Economy
US: Budget gap for 11 months shrinks 22% as economy grows. The US budget deficit narrowed 22% in the first 11 months of the fiscal year as accelerating economic growth boosted tax receipts, Treasury Department figures showed. The budget gap as a share of the economy is on a path to shrink this year to the lowest level since 2007, as falling unemployment and swelling corporate profits help revenues grow faster than outlays, the Congressional Budget Office said on Aug 27. (Bloomberg)EU: ECB seeks to ease euro-area capital barriers to promote lending. Europe’s efforts to boost lending and reduce financial fragmentation won’t succeed unless banks can move money freely between countries, ECB policy makers said. The cross-border banks who provide much of the financing inside the euro area aren’t now able to send their money where it’s needed, said ECB Executive Board member Benoit Coeure. As a result, borrowers are judged on where they live instead of whether or not they deserve a loan. (Bloomberg)
EU: Draghi says investment rebound needs both reform and stimulus. Investment in the euro area’s economy will only return to pre-crisis levels if governments work with the European Central Bank to achieve reforms and stimulate growth, ECB President Mario Draghi said. “A decisive rise in investment is essential to bring inflation closer to where we would want to see it, to stimulate the economy, and to bring down unemployment,” Draghi said. “No monetary stimulus, indeed no fiscal stimulus, can be successful unless accompanied by the right structural policies -- policies that foster potential growth and instill confidence.” (Bloomberg)
Japan: Seen needing USD47bn stimulus to balance next tax bump. Prime Minister Shinzo Abe will need a JPY5trn (USD47bn) fiscal stimulus package to cushion the impact of a further increase in Japan’s sales tax, a survey by Bloomberg News shows. The median from estimates of 13 economists in the survey is similar to the extra spending Abe prepared for the earlier bump in the levy to 8% in Apr. Finance Minister Taro Aso has indicated the government will prepare a back-up plan to bolster the world’s third-biggest economy as speculation mounts that stimulus will be needed before a planned hike in the tax to 10% in Oct next year. (Bloomberg)
Markets
Brahim’s: Eyes 3 more airlines. Inflight meals provider, Brahim's Airline Catering SB (BAC), is eyeing to cater meals onboard Malindo Air, Qatar Airways and Royal Brunei Airlines by year-end. The move is part of the company's effort to reduce its dependency on Malaysia Airlines which currently contributed over 75% to its revenue. BAC, a unit of Brahim Holdings, currently serves 35 international airlines and clients included Malaysia Airlines and AirAsia X, said executive chairman Datuk Ibrahim Ahmad Badawi. "Actually, we have been looking at how we can mitigate less volume coming from the national carrier for quite a while now," he said, adding that Brahim signed up Lufthansa early this year. (Bernama)Iris: In JV to develop township in Papua New Guinea. Iris Corp has entered into a JV to develop a township in Papua New Guinea (PNG) for the local government. The company said its property development subsidiary, Iris Land (PNG) Ltd, had signed a MoA on Sep 10 with Central Provincial Government Of Free Mail Bag, Konedobu NCD, PNG, and Jayacorp Holdings Ltd, its local partner. The three parties are to form a JV and build a satellite township on some 303.8ha of land in Granville Province. The JV will be majoritycontrolled by Iris Land with a 51% stake, the government with 23% and Jayacorp, 26%. (StarBiz)
YTL: In talks to buy 49% in India's thermal power business. Infrastructure conglomerate, YTL Corporation, is in talks with India's NSL Group to acquire up to 49% stake in NSL Orissa Power and Infratech, a thermal power business. "The talks are now in an advanced stage and due diligence process is currently going on," the unnamed sources saying. "YTL is also in talks with NSL group to buy a majority stake in the operations and maintenance arm of the Orissa project," the report quoted the source as saying. (Business Times)
