielding bonds and sukuk since Bank Negara Malaysia cut the overnight policy rate (OPR) from 3.25% to 3% in July, said Cagamas Bhd president and CEO. “Foreign holdings of our local currency bonds have also increased from 0.6% in June 2015 to 5.7% in June 2016, indicating a growth of over 5.0% in foreign holdings,” he said.

GLOBAL


Oil up nearly 3.0% on OPEC output speculation as glut grows. Oil prices settled up nearly 3.0% on Monday amid renewed speculation that OPEC would try to restrain output, easing oversupply worries that pressured the market to three-month lows last week. The Wall Street Journal reported that OPEC countries want to take another stab at cooperation between the 14-nation OPEC and non-members such as Russia. U.S. crude settled up USD1.2, or 2.9%, at USD43.0 per barrel. Brent crude rose USD1.1, or 2.5%, to settle at USD45.4.

IEA sees oil glut easing. Global oil markets will continue to re-balance this year as a pick-up in demand from refiners absorbs record output from several Persian Gulf producers, the International Energy Agency predicted. Refiners around the world will process record volumes of crude this quarter as their intake rebounds after falling in Q2 by the most since 2009, the Paris-based adviser said. Refiners’ crude processing this quarter will increase by 600,000 barrels a day from a year earlier to a record 80.6m a day, according to the agency.

Global negative-yielding debt slips to USD11.4t - Fitch. The global amount of negative-yielding government bonds edged down to USD11.4t on Aug. 2 from two weeks ago as Japanese debt yields rose in reaction to more official stimulus announcements, Fitch Ratings said. On July 15, there were about USD11.5t in sovereign bonds with negative yields in Japan and Europe. Japanese government bonds accounted for more than half the negative-yielding debt with USD7.2t, down from USD7.5t two weeks earlier and USD7.9t on June 27, the rating agency said.

ASIA PACIFIC


Disappointing China July imports suggest cooling domestic demand. China's exports and imports fell more than expected in July in a rocky start to the third quarter, pointing to further weakness in global demand in the aftermath of Britain's decision to leave the EU. Imports fell 12.5% YoY, the biggest decline since February and suggesting China's domestic demand may be faltering. Exports fell 4.4% on-year, the General Administration of Customs said on Monday. That resulted in a trade surplus of USD52.3b in July, the biggest since January.

China to expand Yuan cross-border financing and investing channels. China's will further expand Yuan cross-border financing and investment channels, and will further expand cross-border usage of the Yuan under the current account, the central bank said on its website on Wednesday. China will also increase the amount of Yuan used as a reserve currency, the People's Bank of China said.

Japanese Prime Minister to compile extra budget to submit to parliament in autumn. Japanese Prime Minister said on Monday that the government will compile an extra budget plan and submit it to an extraordinary parliament session in autumn. The Prime Minister's cabinet last week approved JPY13.5t (USD132b) in fiscal measures to help revive the flagging economy.

South Korea’s credit rating raised one level to AA by S&P. South Korea’s credit rating was increased one level by Standard & Poor’s, which cited the nation’s steady economic performance, sound fiscal position and flexible fiscal and monetary policies for the improvement. S&P said Monday it raised the long term credit rating for South Korea to AA from AA- with a stable outlook; the agency’s third-highest rating. This follows an upgrade to Aa2 from Moody’s Investors Service in December 2015. Fitch Ratings ranks South Korea at AA-, the fourth highest level.

Bank of Korea holds rates but easing expectations grow. South Korea's central bank kept interest rates unchanged on Thursday as policymakers watch the effects of existing stimulus measures. The Bank of Korea's decision to hold rates at 1.25% was in line with the forecasts of all 24 analysts in a poll, but expectations are rising the bank will lower them to 1.0% by year-end. "We are reaching our lower bound limit in the base rate, but we still have some (policy) space left," said BOK Governor.

