Some countries facing possible rating cuts and 'junk' status

LONDON: Financial markets are betting that Russia, South Africa, Turkey and Colombia could all be next in line for "junk" debt status after Standard and Poor's stripped Brazil of its investment grade.
As well as those now teetering on the investment grade/junk cusp, China, Chile, Malaysia, South Africa, Mexico, Indonesia, Thailand, Israel, Saudi Arabia and much of the Middle East are also priced for rating cuts according to some data.

Brazil's downgrade had long been expected following recent scandals and its slump towards recession, but it has sharpened the focus on who could be next.

Slumping commodity prices and the prospect of rising global interest rates are adding to some liberal helpings of ugly national politics and laying bare a number of countries' failure to reform in the good times.

S&P's Capital IQ unit has what it calls Market Derived Signal (MDS) models that show credit default swap markets currently expecting a major wave of EM downgrades, a number of which would see the big names mentioned going into junk status.

Russia, which only Fitch of the three main agencies at BBB- still rates as investment grade (IG), is currently trading as if it were at least a three notches into junk.

Turkey, which both Moody's and Fitch currently have on the lowest investment grade rung, is trading as if were two steps into junk while for South Africa it is one.

Colombia, which is being hit hard by the fall in its main export oil and a rift with neighbour Venezuela, is also expected to slide back into junk according to the Market Derived Signal model.

The difference between investment grade and junk status can be huge for countries because many global investors tend to steer away from those with lower ratings.

The downgrades currently being seen are also reversing the roughly 200 upgrades emerging markets have earned since 2007, nearly half of them to the top "investment grade" category.

As well as those now teetering on the investment grade/junk cusp, China, Chile, Malaysia, South Africa, Mexico, Indonesia, Thailand, Israel, Saudi Arabia and much of the Middle East are also priced for rating cuts according to the data.

Historically, though, the gloomy view of markets does not always turn into reality.

The rating firms also point out that although there are a clutch of heavyweights on downgrade warnings, the picture in emerging markets for the moment at least is mostly of "stable" outlooks.

"The big markets that are most in focus are Turkey and Russia," Sarah Carlson, Senior Vice President at Moody's, told Reuters. "We don't have many countries in Latin America on a negative outlook. Most are on a stable outlook."

Ahead of its review of Turkey next week, Fitch senior director Paul Gamble said on Tuesday the country's fiscal position, which is a key metric for its rating, had not changed as a result of its recent political turmoil.- Reuters

Spotlight on SapuraKencana, Supermax after Brazil sovereign downgrade

SapuraKencana Petroleum Bhd ( Valuation: 1.80, Fundamental: 0.85) and glove manufacturer Supermax Corp Bhd ( Valuation: 0.80, Fundamental: 1.00) will be closely watched after Standard & Poor’s (S&P) downgraded Brazil’s credit rating to junk grade.

SapuraKencana offers support services to Brazil’s national oil company Petroleo Brasileiro SA (Petrobras) while Supermax operates in Brazil via Supermax Brasil Importadora S/A.

In Malaysia, SapuraKencana shares declined as much as six sen or 3% to RM1.76 before the stock pared losses at RM1.80 at 3.45pm. The stock saw some 6.5 million shares changed hands.

Supermax had earlier fallen as much as three sen or 1.4% to RM2.05. At 3.46pm, the stock traded unchanged at RM2.08 with 438,500 units traded.

S&P downgraded Brazil after the South American economy fell into recession. Reuters reported that S&P downgraded Brazil’s credit rating to junk grade on Wednesday, further hampering President Dilma Rousseff’s efforts to regain investors’ trust and pull Latin America’s largest economy out of recession.

S&P cut Brazil’s rating to BB-plus, the highest junk rating, from BBB-minus, based on the mounting political problems that have muddled economic policy.

http://www.theedgemarkets.com/my/article/spotlight-sapurakencana-supermax-after-brazil-sovereign-downgrade

Europe stocks rally 2% on data, upbeat Asia

European equities traded sharply higher on Wednesday, boosted by positive German economic data and hopes of further stimulus measures in Asia that sent markets in the region higher.

The pan-European STOXX 600 was up around 2 percent.

London's FTSE 100 index was over 1.8 percent higher, the German DAXsaw a 2.3 percent pop while the French CAC surged over 1.8 percent.

European markets looked more positive following trade surplus data from the euro zone's largest economy, Germany, on Tuesday, which suggested strong demand for German goods. Both exports and imports in Germany hit a record high in July.

Investor sentiment has shifted, according to analysts, who say that the macroeconomic environment in Europe still remains positive.

"We have been investing in Europe all through the crisis and we've done really well. We have generated a lot of alpha relative to our peers," Ajoy Reddi, international equity analyst at Fred Alger Management, told CNBC in a TV interview.

"If I look today and I look at the macro conditions, I think the macro conditions are favorable, we know what Mario Draghi is doing. And I just see a lot of opportunity still in the European stock market."

http://www.cnbc.com/2015/09/09/europe-stocks-seen-higher-on-data-asia.html

Deripaska: Why I’m confident on China

Oleg Deripaska, the Russian tycoon who is president of aluminum giant Rusal, is confident that China should remain stable in the medium term, despite recent market turmoil.

"I wouldn't support this view that China will collapse tomorrow," Deripaska told CNBC at the World Economic Forum in Dalian, China.

"There is no foundation for that. Maybe you can see it better from New York or London but not from China soil for sure."

http://www.cnbc.com/2015/09/09/deripaska-why-im-confident-on-china.html

My new tax plan will push economic growth to 4%: Jeb Bush

On Wednesday, Republican presidential contender and former Florida Governor Jeb Bush will unveil the tax plan he would submit to Congress if elected president. He previewed the agenda in a Wall Street Journal op-ed on Tuesday, saying he would lower taxes, simplify the tax code, and eliminate "lobbyist-created" loopholes.

Bush is campaigning on the premise that, with the right policies, the United States economy can grow at a faster clip than the current average of 2 percent. He said a "complete overhaul" of the U.S. tax code is necessary to fuel that growth.

http://www.cnbc.com/2015/09/09/my-new-tax-plan-will-push-economic-growth-to-4-jeb-bush.html

Market Outlook as at September 9, 2015

Our market is rebounding with increasing spread and volume. This means this rally is sustainable for possibly 1 or 2 weeks. Since it has managed to cross the psychological 1600 mark, this level will now serve as the support. The resistance ahead will be the 30-week EMA line at 1620; the recent high at 1660 and the neckline of the Head & Shoulder reversal pattern at 1680. For those who are nimble enough, the next few days may open up opportunity for moderate trading.

http://nexttrade.blogspot.my/

Reserves up after months of dips

The country’s international reserves rose RM1.3bil to RM357.7bil (US$94.7b) as at Aug 28 from two weeks ago, Bank Negara said.

This is the first rise after having dipped the last couple of months.

“The reserves position is sufficient to finance 7.4 months of retained imports and is one time the short-term external debt,” the central bank said. Reserves started to increase from the RM356.4bil (US$94.5b) level on Aug 14.

http://www.thestar.com.my/Business/Business-News/2015/09/05/Reserves-up-after-months-of-dips/?style=biz

Malaysia's July exports better than forecast

Malaysia saw exports in July increase 3.5% from a year earlier as demand for electrical and electronic goods surged, government data showed on Friday.

According to the median forecast from a Reuters poll, economists had forecast exports would rise 3.2% on the back of a weakening ringgit currency, although individual estimates varied.
Exports of manufactured products helped boost July's figure as demand for electronic integrated circuits grew, especially from China.

Despite a weaker ringgit, imports did much better than expected, rising 5.9% from last year due to increases in imports of electronic circuits, petroleum oils and medicament.

http://www.thestar.com.my/Business/Business-News/2015/09/04/Malaysia-July-exports-better-than-forecast/?style=biz

IFCA MSC to buy business of Indonesian firm for RM32m

IFCA MSC Bhd is acquiring the business of PT IFCA Consulting Indonesia (PICI), including its trade receivables and all the rights under its existing contracts, for RM32 million.

In a filing with Bursa Malaysia, IFCA said it signed a business sale agreement with PICI today to undertake the proposed acquisition.

The two companies had entered into a heads of agreement on May 20, 2015 for the deal.

The business sale agreement stipulates that half of the purchase consideration will be fulfilled by the issuance of 16 million new IFCA shares of 10 sen each, at an issue price of RM1 per share.

