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PublicInvest Research Headlines - 20 Dec 2018

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Economy

Global: Oil near 15-month low on signs of surplus and economic concerns. Oil traded near its lowest closing level in 15 months as fears over slowing global economic growth compounded concerns that the market faces a supply glut in 2019. Futures rose 0.8% in New York after tumbling 12% over the past three sessions, the biggest three-day slump since 2016. Chinese President Xi Jinping showed little sign of backing down in a trade dispute with the US and the market braced for a Federal Reserve rate hike. Meanwhile, doubts persist over the effectiveness of output cuts pledged by the OPEC+ coalition, even as Saudi Arabia expressed confidence in a long-term reduction. (Bloomberg)

US: Fed hikes interest rates, slows future tightening path. The US Federal Reserve raised interest rates on Wednesday and said it was keeping the core of its plan to tighten monetary policy intact even as central bank officials said they would likely slow the pace of further rate increases next year. After weeks of market volatility and calls by President Donald Trump to stop increasing borrowing costs, the Fed lifted rates by a quarter of a percentage point. Fed Chairman Jerome Powell also said the central bank would continue drawing down the size of its balance sheet by USD50bn each month. The rate increase, the fourth of the year, was expected, but Powell's comments on the balance sheet in a news conference, though a repetition of longstanding Fed policy, prompted a sell-off on equity markets. (Reuters)

US: Current account widens; companies bring home piles of cash. The US current account deficit increased in the third quarter as imports surged, the Commerce Department said in a report that also showed US firms brought into the US USD92.7bn in repatriated earnings. The Commerce Department said the current account deficit, which measures the flow of goods, services and investments into and out of the country, widened to USD124.8bn, or 2.4% of national economic output, in the July-Sept period. Analysts polled by Reuters had expected the current account deficit to widen to USD124.3bn. The department report also showed a rebound in foreign direct investment during the third quarter, with foreign firms sinking USD116.3bn into the country. (Reuters)

US: Existing home sales rise, trend weak. US home sales unexpectedly rose in Nov, but recorded their biggest annual decline in 7-1/2 years as the housing market remained mired in weakness amid higher mortgage rates which have made home purchases more expensive. There are concerns that the persistent housing market weakness could spill over to the broader economy, which continues to be bolstered by robust consumer spending. The Federal Reserve raised interest on Wednesday for the fourth time this year and forecast fewer rate hikes next year. The US central bank made no mention of the housing market in a statement accompanying its rate decision. (Reuters)

UK: Cheaper petrol pushes inflation to lowest since March 2017. Britain’s inflation rate fell to a 20-month low in Nov, pushed down by cheaper petrol, official data showed, offering some relief to consumers who have reined in their spending ahead of Brexit. Consumer prices rose at an annual rate of 2.3%, the slowest since March 2017 and down from 2.4% in Oct, after the biggest monthly fall in petrol prices since 2015. The slowdown was in line with the median forecast in a poll of economists. There was less cheerful news for British homeowners, with the average price of a house rising at its slowest rate since July 2013, up 2.7% on the year. Looking at London alone, house prices have fallen for seven of the last eight months — their weakest run since the last recession — as the capital feels the effect of higher purchase taxes and investor uncertainty ahead of Brexit. (Reuters)

Japan: BOJ to keep policy steady as global risks, sliding yields put it in bind. The BOJ is set to maintain its ultra-loose monetary policy on Thursday and warn of heightening risks to the economy, as fears of slowing global growth jolt markets and narrow the window of opportunity to dial back crisis-mode stimulus. The nine-member board may also discuss recent declines in Japan’s long-term interest rates, as 10-year yields threaten to slide below zero and undermine the BOJ’s efforts to steepen the yield curve to give financial institutions breathing space. The BOJ is in a dilemma. Years of heavy money printing has left it with little ammunition to battle another recession, and the global economic slowdown is depriving the central bank of any near-term chance to restock its tool-kit. (Reuters)

Japan: Has JPY737.3bn trade deficit. Japan posted a merchandise trade deficit of JPY737.3bn in Nov that missed forecasts for a deficit of JPY630.0bn, following the JPY450.1bn shortfall in Oct. Exports were up just 0.1% on year, shy of expectations for a gain of 1.1% following the 8.2% spike in the previous month. Imports were up an annual 12.5% versus expectations for an increase of 12.0% and down from 19.9% a month earlier. The adjusted trade deficit came in at JPY492.2bn, beneath forecasts for a shortfall of JPY307.6bn following the JPY302.7bn deficit in Oct. (RTT)

Markets

Tenaga (Outperform, TP: RM16.86): To announce broadband project details in Jan 2019. Tenaga Nasional (TNB) will announce the details of its plan to enter the broadband services market in Jan. President and CEO Datuk Seri Ir Azman Mohd said TNB was in the process of communicating its plan to the relevant ministries. TNB is planning to enter broadband market by utilising its existing fibre optic network across the nation and it is currently running a pilot project in Melaka. The pilot project would be completed by end-Dec and the company would evaluate the results. (The Edge)