Taiwan exports grow for first time in 18 months. Taiwan’s exports returned to growth in July for the first time in a year and a half, while imports came tantalisingly close to ending a long streak of contraction. Exports grew 1.2% last month compared to a year earlier, according to Taiwan’s Ministry of Finance, pulling the rug out from beneath economists’ consensus forecast of 2.1% contraction. Expectations of 5.1% contraction in imports were spurned by an annualised fall of just 0.2%.

India implements CPI target, cementing RBI Governor’s legacy. India on Friday formally implemented its central inflation target of 4.0%, an important confirmation of the inflation-fighting policies championed by current Reserve Bank of India (RBI) Governor, who steps down next month. Junior finance minister tabled a notification in parliament's upper house that confirmed the target at 4.0%, plus or minus 2.0%, in line with the goal the government originally agreed with current RBI Governor.

Singapore cuts top end of 2016 GDP forecast on weak outlook. Singapore cut the top end of its 2016 growth forecast after the economy expanded less than previously estimated in Q2, underscoring a weakening global environment. GDP expanded an annualized 0.3% QoQ, the Ministry of Trade and Industry said Thursday. That compares with last month’s advance estimate of 0.8%. The economy grew a revised 0.1% in Q1. The new 2016 forecast of 1.0% to 2.0% expansion is "in line with weaker global growth outlook, and barring the full materialization of downside risks," the ministry said. The previous forecast was for as much as 3%.

Indonesia Q2 GDP beats expectations. Indonesia’s economic growth revved up in Q2, coming in above expectations and staging something of a comeback after disappointing in Q1. Indonesia’s GDP grew 5.2% YoY in the three months to June 30, according to Statistics Indonesia, up from 4.9% in Q1 and besting a consensus forecast of 5.0% from economists. In QoQ terms the economy grew 4.0%, up from a contraction of 0.3% in the first three months of this year and also beating expectations of 3.8% growth from economists.

Indonesia president mulls corporate tax cut to 17.0%. Indonesia's President is considering cutting the corporate tax rate to 17.0% from 25.0% to match Singapore's tax rate, he was quoted as saying on the cabinet secretary's website on Wednesday. The government is mulling whether to directly cut the current tariff to 17.0% or to do it in two stages, where the tariff is first lowered to 20.0% and then 17.0%, the website said.

USA


Strong U.S. employment report brightens economic outlook. U.S. employment rose more than expected for the second month in a row in July and wages picked up, bolstering expectations of faster economic growth. Nonfarm payrolls rose by 255,000 jobs after an upwardly revised 292,000 surge in June, with hiring broadly based across the sectors of the economy, the Labour Department said. In addition, 18,000 more jobs were created in May and June than previously reported. The unemployment rate was unchanged at 4.9%.

US trade deficit hits USD44.5b, biggest in 10 months. The U.S. trade deficit increased to the highest point in 10 months, driven up by a rise in imports of oil and Chinese-made computers, cell phones and clothing. The deficit rose to USD44.5b in June, 8.7% higher than a revised May deficit of USD41.0b, the Commerce Department reported. It was the biggest gap between what America sells abroad and what the country imports since a USD44.6b deficit last August. A wider U.S. trade deficit acts as a drag on growth because it means the nation is earning less on overseas sales.

U.S. government posts USD113b deficit in July. The U.S. government posted a USD113b budget deficit in July, a 24% drop from the same month last year, the Treasury Department said. The government had a deficit of USD149b in July 2015, according to Treasury's monthly budget statement. Analysts polled had expected a USD113b deficit for last month. The fiscal year-to-date deficit was USD514b through July, up 10% from a USD466b deficit at the same time last year.

EUROPE


ECB negative rates at limit, should focus on asset buys, IMF economists say. Economists from the IMF have urged the ECB to concentrate on asset purchases rather than cutting its already negative interest rates again, if it needs to stimulate the Eurozone economy again. "Additional rate cuts could weaken the effectiveness of monetary policy if lending rates fail to adjust or customers withdraw cash from banks." Instead, it said: "focusing on asset purchases would raise asset prices and aggregate demand, while also supporting bank lending."

