Sunday, April 7th, 2019
BRUSSELS, April 7 — Top EU leaders meet Chinese Premier Li Keqiang this week at a summit in Brussels, but their hopes of winning solid commitments on trade look set for disappointment. Brussels is trying to beef up its approach to the Asian giant…
WASHINGTON, April 7 — President Donald Trump’s nomination of Herman Cain for a seat on the Federal Reserve board still stands despite reservations Cain expressed about being vetted for the position, White House Chief of Staff Mick Mulvaney said…
THE HAGUE, April 7 — Climate marchers handed in a lawsuit to Shell’s headquarters in the Netherlands on Friday aimed at forcing the oil giant to meet targets in the Paris accord. Dozens of chanting activists went to the Anglo-Dutch firm’s base…
PETALING JAYA: Shareholders are recommended to be particularly vigilant, prudent and diligent when investing in China-based companies listed on Bursa Malaysia given their propensity to “get into trouble”, according to the Minority Shareholders Watch Group (MSWG).
Just over a week ago, the Securities Commission Malaysia (SC) reprimanded China-based China Stationery Ltd, Xingquan International Sports Holdings Ltd and Maxwell International Holdings Bhd for various breaches of securities laws. The SC also said that the retention of office by four of the directors in these companies are prejudicial to public interest.
MSWG CEO Devanesan Evanson said many of the other China-based companies listed here have financial and accounting irregularities and do not perform well. Interestingly, China-based companies in Singapore also had a string of problems, just like in Malaysia.
“Some of the reasons for the problems in China-based companies are because these companies are often incorporated outside Malaysia and as such different laws apply. Many of their directors are foreign nationals and locating them or holding them accountable may be a challenge. Much of their business is based and located outside Malaysia and as such the existence, scale and veracity of their operations may be questionable. These give rise to conflicts of laws and business practices and jurisdictional issues,” he told SunBiz.
Out of the 12 China-based companies listed on Bursa Malaysia, four are PN17 companies. All of them are trading below the initial public offering prices.
“We advise minority shareholders to err on the side of caution, after all there are more than 900 companies listed on Bursa Malaysia. At the end of the day it is up to the risk appetite of minority shareholders. Minority shareholders should rely more on fundamental analysis and look out for key financial indicators when making their investment decisions,” said Evanson, adding that MSWG has included the China-based companies under the list of companies that it monitors.
However, he said one should not stereotype any set of companies or paint them with a broad brush. Every company should be evaluated on its merits.
“Just like in any country, there are good China-based companies and ‘not so good’ China-based companies. Given the experience with China-based companies in Malaysia, even regulators are exercising greater diligence prior to allowing these companies to list on Bursa Malaysia. There has not been any such listings in the past few years,” he observed.
He said it is timely that the SC acted on these listed companies as the offences are serious and impacts minority shareholders and the stock market’s integrity.
“The SC’s action acts as a warning that action will be taken on capital market offences and we hope that the SC (and Bursa Malaysia) will be more severe with the sanctions to send a strong message that capital market integrity and investor protection are paramount,” said Evanson.
Meanwhile, Associated Chinese Chambers of Commerce and Industry of Malaysia president Tan Sri Ter Leong Yap said one should not shun China-based companies just because of a few bad apples.
“These are individual cases. You cannot (have a blanket judgement) because of one or two cases like this and you think that Chinese companies are not good. There are lots of good Chinese companies worldwide, such as Tencent and Alibaba. Those are large ones, but even the small and medium companies from China are good,” Ter said.
He added that when Bursa Malaysia is able to attract Chinese companies to come into the country, and get them listed on the local bourse, that would make the Malaysian capital market more lively.
“We shouldn’t judge just because of two or three (offenders). China is the second largest economy in the world and there are lots of solid companies in China,” said Ter.
PETALING JAYA: Analysts remain less optimistic on their outlook for Malaysia’s exports this year on the back of uncertainty in global trade and growth slowdown in the key export markets.
In a note last Friday, PublicInvest Research said it is of the view that the recent export numbers moderated amid unresolved trade disputes that pushed traders to be cautious and calculative in their commercial decisions.
“Trade negotiations are ongoing and given the depth and complexity of the matter, this could last for the entire second quarter (Q2), suggesting that trade may not rebound until then.
“We expect a piece-meal solution at the very least which should be enough to give trade the jolt it needs. Traders and exporters may remain cautious and calculative with their commerce-related decisions until then,” it explained.
Nevertheless, the research house said Malaysia is in the best position to gain from a global trade rebound, thanks to the competitive ringgit and ample capacity in the economy.
Meanwhile, BIMB Securities Research opined that 2019 would be a challenging year for Malaysia’s exports primarily weighed by the trade tension between the US and China, prospect of cooling global growth, China’s slowing economy, a weak EU economy and sluggish demand for commodities.
“There is also expected to be a slower global demand for electrical and electronics (E&E) products,” it said.
According to the Semiconductor Industry Association, the global semiconductor sales were up 13.7% in 2018, but it is forecasted to decline 3%.
