Sunday, September 17th, 2017


Will local stocks rally in run-up to GE14?

PETALING JAYA: Will the local stock market see another round of rally as the August 2018 deadline for the 14th General Election (GE14) nears?

The answer looks more likely to be a “nay”, rather than an “aye”.

Hong Leong Investment Bank Research head Sia Ket Ee said both external headwinds and lacklustre corporate earnings are seen as the stumbling blocks for the stock market to move up further.

At last Friday’s close of 1,786.33, the FBM KLCI is now about 107 points or 5.6% away from its all-time high of 1,893 points posted in July 2014. Year to date, the key index has risen 8.8%.

However, Areca Capital Sdn Bhd CEO Danny Wong said the bullishness of the equity market should not be benchmarked against the FBM KLCI, which tracks the movements of only the 30 largest stocks on the local bourse.

“Actually the rally already started this year, but I think the momentum will continue. More than two-thirds of the stocks under my coverage are in line with or above expectations. So I don’t think corporate earnings are bad.”

Nonetheless, Sia is of the view that the market still lacks strong catalysts on the back of weak corporate earnings.

“Earnings fundamentals have been quite lacklustre. That’s why I think the market will end up with this sideways momentum for the coming weeks.”

Externally, he said, there are more uncertainties around, particularly coming from the geopolitical tensions in the Korean Peninsula.

Sia said the market is aware of GE14 looming but, due to the absence of strong fundamentals, the market rally may not happen.

“Project awards are already made known to the market and the market is fully aware of what’s coming, like LRT 3 and MRT 2. Going into next year, there will be the East Coast Rail Link.

“I don’t think the market wants to trade at a premium now. It will be hovering around the 1,760-point level, which is also our year-end target.”

Sia said the rally had actually happened in the first half of the year, in line with the improved macroeconomic data. “So right now, we’re just coming back to fundamentals and everyone is waiting for the election to happen.”

While the export segment has been doing well, primarily due to higher external demand for the electrical and electronics products, Sia pointed out that there are more volatilities in the technology space now, judging from Nasdaq’s performance.

For domestic-oriented sectors like the cyclical banking industry, he said there has been a recovery from the low base last year, evidenced by the recovery in gross domestic product (GDP) and private consumption.

“But the key question is still the financial performance. So far, we’ve seen a lot of margin compression still happening, meaning there is still an expansion in top line in tandem with the domestic recovery, but yet it fails to translate into stronger earnings.”

Again, he said the investors are still very cautious as GDP growth could have peaked in Q2, resulting in the challenge of translating revenue into earnings.

“So that is also putting dampener on sentiment. While revenues have been growing, it may not necessarily translate into stronger earnings because of the cost-push factors.”

For the construction sector, Sia noted that the market is still waiting for the rollout of more contracts, particularly for rail-related projects.

Areca Capital’s Wong expects contract flows to be better in the second half compared with the first half of the year ahead of Budget 2018.

Meanwhile, Sia said the consumer sector may eventually see a further improvement as private consumption has shown recovery.

JPMorgan’s Asia Pacific Equity Research also opined that the upcoming polls may have a less risk averse effect on the market, which appears to be less volatile compared with past polls.

“Given significantly reduced market volatility we assume the consensus positioning is one that favours the status quo. The market is less risk-averse this time compared with the 13th General Election, presumably on lack of opposition alliance coherence and street demonstrations,” the research house said in its report, “Malaysia Strategy: Key Trades Ahead of the 14th GE”.

“Our recommended investment strategy is to focus on thematics and key trades on stock specifics,” it added.

The research house favours Tenaga Nasional, IJM Corp, Gamuda, Malayan Banking, Sime Darby and SP Setia.

Property developers, construction and healthcare stocks gained the most before and after GE13.

Construction players are set to gain should the current government retain its mandate, as more project awards are expected.

JPMorgan views the year-to-date gain in the FBM KLCI, a stable and higher ringgit, above expectation GDP growth, restructuring in Permodalan Nasional Bhd companies, flow of construction projects with LRT 3 and other rail-related infrastructure, and completion of BR1M handouts as tell-tale signs that Malaysia is en route to the ballot box.

However based on trends from past elections, there appears to be no clear-cut indicator on the ringgit’s standing going forward.

China’s Fosun Pharma to buy smaller stake in Indian pharma firm

BEIJING: Shanghai Fosun Pharmaceutical Group has agreed to cut the size of the stake it will buy in India's Gland Pharma to 74%, the Chinese drugmaker said on Sunday.

It said Gland Pharma's founding family wanted to retain a higher stake in the Indian firm because of its good performance.

Fosun had previously been targetting an 86% stake valued at about US$1.26 billion (RM5.28 billion). It said in a statement to the stock exchange that the board had approved the new plan, which would involve investment of no more than US$1.09 billion (RM4.6 billion).

