Market Thoughts

US stocks closed in the red but well off their session lows Monday, as Treasury prices rose in choppy trading following comments from some Fed policymakers that downplayed worries over the end to the central bank's bond-buying program. Meanwhile, European shares accelerated losses to close lower on ongoing concerns about an imminent scaling back of the U.S. Federal Reserve's asset purchases, plus liquidity fears in China.

On the local exchange, the FBM KLCI plunged 17.66 points to 1738.19 points. Asian stocks are set to tumble further on Tuesday, tracking a steep overnight sell-off in risk assets amid concerns about credit tightening policies in China. We expect the FBM KLCI to break its support of 1735 points with next support level at 1720 points.

Stocks in action are: Green Packet as the group said that it is considering to sell its P1 to strategic investor; and Planters having palm oil estates in Indonesia as the eight Malaysian plantation firms contributing to the current haze are under probe.

Malaysia News & Highlights

TNB, Sime in biogas tie-up

Tenaga Nasional Bhd (TNB) has entered into a shareholders agreement with Sime Darby Bhd to establish a joint venture (JV) undertaking biogas project development from agricultural waste product. “In line with the national agenda in promoting renewable energy to support the current shortage of gas supply and aging power plant, it is the intention of both Sime Darby Plantation and TNB Energy to develop renewable energy plants using biogas converted from palm oil mill effluent with the objective of selling the electricity generated to the national grid,” TNB told Bursa Malaysia. The national utility company said the JV is part of the sustainability initiatives and corporate agenda in promoting sustainable development. (Source: The Star)

Firms refute illegal burning allegations

Three Malaysian plantation companies refuted allegations that they are involved in illegal burning of forest and peat lands in Riau Province, Indonesia, which is causing the current haze situation. Sime Darby Bhd, Kuala Lumpur Kepong Bhd (KLK) and TH Plantations Bhd issued statements yesterday, refuting allegations of involvement in open burning activities in Indonesia and thereby causing widespread haze which is enveloping Sumatra, part of Malaysia and Singapore. (Source: Business Times)

Abdul Ghani is Sime chairman

Former Johor Mentri Besar Datuk Abdul Ghani Othman has been appointed Sime Darby Bhd’s new chairman effective July 1. Ghani would take over the helm from interim chairman Tan Sri Samsudin Osman as reported previously. Meanwhile, Samsudin would be redesignated as non-independent and non-executive director. (Source: The Star)

Green Packett may consider selling stake in P1 to strategic investor

Mobile broadband provider Green Packet Bhd together with major shareholder C. C. Puan may be mulling a stake sale in wireless operator unit Packet One Networks (M) Sdn Bhd (P1) to a strategic investor, amongst other options on the table. Puan told StarBiz that this, along with an initial public offering, merger and acquisition or collaboration, continued to be the options for P1. However, the Green Packet managing director and chief executive officer (CEO) said P1's focus now remained on improving its business operations and financial results. (Source: The Star)

Sona Petroleum gets SPAC underwritten

Sona Petroleum Bhd, the latest special-purpose acquisition company (SPAC) to be approved for listing, is poised to hit a record-breaking RM550mil in initial public offering (IPO) proceeds for a SPAC, having just inked an underwriting agreement with four local banks. Asked if the management was confident of hitting the ambitious fund-raising target, managing director Datuk Seri Hadian Hashim said: “Yes, the first two investors have given us that level of confidence. The response has been good.” (Source: The Star)

MRCB to undertake high-value projects

Malaysian Resources Corp Bhd (MRCB) will move into high-value construction with higher profit margins to drive the company forward, says group chief operating officer Mohd Imran Mohamad Salim. “We will focus on niche, specialised areas, such as environmental construction. These would involve rehabilitation projects and coastal rehabilitation works. There are not many competitors in these areas. In building construction, there are competitors everywhere and margins are going lower," he said in an interview here recently. (Source: Business Times)

FGVH to develop upstream, downstream plantation business in Cambodia

Felda Global Ventures Holdings Bhd (FGVH) is planning to develop upstream and downstream activities in the plantation sector in Cambodia. Chief executive officer-designate Dr Emir Mavani Abdullah said that apart from marketing its products, including palm oil-based products in Cambodia, FGVH was also planning to set up rubber plantations in that country. “Actually, we had expected the opportunities for rubber plantations here. That is why we opened a management office in this country,” he told Bernama. (Source: The Star)