Overall, BIMB Securities believes that there will be a general slowdown in the global economy that would impact exports this year and it anticipates the exports growth to slow down to 3.4% in 2019.
“Moving forward, based on the latest manufacturing Purchasing Managers’ Index (PMI) reports, we are cautiously sanguine in the near-term as new exports orders are weakening despite expansion in the region’s manufacturing activity.
“We maintain our view that trade performance would remain subdued going forward. After almost reaching the RM1 trillion mark in 2018 (2018 export: RM998 billion) with a year-on-year growth of 6.7%, it will be tough for exports to achieve the same figure this year with the anticipated slower global growth.”
However, UOB Research said the uptick in recent PMI from US, China and the region in March, alongside signs of constructive US-China talks, could help Malaysia’s exports and industrial activity turn the corner in Q2’2019.
PETALING JAYA: Malaysian Rating Corp Bhd (MARC) is of the view that any overnight policy rate (OPR) cut by Bank Negara Malaysia (BNM) is unlikely to stoke significant domestic financial market volatility.
This is because the ringgit has strengthened (1.3% since the beginning of this year) and the US rate hike has paused, its chief economist Nor Zahidi Alias said in its Malaysia: Macroeconomic Update report last Friday.
“We feel that the timing for an OPR cut could not have been better, if it happens in the near term,” he said.
However, he said that concerns over financial market volatility have not faded and hence the ringgit’s volatility may persist.
Nor Zahidi said among the factors that could affect the ringgit in the near term are: prospects of a shrinking current account balance in the wake of a deteriorating external environment in 2019, expectation of a stronger greenback due to its safe-haven status, increasing possibility of softer crude oil prices due to the weaker global economy.
“Adding to this is the uncertainty over China’s policy with regards to renmimbi following trade tensions with the US. Based on past experiences, the ringgit will be adversely affected if the renmimbi weakens significantly against the greenback,” he explained.
MARC believes that the recent tone by BNM in its March Monetary Policy Committee statement provides a signal that the central bank is preparing the market for a slight downward adjustment in the OPR.
The rating agency said the focus on the risks in the economic and financial environment will be given added weight in BNM’s policy-making decisions going forward.
“With inflation falling into negative territory in January and the expectation that Consumer Price Index (CPI) numbers will be lower-than-initially expected, the spread between the OPR and CPI has widened the most since August 2009.
“The benchmark bond yields for the 10-year Malaysian Government Securities have also reacted in tandem, slipping to below 4% for the first time since April 2018.”
Meanwhile, MARC said the continuing decline in the growth of household debt and its ratio to total household debt in 2018 are a credit positive for Malaysia.
“The share of vulnerable borrowers – those earning less than RM5,000 per month – has also declined slightly to 39.8% of total household debt from 40.6% in the preceding year.”
PETALING JAYA: PublicInvest Research suggested Malaysia identify new potential developing markets such as the African region to minimise impact from Europe’s proposal to exclude palm oil from the European Union (EU) green fuel targets.
This is given that the African region is the second most populated region in the world with around 1.31 billion people or twice the population of Europe.
“The government can also increase domestic biodiesel demand by pushing for a higher biodiesel mandate and expand the use of biodiesel to the industrial and manufacturing sectors (steel, rubber glove, packaging) that have been plagued by the gas price or electricity tariff hikes,” the research house said in a note last Friday.
Under the new EU law, which was passed last year, the use of more harmful biofuels (palm and soybean oils) will be capped at 2019 levels until 2023 and reduced to zero by 2030.
Last year, EU was Malaysia’s second largest palm oil export market with a 12% market share. A complete phase-out of palm-based biofuel could cause a loss of one million metric tons (mt) of palm oil demand from EU or 5% of annual crude palm oil (CPO) production.
Nearly 50% of EU’s palm oil imports were used for biodiesel purpose.
PublicInvest Research also noted that the B10 mandate for the transport sector must be strictly enforced on all government diesel vehicles such as buses, trucks, lorries and locomotives.
The research house said biodiesel has become commercially viable or requires little subsidy since July 2018, as crude oil prices have been on the uptrend while CPO prices remain at low levels.
“Palm oil-gas oil spread has become wider recently, with a -US$90 (-RM367.87) per mt. The wider the spread, the more economical it is to use biodiesel for energy consumption. This should bode well for both Malaysian and Indonesian biodiesel producers, bolstered by improved domestic and overseas demands, which would help ease the high palm oil inventory level in their countries.”
It said European consumers would also suffer in the event of a complete phase-out of palm-based biofuel, as EU has no better alternative to replace the palm-based biodiesel, which is the cheapest source.
Other types of biofuel, namely tallow, soy and rapeseed oil-based are priced US$20 to US$70 per mt more expensive than palm methyl ester.
“A higher fuel cost would eventually bring knock-on effect on other prices in the entire EU economy and eventually will further worsen the already weak spending sentiment.”
PublicInvest Research, which is maintaining a “neutral” call on the plantation sector, suggested a mutual solution for all parties whereby only certified biodiesel can be accepted as part of the green fuel targets, rather than a complete phase-out.
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