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Sliding Japan exports, manufacturing gloom heighten economic risks

TOKYO: Japan’s exports fell yet again in June, while manufacturers’ confidence crumbled to a three-year low this month as a Sino-U.S. tariff row, slowing China growth and rising trade protectionism heaped pressure on the world’s third-biggest economy.

Weak exports have weighed on Japan’s factory output, threatening to undermine capital expenditure and denting policymakers’ hopes that domestic demand will help offset intensifying external strains.

Exports in June fell 6.7% from a year earlier, the seventh straight month of declines, Ministry of Finance data showed on Thursday, dragged down by slowing sales of tankers, China-bound car parts and steel pipes. That compared with a 5.6% drop expected by economists and a 7.8% fall in May.

Separately, the Reuters Tankan survey showed Japanese manufacturers’ business confidence hit a three-year low in July, dragged down by steel/nonferrous metals and precision machinery, highlighting the fragility of the export-led economy.

The batch of gloomy data underscored bets among some analysts that the central bank will roll out more stimulus at its policy review later in the month.

A Reuters poll of economists showed expectations have risen sharply that the Bank of Japan’s (BOJ) next policy move will be to ease further.

BOJ officials have said they remain ready to ease further if economic conditions worsen, joining the U.S. Federal Reserve in signalling additional monetary stimulus amid deteriorating global growth.

“Both the government and the BOJ expect global economy to recover later this year but that scenario will likely be delayed due to intensified U.S.-China trade war, worsening of Europe’s economy and the U.S. economy heading to a soft landing,” Takeshi Minami, chief economist at Norinchukin Research Institute, said. “Japan’s exports will remain weak for the time being.”

Marcel Thieliant, senior Japan economist at Capital Economics, said he estimated that net trade knocked off 0.3 percentage points from gross domestic product growth in the second quarter and he expected that drag to persist through to the third quarter.

Indeed, the economic strains showed no signs of abating as a lack of progress on U.S.-China trade negotiations and heightened global uncertainty weighed on corporate spending.

Japan’s economy expanded an annualised 2.2% in the first quarter but many analysts predict growth will slow in the coming months due to the increasing external pressures. October’s scheduled sales tax hike may also curb consumption, they warn.

TRADE FRICTION

U.S. President Donald Trump and Chinese President Xi Jinping agreed last month to another truce in the year-long trade row between the world’s two largest economies, but no deadline has been set for the negotiations to conclude.

Adding to global trade uncertainties, Japan is in a deepening row with South Korea after Tokyo curbed exports of some materials used to make high-tech equipment.

By region, Japan’s exports to the United States rose 4.8% in the year to June, up for the ninth straight month, driven by semiconductor-making equipment and cars, the trade data showed.

The increased U.S.-bound shipments raise some concerns that Trump could pile pressure on Japan to curb its auto exports to the United States and open its highly-protected agriculture market to fix what he calls unfair trade imbalances.

Imports from the United States fell 2.5% in the year to June, causing Japan’s trade surplus with the world’s biggest economy to increase 13.5% from a year earlier to 669.9 billion yen ($6.21 billion), the data showed.

Exports to China, Japan’s biggest trading partner, tumbled 10.1% year-on-year in June, down for fourth consecutive month.

Asia-bound shipments, which account for more than half of Japan’s overall exports, declined 8.2% in the year to June.

Japan’s overall imports fell 5.2% in the year to June, led by nonferrous metal, versus the median estimate for a 0.4% fall, bringing the trade balance to a surplus of 589.5 billion yen, against the median estimate for a 420.0 billion yen surplus.

“The big drop in imports in June probably narrowed negative contribution from net exports to GDP. But that won’t change our view that external demand likely put a drag on April-June growth,” said Koya Miyamae, senior economist at SMBC Nikko Securities.


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Three Malaysian listed firms in 2019 Forbes Asia’s Best Under A Billion list

SINGAPORE: Three Malaysian listed companies made it to this year’s 200 top-performing public companies of Forbes Asia’s Best Under A Billion list.

They are Pentamaster Corporation Bhd, Vitrox Corporation Bhd and Elsoft Research Bhd.

The Best Under A Billion list honors 200 leading public companies in the Asia Pacific region with an annual revenue between US$5 million and US$1 billion.

“The Best Under A Billion list demonstrates the dynamism of Asia’s small and medium-sized businesses in creating value across the region,” said Forbes Asia’s Editor, Justin Doebele in a statement today.

According to Forbes Asia, the 200 companies posted more than 50 per cent average growth in annual net profit and sales in their latest financial year for a combined US$10 billion and $54 billion respectively.

The total market value of the class of 2019, however, fell 10 per cent to $228 billion, compared to the previous batch, amid trade tensions between China and the US.

“Some of Asia’s biggest success stories, such as Alibaba, were formerly on the Best Under A Billion list,” said Doebele.

