Tuesday, January 2nd, 2018


Euro zone factory growth surges to record; more uneven in Asia

LONDON, Jan 2 — Euro zone factories ended 2017 growing at their fastest pace in more than two decades while performance in Asia was more uneven, with its third-largest economy India leading the field and manufacturing giant China unexpectedly…

Global manufacturers strain to keep up with faster world economy

LONDON, Jan 2 — Factories across the globe warned they are finding it increasingly hard to keep up with demand, potentially forcing them to raise prices as the world economy looks set to enjoy its strongest year since 2011. A slew of…

Dollar starts 2018 in doldrums, European stocks groggy

LONDON, Jan 2 — The ailing dollar fell to its lowest in over three months today, while surprisingly upbeat Chinese manufacturing data ensured there was no serious new year hangover for world shares despite a groggy start for Europe. Wall…

Ringgit up, stocks down in new year

PETALING JAYA: The ringgit had a good start today after it appreciated to an intraday high of 4.0175 against US dollar, the strongest level since July 2016.

However, profit taking activity sent the local stock market 14.11 points or 0.79% lower to close at 1,782.70 points after a 2.08% jump last Friday. It slumped as much as 24.81 points or 1.4% in early trade.

In line with better economic growth, rising oil prices and a possible rate hike of 25 basis points by Bank Negara this month, the local currency continued with its strength on the first day of 2018 and is just 0.44% shy from the 4.0 psychological level. The first Monetary Policy Committee meeting for the year is scheduled on Jan 25.

Most economists expect the ringgit to reach 3.90 against the greenback at the end of 2018. It appreciated 10.9% in 2017, the biggest gain since 2010.

As at 5pm today, the ringgit strengthened 0.68% to 4.02 to US dollar.

Pacific Mutual Fund Bhd CEO and executive director Teh Chi-cheun said on a broader picture basis, economic growth will remain robust, with growing consumer confidence on the back of rising wages and stable employment.

“Global economic growth projections have been revised upwards in 2017. As at October 2017, the IMF has forecasted global GDP growth in 2017 to be 3.6% compared to their forecast in the beginning of the year of 3.4%.

“2018’s growth is now expected to be 3.7% and in Pacific Mutual’s view, will likely be revised upwards. The world economy today is a bipolar one with the two largest economies in the world, the US and China that are driving growth in their respective regions which results in positive momentum throughout the world.”

Malaysia’s economy grew 5.9% in first nine months of 2017, but is expected to moderate in 2018 due to the high base effect and the moderating external demand.

Meanwhile, political uncertainty remains a big headwind for Malaysian stocks as foreign funds closely monitor the development of the upcoming 14th general election, expected to take place between March and April. Foreign buyers bought RM10.33 billion worth of stocks last year.

The FBM KLCI saw its biggest weekly gain last week since January 2016 at 2.08% closing near 1,800 points, bringing its yearly gain in 2017 to 9.4%.

MIDF Research said although the FBM KLCI lagged its regional peers mainly due to the pre-election effect, the local bourse has a high potential to track gains in its peers as fundamentals of the Malaysian market remains intact. It expects the stock market to hit 1,900 points by year end.

Hengyuan Refining Co Bhd and Petron Malaysia Refining & Marketing Bhd, which were among the top gainers last year, continued to soar today following a slight correction last Friday. Both stocks ended the day 10.18% and 2.66% higher at RM17.96 and RM13.90 respectively.

Meanwhile, the top losers were led by Nestle (Malaysia) Bhd, British American Tobacco (Malaysia) Bhd and Dutch Lady Milk Industries Bhd, which declined 2.04%, 5.15% and 1.94% to RM101.10, RM37.94 and 60.80 respectively.

Singapore’s solid Q4 growth bolsters bets on central bank tightening

SINGAPORE: Singapore’s economic growth slowed in the fourth quarter as factories lost steam, but a services sector recovery has bolstered expectations the central bank could tighten monetary policy as early as April, sending the local currency higher.

The economy expanded 3.1% in the October-December quarter from a year earlier, advance estimates from the Ministry of Trade and Industry showed today, slowing from the third quarter’s upwardly revised 5.4% growth, which was the fastest on-year growth in nearly four years.

On an annualised and seasonally-adjusted basis, gross domestic product expanded 2.8%, well-down from revised growth of 9.4% in the third quarter.

While the quarter-on-quarter growth figure was slightly below the median expectation in a Reuters poll of economists, growth seen in the services sector has fanned market expectations the Monetary Authority of Singapore (MAS) could tighten policy in 2018.

“The details looked a bit better, such as the upward revisions to Q3,” said Vishnu Varathan, head of economics and strategy for Mizuho Bank in Singapore.

“There is a sense of a little bit of a broadening recovery and I think markets are growing more confident of April rather than October MAS move,” Varathan said.

The firmer views on central bank policy helped send the Singapore dollar up 0.5% to S$1.33 (RM4.03) per US dollar at one point, its strongest level in 2 ½ years. The local currency, on track for its biggest one-day gain since Nov 22, was also supported by a broadly weaker greenback.