Luster to partner Syed Mokhtar in Kuala Muda port project

A company linked to Tan Sri Syed Mokhtar Al Bukhary will possibly be Luster Industries Bhd’s technical partner in the Kuala Muda port development project, said its group managing director Lim See Chea. He said the tycoon is seen as the best technical partner, given that he already owns Port of Tanjung Pelepas and Johor Port via MMC Corp Bhd. (Source: The Edge)

Foreign News

Stocks Fall With China in Bear Market as Bonds Pare Drop

U.S. stocks fell after Chinese equities entered a bear market on concern a cash crunch will hurt growth. Treasuries pared losses on speculation investors overreacted to a possible reduction of central bank stimulus. The Standard & Poor’s 500 Index sank 1.2 percent at 4 p.m. in New York, trimming an earlier drop of 2 percent. Ten-year Treasury note yields rose one basis point after earlier jumping to the highest level since 2011. The CSI 300 Index of China’s biggest companies tumbled 6.3 percent, the most since August 2009 and taking its drop from this year’s high to more than 20 percent. Copper fell to the lowest level in almost three years and aluminum extended the longest slump since 1987.

U.S. 30-Year Bonds End 3 Days of Losses as Yields Boost Demand

Treasury 30-year bonds snapped a three-day losing streak as the highest yields since 2011 fueled demand and Federal Reserve Bank of Dallas President Richard Fisher said investors shouldn’t overreact to the central bank’s plan to slow bond purchases. U.S. 10-year notes pared losses as volatility surged. Treasuries slid earlier as government debt from Australia to Germany fell on bets a cut in accommodation from the Fed will lead to an eventual end of record low central-bank interest rates.

European Stocks Drop on China Concern; Erste Group Falls

European stocks fell for a fifth day, erasing their gains for the year, as Goldman Sachs Group Inc. cut China’s growth forecast amid concern banks in the world’s second-largest economy face a cash crunch. The Stoxx Europe 600 Index declined 1.7 percent to 275.66 at the close in London. The equity benchmark has entered a so-called correction, having slumped 11 percent since May 22, when Federal Reserve Chairman Ben S. Bernanke commented on the possibility of paring bond purchases.

EU Leaders Try to Stave Off Bond Slump as Bank Talks Fail

European Union leaders will this week attempt to stave off a resurgence of market tremors following a breakdown in talks on setting up unified banking rules. Euro-area bonds fell after negotiations among the 27-member bloc’s finance ministers stalled over the weekend in Luxembourg. They failed to agree on assigning losses at failing banks as part of proposed rules on bank resolution and recovery. They will regroup June 26, before EU leaders gather the next day for a summit in Brussels.

China Stocks Fall Most in 4 Years as CSI 300 Enters Bear Market

China’s stocks fell the most in four years, as the CSI 300 Index entered a bear market after the central bank signaled it will maintain efforts to curb speculative lending and Goldman Sachs Group Inc. said a cash squeeze is hurting growth. The Shanghai Composite Index declined 5.3 percent to 1,963.24 at the close, the biggest loss since Aug. 31, 2009, while the CSI 300 dropped 6.3 percent to 2,171.21, sliding 22 percent from this year’s closing high of 2,775.84 on Feb. 6. The Hang Seng China Enterprises Index, which entered a bear market earlier this month after falling 20 percent from a recent peak, lost 3.3 percent.

China Beige Book Shows Fewer Companies Borrowing as Rates Rise

Chinese bankers are reporting increased lending while fewer companies are taking out loans, an incongruity that helps explain the recent increase in borrowing costs, a private survey showed. The number of companies reporting loan applications in the second quarter fell 13 percentage points from the previous period to 38 percent, the survey from New York-based China Beige Book International said yesterday. The proportion of banks showing higher lending to businesses rose 10 percentage points to 45 percent, indicating that “credit appears to be concentrated on a few borrowers,” according to the report.

(Source: Bloomberg)