Economy

Global: Oil prices rise on lower US rig count; China data eyed. Oil prices rose on Monday as the number of US rigs fell for a sixth straight week, while investors waited for Chinese trade data to be published later this week for clues on demand at the world's top energy consumer. Upcoming Chinese data is likely to point to further weakness in the world's No 2 economy, starting with import and export numbers to be published on Tuesday, with some investors fearing an economic hard-landing that could jeopardize an increasingly fragile international outlook. (Reuters)

US: Fed's Brainard urges caution amid Fed split on rate hike timing. The Federal Reserve should hold off on any interest rate hike until it is clear that a global slowdown, trouble in China and other international risks will not push the US recovery off course, Fed Governor Lael Brainard said in one of the strongest defenses yet of a go-slow approach to rate policy. "I view the risks to the economic outlook as tilted to the downside. The downside risks make a strong case for continuing to carefully nurture the US recovery - and argue against prematurely taking away the support that has been so critical to its vitality," Brainard said. (Reuters)

US: Dollar hits three-week lows on rate-hike doubts. The dollar was little changed on Monday after earlier hitting a three-week low versus a basket of major currencies on doubts whether the Federal Reserve would raise interest rates later this year in the face of a weakening global economy. With short-dated US rates pinned at the low-end of their recent trading range, the greenback has weakened especially against the euro. It was almost 10 cents lower against the euro from this year's highs back in March.

EU: ECB's Coeure says too early to decide on more stimulus. It is too early for the ECB to decide on expanding or extending its asset-purchase program, a member of the ECB's executive board said, even after inflation in the currency bloc turned negative. Six months into the ECB's EUR60bn a month asset-purchase program, headline price growth in the currency bloc turned negative in Sept, leading some market participants to speculate that the scheme may be ramped up or prolonged. ECB executive board member Benoit Coeure said any such decision would be premature, even if the central bank stood ready to act, if necessary. (Reuters)

Japan: IMF urges to proceed with second sales tax hike. A senior International Monetary Fund official has urged Japan to go ahead with a sales tax hike scheduled for April 2017 to maintain its long-term fiscal credibility. Mitsuhiro Furusawa, the IMF's deputy MD, warned that flexible fiscal policy and structural reforms must accompany ultra-loose monetary policy for Japan to achieve a sustained economic recovery. (Reuters)

India: Rajan can comfortably cut rates again, central bank adviser says. Governor Raghuram Rajan can “comfortably" lower India’s policy rate by another 75 basis points to a five- year low of 6%, a central bank adviser said. With the world economy performing below potential and the risk of deflation looming, space to ease is opening up, Arvind Virmani said. (Bloomberg)

Australia: RBA says productivity boost needed to lift living standards. Australia will need to boost its productivity through a more flexible economy if it wants to increase living standards rather than relying on any renewed lift in export prices, Australian central bank Deputy Governor Philip Lowe said. (Bloomberg)

Singapore: Set to ease as currency faces rerun of ’97 Asia crisis. Singapore’s central bank is poised to ease monetary policy for the second time in 2015 in an effort to revive dwindling growth, economists predict. The Monetary Authority of Singapore, which manages the economy through guiding the currency rather than setting interest rates, will boost stimulus when it meets Wednesday, according to 16 of 25 economists surveyed by Bloomberg. (Bloomberg)

Malaysia: Industrial output rises 3%. Malaysia’s industrial production index expanded 3% in August from a year ago, slower than expected amid continued weakness in the mining sector. The manufacturing sector rose 4.3%, while the electricity index was up 15.9%. “Overall, the IPI data continue to suggest economic activity is holding up despite the implementation of the goods and services tax in April. (StarBiz)

Malaysia: Ringgit retreats on Fed signal. Malaysia’s ringgit fell after Federal Reserve vice chairman Stanley Fischer said a US interest-rate increase is still on the cards this year even as futures appear to rule out such a move. The currency retreated following last week’s biggest five-day gain since 1998. Malaysia's economic growth faces greater risks from a global slowdown than inflation, and borrowing costs at current levels are supportive, central bank governor Tan Sri Zeti Akhtar Aziz said. (StarBiz)

Markets

Parkson (Outperform, TP: RM1.48): Cessation of Disposal of PRA to PRG. Parkson Holdings (Parkson) saw its proposed selloff of 67.6% stake in Parkson Retail Asia (PRA) to its China arm, Parkson Retail Group (PRG) being called off as the proposal was not passed by PRG’s shareholders during its EGM dated 12 Oct 2015. (Bursa)

Comments: Given that this proposed disposal of PRA is no longer happening, Parkson should not be seeing the RM640.4m cash that it was expected to receive post this exercise. As such, the RM0.10 per share cash distribution that was conditioned on the approval of this proposed disposal, will not proceed. We see this as a missed opportunity for shareholders as the cash distribution would have been fairly attractive given a yield of 9.1%. Nonetheless, the company guided that they will remain committed in its business turnaround, especially in China. At the current market price, we reckon that Parkson is trading at a compelling valuation of 10.3x of our FY16F.