The balance RM16 million will be satisfied with cash, of which RM4 million will be paid to PICI on the date of completion of the proposed acquisition and the balance RM12 million will be paid accordingly under the profit guarantee mechanism.

IFCA said it will funded the cash consideration via internal funds.

It added that the purchase consideration represents a price-to-earnings multiple of 8 times forward earnings based on the three years (ending Dec 31, 2016 to 2018) profit guarantee of RM4 million per year.

As this is a profit guarantee from PICI, in the event of a shortfall in net profit, IFCA is authorised to deduct the balance cash consideration to be paid to PICI.

On the rationale, IFCA explained that the proposed acquisition will accelerate its market penetration into Indonesia, which is in line with its regional expansion plans.

“The proposed acquisition may also potentially improve operating efficiency as the IFCA’s software solutions were previously offered in Indonesia via a Distributorship Agreement entered into between PICI and IFCA International Ltd, a wholly-owned subsidiary of IFCA,” it added.

The proposed acquisition is expected to be completed in the fourth quarter of this year.

IFCA’s (fundamental: 3; valuation: 1.5) share price closed 14 sen or 24.56% higher at 71 sen today, with 79.06 million shares changing hands. The counter was the second most actively traded stock across Bursa Malaysia, with a market capitalisation of RM396.86 million.

http://www.theedgemarkets.com/my/article/ifca-msc-buy-business-indonesian-firm-rm32m

Shrinking U.S. trade gap shows economy's underlying strength

The U.S. trade deficit fell in July to its lowest level in five months as exports rose broadly, signaling underlying strength in the economy amid concerns about a global growth slowdown.

While other data on Thursday showed an increase in the number of Americans filing new applications for unemployment benefits, the trend in jobless claims remained consistent with a strengthening labor market. Activity in the vast services sector also hovered at a 10-year high in August.

"There is little evidence that the abrupt deterioration in financial market conditions and the heightened concerns about the global economy have begun to affect the U.S. economy," said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.

The Commerce Department said the trade gap narrowed 7.4 percent to $41.9 billion, the smallest since February. When adjusted for inflation, the deficit fell to $56.2 billion from $59.0 billion in the prior month.

The smaller deficit implied a modest contribution to gross domestic product from trade early in the third quarter. Trade added 0.3 percentage point to the economy's 3.7 percent annualized growth rate in the second quarter.

Data ranging from consumer spending to employment and housing have suggested the economy retained much of its momentum from the second quarter and was on solid footing when global financial markets were rocked by turbulence triggered by worries over China's economy.

Stocks on Wall Street were trading higher after the data. Investor sentiment also was boosted after the European Central Bank indicated it could prolong its monetary stimulus program.

The dollar rose against a basket of currencies, while prices for longer-dated U.S. Treasuries fell.

http://www.reuters.com/article/2015/09/03/us-usa-economy-idUSKCN0R31BK20150903

Banking sector to see subdued earnings growth

The banking sector in Malaysia will continue to face subdued earnings growth prospects amid slower lending, higher credit costs and ongoing net interest margin (NIM) compression.

These challenges give Maybank Investment Bank Research the conviction to maintain its “neutral” outlook on the country’s banking sector as a whole. 

The research house’s “buy” recommendations were only limited to three financial institutions, namely, BIMB Holdings Bhd, Hong Leong Bank Bhd and Hong Leong Financial Group Bhd.

“We have trimmed our aggregate loan growth forecast (including foreign loans) to 8.6% and 7.6% for 2015 and 2016 from 9.6% and 8.9%, respectively,” Maybank Research said on Thursday. 

“We estimate a 12-basis-point compression in average NIMs this year and five basis points in 2016,” it wrote, adding that credit costs were expected to normalise higher. 

Maybank Research noted that during the results season for the quarter ended June 2015, the banking sector presented a mixed bag of performances, with only Hong Leong Bank marginally beating expectations, while RHB Capital Bhd and Alliance Financial Group Bhd underperformed.

“Key trends included slower loan growth and ongoing NIM compression, but positively, non-interest income growth was decent, while expenses were under control,” the research house said. 

“Credit costs, however, doubled to negate the 6% year-on-year rise in operating profit. As a result, the core net profit of the industry for the second quarter rose just 1% on-year, while the cumulative six-month core net profit was flat on-year,” it added.

The subdued performance for the second quarter prompted Maybank Research to cut its earnings growth projection for the banking sector for 2015 and 2016. 

“We now project slower on-year operating profit growth of 5.7% for 2015 and 6.7% for 2016, versus 6.5% and 8.6% previously,” it said. 

“With higher credit cost assumptions, we expect 2015 net profit to expand by just 2.6% on-year versus 5.1% previously, but we do expect a pick-up in 2016 to 7.2% on-year, mainly on the back of a one percentage point cut in the corporate tax rate,” it explained. 

According to Maybank Research, the aggregate net profit growth for the banking industry was expected to be only 1.8% in 2015 and 4% in 2016. The estimation excluded CIMB Holdings Bhd, which was expected to register a strong 24% on-year in earnings rebound for 2016 from lower provisions. 

“Amid subdued earnings growth, we expect average the industry’s return on equity to moderate to 11.8% this year from 13.5% in 2014, and to 11.6% in 2016,” Maybank Research said.

Heveaboard to turn net cash by 2016

Particle board manufacturer, HeveaBoard Bhd, is on track to turn into net cash position by next year as its term loans have been mostly repaid and reduced to less than US$9mil (RM38mil).

Group managing director, Yoong Hau Chun, said on Thursday the company had been consistently paying RM26mil annually to service the principal of the loan. It also does not have plans to see any any major term loans.

"Once we have all the burdens off our shoulders, we can be a lot more bolder in our decisions and it will put put us in a strong position to increase dividend payout," he said on the business prospects.

Heveaboard would allocate RM15mil as capital expenditure for its upstream and downstream divisions to upgrade equipment and increase the quality of the products.

He said the company would rather focus on increasing the quality rather than the quantity given that its clients were mostly the higher-tier companies, especially its major export market, Japan, which contributed RM15mil in revenue monthly.

Yoong said HeveaBoard has all its cost denominated in ringgit while more than 90% of its revenue were US dollar-denominated, making the company a beneficiary of the currency volatility.

Executive director Liven Yoong, said the company, which was traditionally involved in the business-to-business market, would also venture into the business-to-consumer market by adding eco-friendly children furniture into its offerings.

She said for a start, the product would be marketed in the Malaysia by year-end and eventually exported regionally.

"What we are offering is a niche product as we emphasise on low formaldehyde emission furniture, which is not yet available in this market.

"Not many people are aware that formaldehyde is everywhere especially in furniture and children are the most vulnerable to its harmful effects," she said.

Among major toxic effects caused by acute formaldehyde exposure via inhalation are eye, nose, and throat irritation and effects on the nasal cavity while high levels of exposure could lead to coughing, wheezing, chest pains, and bronchitis. - Bernama

ECB leaves interest rates on hold, inflation in focus

The European Central Bank (ECB) left interest rates unchanged at record lows on Thursday, as expected, after a summer of volatility in financial markets, with the outlook for stubbornly low inflation now in focus.

http://www.cnbc.com/2015/09/03/ecb-leaves-interest-rates-unchanged-as-expected.html

Ringgit down on Fitch downgrade warning

The ringgit fell as Kuala Lumpur stocks lost 0.8 percent, underperforming most Southeast Asian equities. 

Fitch said Malaysia's deteriorating currency position could force the rating agency to restore the negative outlook attached to the country's credit rating. 

Malaysia's July exports were expected to rise on a weaker ringgit, although moderating from an unexpected jump in the previous month due to plunging commodity prices, a Reuters poll showed. 

Oil prices slid, adding to concerns over exports. Malaysia is a major supplier of natural liquefied gas and palm oil. 

http://www.thestar.com.my/Business/Business-News/2015/09/02/Ringgit-down-on-Fitch-downgrade-warning/?style=biz

Mixed fortunes for packaging material ops

While exporters gain from stronger dollar, domestic suppliers face weaker demand

KULIM: Plastic packaging material manufacturers, especially those with a reach in export markets, are looking at a better performance this year due to the weakened plastic resin prices, new customers in the Asia-Pacific region and the weakened ringgit.

The main boost for producers comes from plunging polyethylene (PE) resin prices, which are down by about 25%, compared with about four months ago in April. This is in tandem with the falling crude oil prices.

