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Author: PublicInvest   |   Latest post: Tue, 19 Nov 2019, 9:18 AM

 

PublicInvest Research Headlines - 30 May 2019

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Economy

Global: Auto industry’s weakness is dragging down global economic growth. A decline in global car sales likely reduced world GDP by 0.2% last year and a flat auto market will continue to dampen global manufacturing indicators in 2019, according to a report. Demand for autos declined in 2018 for the first time since 2009 and while the 0.1% drop was modest, it compared to an average annual increase of 4.1% in prior years. Softness in the car industry ripples across the economy more than some other sectors because of the wide array of industries involved in automakers’ supply chains such as steel and glass. The weakness in sales has already seeped into the economic data of countries with high exposure to the industry. Germany saw a GDP contraction in late 2018 while Mexico’s and South Korea’s economies both shrank in early 2019. (Bloomberg)

EU: Eurozone sentiment better than expected in May. Eurozone economic sentiment was better than expected in May, rebounding after 10 consecutive monthly falls thanks to more optimism in the biggest sector, services, but also in industry and among consumers, European Commission data showed. The Commission’s economic sentiment indicator for the 19 countries sharing the euro rose to 105.1 in May from 103.9 in April, beating market expectations of no change. Services sentiment improved to 12.2 from 11.8, beating expectations of a decline to 11.0 and the mood in industry defied expectations of no change to rise to -2.9 from -4.3. The index for consumers rose to the expected -6.5 from -7.3. But separately, the business climate indicator, which helps point to the phase of the business cycle, continued to fall, declining to 0.30 in May from 0.42 in April, well below market expectations of a decline to 0.40. (Reuters)

EU: German unemployment rises as weaker economy starts to bite. German unemployment unexpectedly rose for the first time in almost two years as the economic slowdown finally started to take a toll on the labor market. The number of people out of work climbed by 60,000 in May, compared with economists’ forecasts for a decline of 8,000. The jobless rate also rose, to 5% from a record-low 4.9%. The Federal Labor Agency said about two-thirds of the increase was due to reclassification of some people in the statistics, though it also cited the slowdown in Europe’s largest economy. “We are seeing the first signs of a weakening economy on unemployment,” it said. It added that demand for new employees is still at a high level, but is softening. Strength in Germany’s labor market has helped to boost consumer spending and support the economy. A turnaround in fortunes could be very damaging, given ongoing weakness in manufacturing and the auto industry, as well as trade tensions that threaten to hit exports. Business confidence plunged this month to the weakest in more than four years. (Bloomberg)

Japan: BoJ chief says re-anchoring long term inflation expectations difficult. BoJ governor Haruhiko Kuroda said Japan has difficulty in re-anchoring long-term inflation expectations from inflation below the target level and suggested examining how best to manage inflation expectations within the flexible inflation targeting framework. Many advanced economies experience very sluggish price development despite significant improvement in economic activity, the banker said. This, in turn, raised concerns about the credibility of inflation targets. Kuroda said Japan's experience shows that it is difficult to re-anchor long-term inflation expectations from inflation below the target level. (RTT)

South Korea: Business sentiment rises for third month. South Korea’s business sentiment rose for the third month in a row in May, led by an improvement in morale in manufacturing, data showed. The business survey index for all industries rose to 76 in May from 75 in April. The seasonally adjusted business sentiment index improved to 73 from 72. Confidence strengthened among export-oriented businesses, while morale weakened slightly among domestic demand-oriented sectors. Manufacturing businesses were slightly less confident regarding sales, while their assessment on profitability was stable. They expect input prices to increase, but hope to keep sales prices unchanged. The business sentiment index for non-manufacturing industries fell to 71 in May from 74 in the previous month. (RTT)

Singapore: Central Bank says does not manipulate currency for export advantage. The Monetary Authority of Singapore said it does not manipulate its currency for export advantage, after the US Treasury flagged the city-state as one of the countries whose currency practices deserve scrutiny. The Trump administration said no major trading partner met its currency manipulation criteria but nine countries, including China, Japan, South Korea, Malaysia and Singapore required close attention. "MAS does not and cannot use the exchange rate to gain an export advantage or achieve a current account surplus," the Singapore central bank said. A deliberate weakening of the Singapore dollar would cause inflation to spike and compromise MAS' price stability objective, it said. (The Edge) sentiment improved to 12.2 from 11.8, beating expectations of a decline to 11.0 and the mood in industry defied expectations of no change to rise to -2.9 from -4.3. The index for consumers rose to the expected -6.5 from -7.3. But separately, the business climate indicator, which helps point to the phase of the business cycle, continued to fall, declining to 0.30 in May from 0.42 in April, well below market expectations of a decline to 0.40. (Reuters)

EU: German unemployment rises as weaker economy starts to bite. German unemployment unexpectedly rose for the first time in almost two years as the economic slowdown finally started to take a toll on the labor market. The number of people out of work climbed by 60,000 in May, compared with economists’ forecasts for a decline of 8,000. The jobless rate also rose, to 5% from a record-low 4.9%. The Federal Labor Agency said about two-thirds of the increase was due to reclassification of some people in the statistics, though it also cited the slowdown in Europe’s largest economy. “We are seeing the first signs of a weakening economy on unemployment,” it said. It added that demand for new employees is still at a high level, but is softening. Strength in Germany’s labor market has helped to boost consumer spending and support the economy. A turnaround in fortunes could be very damaging, given ongoing weakness in manufacturing and the auto industry, as well as trade tensions that threaten to hit exports. Business confidence plunged this month to the weakest in more than four years. (Bloomberg)