Icon Offshore: JV aborts deal with Danish yachts. Icon Offshore and its partner FOB Swath Malaysia A/S have agreed to terminate their shipbuilding contract with Denmark-based Danish Yachts. Icon Offshore said the termination of the contract by joint-venture company Icon FOB Holdings (L) Inc (JVCo) was due to Danish Yachts’ failure to construct a vessel in accordance with the technical specifications as prescribed under the shipbuilding contract. (StarBiz)

Metrod: Buys 5-star Goa hotel for RM331m. Metrod Holdings is acquiring a five-star hotel in Goa, India, for RM331.2m, as the copper rod producer seeks to diversify its business. The company said the investment in Ceres Hotel Pte Ltd, the owner of The Leela Goa, does not mean it is exiting the copper business. (StarBiz)

PUC Founder: Revises its rights issue. PUC Founder (MSC) has proposed to revise down its renounceable rights issue of irredeemable convertible unsecured loan stocks (ICULS) with warrants due to the current volatile market conditions. (StarBiz)

Oil and Gas (Overweight): Petronas to continue aggressive exploration. Petroliam Nasional (Petronas) will continue to undertake aggressive exploration and appraisal activities despite the global low oil price environment. General Manager, Malaysia Petroleum Management, Mohd Redhani Abdul Rahman said Petronas feels that this is one of the main strategic thrusts that has been working for Malaysia for the past five to 10 years. “In the last five years, 970 exploration wells were drilled in South-East Asia and about one fifth of them, or 171 wells, were drilled in Malaysian waters. (StarBiz)

Transport: Toll rates hike. Announcement of toll rate hikes at major expressways in the Klang Valley would be effective this Thursday. For Silk Holdings, the rate increase would be the first review for its concession in over 10 years of operations. Ekovest which operates the Duta-Ulu Klang Expressway (DUKE) will see the toll fare be increased to RM2.50 at the Ayer Panas, Sentul Pasar and Kampung Batu toll plazas. The hike announced yesterday will affect nine major expressways. (StarBiz)

MARKET UPDATE

US markets held on to gains despite Federal Reserve policymakers continuing to make a case for a December rate hike, though the US dollar weakened as a result. The Dow Jones Industrial Average was up 0.3% overnight while the S&P 500 inched 0.1% higher as investors wait on corporate earnings to help assess the economy’s strength (or lack of). Oil prices fell after the Organization of Petroleum Exporting Countries (OPEC) reported its highest output in 3 years, producing 31.57m barrels a day last month. European equities eased off however, ending their recent winning run to close lower for the first time in seven days. Share prices of commodity producers also reversed early gains as their longest rallies since 2000 ground to a halt. Italy and UK led losers amongst the major markets, with respective benchmarks down 0.8% and 0.7%. Spain and France’s indices slipped 0.6% and 0.3% though Germany’s DAX managed a 0.2% gain. China led most Asian bourses higher on fresh expectations of further government stimulus measures, amongst which are further reductions in benchmark interest rates and reserve requirement ratios. The Shanghai Composite Index was 3.3% higher for the day, incidentally. Currencies, particularly in Indonesia and Malaysia, weakened against the USD again following comments by policymakers of a potential rate hike by year-end, scuttling earlier optimism of a delayed move. The FBM KLCI clawed back earlier losses to close 0.2% higher while the Jakarta Composite Index saw a more robust 0.9% gain. Elsewhere, the Hang Seng Index and Straits Times Index rose 1.2% and 1.1% respectively.

Seventeen highways around the Klang Valley will see toll rate hikes between 10sen and RM4.70 effective this coming Thursday (Oct 15), with the likes of Gamuda (directly through the SMART Tunnel and indirectly through the Lebuhraya Damansara-Puchong), SILK Holdings and Ekovest major beneficiaries of the move. With the government intent on scaling back its compensation for rate hike deferments, an amount of which hit RM402.9m in 2014, perhaps taxpayers can expect a reciprocal reduction in personal income taxes in the forthcoming Budget announcement to help alleviate these rising cost burdens? Glomac will dispose of a 16.9ha plot of land in Ulu Langat to Perbadanan PR1MA Malaysia for RM145.6m, netting a gain of about RM83.6m in the process.

Source: PublicInvest Research - 13 Oct 2015