Economy

US: Fed lays out plan to prune balance sheet by USD1.1trn a year. Federal Reserve officials laid out a long-awaited plan to shrink their balance sheet by more than USD1trn a year while raising interest rates “expeditiously” to counter the hottest inflation in four decades. The roadmap for reducing the assets they bought during the pandemic was spelled out in minutes of their March meeting, when officials raised rates by a quarter points. (Bloomberg)

US: To ban new investments in Russia. The Biden administration will announce new sanctions in coordination with G7 nations and the European Union in response to Russian forces committing war crimes in Ukraine. There will also be a ban on all new investment in Russia. The next round of US sanctions will target Russian government officials, their family members, Russian-owned financial institutions and state-owned enterprises. (RTT)

EU: Germany factory orders decline for first time in 4 months. Germany factory orders declined for the first time in four months in Feb, largely driven by the fall in foreign demand. Factory orders decreased 2.2% on a monthly basis in Feb, in contrast to the 2.3% increase in Jan. This was the first decrease since Oct 2021. Annual growth in overall new orders eased sharply to 2.9% from 8.2% in Jan. New orders from foreign countries decreased 3.3% from Jan. (RTT)

UK: Urged to overhaul tax system that favours highest-earning 1%. The UK tax system continues to favour the 500,000 highest earning people in the country and should be overhauled. The top 1% enjoys “preferential” rates over wage earners because they get  more of their income from more lightly taxed sources. For the richest 1%, a fifth of their income comes from self-employment or from their own companies. For the top 0.1%, a group of just 50,000 individuals, the figure is as high as 30%. It means that deep inequalities still persist, even though taxes on the rich have risen since the financial crisis. (Bloomberg)

China: Economy hit by double whammy in March. Activity in Chinese manufacturing and services simultaneously contracted in March for the first time since the height of the country's Covid-19 outbreak in 2020, adding to the urgency for more policy intervention to stabilize the economy. The official manufacturing Purchasing Managers' Index (PMI) fell to 49.5 from 50.2 in Feb, while the non manufacturing PMI eased to 48.4 from 51.6 in Feb. The last time both PMI indexes simultaneously were below the 50-point mark that separates contraction from growth was in Feb 2020. The world's second-largest economy revved up in Jan-Feb, with some key indicators blowing past expectations, but is now at risk of slowing sharply as authorities restrict production and mobility in Covid-hit cities, including Shanghai and Shenzhen. (CNN)

Hong Kong: Private sector falls most since April 2020. Hong Kong's private sector contracted at a sharper pace in March amid lingering COVID-19 disruptions, survey results from S&P Global showed. The Purchasing Managers' Index posted below the 50.0 neutral thresholds at 42.0 in March, down from 42.9 in Feb. The sector shrank for the third straight month with the latest fall the fastest since April 2020. New orders and output in Hong Kong both declined for a third consecutive month. As a result of the fall in demand, purchasing activity eased in March. Nonetheless, employment levels increased after the fall in workforce capacity in Feb. (RTT)

Japan: IMF cuts growth forecast on hit from Ukraine war fallout. The International Monetary Fund (IMF) cut Japan's economic growth forecast on Apr 6 and urged policymakers to consider preparing a contingency plan in case the Ukraine crisis derails a fragile recovery. While rising commodity costs could push up inflation, the Bank of Japan must maintain ultra-easy policy for a prolonged period to sustainably hit its 2% inflation target. The IMF expects Japan's economy to grow 2.4% this year, lower than a projection for 3.3% expansion made in Jan, due to an expected contraction in the first quarter and the spill over effects of the Ukraine war. Domestic demand will likely slow from surging commodity prices, while geo-political tensions and a sharper-than expected slowdown in China's growth were risks to exports. On prices, Japan will likely see inflation momentum pick up on higher commodity prices, and an expected rebound in consumption as coronavirus infection cases fall. (CNA)

India: Service sector growth remains strong in March. India's service sector growth expanded at the strongest rate since Dec last year, survey results from S&P Global showed. The services Purchasing Managers' Index rose to 53.6 in March from 51.8 in Feb. Any score above 50.0 indicates expansion in the sector. In the fourth quarter, the reading was at its lowest average of 52.3 since the beginning of this fiscal year versus 57.4 in the third quarter. New work intakes increased further in March, while new business from abroad continued to decline. New export orders contracted at the fastest pace since Sept last year. The overall rate of cost inflation was the strongest since March 2011 and the overall rate of charge inflation remained high, but moderated. (RTT)