The deal had earlier faced some concerns in India, a source has told Reuters.

Under the new terms, Fosun Pharma said it would spend no more than US$25 million (RM105 million) for the Indian firm's Enoxaparin prototype sales in the United States, when it gets approval there, cutting the previously proposed amount by half.

The firm has also delayed the closing date for the deal to Oct 3 from Sept 26. — Reuters

Khazanah Nasional: US$410m invested in US to date

PETALING JAYA: Khazanah Nasional Bhd has made a total of 15 investments worth about US$410 million (RM1.7 billion) in the US to date, principally in the technology sector.

The government’s strategic investment fund said in a statement last Friday that its investments in the US represented 1.3% of its portfolio’s realisable asset value of RM145.3 billion as at Dec 31, 2016.

Khazanah reiterated that it practises a strict process of origination and evaluation of investment proposals, involving detailed due diligence and multiple investment gates, before submission to the board of directors for consideration and approval.

“Overall, long-term value creation from our investment portfolio remains steady, with our portfolio net worth adjusted having increased 3.1 times, or growing at a compounded annual growth rate of 9.3% per annum, for the period from May 2004 to Dec 31, 2016,” it said.

Khazanah added that it will continue to explore investment opportunities in the US, focusing primarily on the innovation and technology sector, in line with its mandate as a strategic investment fund that creates long-term value for Malaysia via multiple sectors and geographies.

In line with its policy to progressively diversify its investment portfolio overseas, Khazanah opened Khazanah Americas Incorporated in San Francisco in September 2013, with a focus on the innovation and technology sector. The San Francisco office is the third of Khazanah’s five foreign offices, the others being in Beijing, Mumbai, Istanbul and London.

Khazanah’s statement comes on the back of various news reports and statements regarding its investments in the US, following the Prime Minister Datuk Seri Najib Abdul Razak’s recent working visit to the US.

TNB continues to play active role in renewable energy generation

KUALA LUMPUR, Sept 15 — Tenaga Nasional Bhd (TNB) continues to play an active role in supporting Malaysia’s renewable energy (RE) generation target by leveraging its competitiveness and strength, both locally and overseas. TNB, in a…

Crude Palm Oil Weekly Report – 16 September 2017

Malaysian palm oil futures continued its bullish uptrend. It began to retreat from a six-month high on Thursday, as a strengthening ringgit and strong export figures cushioned the dampening effects of a rise in export tax for October. The benchmark crude palm oil futures (FCPO) contract rise 3.4 per cent to RM2,860 on Friday, which […]

NetX Holdings buys equity interest in Mlabs System for RM7.2m

PETALING JAYA: NetX Holdings Bhd's (NetX) subsidiary First United Technology Ltd has acquired 8.43% equity interest in Mlabs System Bhd (Mlabs) for RM7.2 million cash.

NetX told the stock exchange last Friday, the proposed investment into Mlabs will allow the group to potentially collaborate with an established company to expand its revenue base and to acquire new IT technology.

The group added by leveraging on Mlabs' strong and growing presence in the Southeast Asia, specifically Thailand, it is able to tap on these leverages and provide synergy to the group.

NetX said the purchase was funded entirely from internally generated funds.

Moving forward, NetX said Mlabs will continue to focus its core business relating to trading and assembling of multimedia video conferencing systems and will undertake further development of its mobile application which complements its existing video conferencing software.

NetX said it is optimistic that the subscription will provide Mlabs' business a positive return in the near term.

NetX closed unchanged at 5.5 sen last Friday with some 14.14 million shares traded. It has a market capitalisation of RM68.8 million.

UK businesses urge May to seek three-year Brexit transition

LONDON, Sept 17 — British business leaders urged Prime Minister Theresa May to seek a three-year transitional period after Brexit, warning failure to secure more time would jeopardise “our collective prosperity.” In a letter organised by…

BPA Malaysia weekly bond market report 17 September 2017

US Treasuries yield climbed higher as investors were on risk-on mode throughout most of the week amid receding fears on North Korea, threat and better-than-expected inflationary and job data prints in US. However, geopolitical tensions heightened towards the end of the week as North Korea threatened to ‘sink’ Japan and reduce the US to ‘ashes […]

Toshiba is said to aim for final chip deal with Bain by Sept 20

TOKYO, Sept 17 — Toshiba Corp is aiming to finalise a deal to sell its memory chips business to a group led by Bain Capital at a Sept 20 board meeting, despite opposition from partner Western Digital Corp, according to people familiar with the…

The week at a glance 17 September 2017

Sabah & Sarawak Palm oil stocks rises 12.58 pct to 1.94 mln tonnes in August Malaysia’s total palm oil stocks in August 2017 rose 8.79 per cent to 1.94 million tonnes from 1.78 million tonnes recorded in July. Crude palm oil  stocks also increased by 12.58 per cent to 1.06 million tonnes during the month […]