Economy

US: Services sector activity hits a six and a half-year low. US services sector activity slowed to a 6-1/2-year low in Aug amid sharp drops in production and orders, pointing to slowing economic growth that further diminished prospects for an interest rate hike from the Federal Reserve this month. Downbeat report from the Institute for Supply Management (ISM) came on the heels of data last week showing a slowdown in job growth in Aug, a contraction in factory activity and weak automobile sales. The ISM said its non-manufacturing activity index fell 4.1% points to a reading of 51.4, the lowest since Feb 2010. The drop from July was the largest monthly fall since the 2008 financial crisis, with the ISM saying a majority of companies had noted a slowing in their level of business. (Reuters)

EU: Finance ministers, central bankers will consider a euro zone crisis fund. Creating a euro zone fund to help shield the region from financial shocks will come up for discussion when the EU's finance ministers and central bank governors meet on Friday. The 19-country euro zone now lacks two features that a well-functioning monetary union should have, the Slovak EU presidency said in a note prepared for the ministers' discussions. The first is an insurance function that could move money from EU countries that are prospering to those that are in trouble. The second is a stabilization function that would cushion external shocks to the euro zone as a whole. A euro zone "fiscal capacity", in EU jargon, would provide both. (Reuters)

EU: Finance ministers to discuss how to make tax policy more evenhanded. EU countries should better coordinate tax rules to avoid hitting corporations too hard, the Slovak presidency of the EU proposed, in an effort to provide more balance to an EU campaign against tax avoidance by multinational companies. The proposal, to be discussed at an informal meeting of EU finance ministers on Sept 10, comes as the EU cracks down on corporate tax-avoidance schemes, which some fear could backfire and drive multinationals away from the continent. The Slovak proposal aims mostly to reduce cases of double taxation for multinational companies and to make taxation more predictable for corporations. (Reuters)

EU: Germany's Schaeuble sees scope for EUR15bn in tax cuts after 2017 vote. Germany has scope to cut taxes by around EUR15bn after the federal election in Sept 2017 despite increased spending on migrants, Finance Minister Wolfgang Schaeuble said. Schaeuble said that while Germany would need to put funds toward integrating the hundreds of thousands of migrants who arrived here last year and on domestic security, there would be room for maneuvre on taxes. (Reuters)

UK: Takeover deal figures show slump in run-up to Brexit vote. The number of takeover deals involving British companies slumped in the 2Q, adding to signs that firms postponed plans to expand in the run-up to June's Brexit vote, official data showed. Deals involving British companies, both domestic and cross-border, fell to 87 in the 2Q from 190 in the first three months of the year, the Office for National Statistics said. That marked the smallest number of transactions since comparable records started in the 1Q of 2010. (Reuters)

UK: BOE to hold fire on Sept 15, pull the trigger in Nov. The Bank of England will wait until its Nov meeting before slicing 15 basis points from Bank Rate in an effort to cushion the expected blow from the Brexit vote, a Reuters poll found. Britain's decision in a June 23 referendum to leave the EU has already started to tip the economy into a mild recession, a Reuters poll found last month, although recent purchasing manager surveys have been more upbeat. Markets were surprised when the Bank did nothing in the weeks after the vote but in Aug it chopped 25 basis points from borrowing costs, restarted its QE program with a GBP60bn top-up and announced two new stimulus schemes. (Reuters)

China: Will step up proactive fiscal policy efforts, encourage credit support. China will step up proactive fiscal policy efforts now that commodity prices are relatively low, the State Council, or cabinet said. The State Council also said it would encourage China's policy banks to step up credit support. It reaffirmed that China would actively reduce overcapacity and further liberalize infrastructure investment, meaning a further opening up to private investment. (Reuters)

Japan: No 'bazooka' BOJ easing at Sept meeting. The Bank of Japan is likely to refrain from expanding government bond purchases or deepening negative interest rates this month as economic conditions have improved since it eased at its previous meeting in July, a former senior central bank executive said. The central bank may consider "making some adjustments" to its risky asset purchases if it feels it needs to do something to appease market players betting on bold action, Kazuo Momma said. (Reuters)

Malaysia: Bank Negara’s international reserves at RM391.9bn as at Aug 30. Bank Negara Malaysia’s (BNM) international reserves amounted to RM391.9bn (USD97.5bn) as at Aug 30, the same amount of international reserves at Aug 15. BNM said the reserves position was sufficient to finance 8.1 months of retained imports and was 1.2 times the short-term external debt. (StarBiz)

Malaysia: Economic growth pattern higher than average. Malaysia’s economic growth pattern is still higher than the average and will continue to be positive moving forward despite softer economic conditions regionally, says the World Bank. “Its growth pattern, whether down a few basis points or up, is still higher than the average,” said its Malaysia Country Manager, Faris H. Hadad-Zervos. (StarBiz)

Markets

Power (Overweight): Tenaga inks PPA with SIPP Energy for Pasir Gudang power plant. Tenaga Nasional has signed a 21-year power purchase agreement (PPA) with SIPP Energy SB’s unit which will build a power plant in Pasir Gudang, Johor. It said SIPP’s unit Southern Power Generation SB will construct, own, operate and maintain a gas-fired combined cycle electricity generating plant with a total nominal capacity of 1,440 MW. The plant comprises two generating blocks, with each generating block having a capacity of 720MW. (StarBiz)

Comments: The power purchase agreement (PPA) for Track 4A was finally executed with its commercial operations date being deferred to 1 January 2020, from 1 June 2018. While tariff for Track 4A was not disclosed, we believe the previous long-standing unresolved issues, especially on the tariff has been settled with the signing of the PPA. The impact is neutral to Tenaga's earnings over the term of the PPA.