Bank of England 'kicking can down the road' on QE purchase shortfall. The Bank of England said on Wednesday it would delay making up a GBP52m (USD68m) shortfall in its new bond purchase program by three to six months, after it failed to find enough willing sellers at a buy-back on Tuesday. On Tuesday, in its first attempt to buy bonds with a maturity of over 15 years, it fell just short of its target of GBP1.2b. Thirty-year gilts were the strongest gainers on Wednesday, with yields dropping more than 8 basis points to a record low 1.294%.

Bank of England survey bolsters its view of weaker economy. The Bank of England released a survey on Wednesday showing business services growth and consumer spending slowed last month, partly due to June's vote to leave the EU. "Business services growth had softened further, partly reflecting weakness in commercial property investment and corporate transactions," the BoE's monthly report said. "Consumer spending growth had also slowed, although that appeared to have partly reflected the effects of unusually wet weather," it added.

German industry output rises as factories shrug off Brexit woes. German industrial production increased in June, signalling that Europe’s largest economy gained momentum ahead of the U.K.’s Brexit vote. Production rose 0.8% from the previous month, when it dropped a revised 0.9%, data from the Economy Ministry in Berlin showed on Monday. The reading compared with a median estimate for a 0.7% gain in a survey. Output was up 0.5% YoY. . “Manufacturers’ assessment of business conditions remains good,” the ministry said.

German economy lost growth momentum in Q2: economy ministry. The German economy lost some growth momentum in Q2 after a strong performance in Q1, the Economy Ministry said on Thursday, citing weaker private consumption and weaker-than-expected construction. It added that the German economy remained robust despite increased external risks largely linked to Britain's vote in June to leave the EU. A poll of economists predicts that Europe's largest economy expanded by 0.2% in Q2.

Bank of France sees economy gaining momentum in Q3. The French economy is set to return to growth this quarter, the nation’s central bank said. GDP will rise 0.3% in Q3, the Bank of France said Monday. That’s more optimistic than economists in a survey, who predict an increase of 0.2%. A gauge of sentiment among French manufacturing executives rose to 98 in July, up from 97 in June, the Bank of France said. Confidence in the services sector slipped, while sentiment in construction was unchanged from June.

Moving Forward


The local bourse climbed steadily this week on the backdrop of higher oil prices, better-than-expected export figures and a June industrial production growth that beats market forecasts. Malaysia’s exports increased by 3.4% while the industrial production index (IPI) expanded by 5.3% for June this year. Oil prices rebounded by more than 6.0% from last week.

On Friday however, BNM announced the country’s 2Q GDP numbers at 4.0%. This was a figure below expectations and well below 1Q’s 4.2%, bringing the average 1H GDP numbers to 4.1%. It is however within forecast for this year’s 4.0-4.5%. We don’t expect this to affect the market too much in the short term as consensus view remains that 2H points to better numbers.

The positive fund flow into Malaysia is a sign of investor confidence in the resilience of our local bourse. We do expect local investors to continue bargain hunting while positive news flow from infrastructure job wins and contract awards will provide the near term driver.

Gradual pick up. Based on our current assessment, the rather tepid and prolong economic growth trend is expected to bottom out by mid-2016. Our preliminary analysis showed a possibility of higher GDP growth in 2017 of 4.9%. But the caveat is that it all depends on how fast the regional economies, mainly its major trading peers, recover from the fast changing global economy.

External conditions such as continued weak demand from a slowing Chinese economy, slower than expected recovery in developed economies due to adverse events such as Brexit, volatile commodity prices, escalating geopolitical risks are among other factors that could delay the cyclical recovery expected in regional economies.

A better Long-Term outlook. As the global economy may see some creeping improvement following the outcome of various measures by both advance and developing countries to prop up growth in their respective countries, it is also expected to partly contribute to an incipient recovery in the domestic economy beginning in 2H16 or early 2017. These combined factors shaped our long term viewpoint of further improvement in the Malaysian economy going forward.

Hence, it would be fairly reasonable to expect Malaysia’s economic growth to fall within 4.5% to 5.0% in 2017 and slightly higher in the subsequent years barring any unforeseen risk to global growth.