Japan: BoJ chief says re-anchoring long term inflation expectations difficult. BoJ governor Haruhiko Kuroda said Japan has difficulty in re-anchoring long-term inflation expectations from inflation below the target level and suggested examining how best to manage inflation expectations within the flexible inflation targeting framework. Many advanced economies experience very sluggish price development despite significant improvement in economic activity, the banker said. This, in turn, raised concerns about the credibility of inflation targets. Kuroda said Japan's experience shows that it is difficult to re-anchor long-term inflation expectations from inflation below the target level. (RTT)

South Korea: Business sentiment rises for third month. South Korea’s business sentiment rose for the third month in a row in May, led by an improvement in morale in manufacturing, data showed. The business survey index for all industries rose to 76 in May from 75 in April. The seasonally adjusted business sentiment index improved to 73 from 72. Confidence strengthened among export-oriented businesses, while morale weakened slightly among domestic demand-oriented sectors. Manufacturing businesses were slightly less confident regarding sales, while their assessment on profitability was stable. They expect input prices to increase, but hope to keep sales prices unchanged. The business sentiment index for non-manufacturing industries fell to 71 in May from 74 in the previous month. (RTT)

Singapore: Central Bank says does not manipulate currency for export advantage. The Monetary Authority of Singapore said it does not manipulate its currency for export advantage, after the US Treasury flagged the city-state as one of the countries whose currency practices deserve scrutiny. The Trump administration said no major trading partner met its currency manipulation criteria but nine countries, including China, Japan, South Korea, Malaysia and Singapore required close attention. "MAS does not and cannot use the exchange rate to gain an export advantage or achieve a current account surplus," the Singapore central bank said. A deliberate weakening of the Singapore dollar would cause inflation to spike and compromise MAS' price stability objective, it said. (The Edge)

Markets

AirAsia (Outperform, TP: RM3.50): Aims to expand E-commerce beyond selling plane tickets. AirAsia is talking to potential partners to build an e-commerce app that it wants to see overtake the size of its airline business. The carrier, which gets about RM1bn revenue a year from its current booking engine, expects to earn 20 times more as it expands into an app that will offer lifestyle goods and services. The budget airline is bolstering its digital capability to tap a regional e-commerce market that’s set to increase threefold to USD240bn by 2025, CEO and Founder Tony Fernandes said. (The Edge)

ARB: Bags RM18m job for proposed IoT lifestyle development in Perak . ARB has bagged a contract worth RM18m to provide the Internet of Things (IoT) system and engineering, procurement, commissioning and management services (IoT SEPTCM) for a proposed residential development in Perak. The development is located in Mukim Belanja in the Kinta District, and comprises 130 units of single storey terrace houses, to be developed into an IoT technology lifestyle residential development project. The development, which will sit on a land measuring 16.43 square meters, has an estimated GDV of RM31.1m. (The Edge)

Perdana Petroleum: Bags OSV job from Petronas . Perdana Petroleum clinched a three-year umbrella contract for offshore support vessel services for Petronas’ petroleum arrangement contractors' (PAC) drilling and project activities. The group said it has acknowledged receipt of a letter from Petronas appointing the company as a panel contractor. The unit will provide six anchor handling tug and supply vessels and five accommodation work barges to the national oil company. The contract is on a call-out basis and will last for three years from the commencement date with two options to extend the contract by one year each. (The Edge)

Paramount: Planning overseas property venture. Paramount said the group is currently in talks with potential partners for its venture into overseas property markets within the next five years. Paramount group CEO Jeffrey Chew told that his team is currently studying the residential property markets in Thailand, Vietnam, Australia and the Philippines, and aims to pursue one or two of these markets under its five-year plan starting 2020. "We do see the Malaysian property market in the major urban centres getting fairly mature. So rightly said, the next step is to really look at potentially going out of the country… I think we are ready to go.” "We are actually conducting market research on a couple of cities, visiting the sites, learning about the markets, and talking to potential partners as well," he said, adding that Paramount will likely collaborate with JV partners in line with the group's asset-light business strategy. (The Edge)

Velesto: Banking on higher utilization rate in 2HFY19 . Velesto is confident it will post "better numbers" in the 2HFY19, banking on the expectation of higher utilisation rates for its drilling rigs for the rest of the year. The group is currently focusing on ensuring higher utilisation rates by expanding its market coverage. “In general, the O&G industry, despite the volatility of oil price, has seen significant improvements in activities, not only in Malaysia but also regionally and globally,” the Group said. “Moving forward, I believe the industry will continue to grow despite the volatility. And Velesto will continue to ride on this industry recovery and we hope to be able to improve our bottom line in the near future.” (The Edge)

Market Update

The FBM KLCI might open lower after Wall Street retreated overnight following declines in global markets as investors sought the relative safety of Treasuries amid persistent trade tensions between the US and China and concerns about slowing global growth. The S&P 500 staged a comeback to end 0.7% lower, but had been down as much as 1.3% when an afternoon sell-off picked up pace. The Nasdaq Composite dropped 0.8%. The moves followed sell-offs in European and Asian bourses. The broad Stoxx 600 index in Europe was 1.4% lower, taking losses for this month to more than 5% as it headed for its biggest monthly drop since December. The Frankfurt-based Dax and London’s FTSE 100 fell 1.6% and 1.2% respectively.

Back home, the FBM KLCI index gained 9.10 points or 0.56% to 1,623.67 points on Wednesday. Trading volume increased to 1.95bn worth RM1.83bn. In the region, Japan’s Topix index fell 0.9%, Australia’s S&P/ASX 200 was down 0.7% and South Korea’s Kospi dropped 1.3%. China’s CSI 300 and Hong Kong’s Hang Seng fell 0.2% and 0.5% respectively.

Source: PublicInvest Research - 30 May 2019

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