CIMB (Neutral, TP: RM5.25): Gets Vietnam’s approval to set up ops there. CIMB Group Holdings’ subsidiary, CIMB Bank, plans to set up operations in Hanoi, Vietnam, by year-end after clinching an operating license from the State Bank of Vietnam to operate a 100%-owned subsidiary in the country. The financial services group said this followed the receipt of the approval-in-principle on Aug 7 last year. (StarBiz)

Sime Darby (Neutral, TP: RM7.15): New 316m shares to be placed out at 5% discount. Sime Darby's new 316.4m new shares to be placed out would be at no more than 5% below the volume weighted average price (VWAP) for the preceding five market days. The plantations-property giant said the issue price of the placement shares would be determined via book-building and fixed by the board. (StarBiz)

Sunway: In JV to develop executive condo project in Singapore. Sunway and Singapore-based real estate developer Hoi Hup Realty Pte Ltd have won a tender to buy a 21,015 sq m land in Singapore slated for executive condominium development for SGD241.0m (RM725.0m). The group said that its indirect unit Sunway Developments Pte Ltd (SDPL) and Hoi Hup were acquiring the 99-year leasehold land at Anchorvale Lane, Sengkang, from the Housing and Development Board (HDB) of Singapore. (StarBiz)

Trive Property: To buy 20.9ha land in Kertih for RM19.6m. Trive Property Group, formerly known as Eti Tech Corp, has proposed to buy out homebuilder Pakadiri SB, which owns a 20.9ha land in Kemaman, Terengganu, for RM19.6m cash. The company plans to co-develop the land with state government's Lembaga Tabung Amanah Warisan Negeri Terengganu. (Financial Daily)

Rubber Gloves (Neutral): Industry expects RM14.3bn exports for 2016. The rubber gloves industry is expected to record RM14.3bn in export revenue for 2016 with stronger growth seen in the second half due to rising health awareness and outbreak of diseases. The Malaysian Rubber Glove Manufacturers Association (MARGMA) president Denis Low said he targets the glove industry to record RM14.3bn in exports his year. This would be a 9.1% increase from the export revenue of RM13.1bn in 2015. (StarBiz)

MARKET UPDATE

The FBM KLCI might open higher today after U.S. stocks edged higher overnight, led by gains from energy companies. Meanwhile, Treasury yields and the U.S. dollar dropped as the outlook for global monetary policy dominated trading. A report showing that growth in the U.S. services sector fell in August to the lowest level since early 2010 further hitting expectations for a U.S. rate rise later this month. On Wall Street, the Dow Jones Industrial Average added 46.16 points, or 0.3%, to 18,538.12, the S&P 500 index rose 6.50 points, or 0.3%, to close at 2,186.48 and the Nasdaq Composite Index tacked on 26.01 points, or 0.5% to a new closing high of 5,275.91. Across the Atlantic, European stocks mostly lower with the U.K.’s FTSE 100 index fell 0.8% to 6,826.05, Germany’s DAX 30 index added 0.1% to 10,687.14 and France’s CAC 40 index fell 0.2% to 4,529.96. As for economic data, manufacturing orders in Germany rose 0.2% in July, missing forecasts of a 0.6% gain. Separately, the Eurozone retail PMI climbed to a 10-month high in August, coming in at 51 to signal a modest rise in sales and economic growth in the Eurozone for the second quarter was confirmed at 0.3%, in line with forecasts.

Back home, the FBM KLCI moved higher by 11.84 points or 0.7% to 1,689.92 with 1.73bn shares changed hands valued at RM1.57bn. Market breath was slightly positive with 412 gainers and 341 decliners. In the region, stocks mostly rose with the Nikkei Stock Average closed up 0.3%, Singapore’s Straits Times Index added 1.6%, Hong Kong’s Hang Seng Index gained 0.5% and the Shanghai Composite rose 0.61%. Australia’s ASX fell 0.3% following the Reserve Bank of Australia’s decision Tuesday afternoon to keep rates steady at 1.5%. The RBA eased monetary policy in May and August.

On corporate news, CIMB Group Holdings has been granted an operating license to start a banking business in Vietnam. Elsewhere, Sunway has won a tender to buy a 99-year leasehold land at Anchorvale Lane in Singapore for SGD240.95m (RM724.14m) together with Hoi Hup Realty Pte Ltd. The JV co is developing the site into “executive condominiums”.

Source: PublicInvest Research - 7 Sep 2016