Meanwhile, with the expectation of the first phase of the Mass Rail Transit project to be up and running by the 2H16, it would help to push-up the multiplier effect another notch higher and bring about a much needed boost in productivity and growth.

At this juncture, we remain steadfast to outperforming the index again this year and are cautiously optimistic on the 2H16. Stock picking remains key for outperformance in these global market conditions.

 

[kenanga.my]

19.08.2016

MALAYSIA



Sime Darby to acquire controlling stake in Singapore-listed cash trust. Sime Darby Bhd is proposing to acquire a controlling stake in Singapore listed Saizen real estate investment trust (REIT) by injecting its industrial assets in Australia into the target fund for new units. The Malaysian conglomerate said its indirect units – Hastings Deering (Australia) Ltd and Sime Darby Property Singapore Ltd (SDPSL) – had signed a framework agreement with Japan Residential Assets Manager Ltd (JRAM) to initiate the corporate exercise.


IGB unit to sell Renaissance Kuala Lumpur Hotel for RM765.0m. IGB Corp Bhd's wholly owned unit, Great Union Properties Sdn Bhd, has signed a conditional sale and purchase agreement with Ventura International Sdn Bhd to dispose of Renaissance Kuala Lumpur Hotel for RM765.0m. IGB said, the divestment represented an attractive opportunity for it to unlock business assets at a favourable price.

Ekovest plans RM3.6b financing for SPE project. Ekovest Bhd is set to issue Malaysia's largest ringgit-denominated green-field toll-road project financing, worth RM3.6b, for its Setiawangsa- Pantai Expressway project (SPE). The SPE project is worth RM3.9b, the largest project that the Ekovest Group will undertake to date. As part of the financing structure, Ekovest will inject RM850.0m as equity into the project.

BR1M to continue next year. The 1Malaysia People’s Aid (BR1M) programme will be continued in the 2017 Budget. Second Finance Minister said despite the government losing about RM30b in oil and gas revenue, the programme to help the low and middle income groups should continue. “We think this policy needs to be continued and discussions on the rate that the government plans to give out are on-going,” he said.

Growth slows to 4.0%, dragged down by plantation sector. Real GDP growth in 2Q16 slowed to 4.0% YoY matching market and house expectations, marking five consecutive quarters of decelerating growth trend. The rate of GDP growth is now the lowest since 3Q09. A slump in the plantation sector due to the effects of the El Niño weather phenomenon cut GDP growth by as much as 0.7 percentage points. Growth of the services (+5.7%), mining (+2.6%) and construction (+8.8%) sectors picked up pace in 2Q16 compared to 1Q16. Manufacturing (4.1%) sector growth was slower compared to the previous quarter. On the demand side, fast growing imports (+2.0%) on stable exports (+1.0%) weighed down on growth, while aggregate demand (+6.3%) grew at the fastest pace since 1Q15, the preceding quarter before GST was introduced.

Current account surplus narrows to 0.6% of GDP. The 2Q16 current account surplus narrowed to RM1.9b or 0.6% of GDP from RM5.0b or 1.7% of GDP in the previous 1Q16 quarter. The surplus from trade in goods decreased by RM3.7b to RM19.8b or the lowest in three years during the 2Q16 quarter on rising imports and stable exports.

Ringgit to perform in the long run - BNM Governor. BNM expects the ringgit to perform in the long-run, driven by strong economic fundamentals, BNM Governor said. He said the ringgit's current volatility against the US dollar was due to the strengthening of the greenback, following normalisation of uncertainty surrounding the interest rate adjustment in US. In the short-term, he said, the ringgit was expected to remain volatile. On OPR, BNM would evaluate the current economic data before making any action on the rate.

