Economy

US: Bernanke says ‘frustratingly slow’ growth hurts small banks. Federal Reserve Chairman Ben s. Bernanke said community banks face big challenges including slow economic growth and compliance with stiffer regulation. “Community bankers today confront a frustratingly slow recovery, stiff competition from larger banks and other financial institutions, and the responsibility of complying with new and existing regulations,” Bernanke said today. (Bloomberg)

US: Obama summons Congress leaders to discuss impasse today. President Barack Obama summoned the top four leaders of Congress to the White House today for the first high-level talks on reopening the partially shut US government amid few signs of a resolution. Jay Carney, the White House press secretary, said the bipartisan Oval office meeting at 5.30pm wouldn’t be a negotiation. (Bloomberg)

EU: Draghi said to task ECB panel to consider bank liquidity options. Mario Draghi has asked a European Central Bank panel to study options for new bank funding measures, as policy makers try to figure out how to deal with any future liquidity shortages, two euro-region central bank officials said. While the ECB president instead that the institution “ stands ready to act according to need,: the governing council agreed that a technical committee should examine the size and maturity new long-term refinancing operations, as well as other instruments, the officials said. (Bloomberg)

EU: Powers backing down over aviation emissions. Britain, France and Germany are ready to water down the EU’s position on aviation emissions to try to strike a global deal after some regions threated a trade war when the EU put in place restrictions on its own, sources close to the talks said. The sources said the shift in stance by the countries could jeopardise the EU’s carbon trading scheme – the central plank of its climate policy – and put them on collision course with the European Parliament, which could reintroduce the EU emissions restrictions if it is not happy with a global deal. (Reuters)

EU: Berlusconi drops bid to topple Italian govt. Italy’s Silvio Berlusconi yesterday abandoned his bid to topple Prime Minister Enrico Letta, saying he would vote to support the government in humiliating climb-down after key allies rebelled. “We have decided to vote for confidence, not without internal disputes,” Berlusconi said ahead of a confidence vote in Parliament called after he launched his challenge to the leadership on Saturday. Berlusconi said he had changed his mind yesterday after hearing Letta’s promise to lower taxes and “the need for a government that can carry out institutional reforms in Italy”. (AFP)

UK: Housebuilding grows at fastest pace for 10 years. Construction activity in the UK’s housing market grew at its fastest pace for almost a decade in Sept, suggesting the controversial government-backed Help to Buy scheme is boosting the supply of new homes. In the latest purchasing managers’ index, the figure for residential construction climbed to 64.8 its highest since Nov 2003 and well above the crucial 50 point that separates an expansion in activity from a contraction. (Financial Times)

Asia: ADB cuts GDP forecasts for Asian economies. Slower growth in China and India and uncertainty over the United States Federal Reserve's (Fed) stimulus programme is hurting Asia's economic momentum, the Asian Development Bank (ADB) said, as it cut its forecast for the region. In an update to its annual Asian Development Outlook published in April, the bank tipped regional GDP to grow 6% this year, compared with its earlier forecast of 6.6%. Growth in 2012 was 6.1%. It also trimmed its 2014 estimate to 6.2% from the 6.7% previously stated. Asian economies have seen a marked slowdown this year owing to a troubled first six months in China while India has been hit by political paralysis, rising inflation and a slumping rupee. The ADB cut its 2013 forecasts for China to 7.6%, well down from its April estimate of 8.2%. India is seen growing 4.7% this year, compared with 6% forecast previously. (Agencies)

Philippines: Tetangco sees GDP growth topping 7%. The Philippines will withstand pressure stemming from the impending reduction of the Federal Reserve’s stimulus with growth exceeding 7% this year, central bank Governor Amando Tetangco said. Bangko Sentral ng Pilipinas will probably keep interest rates steady this year and next, “barring any unforeseen shocks,” Tetangco said. Inflation will fall within the central bank’s target range for a fifth year this year, he said. (Bloomberg)

Markets

Silver Bird: LTH exits ahead of scheme. Lembaga Tabung Haji has exited troubled break maker Silver Bird Group ahead of a proposed regularization scheme that could turn out highly dilutive to the existing major shareholders. The exit by the pilgrimage fund leaves Tan Sri Vincent Tan’s Berjaya Corp and Koperasi Permodalan Felda Malaysia (KPFM) as the two remaining largest shareholders of Silver Bird at this stage. A source familiar with the matter said LTH decided to leave Silver Bird because it felt it no longer needed to carry the responsibility of financially supporting the company as interim funding was procured in July. (Financial Daily)

Aeon: Injects assets into Tokyo-based REIT. Aeon Co (M) entered into a sale and purchase agreement with Jaoan-incorporated Aeon REIT Investment Corp (J-REIT) yesterday to dispose of 18.2% of a piece of land in Mukim Pulai, Johor, in a deal worth RM20m. The disposal includes an 18.2% undivided share of the Aeon Taman Universiti shopping centre in Skudai, Johor. The valuation of the land and building was RM110m as at July 1. The parcel of freehold land in Skudai measures 35,070sqm and is currently used as a shopping centre, with car parks, department stores and supermarket. (Financial Daily)