MRCB: Receives RM1.07bn from EPF for Bukit Jalil land disposal. Malaysian Resources Corporation (MRCB) has received RM1.07bn from the EPF for its 80% subscription in Bukit Jalil Sentral Property SB (BJSP), the special purpose joint venture company undertaking the development of Bukit Jalil Sentral. Bukit Jalil Sentral, which measures 76.14 acres, is a mixed development project with a GDV of RM21bn. The land will be developed over the course of 20 years, ensuring a sustainable pipeline of construction contracts for the group. (The Edge)

JAG: Buys land in Klang for RM14.4m. Property developer JAG is buying a piece of freehold land in Klang for RM14.4m for future development. The exact use of the land, measuring 16,720 square metres, has yet to be determined. The purchase, from Hwee Seng & Co SB, will be financed through a combination of internally-generated funds, fundraising exercise and bank borrowings. Barring any unforeseen circumstances, the proposed acquisition of land is expected to be completed in the 2Q of 2019. (The Edge)

Mclean: Ordered to pay RM3m to Petronas Gas for unlawful entry, pipeline damage. Mclean Technologies said its units have been ordered by a court to pay RM3.23m in damages to Petronas Gas for unlawful entry into the latter’s land. DWZ Industries (Johor) SB and DWZ Industries SB were also ordered to pay interest at 5% p.a. from the date of loss. The decision holds both DWZ entities liable to PetGas for unlawful entry into its land, trespass, nuisance and negligence for the discharge of foreign effluent. (The Edge)

BCorp: In talks to divest Four Seasons Kyoto for gain of up to USD400m. Berjaya Corp (BCorp) is in talks to sell its Four Seasons Hotel and Hotel Residences Kyoto (Four Seasons Kyoto) in Japan, aiming for a disposal gain of up to USD400m. While the group is hoping to seal a deal in the next 60 days, nothing has been finalised so far. (The Edge)

Chuan Huat: Inks MoU to supply building materials worth RM200m. Chuan Huat Resources is seeking to clinch a deal to supply building materials worth up to RM200m for a project in Kuala Lumpur with a GDV of over RM2.5bn. Indirect wholly-owned subsidiary Chuan Huan Industrial Marketing signed a memorandum of understanding (MoU) with Akisama Construction and Impianika Development. (The Edge)

7-Eleven, BCorp: Vincent Tan mulls selling 7-Eleven to Berjaya Corp. Tan Sri Vincent Tan is contemplating a disposal of his shareholding in 7-Eleven Holdings to his flagship Berjaya Corp (BCorp), as he believes the former to be undervalued. Tan maintained that the share price of convenience store operator 7- Eleven is "being undervalued" on Bursa Malaysia. As at Dec 17, Tan owned 48.33% of BCorp. (The Edge)

MARKET UPDATE

US markets weakened as bets of a more dovish Federal Reserve soured. As widely expected, rates were hiked for the fourth and final time this year. The central bank did suggest that it was only penciling in 2 hikes in 2019 versus the 3 initially planned however, though also spooking investors with plans to continue reducing the size of its balance sheet at the current pace of USD50bn per month. On the day, the Dow Jones Industrial Average gave up a 381-pt gain to sink 351pts or 1.5% lower. The S&P 500 and Nasdaq Composite tumbled 1.5% and 2.2% meanwhile. European markets were higher, cheered on by a breakthrough between Italy and the European Union on Rome’s 2019 Budget plans. Italy’s FTSE MIB was the continent’s top performer with a 1.7% gain. On the data front, UK’s inflation rate fell to a 20-month low in November, offering some relief to consumers who have adopted a cautious approach to spending ahead of Brexit. The FTSE 100 ended 1.0% higher. Germany’s DAX and France’s CAC 40 gained 0.2% and 0.5%. Asian markets were mixed ahead of the Federal Reserve policy decision. A notable development was the widely anticipated trading debut of SoftBank Corp, the mobile unit of Japanese conglomerate SoftBank Group, which ended in disappointment as the company's shares closed 14.5% lower than its initial public offering price of 1,500 yen. Market-wise, the Hang Seng Index inched 0.2% higher though the Shanghai Composite and Nikkei 225 indices slumped 1.1% and 0.6% respectively.

Chuan Huat Resources is seeking to clinch a deal to supply building materials worth up to RM200m for a project in Kuala Lumpur. Berjaya Corp founder and executive chairman Tan Sri Vincent Tan has announced a slew of corporate exercises, including the potential listing of U Mobile Sdn Bhd by 2020 as well as floating his hotel entity on the Singapore Exchange (SGX), the latter which will also see the de-listing of Berjaya Land amongst others.

 

Source: PublicInvest Research - 20 Dec 2018

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