Economy

Global: The IMF is worried about the world's USD152trn debt pile. Eight years after the financial crisis, the world is suffering from a debt hangover of unprecedented proportions. Gross debt in the non-financial sector has more than doubled in nominal terms since the turn of the century, reaching USD152trn last year, and it’s still rising, the IMF said. The figure includes debt held by governments, non-financial firms and households. Current debt levels now sit at a record 225% of world GDP, the IMF said in its semi-annual Fiscal Monitor, noting that about two-thirds of the liabilities reside in the private sector. The rest of it is public debt, which has increased to 85% of GDP last year from below 70%. (Bloomberg)

US: Services sector activity surges to 11-month high. US services sector activity rebounded to an 11-month high in Sept, an encouraging sign for economic growth that may increase the prospect of a Federal Reserve interest rate hike this year. The Institute of Supply Management (ISM) said its non-manufacturing activity index surged to a reading of 57.1, the highest level since Oct 2015. Last month's reading followed a disappointing drop in Aug. (Reuters)

US: Trade deficit widens in Aug on higher imports. The US trade deficit rose more than expected in Aug as a rise in imports offset higher exports. The Commerce Department said the trade gap widened 3% to USD40.7bn. Imports hit their highest level since Sept 2015 while exports were the highest since July of last year. The July trade deficit was revised to USD39.6bn from a previous USD39.5bn. (Reuters)

EU: IMF says European banks need urgent asset clean-up, consolidation. European banks need "urgent and comprehensive action" to address legacy non-performing loans and bloated, inefficient business models that threaten to cripple them with too-low profits, the IMF said. In its latest assessment of global financial stability, the IMF said weak profitability in a low-interest-rate, low-growth environment could erode European banks’ buffers over time, undermining their ability to support an economic recovery and weakening stability. (Reuters)

EU: Economy loses momentum as uncertainty saps growth. The euro-area economy is losing steam as political uncertainty looms large over the 19-nation region. A Purchasing Managers’ Index for the manufacturing and services sector slid to 52.6 in Sept from 52.9 in Aug, IHS Markit said. That’s the lowest level since Jan 2015. Policy makers are struggling to shore up growth and inflation in a region increasingly beset with populist political movements. Ahead of national votes in some of the bloc’s largest economies, challenges from how to deal with the UK’s decision to leave the EU to integrating migrants into a workforce strapped by high unemployment need to be met. (Bloomberg)

UK: Fall in shop prices slows in Sept. Prices in British shops fell more slowly last month than in Aug, despite a record drop in the cost of food, but there was little sign of price rises on the back of sterling's sharp fall since June's Brexit vote. The British Retail Consortium said shop prices overall in Sept were 1.8% lower than a year earlier, compared with a 2.0% decline in August. Food prices declined by 1.3% compared with Sept last year, the biggest fall since the survey started nearly 10 years ago, despite global commodity prices recording their sharpest rise since Sept 2011. "Fierce competition is playing a vital role in keeping prices down," the BRC said. "Despite rising global food prices and the devaluation of the exchange rate, shop prices are still showing little sign of nearing inflationary territory." But with sterling hitting a 31-year low against the dollar as it extended losses made after Britain voted to leave the EU, the BRC expects prices to start to rise soon. (Reuters)

UK: Sterling falls below USD1.27 for first time since 1985. Britain's pound dipped below USD1.27 for the first time since June 1985, with fears of a 'hard' Brexit also pushing the currency to a five-year trough against a broadly stronger euro. Sterling has been buffeted for a fortnight by worries that Britain will prioritize curbing immigration over promoting trade in its divorce from the bloc, thereby gumming up labor markets, curbing foreign investment and leading to cutbacks by banks and other global companies. That has been the broad takeaway for markets from this week's conference of the ruling Conservative Party, and the pound has fallen past long-term lows set in early July in response, although there were signs of stability in morning trade in London. (Reuters)

Japan: Interest rates would rise when 2% price goal is met. Bank of Japan Governor Haruhiko Kuroda said interest rates would rise when the central bank's 2% inflation target is achieved although it's unlikely borrowing costs would increase anytime soon. "It is unthinkable that long-term interest rates would stay around 0% when the 2% price goal is achieved," Kuroda said. "If (further) easing is necessary, interest rates could be lowered further as needed. On the other hand, interest rates would rise if the price stability target is met." (Reuters)

Japan: Ex-economy minister Takenaka says BOJ to cut negative rates further. Former Japanese Economy Minister Heizo Takenaka said the Bank of Japan will lower its -0.1% interest rate further to achieve its 2% inflation target. Takenaka, professor emeritus of Keio University and a member of a government panel on investment, said the BOJ's new policy framework is "orthodox" and it was not necessarily a big change. As for pushing the rate it sets on some excess deposits that commercial banks park with the BOJ further into negative territory, he said: "The BOJ will do so without doubt." The prominent economist added, "The important issue is that people need to acknowledge that the BOJ's policy has yielded significant effects." (Reuters)