PE resin is one of the main raw materials to produce plastic packaging materials and has helped reduce the production cost for the producers. Its drop in prices is more than the ringgit’s depreciation against the US dollar.

Apart from the lower raw material cost, there are now more Asia-Pacific customers from Japan, Australia and New Zealand, who prefer to source their flexible plastic packaging materials in South-East Asia and not from China, according to SLP Resources Bhd managing director Kelvin Khaw.

Khaw told StarBiz that the price of PE resin had declined to US$1,200 per tonne from US$1,500 per tonne in April 2015.

“Our ringgit has weakened by about 15% since April. Taking into consideration the 25% drop in resin prices and the 15% drop in the ringgit, we save about 10% in raw material costs, which would strengthen our bottomline this year.

“About 60% of the group’s earnings are in US dollars, which will also boost the group’s revenue and net profit,” he said.

SLP imports about 50% of PE resin from the Middle East and Singapore.

Khaw said there was also the trend of customers previously linked to China-based plastic packaging materials buying from South-East Asia. “Some of these customers have chosen to buy from Malaysian packaging material producers because of the consistent quality of their packaging products.

“For example, we are getting higher orders from Australia, New Zealand and Japan.

“Several years ago, China-made packaging products were priced at about 25% below our products.

“Now, the pricing for China-made packaging materials is almost on par with our pricing, as the production cost in China has risen,” he said.

Khaw said the group expected a record-breaking year for its net profit in 2015.

“For the first half of 2015, the group has already posted RM10.8mil in net profit, which is double the achievement of the same period in 2014, and very close to the RM12mil net profit achieved for the 2014 fiscal year.

SLP’s packaging products are priced around US$1,900 per tonne for its medium-range products, which is the same as the selling price of its competitors.

“Our recurring orders are reviewed and extended on a monthly basis, which takes into consideration the fluctuation of raw material prices,” he said.

However, not all plastic packaging material producers are seeing a boon from the drop in resin prices. Those supplying to the domestic market have been hit by the stronger dollar and weaker demand.

Cepco Trading Sdn Bhd, which supplies semi-finished extrusion plastic sheets for the semiconductor and food and beverage (F&B) industries, is an example.

Sales are down by about 20% so far due to the weaker demand from the semiconductor market.

“We expect the semiconductor segment to generate about 30% of our revenue for 2015, compared with 40% in 2014.

“The importation cost of engineering plastic resin and production cost have increased due to the weaker ringgit.

“It is also difficult to raise the selling price as the competition is tough, given that the demand from the semiconductor industry has softened,” Cepco director Jansen Lim said.

Lim said the company expected the packaging products from the F&B segment to perform better this year. “So far, orders from the F&B industry have increased over last year.”

Oil jumps 8 percent, biggest three-day surge since 1990

Oil futures soared on Monday for a third consecutive day, rising more than 8 percent, as a downward revision of U.S. crude production data and OPEC's readiness to talk with other producers helped extend the biggest three-day price surge in 25 years.

U.S. crude oil prices have skyrocketed more than $10 a barrel in three days, erasing the month's declines as a series of relatively small-scale supply disruptions and output risks prompted bearish traders to take profits on short positions, which had been near a record a week ago.

On Monday, prices fell initially but reversed course mid-morning. The three-day gains were more than the 20 percent mark that often signals a bull market. Even so, few were prepared to call a definitive end to the slump.

"Sharp gains over the past three trading sessions were driven by a combination of short covering and chart-readers again looking to call a bottom falsely," Citi said in a report, saying that prices may yet test new lows before year's end.

http://www.reuters.com/article/2015/08/31/us-markets-oil-idUSKCN0R006K20150831

Weaker ringgit a windfall for VS Industry

SENAI: For VS Industry Bhd, one of the top 50 electronics manufacturing service providers in the world, the weakening of the ringgit against the greenback is a windfall as it gains on export activities.

Managing director Datuk Gan Sem Yam said that 90% of the company products were exported to the United States, Australia, Japan and European countries with business transactions done in US dollars.

“Our economic fundamentals are strong and Malaysia is fully prepared, so are our local exporters,” Gan told reporters after the company’s EGM.

At the EGM, shareholders approved the one-to-five share split that will increase the number of shares from 229.86 million shares of RM1 each to 1,148.30 million shares of RM0.20 each.

Shareholders will hold five common shares for each existing share held.

He said the weakening ringgit since the last-quarter of 2014, had made the country’s manufacturing sector more competitive, especially for the export-oriented companies.

“Export-oriented manufacturers like us are allowed by Bank Negara to buy our raw materials in the US dollar and we source half of our raw materials from overseas with the rest from domestic suppliers,” said Gan.

Meanwhile, executive director Ng Yong Kang said although the weakening ringgit was a blessing for companies like VS Industry, the feel good factor would not last too long.

He said if ringgit took a long time to rebound against major currencies, it would send the wrong signal to foreign investors and fund managers that the country’s economy was in a bad shape.

Separately, Ng said the company was currently negotiating with three US-based multinationals (MNCs) to produce niche electrical products for export.

He said the company would focus on niche products in view of the competitive business environment.

“Our proven track record and good delivery system in undertaking jobs with existing local and foreign MNCs will help us to secure more new clients,” he said.

He pointed out that it had built a reputation with MNCs from Japan, Europe, the United Kingdom and the United States over the last four decades.

http://www.thestar.com.my/Business/Business-News/2015/08/28/Weaker-ringgit-a-windfall-for-VS-Industry/?style=biz

Stocks fly after Fed official cools Sept rate hike talk

LONDON/TOKYO (Aug 27): Stocks surged on Thursday, following the biggest gains on Wall Street in four years, after a U.S. Federal Reserve policymaker said the case for an interest rate increase next month "seems less compelling" than it was a few weeks ago.

Increased appetite for risk also lifted crude oil prices further from last week's lows. The price of government bonds and the Japanese yen fell.

At midday in Europe the FTSEuroFirst index of leading 300 European shares was up 3% at 1,420 points. Germany's DAX and France's CAC 40 were also up around 3%. Britain's FTSE 100 was up 2.4%.

"The bounce in Wall Street and stabilisation in Asia are causing the market to rally back," said Clairinvest fund manager Ion-Marc Valahu. "My short-term indicators are telling me that we hit a bottom in the market earlier this week."

New York Fed President William Dudley said on Wednesday that arguments for a September rate increase "seems less compelling" than they had only weeks ago, given the threat posed to the U.S. economy by recent market turmoil.

http://www.theedgemarkets.com/my/article/stocks-fly-after-fed-official-cools-sept-rate-hike-talk

August 27, 2015 Commendable Quarter Results, both revenue & profit increased QoQ & YoY :-    

1) Geshen @ RM0.815
QoQ Revenue increased by 104.3% from RM17.730m to RM36.226m    
QoQ Profit increased by 97.5% from RM1.167m to RM2.305m    

2) Chinwell @ RM1.39   
QoQ Revenue increased by 8.2% from RM119.635m to RM129.497m    
QoQ Profit increased by 14.1% from RM10.950m to RM12.496m

Support Line: Heng Huat, IOI Properties, SAM

HENG Huat Resources retraced from an all-time peak of 53 sen on July 23 to a four-month low of 35.5 sen on July 18 owing to an apparent profit-taking activity before turning range-bound, undergoing consolidation. The trend ahead is pretty straightforward. A clear penetration of the upper 50-day simple moving average of 45 sen would lead to a re-test of the historical peak. On the opposite, a crack of the 35 sen floor will see prices retreating towards the 30 sen mark on extended correction process.

IOI Properties touched an all-time low of RM1.79 on July 8 before drifting sideways attempting to build a base for recovery. The immediate resistance is pegged at the 100-day simple moving average (SMA) of RM1.99, followed by the 200-day SMA of RM2.10, of which a successful breakout would see the fate of this counter changing for the better.


SAM Engineering pulled back from the recent high of RM5.82 on July 14, the best since June 2000 to a low of RM4.36 on August 12 before turning up again in the wake of renewed bargain hunting interest. Based on the daily chart, prices had penetrated the 50-day simple moving average of RM5.11 during intra-day session. Theoretically, the breakthrough would clear the way for a re-test of the recent peak of RM5.82 in the near-term. Important support is pegged at the recent lows of RM4.36.