Malaysia’s ‘road less travelled’ path to develop economy fruitful. The government’s decision to choose the ‘road less travelled’ path in developing the economy since 2009 has been proved to be fruitful, says the Performance Management and Delivery Unit’s (Pemandu) CEO. He said by pursuing a mildly expansionary economic growth with private investments leading the way and implementing fiscal consolidation measures for sustainability, Malaysia has managed to stay in the ‘safe zone’ in terms of debt to GDP ratio and fiscal deficit level. Malaysia was among several countries that had set the level of its debt ratio to GDP at below 55%.

Malaysia no longer stuck in 'middle-income trap' - Pemandu. Malaysia is no longer stuck in the "middle-income trap" on the back of steady growth in the gross national income, especially after the implementation of the Economic Transformation Programme. Performance Management and Delivery Unit (Pemandu) CEO said the country's GNI last year, which stood at USD10,570 per capita, is now only 15% away from the high-income economy benchmark. In 2010, Malaysia's GNI per capita was at USD8,280.

MITI expects Malaysia's total trade to grow 1.0-2.0% this year. The Ministry of International Trade and Industry (MITI) expects the country's total trade to grow 1.0-2.0% this year amid volatile global economic situation. The Minister said this was a modest projection as the country was not spared from the effects of the global economic slowdown. "We are working very hard to further diversify our export markets and in promoting Malaysia," he said. In 2015, Malaysia's total trade grew 1.2% to RM1.5t.

GLOBAL


Oil extends rally to five-week highs on talk of producer action. Oil prices hit five-week highs on Monday, gaining 10.0% or more in a three-day rally as speculation intensified over potential producer action to support prices amid a crude glut. A Reuters poll indicated total U.S. crude inventories may have fallen too last week. Brent settled up USD1.4, or 2.9%, at USD48.4 a barrel. Brent has gained about 10% cumulatively in the past three sessions. U.S. crude rose USD1.3, or 2.8%, to settle at USD45.7 a barrel.

Oil at five-week high as OPEC sources, Russia, talk of cooperation. Oil settled up nearly 2% on Tuesday, hitting five-week highs as sources at OPEC spoke of Saudi Arabia's desire for higher crude prices while Russia met the producer group to discuss the market. Another "energy dialogue" between Russia and OPEC has been scheduled for October. Brent settled up USD0.9, or 1.8%, at USD49.2 a barrel. It rose more after settlement, reaching USD49.4, its highest since July 7. U.S. crude rose USD0.8, or 1.8%, to settle at USD46.6.

Oil up fifth day on U.S. stock draws; Saudi output threatens rally. Oil's rally extended for a fifth day on Wednesday, helped by a weaker dollar and an unexpected drawdown in U.S. crude and gasoline but traders said the run up may not last, pointing to galloping Saudi output and technical factors. Brent settled up USD0.6, or 1.3%, at USD49.9 a barrel. U.S. crude futures rose USD0.2, or 0.5%, to USD46.8. The Relative Strength Indicator for Brent was near 65, approaching the overbought level of 70, while for WTI it was at 62.

ASIA PACIFIC


Global central banks help send Asian bond costs to decade low. Asian firms are getting a little help from global central banks, as borrowing costs in the region’s bond market slide to the lowest levels since before the global financial crisis. The extra yield over Treasuries that investors demand to hold U.S. currency notes from the region’s issuers slid 21 basis points in August to 204, the lowest since 2007, according to a Bank of America Merrill Lynch index. The yield on Asian dollar securities has dropped 28 basis points this quarter to 3.3%.

China credit growth slows to 2-year low on debt curb concern. China’s broadest measure of new credit and another key gauge of lending increased at the slowest pace in two years, suggesting monetary authorities are more concerned about swelling financial risks than giving more of a boost to old growth engines. Aggregate financing was CNY487.9b (USD73.4b) in July, compared with a median estimate of JPY1.0t in a survey. New Yuan loans stood at JPY463.6b, versus a projected JPY850.0b, the People’s Bank of China data showed Friday.

IMF says China's credit growth is unsustainable. The International Monetary Fund on Friday said China needed to slow its unsustainable credit growth and stop financing weak firms. "China's corporate debt is still manageable, but at approximately 145% of GDP, it is high by any measure," said IMF Mission Chief for China. The IMF has urged China to tackle the root causes of its credit growth risk by easing back on unsustainably high growth targets and lax budget constraints, particularly on local governments and state owned enterprises.

