Economy

Global: Obama concerned over longer term global growth after Brexit. US President Barack Obama said he expects the world economy will be steady in the short run after Britain's decision to leave the EU but expressed concern about longer term global growth. Obama said there have been reactions in markets, stock prices and currencies since last Thursday's so-called Brexit vote. "I think there are some genuine longer term concerns about global growth if in fact Brexit goes through and that freezes the possibilities of investment in Great Britain or in Europe as a whole," Obama said. "At a time when global growth rates were weak already, this doesn't help." (Reuters)

US: Most big banks pass Fed's stress test, boosting shareholder payouts. Nearly all of the largest US banks are on steady enough footing to increase payouts to shareholders, the US Federal Reserve said, with just two subsidiaries of foreign banks failing its annual stress test. The results show that big US banks have not only built up significant capital since the 2007-2009 financial crisis but that management teams have largely proven the merit of their internal disaster planning to the Fed. (Reuters)

EU: IMF will lower growth forecast for German economy after Brexit. The IMF is likely to lower its growth forecast for the German economy in the coming weeks as a result of Britain's decision to leave the EU, a senior IMF official said. Britain is an important trade partner for Germany, and significant changes in the economic relationship between the two countries will have repercussions for Germany, Enrica Detragiache, the assistant director of the IMF's European department, said. "In terms of the new forecast, of course we are thinking of a downward revision," Detragiache said. "We are already indicating in the report that the UK referendum was a downside risk. (Reuters)

EU: France's Hollande flags tax relief for voters, businesses, banks. French President Francois Hollande flagged plans to ease the tax burden on middle class voters and small companies while also making Paris a more attractive financial center after Britain's referendum to leave the EU. Hollande said households would see their taxes trimmed by a further EUR2bn (USD2.2bn) if growth proved to be at least 1.7% next year. Hollande said that French growth would top 1.6% this year, allowing for 200,000 jobs to be created. (Reuters)

UK: Consumer confidence tumbles after Brexit vote. Confidence among British consumers fell sharply in the days after the country decided to leave the EU, according to a survey which gave a first glimpse of how the shock referendum result has affected households. The YouGov/CEBR Consumer Confidence Index, which measures people's economic sentiment on a daily basis, slumped to its lowest level since May 2013, when Britain's economy was just starting to emerge from its post-financial crisis sluggishness. Britain's consumers have been the main drivers of the country's economy which outpaced most of other rich countries in past three years but showed signs of slowing ahead of the referendum which resulted a surprise decision to leave the EU. YouGov said the index fell to 104.3 between June 23-27 the vote from 111.9 in the first three weeks of June. (Reuters)

UK: Car production up 26% in May. British car production rose by 26% yoy in May thanks to particularly strong demand for exports, but momentum could be halted by a loss of tariff-free access to Europe, an industry body said. The country's overwhelmingly foreign-owned car industry was at the forefront of big business's unsuccessful efforts to persuade Britons to vote to stay in the EU and is now seeking guarantees that uninhibited access to its biggest market will continue. In May British plants built 150,802 vehicles, the Society of Motor Manufacturers and Traders (SMMT) said, helping to push up year-to-date production by nearly 14% in the first five months of the year. (Reuters)

UK: British bank branch closures cut small business lending in half. British banks' closure of hundreds of branches in the last three years has more than halved lending to small businesses in the areas affected, research showed, ahead of a debate in parliament about the impact of the cuts. Britain's biggest banks HSBC (HSBA.L), Barclays (BARC.L), Royal Bank of Scotland (RBS.L) and Lloyds Banking Group (LLOY.L) have been steadily shrinking their branch networks to cut costs while investing in online and mobile banking services. Research by campaign group Move Your Money suggested many customers were losing out as a result, with lending to small local businesses down by 63% in towns and villages that had lost a bank branch. (Reuters)

China: Growth rebounds in 2Q, but may not last, according to private survey. China's economy rebounded in the 2Q, with capital expenditures recovering from 5-year lows, a private survey showed, as higher government spending helped boost the property and construction sectors. The quarterly survey of over 3,000 firms by China Beige Book International (CBB) also showed better hiring and a strong rebound in the services sector, which if sustainable would point to progress in Beijing's long-stated goal of rebalancing the economy. CBB also believes private investment will start to recover in coming months. Its data showed 47% of private firms reported faster growth in capital expenditures in the 2Q, up from 32% in the 1Q. (Reuters)

Japan: BOJ skeptics calling time on Kuroda's two-year target. Dissenters to the BOJ's stimulus measures remain a minority on its board, but their call to scrap the timeframe for its inflation target is gaining converts and casting doubt on the credibility of bank governor Haruhiko Kuroda and his broader program. In a bid to end two decades of debilitating deflation, Kuroda began a huge money-printing program when he took office in 2013, tied to a two-year target to push inflation to 2%. Three years on, despite the bank's printing JPY80trn (USD780bn) a year to buy government bonds and adding negative interest rates to its loose-money measures in Jan, prices are falling. The two-year target remains official policy, blind eyes turned to its failures during a series of resets. (Reuters)

