Economy
US: Yellen says rate policy shouldn’t change over instability. Federal Reserve Chair Janet Yellen said there is no need to change current monetary policy to address financial stability concerns although she sees “pockets of increased risk-taking” in the financial system. In a comprehensive salvo into the worldwide debate among central bankers over whether interest rates are a first-order tool to curb financial excess, Yellen came down against that idea and in favor of regulatory mechanisms. “Monetary policy faces significant limitations as a tool to promote financial stability,” Yellen said. (Bloomberg)US: Private job gains in June largest in 1-1/2 years. US private-sector hiring hit a 1-1/2-year high in June, reinforcing views that momentum was building to carry the economy through the rest of the year after a dismal start. Report from payrolls processor ADP added to other bullish data ranging from manufacturing to auto sales that has suggested the economy has bounced back smartly after a 1Q slump. "This is further proof that recent weaker growth numbers are not a true reflection of the US economy," said Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh. (Reuters)
US: Wage growth seen modest into 2016. US wage growth will likely remain modest into 2016 even as employers ramped up their hiring in recent months, Moody's Analytics' chief economist Mark Zandi said. Zandi projected average domestic wages will likely increase at a 2.5% pace in 2015 and 3.0% in 2016, compared with the current 2.0% rate. While wage growth is expected to remain "spotty" in the next couple of years, there are signs of rising salaries in certain regions of the United States and high-paying sectors where the supply of qualified workers is becoming scarce, Zandi said. The pace of pay increases is expected to accelerate when the economy achieves full employment, which he expects will occur in 2016. "That's when wage growth will really pick up," he said. (Reuters)
UK: Mortgage seekers exploit loophole to avoid credit check. Rules requiring UK homebuyers to prove they can afford their mortgages after interest rates rise have prompted a jump in fraudulent home-loan applications. Services Plc said borrowers have been trying to exploit a loophole that exempts buy-to-let mortgages from affordability checks that regulators introduced to prevent a repeat of the credit crunch. The rules, part of the London-based Financial Conduct Authority’s Mortgage Market Review, took effect in April. A month later home prices surpassed their 2007 peak. (Bloomberg)
China: Premier Li says downward pressure still exists. China's Premier Li Keqiang said downward pressure still existed in its economy despite it operating within a reasonable range and some leading indicators demonstrating a positive trend. China's factory activity hit multi-month highs in June, official and private surveys showed, reinforcing signs that the world's second-largest economy is steadying as the government steps up policy support. Li gave no figures or details and few direct quotes in the comments on the Chinese government's official website, but also addressed the disconnect between government finances and the difficulty of business getting financing. (Reuters)
India: Modi seen slowing Singh’s decade of subsidies. As Indian Prime Minister Narendra Modi prepares his first budget, investors are watching to see how he’ll curb a subsidy bill that rose fivefold under his predecessor, stoking Asia’s fastest inflation. The chart of the day shows the budget for subsidies rose at almost twice the pace of so-called plan spending the past decade, with funds to ease the burden for food, fuel and fertilizer increasing 472% compared with the allocation at March 2004. The lower panel shows India’s government expenditure as a percentage of GDP was second-lowest after Indonesia among members of the so-called fragile five, which also comprises Brazil, Turkey and South Africa. (Bloomberg)
India: Jaitley talks tough on Indian budget, shares hit record highs. Finance Minister Arun Jaitley's warning against "mindless populism" propelled Indian stocks to record highs, as investors bet that his maiden budget next week will stabilize the wobbly public finances. Jaitley's comments reinforced expectations that he will curb the state's subsidy bill while taking advantage of the strong stock market to raise more than USD10bn by selling stakes in state companies. Economists do expect some slippage in the headline budget deficit that Jaitley inherited from the previous government due to a weak economy, but say the asset disposals should avert any need to resort to bigger borrowing. (Reuters)
Markets
AirAsia X (AAX MK, Neutral, TP: RM0.84): China to become largest market in a year. AirAsia X, expects its China routes to exceed those to Australia in terms of revenue and passenger contribution, said its CEO Azran Osman-Rani. "With Xi'an and the new route that we'll be announcing, within 12 months of the new routes being launched, I'm fairly confident that China will surpass Australia as the largest market for AirAsia X," he said, adding that the Australian routes currently contribute one-third or 33% to 35% of revenue and passengers while China routes contribute about 25%. (StarBiz)Goh Ban Huat: To become oil and gas player. Goh Ban Huat (GBH) and Keladi Maju, companies belonging to Tan Sri Robert Tan Hua Choon, have announced a series of exercises that will see the low-profile tycoon pocketing a cool RM134m from selling his holdings in the former. Tan will receive the sum by selling his 36% stake, amounting to some 66.8m shares, in GBH into a mandatory general offer (MGO) that will be made by its new shareholder, who, in turn, will assume control of the company via a reverse takeover (RTO). (StarBiz)
