Market Thoughts

US stocks took a sharp nosedive across the board Thursday, with the Dow and the S&P 500 posting their worst day of 2013, after Federal Reserve Chairman Ben Bernanke hinted the central bank may scale back its asset purchases later this year. With the declines from the last two sessions, the Dow and S&P 500 wiped out all of their gains from May and June. Similarly, European shares closed sharply lower after a heavy sell-off on fears of a possible unwinding of monetary easing in the U.S., and weak economic numbers from China.

On the local exchange, the FBM KLCI dropped 10.54 points to 1762.34 points. Asian stocks are poised for another day of sharp falls on Friday, tracking a deep sell-off in global risk assets overnight after the Federal Reserve gave markets a time-line for the unwinding of its monetary stimulus and as Chinese financial markets face a crash crunch. For the KLCI, immediate support is seen at 1740 points.

Stocks to watch are: a) Kulim as it is raising its stake in New Britain Palm Oil by 20% to 68.97%; b) Maybank as it has sold a 9% stake in its Indonesia unit as a result of mandatory selldown requirement; c) MRCB following it gets nod from shareholders to purchase assets from Nusa Gapurna Development Bhd (NGD), and d) KUB as it is disposing all its A&W outlets in Thailand.

Malaysia News & Highlights

MRCB, Nusa to resolve suit out of court with PKNS over control of PJ Sentral

Malaysian Resources Corp Bhd (MRCB) and Nusa Gapurna Development Sdn Bhd are prepared to settle out of court the legal suit brought against them by the Selangor State Development Corp (PKNS) over control of PJ Sentral. “We acted in good faith and so did Nusa Gapurna. I'm sure PKNS also acted in good faith. We hope to come to an amicable solution with PKNS,” chairman Tan Sri Azlan Zainol said, following an EGM to obtain the consent of shareholders for MRCB's RM729mil merger with Nusa Gapurna. (Source: The Star)

MRCB gets nod for NGD buy

Malaysian Resources Corp Bhd (MRCB) shareholders have given their nod to the company’s plans to buy assets worth RM814 million from Nusa Gapurna Development Bhd (NGD). This paves the way for Gapurna group owner Datuk Mohamad Salim Fateh to helm MRCB. Business Times understands that Salim, Gapurna Sdn Bhd’s (GSB) founder, will be appointed as MRCB group managing director as early as in the fourth quarter of this year. (Source: Business Times)

Kulim raising stake in New Britain Palm Oil, making it pure plantation player

Kulim (M) Bhd will soon transform into a pure plantation player after it raises its stake in UK-listed New Britain Palm Oil Ltd (NBPOL) by 20% to 68.97%. Kulim said in a filing with Bursa Malaysia that it intended to make a cash offer to partially acquire up to 30 million shares in NBPOL, a sustainable palm oil producer listed on the London Stock Exchange. The proposed acquisition would be fulfilled for £5.50 (RM27.24) per offer share with a total consideration of about £165.05mil (RM812.3mil) to be satisfied fully in cash. (Source: The Star)

KUB selling A&W outlets in Thailand

KUB Malaysia Bhd is selling all 30 of its A&W fast food outlets in Thailand, with the deal expected to be finalised by year-end. A Malaysian investor in Thailand will take over the 30 outlets, said KUB managing director Datuk Wan Mohd Nor Wan Ahmad. KUB's A&W business in Malaysia, however, remains intact. The company will grow the business and make it profitable again, said Wan Mohd Nor. (Source: Business Times)

Maybank sells 9% of BII

Malayan Banking Bhd (Maybank) has sold a 9% stake in Indonesian unit PT Bank Internasional Indonesia Tbk (BII) to a third-party investor, still 8.3% short of the required selldown by the Indonesian authorities. The mandatory selldown requirements seek to achieve a 20% public float in BII. The value of the transaction, however, was not revealed. In 2008, Maybank paid 510 rupiah (16 sen) a share to buy BII from Singapore’s state-owned investment company Temasek Holdings. Based on the closing price of 355 rupiah (11 sen) yesterday, the 9% stake is valued at RM557.19mil. (Source: The Star)

MBM Resources targets RM4bil revenue by 2015

MBM Resources Bhd is targeting RM4bil in revenue by 2015, underpinned by its investments, said group managing director Looi Kok Loon. “We invested RM228.5mil in capital expenditure (capex) from 2010 to 2012, surpassing the total amount we had invested in the past 10 years,” he said after the company's AGM. Looi said the automotive group's investments in the past three years were now bearing fruit. Going forward, he said the group would “slow down”, given that it had invested sizeably. MBM Resources invested RM96mil between 2005 and 2010 and RM29.6mil from 2000 to 2004. (Source: The Star)

Unimech plans to list Indonesia unit

Unimech Group Bhd plans list its 85%-owned unit PT Arita Prima Indonesia (API) on the Indonesia Stock Exchange. In a filing with Bursa Malaysia, the company said the listing would enable API to gain direct access to the Indonesian capital market for cost-effective fund raising for future expansion and continued growth in various parts of Indonesia. API, which is into the manufacture of boilers, combustion equipment, engineering equipment and piping systems, is 77.77% and 18.89% owned by PT Arita Global and Arita Engineering Sdn Bhd, respectively. (Source: The Star)

