• Despite the relatively bullish performance in Wall Street, coupled with improvement in the local 3Q2016 GDP data, the FBM KLCI (-1.1%) endured another round of heavy selloff last Friday after the Ringgit slid against the Greenback to leave the key index down 0.9% for the week. The lower liners were also in the red – the FBM Small Cap (-0.7%), FBM Fledgling (- 0.7%) and FBM ACE (-0.4%) all fell, while the Plantations (+0.3%) and Mining (+0.9%) sectors outperformed the mostly negative broader market.

• Market breadth turned negative as losers outnumbered gainers on a ratio of 612- to-279 stocks. Traded volumes, however, added 20.9% to 1.98 bln shares as the selling activities intensified.

• More than two-thirds of the key index constituents fell, dragged down by BAT (- RM1.36), followed by Genting (-19.0 sen), Hong Leong Financial Group (-18.0 sen), Maybank (-16.0 sen) and Petronas Gas ( 14.0 sen). Notable broader market decliners include consumer products stocks like Dutch Lady (-96.0 sen) and Panasonic (-18.0 sen), while DKSH and UMW slipped 25.0 sen and 19.0 sen respectively.

• Among the biggest gainers on the broader market were Nestle (+70.0 sen), United Plantations (+70.0 sen), Top Glove (+24.0 sen), Chin Teck Plantations (+20.0 sen) and Kim Loong (+13.0 sen). There were only four advancers on the big board – KLK (+22.0 sen), Petronas Dagangan (+4.0 sen), Wesports (+3.0 sen) and PPB Group (+2.0 sen).

• Japanese equities advanced as the Nikkei added 0.2%, but gains were limited by the weak Production Price Index data that fell 2.7% Y.o.Y in October. The Shanghai Composite (+0.8%) extended its gains, but the Hang Seng Index fell 1.4%, shrugging off the stronger-than-expected 3Q2016 GDP data (+1.9% Y.o.Y vs. economists’ expectations of 1.6% rise). ASEAN stockmarkets, meanwhile, ended mixed.

• Wall Street ended on a mixed note last Friday as the Dow added 0.2% to notch another record closing at 18,847.66 points. On the broader market, the S&P 500, however, fell 0.1%, dragged down by the energy sector (-2.0%) on renewed pressure on crude oil prices, while the Nasdaq added 0.5%.

• Earlier, European benchmark indices also ended mixed as the FTSE and CAC declined 1.4% and 0.9% respectively as the former saw the British Pound rallying to a five-month high against the U.S. Dollar. The DAX added 0.4% on speculation that Deutsche Bank (+3.6%) could soon settle its legal issues with the U.S. Department of Justice.

The Day Ahead

• Conditions on Bursa Malaysia remains unsettled and are still susceptible to the adverse performance of the Ringgit as well as from the further withdrawal of foreign funds amid the heightened odds that U.S. interest rates will be raised under the administration of the incoming Trump presidency.

• Under the prevailing uncertain market environment, we expect the choppy market conditions to remain with the downside bias still looming large. The dour market sentiments will discourage fresh buying as more market participants shies away from the market. Despite the generally dour market conditions, export related companies and plantation stocks could still some following as they are expected to benefit from the weaker Ringgit.

• In the interim, the main supports are pegged at the 1,600-1,620 levels, while the 1,650 level is the main resistance. MACRO NEWS

• Malaysia’s GDP grew 4.3% Y.o.Y in 3Q2016, surpassing the consensus estimate of 4.1% Y.o.Y, while on a quarterly basis, growth was at 1.5% - faster than the 1.0% Q.o.Q and 0.7% Q.o.Q rates recorded in 1Q2016 and 2Q2016 respectively. The stronger growth emanated mainly from higher consumer spending (+6.4% Y.o.Y) and a positive net exports (+5.9% Y.o.Y), after declining in the past two quarters.

• Segment wise, the services, manufacturing, construction and mining sectors rose 6.1% Y.o.Y, 4.2% Y.o.Y, 7.9% Y.o.Y and 3.6% Y.o.Y to offset the 5.9% Y.o.Y decline in the agriculture sector as the adverse impact of the El Nino weather continues to hurt palm oil output. Meanwhile, gains in the manufacturing sector aided the stronger exports, as with the higher crude oil production shoring up the mining sector.

• Although private consumption rose, private investment growth moderated to 4.7% Y.o.Y, from 5.6% Y.o.Y in 2Q2016, while both public consumption (+3.1% Y.o.Y) and investment (-3.8% Y.o.Y) were weaker. Inflation moderated to 1.3% in 3Q2016, while the country’s forex reserves amounted to US$97.8 bln, sufficient to finance 8.4 month of retained imports.

Comments

• Although the GDP performance was ahead of expectations in 3Q2016, there remain substantive challenges ahead as the Malaysian economy continues to grapple with the difficult external environment and slower domestic activities, where domestic demand slowed to 4.7% Y.o.Y in 3Q2016 (from 6.3% Y.o.Y in 2Q2016). Collectively, growth is expected to be subdued ahead with the consensus GDP for 4Q2016 remains pegged at 4.2% Y.o.Y, while for the fullyear, the forecast growth of 4.0%-4.5% is likely to be met.