August 26, 2015 Commendable Quarter Results, both revenue & profit increased QoQ & YoY :-   

1) Cihldg @ RM1.80
QoQ Revenue increased by 84.3% from RM71.021m to RM130.902m   
QoQ Profit increased by 208.4% from RM2.237m to RM6.898m   

2) Johotin @ RM1.28   
QoQ Revenue increased by 25.2% from RM90.778m to RM113.630m   
QoQ Profit increased by 67.9% from RM3.981m to RM6.683m

3) Ock @ RM0.71 
QoQ Revenue increased by 25.1% from RM56.162m to RM70.273m   
QoQ Profit increased by 67.6% from RM3.062m to RM5.133m   

4) Aji @ RM5.65   
QoQ Revenue increased by 17.8% from RM81.063m to RM95.518m   
QoQ Profit increased by 81.1% from RM5.686m to RM10.297m

Stock With Momentum: Lii Hen

Lii Hen (Fundamental: 2.8/3, Valuation: 2.4/3) was first recommended by InsiderAsia on February 16 at RM3.53. The stock has since risen by a whopping 65.7% to close at RM 5.85 yesterday. By comparison, the FBM KLCI has fallen by 13.2% during the same period.

Notably, shares of furniture makers have fared very well, thanks to the weakening ringgit which favours exporters. About 77% of Lii Hen’s products are exported to America — its single largest market. Its second largest market is Asia, contributing about 13% of sales.

The company is backed by solid underlying fundamentals — it is sitting on net cash, pays consistent and fairly generous dividends and delivers double-digit return on equity. Net cash stood at RM55.9 million or 93 sen per share at end-June, up from RM10.2 million at end-2012.

On Monday, the company released a stellar set of 2Q2015 earnings results. Revenue surged 41.3% y-o-y to RM138.3 million while net profit increased an outsized 96.2% to RM12.7 million, due mainly to higher demand for its bedding products and foreign exchange gain of RM1.0 million.

Lii Hen also declared a second interim dividend of 7 sen per share for 2015, which will go “ex” on September 7. Dividends totaled 13 sen per share for 1H2015, up from 7.5 sen per share in 1H2014.

Last month, the company proposed a 1-for-2 bonus issue of up to 30 million new ordinary shares, and a 1-for-1 share split. The share split will be undertaken after the issuance of the bonus shares. Upon completion of both exercises, which is expected by 4Q2015, outstanding shares will increase to 180 million.

The company has consistently paid dividends, with payout ratio ranging from 30% to 50% of net profit. Dividends totaled 14.5 sen per share in 2014, yielding investors a net 2.48%

http://www.theedgemarkets.com/my/article/stock-momentum-lii-hen

RM200 million was the purchase consideration for the acquisition of subsidiaries from Tecnic. The amount was paid to Tecnic on 6 April 2015 via the cash payment of RM100 million and the issuance of 172,413,793 new SKP shares at an issue price of RM0.58 per SKP share.

August 25, 2015 Commendable Quarter Results, both revenue & profit increased qoq & yoy :-  

1) Skpres @ RM1.32
QoQ Revenue increased by 25.0% from RM194.388m to RM243.062m  
QoQ Profit increased by 58.3% from RM11.309m to RM17.904m  

2) Karex @ RM3.22  
QoQ Revenue increased by 10.5% from RM71.395m to RM78.915m  
QoQ Profit increased by 14.2% from RM15.209m to RM17.362m

SKP Resources gets RM400m per year deal from Dyson

SKP Resources Bhd (Aug 24, RM1.33, Maintain buy with a higher target price (TP) of RM2.00)

We recently met up with the management of SKP Resources at their facilities in Senai, Johor. The meeting was centred on operational updates and future prospects, followed by a tour of their new three-storey facility. Below are the key takeaways:

i) Dyson Ltd is currently the group’s largest customer, contributing about 40% of total revenue. Excluding contribution from Tecnic Group Bhd ( Financial Dashboard)’s subsidiaries, the figure would be between 50% and 55%. Last year, the British technology company announced that it would invest £1.5 billion (RM9.93 billion) into the research and development of future products, which will include funding for a new campus at its headquarters in Malmesbury, United Kingdom. It plans to develop four new ranges of technology and launch 100 new products over the next four years;

ii) Among popular products currently produced by Dyson are its cordless vacuum cleaners. In the beginning of the year, it announced that it would invest S$100 million (RM300.41 million) in its motor plant in Tuas, Singapore — more than doubling its digital motor capacity to 11 million units from four million units.

The motors are said to power all of Dyson’s cordless vacuum cleaners, which are sold across more than 75 countries. We view the move as a positive indication of the future potential of the product;

iii) As per our earlier report in May, the company recently secured an additional contract valued at about RM400 million per year from Dyson. The contract is for the production of its popular cordless vacuum cleaners.

Manufacturing of the product will be conducted at its recently completed factory in Senai. It is currently undergoing testing stages, with commercial production expected to begin by end September — within previously stated timelines;

iv) From our previous meeting, management has also made efforts to rejig production lines in its new factory. The factory will house 20 assembly lines compared with three currently. Accounting for new products announced, only 25% of capacity for the new plant will be utilised. Coupled with Dyson’s aggressive expansion plans, we envision room for future growth; and

v) We revise our numbers to incorporate the rejig of lines and fulfilment of capacity over the next two years. We opine that the timeline is possible given reports of aggressive expansion plans by Dyson, potentially leading to future contract wins for the company.

We raise our financial year 2016 (FY16), FY17 and FY18 earnings by 1.2%, 30.1% and 49.2% to RM90.8 million, RM152.9 million and RM201.1 million. This translates into a three-year compounded annual growth rate of 68.2% year-on-year.

We increase our TP based on price-earnings ratio of 18 times and calendar year 2016 earnings per share of 11 sen.

For its upcoming results, we expect a marked improvement from the previous quarter, driven by the maiden consolidation of its result following the acquisition of Tecnic’s subsidiaries. This is then expected to be boosted by the production commencement of its cordless vacuum cleaners in end September. — TA Securities, Aug 24

http://www.theedgemarkets.com/my/article/skp-resources-gets-rm400m-year-deal-dyson

August 24, 2015 Commendable Quarter Results :- 

1) Kawan @ RM2.48
QoQ Revenue increased by 18.6% from RM37.343m to RM44.289m 
QoQ Profit increased by 30.9% from RM5.554m to RM7.269m 

2) Harbour @ RM2.19 
QoQ Revenue increased by 16.5% from RM126.152m to RM147.017m 
QoQ Profit increased by 26.2% from RM12.345m to RM15.583m 

3) Liihen @ RM5.75 
QoQ Revenue increased by 23.4% from RM112.082m to RM138.275m 
QoQ Profit increased by 17.8% from RM10.744m to RM12.661m

Emerging market worries prompt selloff, but bulls remain

NEW YORK (Reuters) - The steep selloff that pushed down the benchmark Standard & Poor's 500 index five percent over three days may say more about the outlook for emerging markets than U.S. companies in the fourth quarter, fund managers and analysts say.

China's economic slowdown, recessions in Latin American countries such as Brazil and Chile, and a breakdown in commodity prices - combined with a thinly-traded market as many investors become more focused on tide charts than trading terminals - are prompting traders to overlook improving U.S. economic data, said Alan Gayle, portfolio manager at RidgeWorth Investments.

"There's a great deal of nervousness around the weakness in China, and that's overshadowing the fact that the U.S. economy is sound and the European Union economy is firming," he said.

Sales of existing U.S. homes rose in July to their highest level since 2007. U.S. auto sales, meanwhile, are on track for their best year in a decade.

Attention will return to those domestic metrics as the Federal Reserve begins its annual meeting in Jackson Hole, Wyoming, next week. Investors will be looking for any signs that the central bank is increasingly worried about global issues or whether it is going ahead with what had been a widely-expected interest rate hike in September.

The Fed has said its decision to raise rates will depend on data such as an improving jobs market and housing market. Should the Fed signal that it plans to raise rates, investor sentiment toward the United States and emerging markets may further diverge.

Minutes released Wednesday of the central bank's most recent meeting revealed Fed officials were concerned about "recent decreases in oil prices and the possibility of adverse spillovers from slower economic growth in China," a detail which helped spark the selling.

At the same time, North Korea put its troops on war footing Friday after South Korea rejected an ultimatum to halt anti-Pyongyang broadcasts. The prospect of war, or signs of more global worries, could further dampen U.S. stocks in the week ahead.