LBS: Takes over Lamdeal for RM3.21. LBS Bina Group has acquired the entire equity interest in Lamdeal Investment, via subsidiary Dragon Hill Corp Ltd, for USD1 (RM3.21) only. It exercised its rights under the Option Agreement and Supplementary Option Agreement dated April 8, 2004 and March 20, 2006 respectively to acquire Lamdeal. Lamdeal is an investment party to a racing circuit project where it, together with its JV partner in China, had formed a JV entity in 1992 to jointly develop and operate China’s first professional racing track, the 264-acre Zhuhai International Circuit. (StarBiz)

UMW: Expects new Vios to be a success. UMW Toyota Motor SB expects the new Vios compact sedan to lift its vehicle sales this year. The third-generation 1.5-litre Toyota Vios, boasts, among others, better fuel efficiency, increased cabin room, a larger trunk and improved noise insulation. More than 8,000 bookings have been received for the new Vios, since orders were taken on July 1. The company is aiming to sell 36,000 Vios units next year. (StarBiz)

F&N: Banking on new plant to lift exports. Fraser & Neave Holdings’ (F&N Malaysia) subsidiary, F&N Dairis (M) SB, expects to double its dairy exports to 40% from its total output by 2018. This would translate into RM400m worth of its dairy exports within the fiveyear period. The company is confident of achieving the target with its RM370m new facility in Pulau Indah which has the maximum capacity of 1.5m cans a day and which is 30% more than the capacity of its previous factory in Petaling Jaya, Selangor. (Business Times)

IPO: Westports fixes IPO price at RM2.50. Westports Holdings, after completing its bookbuilding process, has fixed the retail and institutional price for its shares for its IPO at RM2.50 per share. The company said the shares could be subject to stabilizing action, either within 30 days of the commencement of trade or once the stabilizing manager Maybank Investment Bank had bought an aggregate of 81.3m shares, representing up to 10% of the total number of shares offered. (Financial Daily)

MARKET UPDATE

US markets weakened overnight as investors started to assess the damage of a protracted government shutdown on the health of the economy, now into its second day with no resolution in sight as both political parties remained obstinate which led to this impasse in the first place. A weaker-than-expected jobs growth report also dampened sentiment, as companies only added about 166,000 workers in September (consensus: 180,000) according to the ADP Research Institute, indicating that the employment market is struggling to maintain its momentum, let alone gain. The Dow Jones Industrial Average and S&P 500 declined 0.4% and 0.1% respectively, paring earlier losses however after President Barack Obama summoned the top four leaders of the US Congress to the White House for the talks on reopening the government and raising the debt ceiling. While seemingly like a scene out of a movie, this is real and the ramifications dire if these issues are not resolved expeditiously.

European equities declined earlier in the day as investors there preferred to shun risk and stay sidelined as part of the US government remained shut. European Central Bank policymakers left benchmark interest rates unchanged, expectedly, though its president refrained from saying the euro area needs further help to support its recovery. While nascent, we continue to see 2014 as the return of Europe, albeit anemic. Benchmarks in the key markets fell yesterday though with UK, Germany and France’s indices lower by 0.4%, 0.7% and 0.9% respectively. Italy’s FTSE MIB rose 0.7% as the country’s Prime Minister won a confidence vote following recent political turmoil arising from former premier Silvio Berlusconi’s potential ejection from Parliament.

Asian stocks had slightly better mid-week sessions but could see performances impeded today as investors bet that the economic effects of the current shutdown would be limited. While possibly true to an extent, the lead-on effect of this current impasse will be on the October 17 deadline which is critical if no budget resolution is found when the US government runs out of money, risking defaults on its loan obligations and setting off more far-reaching consequences. As China remained close for its National Day holiday, positive market performances were driven by the Hang Seng Index’s 0.6% gain. Singapore’s Straits Times Index slumped 0.9% however, though the FBM KLCI managed to eke out a 0.1% gain. Other key ASEAN markets registered decent performances, led by Indonesia’s 1.0% gain and Philippines’ 2.7% spike.

IOI Corporation (Neutral, TP: RM5.72) launched a mandatory takeover offer of the remaining shares it does not own in Unico-Desa Plantations (60.45%) at RM1.17 per share after it purchased a 39.55% stake in the company for a cash consideration of RM396.63mn, a fair deal in our view. More details are attached in today’s separate report on the company. Meanwhile, Mudajaya (Outperform, TP: RM3.40) announced the securing of another coal supply agreement for its 26%-owned RKM Powergren Pvt Ltd, for the supply of coal for Phase 2 of the 4x360W coal-fired thermal power plant in India and further removing potential impediments to its share price performance weighed down by on-going concerns on this particular issue.

Source: PublicInvest Research - 3 Oct 2013