Economy

Global: IMF sees 'pockets of resilience', slowing momentum in global economy. The IMF said that first quarter global growth slightly outpaced projections in its April forecasts, but data since then has shown a mixed picture, with "pockets of resilience" alongside signs of slowing momentum. The IMF said in a briefing note for a G20 finance leaders meeting in India next week that manufacturing is showing weakness across G20 economies and global trade remains weak, but the demand for services is strong, particularly where tourism is recovering. The IMF did not indicate any changes to its April 2023 global GDP growth forecast of 2.8% - down from 3.4% in 2022 - but said that risks were "mostly" tilted to the downside. (Reuters)

US: Consumer sentiment near two-year high in July. U.S. consumer sentiment jumped to the highest level in nearly two years in July as inflation subsided and the labor market remained strong, a survey showed on Friday. The University of Michigan's preliminary reading on the overall index of consumer sentiment came in at 72.6 this month, the highest reading since September 2021, compared to 64.4 in June. Economists polled by Reuters had forecast a preliminary reading of 65.5. Sentiment climbed for all demographic groups except for lower-income consumers. The sharp rise in sentiment was largely attributable to the continued slowdown in inflation along with stability in labor markets. (Reuters)

EU: Trade gap narrows on rising exports. The eurozone trade deficit declined sharply in May reflecting a notable growth in exports amid a fall in imports. The trade deficit fell to a seasonally adjusted EUR 0.9bn in May from EUR 8.0bn in April. Exports posted a monthly increase of 2.9%, while imports decreased 0.1% in May. On a yearly basis, exports of goods slid 2.3%. At the same time, imports registered a more marked decline of 12.8%. Consequently, the trade deficit dropped to EUR 0.3bn from EUR 30.3bn a year ago. During January to May period, extra-EU exports advanced 4.5% from the last year, while imports slid 7.8%. (RTT)

UK: Asking prices for homes slip as Bank of England's rates rises bite, survey show. Asking prices for residential homes in Britain fell in July as rising mortgage costs and increasing buyer affordability constraints prompted sellers to tempered their price expectations. Property website Rightmove said average asking prices of homes coming onto the market declined by 0.2% last month, compared with the 0% norm for this time of the year. Tim Bannister, director of property science at Rightmove, said stubborn inflation and further mortgage rate rises contributed to the fall in prices and number of agreed sales. (Reuters)

China: June new home prices flat in weakest showing this year. China's new home prices were unchanged in June, the weakest result this year, increasing pressure on policymakers for more stimulus as economic recovery falters. The flat result from a month earlier, with rises slowing nationwide, was below May's 0.1% gain. Prices were also unchanged from a year earlier, retreating from a 0.1% increase in May. The property sector, accounting for one-fourth of activity in the world's second-biggest economy, slumped sharply last year as developers defaulted on debts and suspended construction of presold housing projects. The central and local governments and regulators have announced a slew of policies over the past year to prop up the sector. (Reuters)

India: June trade deficit in line with expectations. India's merchandise trade deficit in June was in line with expectations at USD20.1bn. Merchandise exports stood at USD32.97bn, while imports were USD53.1 bn in June. In the previous month, merchandise exports were USD34.98 bn, while imports stood at $57.1bn. Economists expected a June trade deficit of USD20.1bn, according to a Reuters poll. India's exports remained weak for several reasons including a slowdown in the world's major economies. Services exports in June were USD27.1bn, while imports were USD15.9 bn. In May, services exports were USD25.3bn and imports were USD13.5bn. For the April-June period, services and merchandise exports fell 7.3% YoY to USD182.7bn, while imports fell 10.2% to USD205.3bn. India and Britain were expected to soon reach agreement on five contentious issues in their negotiations on a free trade agreement. They have been struggling to conclude their free trade talks because of differences on some tariff lines and investment protection rules. (Reuters)

Australia: Expects unemployment rate to rise as global economy slows. Australian Treasurer Jim Chalmers said that he expected the nation's jobless rate to lift from near a 48-year low on the back of higher interest rates and slowing global growth. "As the Reserve Bank forecasts and the Treasury forecasts have inflation moderating over the coming months, they do have a tick up in unemployment as well," said Chalmers. Amid stubbornly high inflation, the unemployment rate in May edged lower to 3.6%, when analysts had expected a steady 3.7%.The RBA this month kept the cash rate at an 11-year high of 4.10%, having lifted rates by 400 bps since May last year, but warned that further tightening might be needed The decision came after June data from the Australian Bureau of Statistics showed Australia's economy grew at the weakest pace in 1-1/2 years in the last quarter, while emerging signs pointed to further softness ahead. (Reuters)

Singapore: Dodges recession after slight growth in Q2. Singapore's economy narrowly escaped a recession in the second quarter as global demand weakened and China's slowdown dragged on trade flows, leading some economists to cut their growth forecasts for the year. The Southeast Asian economy grew a seasonally adjusted 0.3% QoQ, following a 0.4% contraction in the first three months, preliminary government data showed on Friday. Four economists with quarterly estimates had forecast growth of 0.3% in a Reuters poll. China's reopening had fuelled hopes for a sustained recovery in commerce and tourism for the region, especially Singapore's export-dependent economy, but demand has weakened in the wake of higher interest rates and strong inflationary pressures. On an annual basis, the economy expanded 0.7% in the second quarter compared with 0.4% growth in the prior quarter and a 0.6% expansion forecast in a Reuters poll. (Reuters)