Markets

IHH (Outperform, TP: RM7.50): TPG nears USD300m deal to buy IHH’s education arm. Private equity firm TPG Capital Asia is nearing an agreement to buy IHH Healthcare’s medical education arm in a deal valued at about USD300m, according to people with knowledge of the matter. (The Edge)

Comments: It was reported that TPG Capital Asia, a private equity firm, is near to complete a deal to buy IHH’s education arm, IMU, at about USD300m (equivalent to RM1.2bn). IMU had equity book value of RM443.7m as at 31 Dec 2021, translating to a P/B ratio of 2.7 times. We are positive on this as it enables IHH to monetise its non-core asset, with the proceeds to be reinvested into its core business. Based on FY21 audited financial statements, IMU’s net profit accounted for c.2.5% of the Group’s net profit. However, as the deal is yet to be finalised, we make no change to our earnings estimates and maintain our Outperform call with an unchanged TP of RM7.50.

Hong Seng: Signs deal to offer virtual Covid-19 screening. Hong Seng Consolidated has signed a deal to provide virtual Covid-19 screening (VCS) services jointly with a digital health firm. (The Edge)

Kerjaya Prospek: Secures RM265m building work contract in Penang. Construction outfit Kerjaya Prospek Group has secured a RM265m contract to undertake main building work for a proposed development project located at Kawasan Terbusguna Tanah Seri Tanjung Pinang (Phase 2A) in Penang. (The Edge)

Transocean: Slapped with UMA query following sharp rise in share price, trading volume. Transocean Holdings was slapped with an unusual market activity (UMA) query by Bursa Malaysia following a recent sharp rise in its share price and trading volume. Transocean's share price rose 27.27% or 75sen to a high of RM3.50 before easing to RM3.29 at the noon break, still 54sen or 19.64% up with some 1.05m shares done. (The Edge)

Malaysian Genomic: Tailored health supplements now available on the airasia Super App. Malaysian Genomics Resource Centre (MGRC) launched its genetic screening plus personalised health supplements solutions on the airasia Super App, the region's leading travel and digital lifestyle platform. (BTimes)

TAFI: Secures construction contract worth RM9.5m. Tafi Industries has secured a RM9.5m construction contract from Alpha Asset. TAFI secured the contract from Alpha Asset for construction and completion of one unit single storey factory and warehouse, together with two-storey office building at Telok Panglima Garang, Selangor. (StarBiz)

Public Packages: Proposes two-for-five bonus issue. Public Packages Holdings has proposed a bonus issue of up to 75.57m shares on the basis of two bonus shares for every five shares held. The entitlement date will be determined after all approvals for the bonus issue are obtained. (The Edge)

Market Update

The FBM KLCI might open lower today after global stocks and government bonds sold off on Wednesday as minutes from the latest Federal Reserve meeting highlighted officials’ willingness to aggressively raise interest rates to combat inflation. The US central bank raised its benchmark interest rate by 0.25 percentage points last month, but the minutes showed several participants would have preferred a sharper 0.5 percentage point increase were it not for the uncertainty caused by Russia’s invasion of Ukraine. The S&P 500 stock index closed 1% lower, while the tech-dominated Nasdaq Composite lost 2.2%. The declines followed what had already been a bruising day for investors in Europe and Asia. The Europe-wide Stoxx 600 index dropped 1.5%, its worst daily decline in almost a month.

Back home, Bursa Malaysia ended on a firmer note on strong buying support for selected heavyweights, led by plantation and banking stocks, bucking the downtrend among regional peers. At 5pm on Wednesday, the benchmark FBM KLCI was 7.93 points higher at 1,604.72, compared with Tuesday's close at 1,596.79. Regionally, the Shanghai Composite Index was flat, Japan’s Nikkei 225 lost 1.6% and Hong Kong’s Hang Seng fell 1.9%.

Source: PublicInvest Research - 7 Apr 2022