Foreign News

S&P 500 Posts Biggest Drop Since November 2011 on Fed

U.S. stocks fell, sending the Standard & Poor’s 500 Index to its biggest loss since November 2011, as global equities tumbled after the Federal Reserve said it may phase out stimulus and China’s cash crunch worsened. The S&P 500 sank 2.5 percent to 1,588.19 in New York. The benchmark index tumbled 3.9 percent over two days. The Dow Jones Industrial Average erased 353.87 points, or 2.3 percent, to 14,758.32. The gauge dropped the most since November. About 9.3 billion shares traded hands on U.S. exchanges, 50 percent more than the three-month average and the highest volume of the year.

Sales of Existing U.S. Homes Rise More Than Forecast

Sales of previously owned homes in the U.S. climbed in May to the highest level in more than three years and manufacturing improved in June, bearing out the Federal Reserve’s view that risks to the expansion are abating.

Purchases of existing houses rose 4.2 percent to a 5.18 million annualized rate, the most since November 2009, the National Association of Realtors reported today in Washington. The Federal Reserve Bank of Philadelphia also said its factory index climbed this month to the highest since April 2011, exceeding all forecasts in a Bloomberg survey.

Europe Stocks Sink Most in 18 Months on Stimulus Outlook

European stocks sank the most in more than 18 months after Federal Reserve Chairman Ben S. Bernanke said the central bank may end bond purchases next year if the economy strengthens in line with forecasts. The Stoxx Europe 600 Index plunged 3 percent to 283.68 at the close of trading, the biggest retreat since Nov. 21, 2011. The benchmark measure has declined 8.7 percent since May 22, when Bernanke indicated the central bank could pare stimulus measures as the economy grows. The U.S. jobless rate will fall as low as 6.5 percent next year from 7.6 percent in May, the Fed forecast yesterday. National benchmark indexes fell in every western European market, except Iceland. Germany’s DAX slid 3.3 percent and France’s CAC 40 lost 3.7 percent. The U.K.’s FTSE 100 retreated 3 percent, the biggest drop since September 2011.

Emerging-Market Stocks Plunge Most in 20 Months on China

Emerging-market stocks dropped the most in more than 20 months, currencies weakened and government borrowing costs rose after China’s cash crunch worsened and the Federal Reserve said it may reduce monetary stimulus this year. The MSCI Emerging Markets Index slid 4 percent to 908.49, capping the biggest decline since September 2011. Its 10-day volatility rose to an 11-month high. Turkey’s benchmark stock index lost 6.8 percent, entering a bear market, led by banks. Twenty-two out of 24 developing-nation currencies tracked by Bloomberg fell as the Turkish lira and India’s rupee hit record lows. South Africa’s bonds yields surged and the rand fell a fifth day. Brazil’s Ibovespa rebounded from a four-year low.

Asian Futures Signal Extension of Fed Rout as Oil Tumbles

Asian stock futures slid, indicating shares in the region may extend the global market retreat, on prospects the Federal Reserve will start paring back stimulus later this year and concern over China’s cash crunch. Gold futures sank and crude slipped for a third day. Futures on Japan’s Nikkei 225 Stock Average fell 2.7 percent by the close in Chicago, while Hang Seng Index futures in Hong Kong dropped 1 percent, and contracts on Australia’s S&P/ASX 200 Index slumped 1.7 percent. Futures on the Standard & Poor’s 500 Index were little changed by 7:52 a.m. in Tokyo, after the gauge sank the most since November 2011 in New York. Gold futures due in August fell 0.6 percent after prices slid to the lowest level since 2010, while contracts on copper also dropped. Oil sank 0.5 percent and U.S. Treasuries tumbled.

Commodities From Gold to Oil Slump on Fed Outlook, China Crunch

Commodities tumbled as everything from gold to crude oil and copper dropped on concern that the Federal Reserve may phase out stimulus and as China’s cash crunch worsened. The Standard & Poor’s GSCI Index lost 3 percent to 616.46, capping the biggest drop since December 2011. All 24 raw materials tracked by the gauge declined. Gold futures slid below $1,300 an ounce to the lowest in more than 2 1/2 years, and silver plunged as much as 9.7 percent, while nickel touched the lowest price since 2009.

PBOC Said to Inject Cash After China Money Rates Jump

The People’s Bank of China added 50 billion yuan ($8.2 billion) to the financial system yesterday after a cash squeeze drove money-market rates to record highs, said Hao Hong, chief China strategist at Bank of Communications Co. Interbank lending rates spiked yesterday as the monetary authority refrained from using open-market operations to address a cash crunch in the world’s second-largest economy. The one-day repurchase rate jumped by a record 527 basis points, or 5.27 percentage points, to an all-time high of 12.85 percent in Shanghai, according to a daily fixing by the National Interbank Funding Center. An intra-day gauge touched a record 30 percent. The seven-day rate climbed 270 basis points to an unprecedented 10.77 percent, a separate fixing showed.

(Source: Bloomberg)