Markets

Reservoir Link (Neutral, TP:RM 0.39): Awarded three-year contract for slickline perforation works. Reservoir Link Energy said its unit Reservoir Link Sdn Bhd (RLSB) has been awarded a Letter of Award (LOA) from Hibiscus Oil & Gas Malaysia Ltd for the provision of slickline perforation and specialised services at an undisclosed value. The LOA was dated June 23, 2023, and will last for a three-year period effective from July 3 this year to July 2, 2026. Based on the LOA, RLSB’s scope of work includes but is not limited to the supply of specialised slickline equipment and technically qualified personnel. (The Edge)

Comment: This is a call-out contract with the compensation varied based on the actual works completed and in accordance with prices and rates in the contract. Although this is positive to the company, we are neutral on the contract as the previous one awarded had minimal works executed and was insignificant towards its bottomline. Meanwhile, the Group has shifted its focus towards the renewable energy (RE) segment, with multiple new business ventures in the pipeline. We retain our Neutral call and TP RM0.39 as we remain cautious on the execution of scaling up its RE segment with its liquidity constraints.

Malakoff (Outperform, TP:RM0.95): Seals RM975m financial close in relation to RP Hydro project. Malakoff Corp has achieved financial close in relation to RP Hydro (Kelantan) SB's RM975.0m in nominal value Asean Green SRI Sukuk Wakalah issuance. It said the Asean Green SRI Sukuk Wakalah will be used to part-finance a project with an aggregate installed capacity of 84MW to be developed along Sungai Galas in the district of Kuala Krai, Kelantan. The project will be financed through a combination of Asean Green SRI Sukuk Wakalah and shareholders’ equity contribution based on a finance-to-equity ratio of up to 80:20. (The Edge)

Comment: To reiterate our report dated 22 nd March, the expected project cost is about RM1.23bn with 80% funded with sukuk, and expected to command high single digit IRR. We are positive on this development as the financial close indicates the project has met all precedent conditions to drawdown the sukuk and commence the construction works. The project is on track to achieve commercial operation date by 4Q 2025. Although the Group slipped into net losses in the recent financial quarter due to temporary setbacks on negative fuel margins, we maintain our Outperform call and TP RM0.95 as we continue to like the Group’s long-term prospects.

Iris Corp: Proposes capital reduction, 4-to-1 share consolidation . Iris Corporation has proposed a capital reduction to set off its accumulated losses. The tech group said the exercise entails the cancellation of up to RM450m of its issued share capital, which totalled RM610.7m as of June 30. The corresponding credit arising from the cancellation will be used to set off against the group's accumulated losses of RM444.27m, while any remaining balance will be credited to retained earnings. (The Edge)

AEON Credit: Signs deal with AFS to undertake digital Islamic banking business . AEON Credit Service (M) said the group and Tokyo-listed AEON Financial Service Co Ltd (AFS) have entered into a shareholders’ agreement to undertake the digital Islamic banking business through ACS Digital, which is preparing to be licensed as a digital Islamic bank with an investment of RM175m each. (The Edge)

Market Update

The FBM KLCI might open lower today after Wall Street stocks reversed earlier gains as investors combed through the latest quarterly results from some of the country’s biggest banks. Wall Street’s benchmark S&P 500 was down 0.1% on Friday, but added 2.4% in the week. The tech-heavy Nasdaq Composite gave up 0.2% on Friday, but its 3.3% gain over the past five sessions marked its biggest weekly jump since the end of March. Shares in JPMorgan rose 0.6% after it reported a 67% jump in year-on-year net income to $14.47bn, far ahead of analysts’ estimates of $11.9bn. Wells Fargo, which was down 0.3%, said its net income surged 57% from a year ago to nearly $5bn. Citigroup’s profits fell more than a third in the second quarter, sending its shares down 4%, while State Street fell by 12.1 % on rising costs. European stocks wavered, with the region-wide Stoxx 600 ending 0.1% lower, ending a run of five consecutive positive sessions, its best streak since mid-April. France’s Cac 40 added 0.1%, Germany’s Dax fell 0.2% and London’s FTSE 100 lost 0.1%.

Back home, Bursa Malaysia maintained its uptrend to close higher on Friday, supported by persistent buying of most heavyweights, led by telecommunications and media as well as financial services counters, in line with positive sentiment on regional bourses. At the closing bell, the FBM KLCI had jumped 15.86 points, or 1.14%, to 1,412.09, from 1,396.23 at Thursday’s close. The regional markets were mixed. South Korea’s Kospi advanced 1.4%, Hong Kong’s Hang Seng index rose 0.3% and China’s CSI 300 was flat. Japan’s Topix fell 0.2%.

Source: PublicInvest Research - 17 Jul 2023