Markets

E&O (Trading Buy, TP: RM1.80): Brexit won’t hit value of our UK properties. Eastern Oriental (E&O) is confident that Brexit, the UK’s exit from the European Union, will not have any negative impact on the total net realisable value (total value of properties less total bank borrowings) of its properties in the UK. It said that it invested in London before property prices rose sharply there and the ringgit to pound’s average exchange rate was lower than what it is today. E&O also said its bank borrowings are conservative with a low loan-to-value ratio and its properties are in prime locations. (SunBiz)

Maxis (Neutral, TP: RM5.90): To issue up to RM10bn Islamic notes. Maxis’ unit Maxis Broadband SB (MBSB) plans to issue Islamic medium-term notes with a nominal value of up to RM10bn which will be partly used to finance the group's internal reorganisation exercise. The telecommunications service provider said MBSB made a lodgement on Wednesday with the Securities Commission (SC) for the unrated sukuk murabahah programme. The unrated sukuk murabahah programme will have a tenure of more than one year and up to 30 years. (StarBiz)

AirAsia (Neutral, TP: RM2.36): To invest RM20m to promote klia2. AirAsia will continue to promote klia2 as the Low-Cost Carrier Terminal (LCCT) with a whopping USD5m (RM20.1m) to be spent on its marketing campaign, said group CEO Tan Sri Tony Fernandes. “In anticipation of more LCCTs (coming up in the future), we will call it LCCT KL, the low cost hub of Asia, and a one-stop to anywhere in Asia at the lowest fare,” he said. AirAsia would not spend the money in Malaysia but in other countries to promote klia2 like Dubai Airport, which is a major transit hub. (StarBiz)

GHL Systems: Aims to enter Singapore, HK. GHL Systems, an electronic payment solutions provider, is looking to penetrate Singapore and Hong Kong this year, as it plans to expand its eGHL internet payment business there. Currently, its eGHL business offers secure internet payment solution to online businesses in Southeast Asia, including Malaysia, Thailand and the Philippines. “I think Singapore and Hong Kong are important for global merchants. I would like to set up something there before end of the year,” its CEO Kanagaraj Lorenz said. (SunBiz)

Scomi Engineering: Unit eyes China monorail market. A subsidiary of Scomi Engineering is looking to enter China’s booming monorail industry together with a Chinese partner. An industry source confirmed that Scomi Rail had been approached by several Chinese railway and engineering firms and infrastructure companies looking to form a partnership to enter the industry. He said the company was looking to enter second and third-tier Chinese cities. (StarBiz)

IPO: HSS Engineers eyes India, Middle East. HSS Engineers, which aims to raise RM31.9m from its listing on the ACE Market of Bursa Malaysia, is targeting to expand into India and Middle East to reduce dependency on the local market. In 2015, 97.5% of the company’s revenue came from its Malaysian operations. HSS ED and co-founder Datuk Kunasingam Sittampalam said the company is vying for infrastructure services contracts in India. “The new Indian government is putting a lot of emphasis on the infrastructure, there is an opportunity for us to expand there as there is a need for better infrastructure,” he said. For the Middle East market, Kunasingam said, the company is hoping to take advantage from the Expo 2020 in Dubai and the World Cup 2022 in Qatar. (SunBiz)

MARKET UPDATE

The FBM KLCI is set to open higher as another day of stabilisation in global markets saw the major indices posted gains overnight with UK blue-chip stocks recovered all the losses incurred after last week’s shock EU referendum result and sterling briefly rallied back above the USD1.35 level. On Wall Street, major US indices turned positive again for year as the stocks rallied after worries about the UK’s vote to leave the European Union appeared to ease. At the closing bell, the Dow Jones Industrial Average was up 284.96 points or 1.6% to close at 17,694.68 or just 316 points, or less than 2%, from its close the day before results from the Brexit referendum. Meanwhile, the S&P 500 rose 34.68 points, or 1.7%, to 2,070.77 and Nasdaq Composite Index jumped 87.38 points, or 1.9%, to 4,779.25. A US Energy Information Administration report showing a sharp drop in domestic crude supplies sent oil prices soaring 4.2% to settle at USD49.88 a barrel, which carried energy and materials shares higher. As for economic data, consumer spending increased for a second month in May, though at a slower pace than in April.

Elsewhere, pending home sales slid 3.7% in May, a step back after several months of strong sales gains. Across the Atlantic, European stocks closed sharply higher, rising for a second straight session with the UK’s FTSE 100 jumped 3.6% to settle at 6,360.06, erasing its post-Brexit slide. Elsewhere, Germany’s DAX 30 rose 1.8% to end at 9,612.20, and France’s CAC 40 gained 2.6% to finish at 4,195.32. As for Brexit, a petition for the U.K. government to hold a second Brexit referendum has gathered more than 4 million signatures. The Parliament considers for debate petitions that get more than 100,000 signatures.

Back home, the FBM KLCI added 8.17 points or 0.5% to 1,642.21 in tandem with the regional markets which closed mostly higher. Gainers led losers by 461 to 298 with 1.35bn shares changed hands valued at RM1.54bn. In the region, shares rallied as worries about the U.K.’s decision to leave the European Union abated and with the Nikkei Stock Average added 1.6%, Hong Kong’s Hang Seng Index rose 0.9%, Australia’s S&P/ASX 200 gained 0.7%, South Korea’s Kospi was up about 1% and the Shanghai Composite Index edged up 0.6%.

Source: PublicInvest Research - 30 Jun 2016