PBOC says don’t look at short term after money supply slumps. China’s central bank urged investors not to focus too much on short-term concerns and said the diverging pace of credit expansion doesn’t mean monetary policy is losing steam. July credit growth slowing to a two-year low was a distortion and the reports for August and September will show it rebounding, the People’s Bank of China said. Markets should avoid over interpretation of short-term data for a specific month, the PBOC said.

China plans targeted measures to lift hard-hit northeast economy. China’s main government agency for economic planning and reform plans to issue a three-year plan for boosting growth in the hard-hit north-eastern rustbelt provinces. The National Development and Reform Commission will outline 137 major initiatives and targeted policies to support Liaoning, Jilin and Heilongjiang, a spokesman said. The three provinces have been among China’s slowest-growing economies for more than two years.

Japan's economy stalls in April-June. Japan's economic growth ground to a halt in April-June as weak exports and shaky domestic demand prompted companies to cut spending. The weak reading underscores the challenges policymakers face in ending two decades of deflation. The Japan’s economy expanded by an annualized 0.2% in Q2, less than the 0.7% increase markets had expected and a sharp slowdown from a revised 2.0% increase in January-March, Cabinet Office data showed on Monday. On a QoQ basis, GDP showed no growth in April-June.

Japan exports fall at fastest pace since financial crisis on strong yen. Japan's exports tumbled in July at the fastest pace since the global financial crisis with a resurgent yen and weakness in overseas economies weighing on overseas shipments. The 14.0% annual decrease in exports in July matched the median estimate in a poll of economists and was the fastest decline since October 2009. Economists say there is a growing risk that weakness in exports will persist as global economic uncertainty shows little sign of receding.

BOK chief says domestic economy facing growing uncertainties. South Korea's central bank chief said on Thursday the local economy is facing growing external uncertainties from the United States, China and increasing signs of trade protectionism. At a global level, uncertainties include the Federal Reserve's policies, structural changes in the Chinese economy and Brexit, Bank of Korea governor said. On the domestic front, low birth rates, aging population and household debt are structural problems faced by the economy, he added.

Taiwan cabinet proposes modest increase in 2017 expenditures. Taiwan President’s administration proposed a modest spending increase on infrastructure in an overall budget plan that will pare the government’s debt level. In a draft budget for 2017, the cabinet proposal includes a 3.1% increase in spending on public works to TWD186.9b (USD6.0b) as part of an overall 1.1% increase in spending from 2016. Taiwan’s central bank has called for the use of expansionary fiscal policy as benchmark interest-rate cuts struggle to spur growth.

Australia's central bank cut rate to boost inflation, growth. Australia’s central bank said inflation would remain low and the economy could grow faster, while house-price concerns had cooled, in explaining its decision to cut interest rates for the second time in four months. “While prospects for growth were positive, there was room for stronger growth, which could be assisted by lower interest rates,” the Reserve Bank of Australia said in minutes of its Aug. 2 meeting, when the benchmark was reduced to a fresh record low of 1.5%.

Australia unemployment drops to 5.7%. The unemployment rate has dropped to 5.7%, with the Bureau of Statistics estimating that 26,200 jobs were added in July. The headline result was better than the market expected. Economists expected 10,000 jobs to be added, leaving unemployment steady at 5.8%. However, the data were not unambiguously positive, with jobs growth entirely driven by part-time employment, while full-time jobs fell. Part-time employment rose by an estimated 71,600, while the number of full-time workers dropped by 45,400.

India's CPI inflation accelerates to 6.1% in July. India's annual consumer price inflation accelerated at a faster-than-expected pace to 6.1% in July, mainly driven by higher food prices, government data showed on Friday. Economists surveyed had expected annual retail inflation last month to come in at 5.9% compared with 5.8% in June. Food inflation was 8.4% last month, higher than 7.8% in June.