SapuraKencana: Kickstarts work in Brazil ahead of schedule. Global upstream oil and gas services provider, SapuraKencana Petroleum has started its first pipe-laying support vessel (PLSV) work in Brazil ahead of schedule. SapuraKencana said that its maiden foray into the country for state-run Petrobras in the pre-salt waters off Brazil was undertaken by its brand new PLSV Sapura Diamante on June 28, more than 3 months ahead of the original contractual delivery date. (StarBiz)
UMW-OG: Clinches RM64m Philippine job. UMW Offshore Drilling SB, a unit of UMW Oil and Gas Corp (UMW-OG), has received a letter of award from Frontier Oil Corp for the provision of a jack-up rig and associated services for the KJF Field SC50 Block offshore Palawan in the Philippines worth RM64.09m. The contract is for a duration of 120 days with an option for a further 180 days and should commence in mid-Jan 2015, it said. The contract will utilise UMW Naga 7, its jack-up drilling rig built at the CHMI shipyard in Shenzhen, China. (StarBiz)
Eco World: Expands landbank in Semenyih. Eco World Development Group will acquire 493 acres of freehold land in Semenyih, Selangor for RM225.3m, increasing the group’s landbank in the fast growing area to almost 1,500 acres. The new parcel has a gross development value of RM3.5bn, the company said. “With two sizeable projects in this fast-growing development corridor, Eco World is well-positioned to serve a broad range of customers and we intend to come up with exciting and innovative product offerings that will appeal strongly to the mass, upgrader and luxury homes market,” president and CEO Datuk Chang Khim Wah said. (StarBiz)
MAS: May be taken private for restructuring. Khazanah Nasional plans to take Malaysia Airlines (MAS) private as the first step in a major restructuring of the loss-making airline following the disappearance of its flight MH370. A delisting would pave the way for Khazanah to revive the ailing carrier, possibly by selling off its profitable engineering, airport services or budget airline units, trimming its bloated payroll and installing a new management team. (StarBiz)
MARKET UPDATE
US markets ended the day higher again, albeit marginally, as numbers from the ADP Research Institute showed companies adding more workers than anticipated in June (+281,000 against consensus expectations of +205,000). The government’s official jobs number is due out later today. Factory orders came in less than expected though, down 0.5% in May following a revised 0.8% gain in April. As a result, both the Dow Jones Industrial Average and S&P 500 closed higher by 0.1% only, still at record-highs however.Most markets in Europe closed marginally higher on account of the US economic data while also keenly watching out for clues from the ECB whose officials meet today to decide on policy action. The ECB is expected to keep interest rates unchanged after cutting its benchmark rate to a record low of 0.15% last month, while also introducing a -0.1% deposit rate and a EUR400bn long-term refinancing operation. Officials are also reportedly working on an asset-purchase plan. Benchmarks in UK, Germany and Spain inched 0.2%, 0.1% and 0.1% higher respectively while Italy’s rose a stronger 0.5%. France’s CAC 40 was down 0.4% however.
Asian stocks raced ahead to extend six-year (and for some, all-time) highs as investors’ moods were lifted by reports of an expansion in US and Chinese manufacturing activity. Separately, the Chinese government’s June 30 announcement of changes to its loan-to-deposit ratio calculation to give banks more lending capacity is being seen as a healthy pro-growth measure, lifting the Shanghai Composite Index another 0.4% higher for the day. The Hang Seng Index gained 1.6% after starting the week a little later than the rest following a holiday on Monday, despite street protests demanding full democracy and opposing Chinese control over elections. Elsewhere, the Straits Times Index and FBM KLCI added 0.7% and 0.4% respectively.
Step 1: Privatizing. Step 2: Restructuring. Step 3: Relisting. The first two steps are reportedly on the cards for Malaysia Airlines, as told by sources with direct knowledge of the matter. The third step is just our expectation of an exercise some time later down the road to re-coup all that’s been sunk in by the current major stakeholder, Khazanah Nasional. Question is, at what price will step 1 be carried out and at what cost will Step 2 be undertaken? While minorities will have little or no bargaining power in this matter considering the difficulties (and possible insolvency in a year or two at this current rate of cash-burn), we could probably see an offer of 23sen (the price of its recent rights issue) as something palatable for a no-gain no-loss situation to those who believed in the then-turnaround plans and subscribed for the share issue. Step 2, we’ll leave it to the experts! Keladi Maju, not a name you’ll hear very often, will likely feature more frequently in conversations now after it announced the acquisition of a 13.93-acre plot of land in Segambut from Goh Ban Huat for RM192.4m. With its core property development business operations focused up north in Kedah, this acquisition could be a shot-in-the-arm for this company which has RM152.7m in cash with practically no liabilities. How often do you see that in a company, let alone a property developer? On a related note, Goh Ban Huat will be transformed into an oil and gas company via a reverse takeover following the disposal of the said piece of land, delving into the areas of providing consulting and management services specializing in floating production and storage operator vessels and offshore marine services.
Source: PublicInvest Research - 3 Jul 2014
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