The slowdown in China and other emerging markets such as Brazil is hurting commodity-related companies, but it is not enough to affect either 2015 or 2016 earnings estimates for the S&P 500 as a whole, said Gina Martin Adams, equity strategist at Wells Fargo. Second-quarter earnings rose 0.1 percent from a year earlier, an improvement from the expected decline of 3.4 percent.

Low energy costs should benefit consumer discretionary companies, which Martin Adams expects to grow earnings by 12 percent for the year, up from her previous forecast of 8 percent.

Mutual fund managers are also making bets on U.S. companies that get the majority of their revenues from the domestic market. The average large-cap fund is overweight in U.S.-focused companies, including JPMorgan Chase & Co (JPM.N), railroad Union Pacific Corp (UNP.N), American Express Co (AXP.N), and Comcast Corp (CMCSA.O), according to research by Goldman Sachs.

Martin Adams estimates the S&P 500 will reach 2,222 over the next 12 months, an 11 percent gain from the 1,997 the index reached on midday Friday, after commodity prices bottom and earnings improve.

"The direction of the market is ultimately higher," she said.

http://mobile.reuters.com/article/businessNews/idUSKCN0QQ23S20150822

Apple enters bear territory; tech stocks crushed

Shares of Apple entered bear market territory Friday, dropping more than 21 percent from their April 28 high of $134.54. After shares plummeted almost 6 percent to close at $106 for the day, Apple joined nine other Dow components already in bear market territory: Proctor & Gamble, IBM, Exxon, Intel, Walmart, Caterpillar, United Technologies,Chevron, and DuPont. 

U.S. stocks traded down more than 3 percent across the board Friday afternoon, with the Dow hitting a session low after headwinds from pressures like lower oil prices, Chinese market volatility and lack of positive macroeconomic news. Apple is one of many technology companies feeling the pain. 

http://www.cnbc.com/2015/08/21/apple-looking-bearish-with-majority-of-tech-stocks-in-correction-territory.html

Winners and losers of foreign currency depreciation

THE depreciation of the ringgit against the greenback has increased the vulnerability of corporations that have high exposure in foreign currency loans, especially US-dollar denominated debts.

However, this does not necessarily mean that these companies are in trouble.

This is especially so if the company is generating revenue in foreign currency, and thus is naturally hedged.

YTL Corp Bhd, MISC Bhd, Malaysia Airports Holdings Bhd, IOI Corp Bhd and Bumi Armada Bhd are likely to suffer the least because their assets and earnings match their foreign currency debts.

YTL has a total debt of RM35.6bil, one of the highest among the listed companies on Bursa Malaysia. While 60% of YTL’s total debt is in foreign currencies, more than 65% of its revenue is from overseas and most of its borrowings are tied to its power plant and water assets.

“YTL will only take foreign currency debts for assets that will generate revenue in that particular currency, it’s a natural hedge, which reduces the company’s risk from the volatility in the currency market,” says an analyst.

Meanwhile, for Maxis Bhd and Axiata Group Bhd, their exposure to US dollar debt is at 32% and 44%, respectively.

About 41% of Axiata’s revenue is from Malaysia, 34% from Indonesia and 10% from Bangladesh, while the bulk of Maxis’s revenue is from Malaysia.

Axiata’s management has recently noted that the company is currently in the midst on managing its US dollar debt exposure and plans to reduce this in the next six months.

The company is planning to restructure a US$590mil loan taken by its Indonesian unit into local currency-denominated partial sukuk.

Companies such as MISC Bhd and Bumi Armada benefit from the sustained weakness of the ringgit against the US dollar because its income and cost are predominantly quoted in US dollar terms.

Based on Bumi Armada’s annual report, the company is exposed to fluctuations in forex rates as it does not hedge its interest rate risk.

An increase rate hike of 0.5% for US dollar will have an impact of RM1.4mil loss and vice versa.

“However, the company’s foreign denominated borrowings are hedged and as such any interest rate fluctuations will have minimal impact,” it stated in the annual report.

Meanwhile, AirAsia Bhd and Astro Malaysia Holdings Bhd seem more vulnerable to a prolonged weakness of the ringgit, as their margins are squeezed by increased operational cost.

For AirAsia, its jet fuel costs and aircraft parts are primarily denominated in US dollar while sales are mainly in ringgit.

About 85% of AirAsia’s debt is in US dollar for the acquisition of its fleet of aircraft.

For the second quarter ended June 30, the company’s unrealised forex loss on borrowings totalling RM43.6mil was due to the adverse movement in the exchange rate on US dollar-denominated borrowings.

Stripping off the forex loss and termination of finance cost, AirAsia’s pre-tax profit for the period is RM48.76mil compared with RM255.31mil in the corresponding period last year, where it had enjoyed a gain of RM202.92mil on forex gains on borrowings.

Nonetheless, AirAsia has active hedging strategies, of which it had hedged 51% of its fuel requirement for eth second half of this year at US$84 per barrel.

For Astro, according to HLIB Research report, about 70% of its content cost is in US dollars and 49% of total borrowing is in denominated in US dollar, while the receipts are in ringgit.

http://www.thestar.com.my/Business/Business-News/2015/08/22/Winners-and-losers-of-foreign-currency-debts/?style=biz

Dow, Nasdaq plunge 3% into correction

U.S. stocks closed deep in the red on Friday as global growth concerns accelerated selling pressure to push the Dow and Nasdaq into correction territory. ( Tweet This )

The major averages had their biggest trade volume day of the year and posted their worst week in four years.

The Dow Jones industrial average closed at session lows, off nearly 531 points and in correction territory for the first time since 2011 as all blue chips declined. The last time the index closed more than 500 points lower was on Aug. 10, 2011. In the last five years, the index has only had four instances with closing losses of more than 400 points.

"For investors the momentum and the drive of the market is now lower (than) it used to be because there's no place to hide," said Lance Roberts, general partner at STA Wealth Management. "Every time we hit the major technical points we kept selling."

"What is important is the price action of the market has done something we haven't seen since the last bull market peak," Roberts said. "There is something going on internally in the market. That illness that has been building up in the market."

A trader also noted that investors stopped looking at technicals and were plowing through them.

"It's an expiration day and it looks like they're to have for sale on the close maybe as much as a billion dollars," said Art Cashin, director of floor trading for UBS.


The Nasdaq Composite lost 3.5 percent, also closing in correction territory and joining the other major averages in negative territory for the year.

Apple declined 6 percent, in bear market territory, and the iShares Nasdaq Biotechnology ETF (IBB) plunged 3.1 percent.


"Right now there is a feeling of fear in the marketplace and all news is interpreted negatively and it's interpreted indiscriminately," said Tom Digenan, head of U.S. equities as UBS Global Asset Management.


The S&P 500 fell through a support level of 1,980 to end at 1,970, off 7.6 percent from its 52-week high. The index is off about 4.3 percent for the year so far. Information technology and energy led all 10 sectors lower on the day. Energy was the worst decliner for the week, with no sectors posting weekly gains.

About 70 percent of the S&P 500 is in correction or worse, with 31 percent in a bear market and 39 percent in correction territory.

"It's more of the same," said Peter Boockvar, chief market analyst at The Lindsey Group. "From a technical perspective we broke" 2,040 on the S&P 500, the lower end of the trading range.

http://www.cnbc.com/2015/08/21/us-markets-global-growth.html

You are welcome SgMas, just sharing information & hopefully all will make money from bursa.

Today's Commendable Quarter Results :-

1) MMSV @ RM0.635
QoQ Revenue increased by 49% from RM7.652m to RM11.432m
QoQ Profit increased by 114% from RM1.671m to RM3.572m

2) FLBhd @ RM1.51
QoQ Revenue increased by 67% from RM30.032m to RM50.132m
QoQ Profit increased by 142% from RM3.323m to RM8.045m

3) Mieco @ RM0.835
QoQ Revenue increased by 13% from RM80.276m to RM90.565m
QoQ Profit increased by 109% from RM3.222m to RM6.735m

4) Scicom @ RM1.75
QoQ Revenue increased by 11% from RM43.233m to RM48.133m
QoQ Profit increased by 16% from RM9.156m to RM10.595m

US Stock Markets Outlook as at August 21, 2015

The top US indices dropped between 2.0-2.9% yesterday. In term of points lost, DJIA lost 358 points while S&P500 & Nasdaq lost 44 & 142 points respectively. We can see from the charts below that DJIA & S&P500 are now below their long-term uptrend line while Nasdaq is resting on its uptrend line.  