Thai economy expanded more than expected in Q2. Thailand’s economy grew more than analysts estimated in Q2 as the military government accelerated spending on road and rail projects to help offset weak demand for the nation’s exports. GDP expanded 3.5% in the three months through June from a year earlier, the National Economic and Social Development Board said. That compares with the 3.3% median estimate in a survey. GDP grew 0.8% from the previous three months, compared with a 0.5% median estimate.

Philippines GDP beats forecasts in boost for President’s plans. The Philippines economy grew faster than economists predicted last quarter, giving a boost to new President as he seeks to attract more investment and speed up infrastructure spending. GDP increased 7.0% in the three months through June from a year earlier, the fastest pace since the same period in 2013, the Philippine Statistics Authority said. That was higher than the median estimate of 6.6% in a survey and beat the first quarter’s 6.8% expansion.

USA


US homebuilder sentiment rises in August as sales improve. U.S. homebuilders are feeling more optimistic about the housing market this month, reflecting strong growth in new-home sales and prices. The National Association of Home Builders/Wells Fargo builder sentiment index released Monday rose two points to 60 following a downwardly revised reading of 58 in July. Builders' view of current sales and their outlook for sales over the next six months improved this month. New-home sales have risen 10.1% through the first six months of this year versus the same period in 2015.

U.S. inflation tame despite economy gaining momentum. U.S. consumer prices were unchanged in July but a rise in industrial output and home building suggested a pickup in economic activity that could allow the Federal Reserve to raise interest rates this year. July's unchanged reading in the CPI followed two straight monthly increases of 0.2%. Core CPI edged up 0.1% in July after rising 0.2% in each of the previous three months. The YoY core CPI increased 2.2% in July after advancing 2.3% in June.

U.S. industrial output rises 0.7% in July. U.S. industrial production rose more than expected in July, according to Federal Reserve data released on Tuesday. Industrial output increased 0.7% last month after an downwardly revised 0.4% increase in June. Last month, manufacturing output rose 0.5%. Economists had forecast industrial production climbing 0.3% last month.

U.S. housing starts rise to five-month high in July. U.S. housing starts unexpectedly rose in July as building activity increased across the board, supporting the view that investment in residential construction will rebound after slumping in the second quarter. Ground breaking increased 2.1% to a seasonally adjusted annual pace of 1.2m units, the highest level since February, the Commerce Department said on Tuesday. June's starts were largely unchanged at a 1.19m-unit rate. Economists had forecast housing starts slipping to a 1.18m-unit pace last month.

Fed minutes: Conditions could 'soon warrant' a rate hike. Federal Reserve officials believed that near term risks to the U.S. economy had subsided and that an interest rate increase could soon be warranted. They did not indicate when they would likely raise rates. The minutes of their July 26-27 meeting show that officials were encouraged by a rebound in job growth. They took note of a stabilization of financial markets after turbulence triggered by Britain's vote to leave the EU. The officials thought a rate increase "was or would soon be warranted."

EUROPE


Eurozone economic growth slows in Q2 as France, Italy stall. Economic stagnation in France and Italy contributed to a slowdown in growth in the Eurozone from April to June after a strong performance in Q1, estimates showed on Friday. GDP in the Eurozone expanded 0.3% in Q2 from Q1 and was up 1.6% compared with the same quarter last year, statistics agency Eurostat said, confirming market expectations and its own initial data issued in late July. The slowdown was mainly due to France and Italy reporting no growth in the quarter.

Brexit vote to have 'limited' economic impact on Germany - Bundesbank. Britain's vote to leave the EU should have limited immediate economic impact on Germany, the country's central bank said, noting the mood among entrepreneurs remained positive. The Bundesbank expects the German economy to have continued to expand over the summer, underpinned by exports, industrial production, construction and consumer spending.

UK inflation hits near two-year high. Costs for British factories have risen sharply in the aftermath of the vote to leave the EU, with input prices increasing for the first time in nearly three years. While it will take some time for domestic consumers to see an impact, import prices have already risen for manufacturers. The Office for National Statistics said that input prices rose 4.3% in July, the first annual increase since September 2013. There were double digit rises in the cost of some goods, with the price of imported food up by 10.2%.

