Economy

Global: Economy starts second half on solid footing. China's factory activity expanded at its fastest in 18 months in July, while the euro zone's private sector also perked up, but the pace of US manufacturing expansion slowed. While China is relying on increased government stimulus to steer its economy away from reliance on exports and towards consumer spending, Europe has taken the opposite approach, combining fiscal austerity with near-zero interest rates, and the US is beginning to wind down its monetary expansion. The latest HSBC/Markit Flash China Manufacturing PMI rose to 52 in July from 50.7, the highest reading since Jan 2013, and well above the 50-point level that separates growth from contraction. (Reuters)

US: Jobless claims hit more than eight-year low, but home sales tumble. The number of Americans filing new claims for unemployment benefits fell to the lowest level in nearly 8-1/2 years last week, suggesting the labor market recovery was gaining traction. While another report showed a sharp decline in new homes sales in June, economists cautioned against reading too much into the drop, noting that other data have pointed to housing getting back on track after stalling in late 2013. Initial claims for state unemployment benefits declined 19,000 to a seasonally adjusted 284,000 for the week ended July 19, the lowest level since February 2006, the Labor Department said. (Reuters)

US: Stagnant wages leaves central banks fretting over fate of workers. After injecting trillions of dollars into the global financial system over the last six years, the world's central bankers now face a vexing question: why is so little of it showing up in workers' paychecks? From the US Federal Reserve to the BOE, the BOJ and the ECB, slow wage growth is a major concern as central bankers continue to look for signs of a solid recovery. The standing assumption has been that low interest rates would support growth, growth would translate into jobs, and tighter labor markets would lead to rising pay. But the tepid pace of wage growth this far into the recovery "makes them very nervous," said Joel Prakken, a senior MD at the Macroeconomic Advisers. (Reuters)

EU: Service industry gives eurozone a boost. Fears that the euro area’s lacklustre recovery had stuttered to a complete halt were soothed, after a poll tracking economic activity showed conditions improved this month. A flash estimate of the PMI for the currency bloc reached a three-month high of 54 in July, up from 52.8 in June, and well above the 50 level that marks an expansion in activity. The latest data will ease concerns about the state of the eurozone economy, with few economists expecting good news in mid Aug, when the European Commission releases its first assessment of what happened to the bloc’s GDP in the three months to June. (Financial Times)

UK: IMF forecasts UK to be fastest-growing advanced economy in 2014. Britain’s economic revival continues to surprise the rest of the world, with the IMF upgrading its UK growth forecast more than for any other leading economy. The IMF’s prediction that Britain will easily be the fastest-growing advanced economy in 2014 is a boost to George Osborne, the day before official figures are likely to show output has finally exceeded its 2008 peak. If the Office for National Statistics confirms that the depressed period is over, Treasury officials say the chancellor is planning to mark the event and will maintain that his economic policies have repaired the damage done by the 2008-09 recession. (Financial Times)

China: 2014 growth likely to slip to 24-year low, reserve ratio cut seen. China's economy probably will grow at its slowest pace in 24 years this year, expanding by 7.4%, as government stimulus measures fail to fully offset the drag from a sluggish housing market. Growth in the world's second-biggest economy is forecast to dip slightly in the third and fourth quarters to 7.4%, from 7.5% in April-June. The USD9.4trn economy is expected to lose momentum despite a slew of government support measures in recent months and expectations that the central bank will further relax monetary policy by cutting banks' reserve requirement ratio once between Oct and March next year. (Reuters)

India: Blocks WTO deal on customs rules as deadline nears. India blocked an agreement on new global customs rules, angering fellow members of the WTO who say Delhi's veto could be costly, economically and politically. At a meeting in Geneva, diplomats from the 160 WTO member countries were supposed to rubber stamp a deal on "trade facilitation" that was agreed at talks in Bali last Dec. But India said it would veto the agreement until it gets what it wants in a separate area linked to its system of subsidizing and stockpiling crops. Several countries issued statements saying that a failure to agree the deal would be a massive blow to the WTO, which is trying to emerge from a decade of failed negotiations on further liberalizing global trade. (Reuters)

Markets

Yinson: Unit to sell Nautipa stake for RM188m. Yinson Holdings’s wholly-owned indirect subsidiary Yinson Production AS has entered into a share purchase agreement with Prosafe Production Public Ltd, a wholly-owned subsidiary of BW Offshore Ltd, to dispose of its entire equity interest in Nautipa AS for USD59.3m (RM188.0m). The completion of the deal is conditional upon approval by Yinson shareholders. Yinson said that the proposed disposal presented an opportunity for Yinson to unlock its investment in Tinworth at an attractive value. Based on the disposal consideration of USD59.3m, Yinson stands to realise a gain of RM78.7m. It will also reduce the company’s gearing ratio from 0.96 times to 0.9 times. The proposed disposal is expected to be completed by the third quarter of this year. (StarBiz)