Malaysian budget carrier AirAsia is a notable Best Under A Billion alumni, together with technology behemoth Tencent, Internet search provider, Baidu, Indian paint and coating manufacturer, Asian Paints and popular fast-food chain Jollibee, of the Philippines.

This year, 149 of the 200 companies are new to the list.

From a universe of 19,000 companies, candidates were screened for profitability, growth and modest indebtedness.

Pentamaster, through its subsidiaries, manufactures automated and semi-automated machines and equipment, designs and manufactures precision machinery components, as well as assembles and installs computerised automation systems and equipment.

It recorded US$105 million in revenue.

Vitrox which registered US$98 million in sales, provides machine vision solutions for semiconductor integrated circuit inspection.

Meanwhile, Elsoft Research’s products and services include advanced electronics system design, systems software engineering and algorithm development, and optoelectronic/semiconductor parametric testers.

Its sales stood at US$19 million.


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Nine companies set prices for their listings on China’s Nasdaq-style tech board

SHANGHAI: Nine Chinese companies, among the first to list on China’s Nasdaq-style tech board, announced prices of their new share offer on Tuesday, as investors braced for a busy week for initial public offerings (IPOs).

China’s securities regulator has given the go-ahead for 25 companies to list on Shanghai’s technology and innovation board, the STAR Market, and the first batch of companies will start trading on July 22.

Four tech board companies have already completed their offerings, while 21 firms are taking subscriptions from investors this week.

Nine companies, including China Railway Signal & Communications Corp (CRSC), Advanced Micro-Fabrication Equipment Inc (AMEC) and Ningbo Ronbay New Energy Technology Co disclosed their IPO price via exchange statements on Tuesday, and will take subscriptions from investors on Wednesday.

Valuations, measured by earning multiples, vary.

Semiconductor firm AMEC priced its new offering at 29.01 yuan per share, or 170.8 times its 2018 earnings, excluding extraordinary items.

In contrast, China Railway Signal & Communication priced its offering at 5.85 yuan ($0.8502) per share, or 18.18 times its 2018 earnings, the lowest multiples of the nine firms. Its Hong Kong-traded shares closed at 6.05 HKD ($0.7757) on Monday.


Samsung Electronics flags 56% fall in Q2 operating profit

SEOUL: Samsung Electronics said Friday it expects operating profit to tumble 56 percent for the second quarter of this year in the face of a weakening chip market.

Operating profit for the April to June period is forecast to reach around 6.5 trillion won ($5.6 billion), down 56 percent from a year earlier, the world’s largest maker of smartphones and memory chips said in a statement.

The firm is the flagship subsidiary of the giant Samsung Group, by far the biggest of the family-controlled conglomerates that dominate business in the world’s 11th largest economy, and it is crucial to South Korea’s economic health.

It has enjoyed record profits in recent years despite a series of setbacks, including the jailing of its de facto chief.

But now the picture is changing, with chip prices falling as global supply increases while demand weakens.

Samsung launched its top-end S10 5G smartphone earlier this year, after South Korea won the global race to commercially launch the world’s first nationwide 5G network.

But in April it made a high-profile decision to push back the release of its new Galaxy Fold phones after reviewers provided with early devices reported screen problems within days of use.

While Samsung’s device was not the first folding handset, the smartphone giant was expected to help spark demand and potentially revive a sector that has been struggling for new innovations.

The South Korean firm had spent nearly eight years developing the Galaxy Fold as part of its strategy to propel growth with groundbreaking gadgets.

The firm is yet to announce its new release date.

Samsung supplies screens and memory chips for its own smartphones and Apple, and server chips for cloud companies such as Amazon.

But it is also one of the South’s major semiconductor manufacturers that are being affected by Tokyo’s recent restriction of exports to South Korea.

The measures — which raises the stakes in a protracted dispute over South Korean court rulings requiring Japanese firms to compensate victims of a wartime forced labour policy — are expected to significantly slow the export of several key materials used by Samsung.

Human rights concerns

Tadashi Uno, display research director at IHS Markit, said an end-product that could be affected by Tokyo’s newly announced restrictions is Samsung’s Galaxy Fold.

“The display of the Samsung Galaxy Fold — now in pre-order status in the United States — is produced utilising fluorinated polyimide film from Sumitomo Chemical, which is a Japanese electronic materials firm,” he said.

“South Korea-based Kolon Industries could act as an alternative supplier for the Samsung foldable smartphone display.”

The smartphone giant’s reputation had taken a hit after the bribery conviction of Lee Jae-yong — the son and heir of the group’s ailing current chairman Lee Kun-hee.

The junior Lee was a prominent figure in the scandal that ousted former South Korean president Park Geun-hye and was sentenced to five years in jail in August 2017.

He was freed in February last year after several of his convictions were quashed on appeal.