• Further ahead, cost rises, both from higher domestic prices and imported inflation could also sap spending as with the uneven business spending, which has been confirmed by the moderating private and government investment trend in 3Q2016.

• The recent weakening of the Ringgit has added another layer of uncertainty to the Malaysian economy, albeit exports are likely to emerge as winners, with cost pressures likely to escalate over the coming months. This could eat into corporate margins and further exacerbating the already paltry corporate 2016 earnings growth of 5.9% Y.o.Y and 8.8% for FBM KLCI and FBM EMAS listed stocks respectively.

• Externally, the Trump presidency has clouded trade prospects with potential protectionist measures that could affect global trade, including our export performance in due course. At the same time, funds outflow could escalate as President-elect Trump is widely seen supporting higher interest rates and this could increase the Ringgit’s volatility.

Company Briefs

• IOI Properties Group Bhd has won its bid for a 1.09 ha. land parcel in the Marina Bay area for S$2.57 bln (RM7.77 bln), from Singapore's Urban Redevelopment Authority. The group will leverage on the strong demand for prime office space in the republic and the future development will be linked directly to the surrounding developments at One Raffles Quay, Marina Bay Financial Centre. (The Star Online)

• CAM Resources Bhd has announced that it received feed-in tariff approval from the Sustainable Energy Development Authority Malaysia (SEDA) for a 7MW renewable energy plant in Taiping, Perak.

• The approval was granted for a period of 16 years, commencing no later than 28th December 2018. The group expects to ink the power purchase agreement (PPA) with Tenaga Nasional Bhd on January 2017 at a fixed tariff rate of RM0.3685 per kWh for 16 years. (The Edge Daily)

• IHH Healthcare Bhd is planning to sell a 29.9% equity stake in PCH Holding Pte Ltd to China's Taikang Insurance Group Inc for RMB1.1 bln (RM689.6 mln) in cash. IHH will retain a 70.1% shareholding in PCH after the sale. (The Edge Daily)

• Boustead Heavy Industries Corp Bhd (BHIC) has secured a contract from the Defence Ministry for the maintenance and supply of spare parts for the Skyguard radar and 35mm Oerlikon guns for the Malaysian Armed Forces worth RM15.0 mln. The group does not expect the contract to contribute significantly to its 2016 earnings. (The Star Online)

• Century Logistics Holdings Bhd has reached an amicable settlement with Nestle Malaysia Bhd after both parties were engaged in court proceedings. Under the settlement agreement, Century Logistics will pay Nestle’s subsidiary, Nestle Products Sdn Bhd RM2.3 mln as full and final settlement of their claims. (The Edge Daily)

• WCT Holdings Bhd’s 70.0%-owned agreed to sell the office space that forms part of The Paradigm Petaling Jaya integrated development to the Employees Provident Fund (EPF) for RM347 mln. The office space will include retail lots, a concourse level and office space from level two to 31 of an office building known as The Ascent together with 865 car park bays.

• Jelas Puri and EPF have agreed to an exclusivity period of three months to enter into a sale and purchase agreement. (The Star Online)

• Iris Corp Bhd has launched a defamation suit against Dipon Gulf Infotech Consultancy LLC, DG Infotech Ltd and Dipon Group (M) Sdn Bhd, for placing a notice of a petition in newspapers, which gave the impression that Iris owed money to the three firms.

• Dipon Gulf Infotech had filed a petition to demand for the repayment of RM2.5 mln and US$2.2 mln against purported invoices and for purported work done in Malaysia, the United Arab Emirates and Saudi Arabia on 2nd March 2016 at the Kuala Lumpur High Court without notifying Iris and subsequently placing the notice on newspapers on 14th and 15th March, 2016. (The Edge Daily)

• D.B.E. Gurney Resources Bhd has renewed two contracts for the supply of poultry products for RM50.0 mln. The group has renewed its agreements with KFC (Peninsular Malaysia) Sdn Bhd and QSR Stores Sdn Bhd to supply poultry products to the two retailers in 2017.

• ELK-Desa Resources Bhd is proposing a rights issue to raise up to RM59.8 mln, mainly to have more hire purchase disbursements. The group will issue up to 51.6 mln new shares at RM1.16 a share on the basis of every one rights share-forevery five existing shares. (The Edge Daily)

• Titijaya Land Bhd has announced a subdivision of its 50.0 sen share into two shares of 25.0 sen apiece. The share split will be accompanied by 1.10 bln free warrants on the basis of one warrant-forevery two shares held. The warrants will also have an exercise period of five years with the entitlement date to be determined later.

• Following the share split, Titijaya's issued and paid-up capital will rise to RM552.4 mln, comprising up to 1.1 bln shares. (The Edge Daily)  

Source: Mplus Research - 14 Nov 2016