Boustead: Buying London's Hyde Park Hotel. Boustead Holdings has agreed to buy the Hyde Park Hotel from Pastel Estate Ltd (PEL) for RM139.0m. The property, which comprises the 68-room hotel as well as freehold titles, is strategically located in the Bayswater area of London and has good accessibility to major shopping and tourist attractions as well as public transportation and amenities. “This is a strategic acquisition, with a view towards strengthening our property portfolio of investments. It also provides our hospitality business with an opportunity to branch out beyond Malaysian shores,” Boustead deputy chairman and group MD Tan Sri Lodin Wok Kamaruddin said. (StarBiz)

Zelan: Clinches RM250m jetty deal. Zelan's fully owned unit, Zelan Construction SB, has bagged a RM248.5m contract from Petronas Refinery and Petrochemical Corporation SB. The contract is for the provision of basic design, detail engineering, procurement, construction & commissioning of material off loading facilities jetty at Tanjung Setapa for Refinery and Petrochemical Integrated Development (Rapid) project at Pengerang, Johor. Zelan said that the contract duration for the works is 18 months. The jetty is intended to be used for import of heavy lift oversized (HLO) and Super HLO equipment and materials as well as some break-bulk and containerised cargo during the implementation of the Rapid Project. (SunBiz)

SMRT: Buys remaining stake in IESB. SMRT Holdings is buying the remaining 30% stake in In-Fusion Education SB (IESB), which manages Cyberjaya University College of Medical Sciences (CUCMS), from MIG Education SB for RM10m. Both parties entered into a sale of shares agreement for the acquisition of 30% of the issued and paid-up share capital of IESB, comprising 3.3m RM1.00 shares. IESB manages and operates the CUCMS which has faculties in medicine, pharmacy, traditional and complementary medicine and allied health sciences, and centre for foundation in science, language and general studies, graduate studies, research and commercialisation, medical sciences education and distance and continuing education. (SunBiz)

IPO: Reach Energy to buy asset in 'shortest time possible'. Reach Energy, the fourth and largest special purpose acquisition company (SPAC) to be listed on Bursa Malaysia, expects to secure its first oil and gas asset within one to two years of its IPO. The listing, which will raise RM750m, is slated for Aug 15. “We are not short on acquisition targets and I’m confident it will take us less than three years to complete our qualifying acquisition (QA),” MD Shahul Hamid Mohd Ismal said. (StarBiz)

MARKET UPDATE

The broader-based S&P 500 inched up 0.1% overnight to close at another record-high of 1,987.98, lifted by reports of stronger corporate earnings (most notably, Facebook Inc. which reported a 61% surge in 2QFY14 revenue) and further signs of mending in the employment markets. The benchmark Dow Jones Industrial Average was 0.02% lower for the day however. Unemployment benefit claims declined by 19,000 last week to 284,000, the lowest level in 8 years, though that was tempered by a report of new home sales falling 8.1% in June.

European markets closed higher on the back of improving manufacturing activity on the continent, boosting confidence that the economic recovery is back on track following the European Central Bank’s (ECB) recent monetary easing moves. A combined Purchasing Managers Index (as measured by Markit Economics) for both the manufacturing and services industries climbed to 54.0 from 52.8 in June, matching a 3-year high achieved in April this year. Italy and Spain’s benchmarks gained the most, closing 2.0% and 1.9% higher respectively. France, Germany and UK saw gains of 0.7%, 0.4% and 0.3%.

Asian equities were similarly boosted by a manufacturing-related report, but that of China’s which rose to an 18-month high, reinforcing belief that the government’s 7.5% growth target for 2014 can be met. The Shanghai Composite Index rose 1.3% as a result, and the Hang Seng Index a little further back with a 0.7% gain. Japan’s Nikkei 225 slipped 0.3% after the country’s finance ministry reported a wider-than-expected trade deficit for June following a surprise 2.0% decline in exports. Elsewhere, the Straits Times Index rose 0.4% while the FBM KLCI closed 0.3% on some late buying in Tenaga Nasional.

Another company with past glories to regain, Zelan (which in its heyday owned a 9.7% equity stake in IJM Corporation, was handling multi-billion power plant construction projects and once had a market capitalization of about RM3.2bn ) announced the securing of an RM248.5m contract to build and operate material off-loading facilities for Petronas’ RAPID project in Pengerang, Johor. And speaking of power plants, what’s with Project 4A and the “secrecy” surrounding it? Numerous announcements (and criticisms) have been made with regard to this, first with the direct award to a consortium comprising of YTL Power, Tenaga Nasional and SIPP Energy, to the withdrawal of YTL Power in what it said was the interest of good governance as it felt that the award should have been tendered out instead. But to-date, we still have no idea what the respective equity stakes are, project details, cost and tariffs amongst others. But in the meantime, the share price of Tenaga Nasional shows a gain while that of YTL Power is in pain.

Source: PublicInvest Research - 25 Jul 2014