Its French subsidiary, on the other hand, is currently facing charges of deceptive marketing over its corporate ethics pledges after activists complained that the smartphone giant’s practices in its factories overseas violated human rights.

Based on information provided by other rights groups such as China Labor Watch, the NGOs allege that Samsung employs children under the legal of 16, subjects its employees to abusive working hours, that housing and labour conditions fail to meet basic conditions of human dignity and put workers in danger. – AFP


South Korea may retaliate against Japan over high-tech curbs

SEOUL: South Korea may retaliate against Japan’s latest export limits on high-tech materials, it said today, as a row over forced wartime labour threatened to disrupt global supplies of memory chips and smartphones.

Samsung Electronics Co and SK Hynix Inc – the world’s top memory chipmakers and suppliers to Apple and China’s Huawei Technologies – could face delays if the measures that took effect yesterday drag on.

“Implementing corresponding measures against Japan cannot be ruled out,” said Finance Minister Hong Nam-ki, adding it would take a long time for a World Trade Organization ruling on the dispute.

Hong told South Korea radio the trade row could cause “unfortunate damage to both Korean and Japanese economies”.

The dispute is the latest flashpoint in a quarrel over South Korean efforts to seek compensation for Japan’s use of forced wartime labour, which got fresh impetus from South Korean court rulings last year.

The curbs on exports of three materials used in South Korean chips and smart-phone displays, which Japan had announced on Monday, will disrupt the global supply chain, South Korea’s trade minister said.

Japan accounts for 70%-90% of the production of the three materials, Japanese media have said, making it difficult for South Korean chipmakers to find alternative sources of supply.

“It will pose a huge uncertainty and threat to the global economy by shaking up the global supply chain,” Trade Minister Yoo Myung-hee told a meeting of industry groups today.

The row exploded late last year when South Korean court rulings ordered Japan’s Nippon Steel & Sumitomo Metal Corp and Mitsubishi Heavy Industries Ltd to pay hundreds of thousands of dollars to South Korean plaintiffs.

Japan denounced the court verdicts as “unthinkable”.

Both sides showed no signs of backing down in the trade dispute.

Kyodo News Agency reported on Tuesday that Japan was considering expanding its export controls to more items bound for South Korea.

The leader of South Korea’s ruling Democratic Party, Lee Hae-chan, said: “This fight is just in the beginning, not the end”.

The items affected by Japan’s curbs include photoresists and hydrogen fluoride, both essential materials in the chipmaking process at Samsung and SK Hynix.

Samsung was reviewing measures to minimize the impact on its production, the company told Reuters.

SK Hynix declined to comment. The company sent a letter to its clients on Tuesday saying it could handle the current situation in the short term, but there would be problems if the curbs dragged on, a source with knowledge of the matter said.

“Without these materials, which South Korean chipmakers rely on mostly from Japan, the whole process of semiconductor manufacturing can be in trouble,” the source said, asking for anonymity due to the sensitivity of the matter.


S.Korea eyes investing $854 mln annually in chip supply chain after Japan’s export curbs

SEOUL: South Korea will seek to invest 1 trillion won ($854.41 million) annually in developing home-grown materials and equipment used to produce micro-chips, a senior ruling party lawmaker said on Wednesday, after Japan tightened curbs on exports of some high-tech materials to the country.

Japan said on Monday it would tighten regulations on exports of materials used in smartphone displays and chips to South Korea amid a widening dispute over South Koreans who were forced to work for Japanese firms during World War Two.

“We are doing a preliminary feasibility analysis (on the investment),” Cho Jeong-sik from the Democratic Party told reporters after meeting with officials from the presidential office and government ministries to discuss a response to Japan’s decision.

The export curbs could hamper production of South Korea’s chip giants Samsung Electronics and SK Hynix as the two chemicals targeted are essential, analysts say.

Data firm IHS Markit said on Wednesday the Japanese trade restrictions against South Korea would add to global trade tensions. Asian exporters are already being strained by a prolonged slowdown in the global electronics sectors.

“A reduction or elimination in the availability of these materials will significantly impede the production of memory and other semiconductor chips, impacting major semiconductor manufacturers including Samsung Electronics and SK Hynix,” Len Jelinek, executive director of semiconductor research at IHS Markit, said in a note.

Japan’s industry minister said on Tuesday that its decision to tighten controls was not in violation of World Trade Organization (WTO), rebuffing South Korea’s earlier claims.

Cho, the South Korean ruling party lawmaker, shrugged off criticism in local media that the government is not laying out countermeasures swiftly. But he did not provide further details on the nature of the spending.

Shares in South Korean chip materials makers jumped after the government’s spending plan was made public.

Shares of Ram Technology and Ocean Bridge , local firms producing chemicals used in chip manufacturing process, rose as much as 20% and 15%, respectively.