In my opinion, DJIA is leading the decline in US markets because the top 30 stocks consist of many global companies that are being negatively impacted by the strengthening of the US Dollar. Even without this unfavorable movement in the USD, the US markets are over-extended and due for a serious correction. Looking at the charts, I believe it will be more than just correction that we should worry; this could be the market top!

http://nexttrade.blogspot.com/2015/08/us-stock-markets-outlook-as-at-august.html

Support Line

IFCA

IFCA MSC fell to an eight-month low of 63.5 sen on Tuesday before turning range-bound. Based on the daily chart, this stock will remain in correction mode, as long as the declining 14-day and 21-day simple moving averages, resting at 80 sen and 89 sen respectively, continue to pressure the stock. A slip below the 63.5 sen floor may drag the shares down to 50 sen.

http://www.thestar.com.my/Business/Business-News/2015/08/20/Support-Line/?style=biz

Depreciating ringgit won’t significantly impact rated Malaysia firms, says S&P

KUALA LUMPUR: Standard & Poor's Ratings Services says the depreciation in the Malaysian ringgit won't significantly affect rated Malaysian companies.

Standard & Poor's credit analyst Xavier Jean said on Thursday the weakening ringgit by itself “will have only a limited impact on the cash flow adequacy and operating performance of the eight companies that we rate in Malaysia".

In the report issued on Thursday entitled, "Why a weak ringgit won't significantly affect rated Malaysian companies," he said most of these companies have adequate rating headroom.

Jean pointed out these companies had moderate leverage, sound liquidity, and generally conservative financial policies.

S&P said the ringgit is nearing a 17-year low against the US dollar. Not only has the currency weakened by about 15% since the beginning of the year, the depreciation has been accelerating over the past few weeks. 

The depreciation will have an overall modest effect on the leverage of the rated companies, but it could have a slightly pronounced impact on profitability for some. 

What works in favor of the rated Malaysian companies is the absence of major mismatches between the currencies of their debt and their revenues. 

The situation in Malaysia contrasts sharply with that in Indonesia, where the credit impact of the depreciation of the Indonesian rupiah on companies has been more pronounced.

"Although a prolonged weakness in the ringgit could bring the financial ratios of some companies close to their downgrade triggers, factors that companies control, including spending strategies, dividends, and acquisitions, will remain more important for the rating transitions," said Jean.

http://www.thestar.com.my/Business/Business-News/2015/08/20/Depreciating-ringgit/?style=biz

Eco World on track to meet RM3b property sales in FY15 despite broader market doldrums

KUALA LUMPUR (Aug 19): Eco World Development Group Bhd ( Financial Dashboard) is on track to meet its sales target of RM3.0 billion for its financial year ended Oct 31, 2015.

Its chief executive officer Datuk Chang Kim Wah said that demand for Eco World properties remained intact due to their prime locations and strong brand name.

He told the press after an extraordinary general meeting (EGM) to approve a proposed joint development between Eco World and UDA Holdings Bhd that the development order for the project has already been obtained and that it will start construction next year.

The gross development value for the mixed development at a prime piece of land in KL close to the Hang Tuah LRT is approximately RM8.7 billion.

Eco World holds 60% equity interest in the joint venture vehicle BBCC Development Sdn Bhd, while UDA holds the remaining 40%.

The proposed joint development was passed during the EGM.

Evergreen Fibreboard back in the black with RM23.89m profit in 2Q

KUALA LUMPUR (Aug 19): Wood-based products maker Evergreen Fibreboard Bhd ( Financial Dashboard) returned to the black the second quarter ended June 30, 2015 (2QFY15) with a net profit of RM23.89 million or 4.66 sen per share compared with a net loss of RM21.69 million or 4.23 sen loss per share a year ago.

In a filing with Bursa Malaysia today, Evergreen attributed the increase in profit to the lower cost of log and glue, higher operational efficiency and synergistic cost savings derived from the group's recent restructuring of certain operational facilities.

Revenue for the quarter jumped 20% to RM259.96 million from RM215.81 million in 2QFY14, on higher sales volume and the strengthening of the US dollar.

For the six-month period ended June 30 (1HFY15), the group posted a net profit of RM43.95 million or 8.57 sen per share compared with a net loss of RM24.27 million or 4.73 sen loss per share in 1HFY14, while revenue climbed 8% to RM492.09 million, from RM455.33 million.

Going forward, Evergreen expects to post better results in the coming quarter, capitalising on the steady global demand for medium-density fibreboard (MDF) and the strengthening of the US dollar.

Besides that, the group will continue to employ cost control measures and to maximise productivity and equipment enhancement through the modernisation and automation of its manufacturing processes.

Evergreen  (fundamental: 0.85; valuation: 0.3) shares closed 9 sen or 4.8% higher at RM1.95 today, giving a market capitalisation of RM954.14 million.

Evergreen in position to trade higher, says AllianceDBS Research

KUALA LUMPUR (Aug 19): AllianceDBS Research said Evergreen Fibreboard Bhd (Evergreen) ( Financial Dashboard) was in position to trade higher and that Evergreen had on August 18 tested previous day’s low of RM1.75 before settling at the day’s high of RM1.86 (up 8 sen or 4.49%).

In its evening edition yesterday, the research house said a crossover of the RM1.86 hurdle would likely see Evergreen trading upward with the next upside target pegged between RM2.00 and RM2.07.

“Risk taking traders can establish a buying position at RM1.83 on a small pullback.

“Once a buying position is established, a stop loss at RM1.80 level must be placed for risk capital protection, and this RM1.80 is to be followed by a trailing stop loss strategy.

“If you are prepared to take a trading loss risk of RM30 (excluding brokerage) for RM170 – RM240 potential profit, you may acquire 1,000 shares with a capital amount of RM1,830 assuming buying order is filled at RM1.83,” it said

Insider Asia’s Stock Of The Day: Magni-Tech Industries

MAGNI-TECH (Fundamental: 2.8/3, Valuation: 2.4/3), a contract manufacturer for global sportswear leader Nike, was first recommended by InsiderAsia back in October 2014 as an undiscovered, undervalued stock. Its shares have done well since, up 39% to current price of RM3.95. We continue to like the stock, for both its solid fundamentals and growth potential.

Magni-Tech diversified into garment manufacturing in 2006 and has, since then, recorded 10 years of uninterrupted earnings growth. Today it is one of the largest sport apparel manufacturers in Malaysia — about 96% of its FYApril2014 garment revenue was derived from Nike.

Over the past five years, turnover has expanded by CAGR of 13.7%. In FY15, net profit jumped an outsized 24% to RM52.1 million on the back of 10% sales growth. The higher margins were attributed to economies of scale, increased investment income as well as foreign exchange gains. About 70% of its plant and machinery have been depreciated over the years.

Accordingly, ROE has also been on the rise, from 11.4% in FY11 to 21.7% in the latest FY15.

The company generates strong free cashflow yearly, on the back of steady cashflow from operations and modest capital expenditure. As a result, cash pile has been growing. Net cash currently stands at RM69 million.

This enables the company to gradually raise dividends. In tandem with its earnings growth, Magni-Tech’s annual dividend payments have been on an uptrend since FY06.

It proposed a final dividend of 3 sen and a special dividend of 7 sen, bringing up total dividends for FY15 to 15 sen per share. This translates into a relatively generous yield of 3.8%. With dividend payout ratio at just 31% of net profit, there is room to further raise dividends.

Valuations are undemanding at a trailing 12-month P/E of 8.2 times, compared with peer Prolexus’ 12.1 times.

http://www.theedgemarkets.com/my/article/insider-asia%E2%80%99s-stock-day-magni-tech-industries

Ringgit and stock market – halting the rout

My view is that both the ringgit and KL stock market are undervalued,’’ said Chris Eng, head of research, Etiqa Insurance & Takaful, noting that the ringgit to US dollar had broken above his support level of RM4, and the KL stock market had gone below his support level of 1,670 points.

To illustrate, at the end of 2013, the KLCI was at 1,867 while GDP grew at 4.7% and KLCI earnings at 6%; in 2014, the KLCI was at 1,761 and GDP grew at 6% and KLCI earnings fell 1%.

“For the KLCI to be at 1,600 means that the market is factoring in more than 5% contraction in earnings in 2015 and 2016 combined. That would mean that Malaysia is likely to slip into recession but I don’t think we are there yet,’’ said Eng.