RCE Capital: Expects drop in consumer financing business. Non-bank financial institution RCE Capital may see a drop in its consumer financing business due to unfavourable market conditions but expects to maintain its profitability this year, said CEO Loh Kam Chuin. He attributed the possible dip in personal financing to responsible lending guidelines by Bank Negara to contain high household debts. Loh said the group is "very cautious" on the loan growth and doesn't want "to grow for the sake of growing", but instead focus and be selective on the quality of the loan base. "The environment has changed, with the central bank issuing guidelines on responsible lending and limiting the loan tenure (for personal financing) to 10 years. (SunBiz)
Property (Overweight): House buyers facing end-financing issues. Financing issues is a major obstacle for property developers today with 53% of respondents in the Property Industry Survey 1H2014 reporting that their buyers face issues with end-financing, said the Real Estate and Housing Developers' Association Malaysia (Rehda). The survey showed that the RM250,001 to RM500,000 price range appears to be the most vulnerable to the end-financing challenge. In terms of rejection by banks for end-financing, 30% of those rejected are within the RM250,001 to RM500,000 price range while 24% are within the RM500,001 to RM700,000 price range. In the first six months of the year, only 39% of respondents had project launches with a total of 10,189 units launched. Of the 10,189 units launched, only 49% or 4,989 units were sold compared with 53% sales in 2H2013 out of 9,364 units launched. (SunBiz)
MARKET UPDATE
Contrary to expectations, US unemployment benefit claims rose last week to a two-month high, dampening sentiment further which had already been affected earlier as the European Union slapped more sanctions (of which the US has said it would join in) on Russia for its continued support of insurgents in Ukraine. Markets closed mixed however, with the Dow Jones Industrial Average 0.1% lower and the S&P 500 0.1% higher.European equities traded lower on heightened investor concern on corporate earnings and the sanctions against Russia which will be enacted today. Incidentally, Russia has also countered the move with import bans of its own, threatening to turn this tit-for-tat action into a full-blown “economic war” which probably hurts Europe more than anyone else. For the day, all benchmarks of the continent’s major economies closed lower, with Spain and UK’s down 0.5% while Italy, France and Germany’s declined 0.2%, 0.2% and 0.1% respectively.
Asian markets oscillated between gains and losses yesterday before finally closing mostly lower, with China’s weaker inflation rate a slight cause for concern especially given the slower imports numbers recently which may suggest underlying weakness in Chinese demand. Japanese equities (Nikkei 225: +0.8%) continued to rally however on account of the weakening Yen, that too as a result of the strengthening US dollar amid prospects the latter’s interest rate hikes. Elsewhere, benchmarks in China, Hong Kong and Malaysia declined 0.3%, 0.2% and 0.3% respectively. The Straits Times Index gained 0.3% however.
Another diversification story, this time with Tomei Consolidated (a jewelry retailer) going into the distribution of Korean skincare brands, “The History of Whoo” and “belif”. On face value, it seems like a strange move going into something totally unrelated but there probably has to be some investment merits otherwise the company wouldn’t have gotten into it. Another company which has already diversified from its previously-core business is Iris Corporation, which announced the signing of a deal to develop a 303.76ha satellite township in Papua New Guinea. Iris will hold a 51% equity stake in the venture. One which remains focused on its core business, albeit there being a few, is YTL Corporation which is reportedly being in negotiations with India’s Hyderabad-based NSL Group to buy the latter’s thermal power business. On a slightly more negative note, Freight Management Holdings announced that its wholly-owned subsidiary FM Global Logistics had received a notice from Suruhanjaya Pengangkutan Awam (SPAD) regarding the latter’s intention to suspend FM Global’s haulage license effective September 24. The company’s Board is seeking clarifications from SPAD, but in any case, the haulage business only makes up about 5% of the company’s business which relies more on sea freight. Nonetheless, a suspension of this nature is still negative and may have other far-reaching ramifications. This will be one to watch!
Source: PublicInvest Research - 12 Sep 2014
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