UK labour market shows little sign of immediate Brexit hit. The number of people claiming unemployment benefit in Britain unexpectedly fell in July despite the shock decision by voters to leave the EU, suggesting little immediate impact from Brexit on the labour market. Benefit claimants fell by 8,600 in the month, compared with an increase of 900 in June, and there was only a small fall in the number of jobs employers were trying to fill, the Office for National Statistics said. Economists had expected the number of claimants to rise by 9,500.

German investor morale brightens slightly in August. The mood among German analysts and investors improved slightly in August, in a further sign that the impact of Britain's decision to leave the EU on Germany’s economy could be limited. ZEW said its monthly survey showed a rise in its economic sentiment index to 0.5 points in August after a fall to -6.8 the previous month. However, that was still weaker than the consensus forecast for a reading of 1.8. A separate gauge of current conditions jumped to 57.6 points from 49.8 in July.

Moving Forward



The FBM KLCI rose early in the week, tracking Asian share market gains on China’s economic stimulus expectation and ass crude oil prices rose. China’s economic stimulus sentiment followed the country’s economic data, including fixed asset investment and industrial output, which were below market forecast. Due to weaker retail sales data, investors were expecting stimulus package from the central bank.

A surge in oil prices helped propel Wall Street to record highs. Oil prices edged up on the prospect of a production cut by Organization of the Petroleum Exporting Countries members to prop up a market grappling with a supply overhang.
Oil prices rallied for the whole week to close at USD 50.88 per barrel and together with a continuous inflow of foreign funds returning to Malaysian markets, our local bourse rose to an intraday high of 1,700.71. Foreign funds have been consistently buying back in, as Malaysia, along with the other emerging markets, appears to be attractive now.

Later in the week the KLCI fell retreated to close the week slightly lower on profit taking and after a US Federal Reserve official hinted that interest rates might rise in September. New York Fed president William Dudley as saying as the US labour market tightens and as evidence of rising wages builds, “We’re edging closer towards the point in time when it will be appropriate, I think, to raise interest rates further”.

Real GDP growth in 2Q16 slowed to 4.0% YoY matching market and house expectations, marking five consecutive quarters of decelerating growth trend. The rate of GDP growth is now the lowest since 3Q09.

A slump in the plantation sector due to the effects of the El Niño weather phenomenon cut GDP growth by as much as 0.7 percentage points.

Growth of the services (+5.7%), mining (+2.6%) and construction (+8.8%) sectors picked up pace in 2Q16 compared to 1Q16. Manufacturing (4.1%) sector growth was slower compared to the previous quarter.

On the demand side, fast growing imports (+2.0%) on stable exports (+1.0%) weighed down on growth, while aggregate demand (+6.3%) grew at the fastest pace since 1Q15, the preceding quarter before GST was introduced.

Private consumption growth continued to pick up pace for a third consecutive quarter, growing at a stronger than expected 6.3% YoY in 2Q16 from 5.3% YoY in 1Q16.

Investment expenditure (+6.1%) rebounded after growing at the slowest pace in more than six years last quarter thanks to a pick-up in the private segment (+5.6%) and a big turnaround in public investment (+7.5%).

Subdued growth in major world and regional economies and a slump in the plantation sector held back domestic growth in 2Q16 but a cyclical recovery is expected to take place from 3Q16.

We maintain our 2016 GDP growth forecast of 4.3%, a mid-point of our initial forecast of 4.0%-4.5%, as 1H16 growth met our expectations of 4.1% and we continue to anticipate a mild recovery from 3Q16.

As the fundamentals of the Malaysian economy remains intact it reduces the probability that Bank Negara Malaysia would have to cut interest rates in the near term. But BNM would definitely be more cautious amidst the growing uncertainty in the global economy going forward.

At this juncture, we remain steadfast to outperforming the index again this year and are cautiously optimistic on the 2H16. Stock picking remains key for outperformance in these global market conditions.