Despite the negatives, UOBKayHian is still expecting a significant rebound in the KL market in the fourth quarter, with recently sold down defensive stocks ranking high in the tactical rebound list.

“While generally defensive, we advise raising exposure to sold-down defensive food and beverage stocks, exporters (weak ringgit beneficiaries) and high yielders with resilient cash flows. However, we would still generally avoid the cyclical sectors such as oil and gas and automobile,’’ said Vincent Khoo, head of research, UOBKayHian.

http://www.thestar.com.my/Business/Business-News/2015/08/17/Ringgit-and-stock-market-halting-the-rout/?style=biz

More ringgit volatility seen after Bank Negara assures no capital control

Malaysia may have to contend with further currency volatility after Bank Negara Malaysia assured capital control measures were not on the cards to stem the ringgit's depreciation, digitaledge WEEKLY reported in its latest August 17-23 issue.

Yesterday, the ringgit weakened to a fresh level against the US dollar at 4.1270 after China devalued its currency and crude oil prices fell. Against the Singapore dollar, the ringgit depreciated to a new level at 2.9346.

China's move to devalue its currency led to expectation that other Asian central banks will do the same to ensure export competitiveness. The ringgit's strength correlates with crude oil prices as the commodity is a major component of the Malaysian economy and accounts for some 28% of government revenue.  

Following Bank Negara's assurance, digitaledge WEEKLY said : "This means the country has to brace for more ringgit volatility even as investors try to find their footing in the financial markets on the expectation of interest rate normalisation in the US."

The report by digitaledge WEEKLY followed a press conference by Bank Negara last Thursday in conjunction with the announcement of the country's second quarter economic numbers.

digitaledge WEEKLY quoted Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz as saying the central bank would continue with its existing flexible exchange rate system which allowed the country to adjust to external developments accordingly.

“We are not introducing capital controls. We’ve moved on from that because we have a more developed financial system (now), financial markets that are larger and able to absorb this kind of volatility. 

"We have also strengthened our financial intermediaries and they are better able to cope with it,” Zeti said.

http://www.theedgemarkets.com/my/article/more-ringgit-volatility-seen-after-bank-negara-assures-no-capital-control

Bank Negara governor says economy expected to be resilient

Malaysia’s economy surprised in the second quarter by growing 4.9%, above the consensus figure of 4.5%. But economists warned that the next six months would be challenging.

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said the economy was expected to be resilient and remain on a steady growth path, buoyed by domestic demand.

However, global growth had become more vulnerable to increased downside risks, she said.

In the second quarter, private consumption slowed down, growing by 6.4% compared with 8.8% in the first quarter, as households adjusted to the impact of the goods and services tax (GST) which kicked in in April, while private investment growth came down to 3.9% from 11.7% earlier.

Gross exports declined by 3.7% compared with 2.5% the quarter before, mainly due to less export of commodities and resource-based manufactured products.

“Despite the sentiment, growth in consumption has still been favourable. We actually expected it to be lower because there was a lot of front loading in the first quarter,” Zeti told a packed press conference yesterday.

She said wage growth and stable labour market conditions would provide support to household spending, while investment activity would be supported by capital spending in the manufacturing and services sectors.

“In the case of investment activity, based on approval numbers, these have not declined. In fact, they have increased and, therefore, our anticipation is that investment activity will recover from current levels,” Zeti added.

“The second half is something we need to watch, it will be more challenging,” independent economist Lee Heng Guie said.

On the external front, a lot of it would depend on exports and at the moment, visibility was still quite low amid weak crude and palm oil prices, Lee said.

Citing the private consumption and private investment figures, which showed declines, Lee said such numbers were likely to continue into the third quarter, given that the current sentiment was being affected by the sliding ringgit and ongoing political uncertainties.

“Hopefully, there will be some rebound by the fourth quarter,” Lee said.

Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias said going forward, the anaemic global trade performance would likely pose a challenge to Malaysia’s overall export performance.

“Declining commodity prices will likely bite into Malaysia’s net trade while consumer spending will likely continue to soften.”

After growing 5.6% in the first quarter, the economy expanded by 4.9% in the second quarter, supported by a turnaround in agricultural production, which grew by 4.6% compared with a contraction of 4.7% previously amid higher production of palm oil.

The services, manufacturing, mining and construction sectors all registered declines.

Headline inflation was higher in the second quarter, up by 2.2% compared with 0.7% earlier due to the implementation of the GST.

Zeti said that at the current level of overnight policy rate, monetary conditions remained supportive of economic activity.

The Monetary Policy Committee left its key lending rate unchanged at 3.25% at its last meeting in July.

As at July 31, the central bank’s international reserves had dipped below US$100bil – the first time since 2010, according to Bloomberg – to US$96.7bil.

“We will build it up again,” Zeti said.

The current level was sufficient to finance 7.6 months of retained imports, significantly higher than the three-month international threshold, she said.

http://www.thestar.com.my/Business/Business-News/2015/08/14/GDP-grows-above-forecast/?style=biz

AllianceDBS Research 14/8/2015

Technical Buy - Luxchem @ 1.20
TP 1.30 - 1.50
Cut-Loss - 1.15

Market Outlook as at August 13, 2015

Market is rebounding. FBMKLCI found support near 1600 and is now at 1625 (up 16 points). To override the Head-and-Shoulder reversal, FBMKLCI must climb back above the neckline at 1680. The odd is stacked against this effort. The technical indicators are weak and the 10-month SMA line has cut below the 20-month EMA as well as nearly cutting below the 30-month EMA line. As noted in earlier post, when we saw this moving average crossovers in the past (1997 & 2008), the market had entered into bear market. To make this herculean task more difficult, we have two ingredients that tend to roil any market: currency turmoil and political uncertainty. With that, I believe the appropriate strategy would be to reduce one's position as the prices crawl up.Good luck!

http://nexttrade.blogspot.com/

USD-MYR: Does It Ring A Bell?

Yesterday, our Ringgit weakened further. The USD:MYR exchange rate surpassed the psychological 4.00 mark momentarily before closing at 3.98357.

From the long-term chart, we can see that the USD:MYR exchange rate has a strong resistance at 3.80. The 3.80 level - which is much more significant than the 4.00 mark - was violated in early August. This breakdown plus the test of the psychological 4.00 mark are clear signs of the bearishness of our Ringgit. There is strong probability that we may revisit the high of 4.20-4.30 recorded during the Asian Financial Crisis in 1997-1998. Except for the political crisis, Malaysia is in a much stronger footing now than 1997-1998. If our present political crisis can be resolved quickly - I suspect it will - then we may see a sharp reversal in our exchange rate. If that were to happen, our stock market will enjoy a big boost!

http://nexttrade.blogspot.com/

Winners and losers

PETALING JAYA: The steep decline in the value of the ringgit is not bad news for everyone.

Export-oriented sectors such as rubber product manufacturers, semiconductor firms and furniture producers are prime beneficiaries because their production costs are mainly in ringgit while sales are in US dollars.

However, analysts cautioned that while the US dollar would have a positive impact on companies’ bottom lines, it would not translate into higher demand.

“The currency depreciation does not translate into higher demand,” said an analyst.

Malaysian rubber product manufacturers, namely, Top Glove Corp Bhd, Supermax Corp Bhd, Hartalega Holdings Bhd and condom manufacturer Karex Bhd are among the beneficiaries of the strong US dollar. Conversely, the input costs for these manufacturers are in ringgit terms.

About 90% of Malaysian rubber product manufacturers’ sales are in US dollars, while most of the cost such as raw materials,labour and electricity are in ringgit.

“We expect Malaysian glove makers to further gain global market share as has been in the past four years,” says AllianceDBS Research in a recent report.

Nevertheless, analysts cautioned investors because the benefits of the weak ringgit for this sector had been priced in.

For the semiconductor sector, while overall demand for electrical and electronic products is slowing down, players will see an improvement in their bottomlines due to the stronger US dollar.

According to a Hong Leong Investment Bank (HLIB) Research report in June, about 75% of Vitrox Corp Bhd sales are in US dollars and 30% of its costs are in US dollar terms, which mitigate the company’s exposure to its US dollar loans.

“Our sensitivity analysis suggests that every 1% change in the ringgit against the US dollar rate will impact Vitrox’s bottomline by 2%,” said Maybank Investment Bank Research.