For the whole of 2017, the city-state’s trade-reliant economy grew 3.5%, at the top end of the government’s official 3.0 to 3.5% forecast range. This was the fastest pace in three years and helped by improved global demand, particularly for electronics products and components such as semiconductors.

The government has previously said it expects growth of 1.5 to 3.5% in 2018.

At its last semi-annual policy meeting in October, the central bank held monetary policy steady but changed a reference to maintaining current settings for an extended period, a shift that analysts said created room for a tightening this year.

The latest growth data has done little to dissuade such expectations for monetary tightening.

“We still hold the view that the MAS is likely to tighten this year, but maybe October rather than April,” said Selena Ling, head of treasury research and strategy for OCBC Bank.

The MAS manages monetary policy through exchange rate settings, rather than interest rates, letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed policy band.

One focus is on whether the government will announce an increase to the 7% Goods and Services Tax (GST) rate when it unveils its 2018 budget in February, Ling said, adding that the MAS may want to take some time to see how the market digests the budget and how inflation data pans out.

The pick-up in economic growth has helped bolster activity in the city-state’s property market, with private housing prices rising 1% in 2017 for the first annual gain since 2013, according to separate data released today. – Reuters

PNB eyes approval for Islamic shares initiative

PETALING JAYA: Permodalan Nasional Bhd (PNB) chairman Tan Sri Abdul Wahid Omar is hoping that the regulators will approve the Islamic-shares initiative within the year following its proposal to convert 20% of Malayan Banking Bhd (Maybank) shares into Islamic shares or I-shares.

“We were hoping for the ‘I’ shares initiative to be approved in 2017 but unfortunately this has yet to materialise. We will continue to engage with relevant stakeholders to hopefully make this a reality in 2018,” he said in his new year message released today.

Abdul Wahid reiterated that syariah compliant stocks or equity instruments in financial services are still wanted in the domestic market, despite Malaysia being a global leader in Islamic finance.

There are only three syariah-compliant public listed financial services companies in the country, namely BIMB Holdings, Syarikat Takaful Malaysia and MBSB with a combined market capitalisation of RM15 billion.

“This is hardly 5% of the total market capitalisation of listed banks and financial services companies. At the same time, there are many syariah-compliant funds that need to invest in syariah-compliant financial services stocks,” Abdul Wahid noted.

He said one effective way to meet this need is to designate a portion of shares in Malaysian banks (such as Maybank, CIMB and RHB) that have sizeable Islamic Finance business as Islamic or I-shares.

Nonetheless, Abdul Wahid said the separate listing of Maybank Islamic is not possible as the Maybank group adopts an “Islamic First” strategy where the Islamic finance operations are an integral part of Maybank, with common infrastructure and distribution channel.

“What is possible is to designate say 20% of Maybank shares as ‘I’ shares where the dividend income can be traced or ‘ring-fenced’ from Maybank Islamic and Maybank’s other syariah-compliant activities,” he explained.

Maybank Islamic is the largest Islamic bank in Malaysia with total assets of RM185 billion, three times larger than Bank Islam. Maybank’s Islamic financing makes up 56% of Maybank’s total loans & financing in Malaysia. In terms of profit contribution, Maybank’s Islamic finance activities contribute some 25% to Maybank group’s total profit.

Based on Maybank’s market capitalisation of RM100 billion, Abdul Wahid said Maybank “I” shares will potentially have a market capitalisation of RM20 billion.

“This is three times larger than the market capitalisation of BIMB Holdings of RM7 billion. The same concept can be replicated for CIMB, RHB and even Bursa Malaysia itself, where 60% of the counters listed (based on market capitalisation) are syariah-compliant.”

Besides continuing with the execution of the PNB Strategic Plan, Abdul Wahid said it will ensure strategic companies focus on improving their business fundamentals, earnings and dividend payout, which will lead to improved total shareholder returns (TSR).

“This will include increasing our exposure to private investments both domestically and internationally subject to the right opportunity,” he said.

In addition, PNB will engage with its core companies, in which it has at least 10% shareholding or RM1 billion in value to drive better performance.

Paramount to sell land in Selangor for RM92 million

PETALING JAYA: Paramount Corp Bhd is disposing two parcels of leasehold land measuring 9.4 acres in Mukim Pekan Baru Sungai Buloh, Selangor to EM Hub Sdn Bhd for RM92.1 million cash for new land acquisition and working capital use.

According to its latest audited accounts, the deal will bring in a gain of RM33.19 million for the group.

In a filing with Bursa Malaysia, Paramount said its wholly owned unit Seleksi Megah Sdn Bhd has entered into a sale and purchase agreement with EM Hub, which is in the business of property holding and construction, for the proposed land disposal.

Of the total proceeds, Paramount said it has allocated RM50 million for acquisition of land bank, RM40 million for working capital and the rest for the proposed disposal expenses.

It said the move provides the group an opportunity to unlock value of the land, utilise cash proceeds to acquire new land bank that is able to generate higher returns within a shorter turnaround time, improve cash liquidity for integrated developments and reduce bank borrowings.

Barring any unforeseen circumstances, it said the proposed disposal is expected to be completed by the third quarter of 2018.

Paramount’s share price gained two sen or 1.13% to RM1.79 today with 63,500 shares traded.

AmInvestment keeps ‘neutral’ stance on oil and gas stocks

PETALING JAYA: AmInvestment Research, which has maintained its crude oil price forecast at US$55/barrel-US$60/barrel (RM221.10/barrel-RM241.20/barrel) for this year, has a neutral stance on the sector given gloomy offshore development prospects.

The research house explained that the reason for maintaining its crude oil forecast was due to the increased optimism stemming from the post-continuation of Organisation of the Petroleum Exporting Countries (Opec) production quotas, geopolitical concerns in the Middle East amid concerns of a US shale oil resurgence.

“Even with the extension of Opec production quotas until the end of 2018, US crude oil production still remains elevated at the near all-time high of 9.8 million barrels/day. However, this exuberance is dampened by the slight drop of two rigs to 929 rigs for US oil and gas rigs, which is still 2.3x up from the May 2016 low of 404, with the trajectory inching higher as this is less than half of the 2011 peak of 2,026,” the research report read.

“Barring a further deterioration shift in geopolitical tensions, we view the current price dynamics at a precarious position given the persistent supply-demand imbalance,” it added.

The research house said albeit crude oil prices having crossed the US$60/barrel mark, the prospects of the segment remained gloomy given Petronas’ “unchanged view” that crude oil price ought to be “lower for longer”.

Contract awards saw a 15% year-on-year (y-o-y) decline to RM7.6 billion, last year, despite seeing a 20% quarter-on-quarter increase in the fourth quarter of last year to RM1.6 billion.

The increase was mainly from the 2018 Pan-Malaysian Transport Installation/Maintenance, Construction and Modification jobs to Sapura Energy.

“As these Pan Malaysian umbrella scope of works are mainly determined on a call-up basis, we still expect Petronas to maintain a cautious approach to upstream exploration and development expenditures,” the research house noted.

Weak capex roll-outs could also indicate that the worst can stretch for a while for Malaysian operators, which operate wholly offshore, especially those struggling with high gearing such as Bumi Armada, Alam Maritim and UMW Oil & Gas.

“We may upgrade the sector if the visibility improves for a faster pace of upstream capex rollouts, which ultimately hinges on higher crude oil price sustainability,” AmInvestment said.

An upgrade of ratings can be expected should global economy be strong enough to drive oil consumption, geopolitical tensions in the Middle East and West Africa deteriorate and US crude oil production, which is set to exceed the all-time peak of 9.6 million barrels in March 2015, faces growth constraints. On the flip side, a de-rating can be expected in the event of an oil glut.

Continued inventory expansion for US crude, slower-than-expected global economic growth, and non-compliance by Opec members to their agreed quotas, which could lead to aggressive measures to regain market shares are seen as the potential catalyst for a downgrade.

The report also noted that global funds with environmental, social and governance commitments may also avoid oil and gas stocks, following suit the footsteps of Norway-based Norges Bank Investment Management’s recent decision to exclude oil and gas stocks from its US$1 trillion fund.

Its stock picks for the year include companies with stable and recurring earnings such as Dialog Group Bhd and Yinson Holdings Bhd.

“Dialog’s earnings visibility is secured largely by the Pengerang Deepwater Terminal project with its enlarged buffer zone, while Yinson’s Ghana floating production, storage and offloading vessel project will provide the earnings momentum over the next two years,” the research house said.

D’nonce Technology plans private placement

PETALING JAYA: Packaging materials distributor D’nonce Technology Bhd plans to undertake a private placement exercise to raise RM6.08 million to repay bank borrowings.

In a filing with Bursa Malaysia, the group said based on an illustrative issue price of 33 sen per placement share and issuance of up to 18.43 million placement shares, the exercise is expected to generate gross proceeds of up to RM6.08 million. Of the proceeds, RM5.98 million has been allocated for repayment of bank borrowings and the rest for the proposed private placement expenses.

D’nonce said the exercise is not expected to have a material effect on the group’s earnings for the financial year ending Aug 31, 2018. However, the group said its earnings per share is expected to be diluted as a result of the increase in the number of shares pursuant to the issuance of placement shares.

Barring any unforeseen circumstance, it said the proposed private placement is expected to be completed by the first quarter of 2018.

BTM plant needs federal govt approval

PETALING JAYA: BTM Resources Bhd’s subsidiary BTM Western Power Green Energy Sdn Bhd will be submitting its application and proposal for its planned RM435 million waste incineration power plant to the National Solid Waste Management Department after the Malacca Economic Planning Unit said the project comes under the purview of the federal government. In November 2017, the company had submitted its approval to the relevant Malacca state authority.

The group’s board of directors said that it had received a letter from Unit Perancang Ekonomi Negeri Melaka informing that matters related to solid waste management and public cleansing are to be brought to the federal government.

In line with that, BTM said it will be submitting the application to the federal government agency for the plant. In November 2017, BTM entered into a heads of agreement with China’s SEPCO Electric Power Construction Corporation for the award of a Engineering, Procurement, Construction and Commissioning with Finance contract for the plant.