The losers of the weaker ringgit are companies which import their raw materials in US dollars but sell the products in ringgit, and those with exposure to US dollar debt.

For the auto sector, the stronger US dollar will have a negative impact on certain players, such as UMW Holdings Bhd and Tan Chong Motor Holdings Bhd, according to Kenanga Research in a recent report.

“These companies have high denominated US dollar costs due to the import of completely-built-up vehicles, completely-knocked-down packs and other components, which will continue to corrode their profitability.

“Our sensitivity analysis suggests that for every 1% fluctuation in the US dollar from our base case, UMW’s bottomline could be affected by 3%.”

For Tan Chong, Kenanga Research said that for every 1% fluctuation in the US dollar, the company’s bottomline could be affected by 6%.

Meanwhile, the research house is positive on Berjaya Auto Bhd, as around 50% of its total cost is exposed to the Japanese yen.

“Based on our sensitivity analysis, every 1% drop in the yen will have a positive impact on the group’s 2016 net profit by 5%.”

Meanwhile, aviation players are at risk because of the borrowings in US dollars to fund the aircraft and parts.

The fuel cost could also be a burden, depending on the airline’s hedging strategy.

The Brent crude has fallen 13.88% year-to-date, while the ringgit has slid 13.33%.

For AirAsia Bhd, 80% of its debt is exposed to the greenback.

But HLIB Research said in a report that the low-cost carrier has hedged 70% of its foreign debt.

The impact of the stronger US dollar on telecommunications operators varies.

Time dotCom Bhd (TdC) is a beneficiary, as sales from its global bandwidth services, which forms 10% of its business, is in US dollars.

“Although TdC has US dollar debt, it is a small amount, and thus, has immaterial negative impact,” HLIB Research said.

The impact on DiGi.Com Bhd is neutral and it does not have borrowings in US dollars.

About 22% of Telekom Malaysia Bhd’s borrowings as of the first quarter were in US dollars, while Maxis Bhd’s and Axiata Group Bhd’s exposure to US dollar debt was at 32% and 44%, respectively, according to HLIB Research.

The weaker ringgit is also negative for Astro Malaysia Holdings Bhd, as about 70% of its content cost is in US dollars, while the receipts are in ringgit, said HLIB Research.

http://www.thestar.com.my/Business/Business-News/2015/08/13/Winners-and-losers/?style=biz

Ringgit, Singapore dollar most vulnerable to yuan devaluation, says Standard Chartered

KUALA LUMPUR (Aug 12): The Malaysian ringgit and the Singapore dollar (SGD) are the most vulnerable currencies to the devaluation of the yuan, said Standard Chartered Research.

Malaysia, besides the Philippines, also has the highest exposure to China in terms of exports and so is most exposed to the weakness of the yuan, the research house said in a report today.

In terms of imports from China, the research firm said it expects a greater negative impact on the Singapore dollar and the Philippines peso (PHP), as the central banks in those countries are already struggling with low inflation and deflation.

“A deflationary impulse would likely add to the pressure on the central banks to ease policy,” the report stated.

Yesterday, the People’s Bank of China (PBoC) has announced a one-off devaluation of the Chinese yuan, allowing it to weaken by nearly 2%.

Today, the yuan tumbled 1.9%, sparking the biggest two-day selloff in Asian currencies since 1998 and fueling concern that financial-market volatility will curb global economic growth, Bloomberg reported.

In another report, the news agency, quoting former International Monetary Fund (IMF) economist Stephen Jen, said emerging markets such as Indonesia and Malaysia are likely to be hardest hit by the devaluation of the yuan due to the countries being commodity exporters, which relies on demand from China.

The ringgit, weighed down by the devaluation of the yuan, has surpassed the 4.0000 level and is currently trading at 4.0275 against the US dollar, the first time such levels are seen since the height of the Asian Financial Crisis in 1998.

The devaluation of the yuan also exacerbated the slump of the FBM KLCI, with the index closing down 26.78 points or 1.64% at 1,609.93. It had earlier gone down over as much as 33.45 points to reach 1,603.26.

http://www.theedgemarkets.com/my/article/ringgit-singapore-dollar-most-vulnerable-yuan-devaluation-says-standard-chartered

Maybank IB sees investment opportunities amid market volatility

KUALA LUMPUR (Aug 10): Despite the current internal and external headwinds, Maybank Investment Bank Bhd (Maybank IB) sees investing opportunities amid current weak sentiment.

Maybank IB opined that the capital market will remain volatile.

The external headwinds included the debt crisis in Greece, growth risk in China and the prospects of the US interest rate hike.

In a statement today, the investment bank said its year-end target for FBM KLCI is 1,830 points and forecast the full year 2015 gross domestic product growth to stand at 4.9% compared with 6% in 2014.

According to Maybank IB, the market is expected to slowly improve in the mid and longer term as fund outflows should stabilise by year end and corporate earnings are also expected to recover.

Despite the uncertainties, Maybank IB said there are still trading windows, and investors adopting the right investment strategies may still profit from the current market.

"Investors are advised to remain defensive in the near term and invest based on selected themes," Maybank advised.

Maybank IB has an "overweight" call on construction stocks which are expected to benefit from the continued investment in infrastructure projects.

The company also has an "overweight" call on glove producers and technology stocks which will benefit from the strengthening of the US dollar against the Malaysian ringgit.

It added that plantation stocks, which are currently rated "neutral", may be rerated if a strong El Nino pans out.

Maybank IB's top 10 stock picks are Axiata Group Bhd ( Financial Dashboard), Gamuda Bhd ( Financial Dashboard), NCB Holdings Bhd ( Financial Dashboard), Cahya Mata Sarawak Bhd (CMSB) ( Financial Dashboard), Harbour Link Group Bhd ( Financial Dashboard) and Top Glove Corporation Bhd ( Financial Dashboard) for growth play, Malakoff Corp Bhd for yield play, and Hock Seng Lee Bhd ( Financial Dashboard), Hong Leong Financial Group Bhd ( Financial Dashboard) and Tenaga Nasional Bhd ( Financial Dashboard) for value play.

Shares in Malayan Banking Bhd decreased 16 sen or 1.79% to close at RM8.80 today, bringing its market capitalisation to RM85.47 million.

China's July exports slump 8 percent, raises pressure for more stimulus

BEIJING/SHANGHAI (Reuters) - Chinese exports tumbled 8.3 percent in July, their biggest drop in four months and far worse than expected, reinforcing expectations that Beijing will be forced to roll out more stimulus to support the world's second-largest economy.

Imports also fell heavily from a year earlier, in line with market forecasts but suggesting domestic demand might be too feeble to offset the weaker global demand for China's exports.

Economists had forecast exports to fall just 1 percent, after a 2.8 percent uptick in June, but the data on Saturday showed depressed demand from Europe and the first drop in exports to the United States, China's biggest market, since March.

Exports to the European Union fell 12.3 percent in July while those to the United States dropped 1.3 percent. Demand from Japan, another big trading partner, slid 13 percent.

"A recovery in external demand remains far off and economic growth will continue to rely on domestic demand, which implies policies should continue to be relaxed in the second half," wrote Qu Hongbin, China economist at global bank HSBC.

Imports fell 8.1 percent, according to the data from the General Administration of Customs. That compared with forecasts for an 8 percent drop, after a 6.1 percent decline in June, though these falls also reflected weaker commodity prices.

http://mobile.reuters.com/article/idUSKCN0QD03320150808?irpc=932

Market Outlook as at August 7, 2015

This morning, FBMKLCI broke below its past 1 month low of 1685. It is now struggling to stay above the line connecting the lows for the past 1 year (AB) at 1680. As at 3.00pm, this support is holding and hopefully we can see a rebound at the close. The fact that there has not been a strong rebound yet, is discomforting. Why?

If you look at the monthly chart below, you will see that the line, AB is no ordinary line. It is the neckline of a Head-and-shoulder formation- one of the more reliable reversal pattern. The last time we saw a Head-and-shoulder reversal was in 2008. We are now staring at a similar set-up and if the index breaks below 1680, we will have a confirmed Head-and-shoulder reversal with a downside target of 1480.

Meanwhile, the DJIA has broken its uptrend line. Its MACD indicator is poised to venture into negative territory. When that happens, we should be seeing the start of a downtrend for DJIA.

http://nexttrade.blogspot.com/2015/08/market-outlook-as-at-august-7-2015.html?m=1