Markets

Mega First (Outperform, TP: RM2.29): IRB hits subsidiary with RM23m claim. The Inland Revenue Board (IRB) has slapped Idaman Harmoni SB (IHSB), a subsidiary of Mega First Corp, with notices of assessment for additional taxes and penalties totalling RM22.8m. The group said its 65%-owned property investment subsidiary had been served with a notice of assessment for Year of Assessment 2009 for income tax (including 100% penalty) of RM22.8m and a notice of additional assessment and a notice of reduced assessment for Year of Assessment 2010 for a net tax payable (including 100% penalty) of RM2,334.50. (StarBiz)

Kossan (Outperform, TP: RM8.59): Partners with MRB to produce rubber products. Kossan Rubber Industries’ unit, Doshin Rubber Products (M) SB, has partnered with the Malaysian Rubber Board to develop rubber products for the civil engineering and construction industries. The company said a collaboration agreement between both parties was inked on Sept 27, 2016 for a term of three years. The group said under the agreement, both parties would identify potential companies for the commercial evaluation of rubber products for civil engineering and construction. (Bernama)

Tien Wah: Set to provide services to BAT group in Indonesia. Tien Wah Press Holdings has been awarded a tender by the British American Tobacco (BAT) group in Indonesia entitling it to buy a BAT group member involved in printing and, along with that, to clinch a six-year contract to supply packaging materials. The company, which derives more than 80% of its revenue from printing packaging materials for the tobacco industry said that the acquisition price for the tender was about INR304bn (RM96.7m). The acquisition comes together with the contract whereby Bentoel Group would appoint the Tien Wah group as the supplier of its printing supplies for six years. (StarBiz)

Encorp: To sell land in Penang for RM25m. Encorp is planning to dispose of its freehold land in Batu Ferringi, Penang, for RM25m to help improve its cash flow. Encorp announced that the land, which is worth RM20m at market value, will be sold to Crescent Consortium SB (CCSB). The sale price of RM25m is notably above the audited net book value of the land worth at RM16.1m. The proceeds from the disposal will be used to repay its bank borrowings, defray estimated expenses related to the proposed disposal and be utilised as general working capital and future investments for Encorp Group. (StarBiz)

BCorp: Unit sells securities in Taiga to UPP. Berjaya Corp (BCorp), through unit Berjaya Forest Products (Luxembourg) S.a.r.l (BForest), is selling its entire 39.1% equity stake as well as subordinated notes in Canada-based wood product maker Taiga Building Products Ltd to UPP Holdings Ltd for CAD65.6m (RM206.4m). BCorp said the proposed disposals would result in a total net gain of about CAD23.1m (RM72.9m). The transactions are expected to be completed by the 1Q of 2017. (StarBiz)

Power (Overweight): Malaysia to implement net energy metering next year. Malaysia is expected to implement net energy metering (NEM) next year, which allows self-consumption of electricity generated by solar photovoltaic system while selling the excess energy to utility companies. “If the users are producing more than what they are consuming, they get paid by utility companies such as Tenaga Nasional and Sabah Electricity SB. “This will be the first (of its kind) in the region,” Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili said. (StarBiz)

MARKET UPDATE

The FBM KLCI might trade a narrow range today after global stock markets put in mixed performances with rising oil prices and some encouraging US economic data helping Wall Street to rally but weakness for the utility and real estate sectors weighing on European equity indices. Meanwhile, US and European government bond prices remained under pressure from lingering uncertainty over the outlook for monetary policy on both sides of the Atlantic, while sterling steadied after the previous day’s steep losses and gold fell for a seventh straight session. On Wall Street, the stocks closed higher with the S&P 500 index rose 9.24 points, or 0.4%, to close at 2,159.73, the Dow Jones Industrial Average added 112.58 points, or 0.6%, at 18,281.03 and the Nasdaq Composite Index tacked on 26.36 points, or 0.5%, to end at 5,316.02. Firm gains were partially fueled by a strong reading from the Institute for Supply Management, which said its services index rocketed to a reading of 57.1, up from 51.4 in August. The data helped to support expectations that the Federal Reserve will raise interest rates before the end of the year, sparking a rally in financial shares. Meanwhile in Europe, the indices ended mostly lower. The UK’s FTSE 100 fell 0.6%, after jumping 1.6% on Tuesday in response to sterling sliding to a 31-year low against the dollar. Elsewhere, Germany’s DAX 30 closed 0.3% lower at 10,585.78 and France’s CAC 40 gave way 0.3% to finish at 4,489.95.

Back home, the FBM KLCI index ended higher by 1.67 points or 0.10% to 1,662.92 with 1.63bn shares traded valued at RM2.16bn. However, market breadth was negative with 288 gainers as compared to 477 losers. In the region, the shares had a mixed session amid renewed investor concerns the U.S. Federal Reserve would raise interest rates by the year’s end. Performance-wise, Australia’s S&P/ASX 200 ended down 0.6%, Korea’s Kospi fell 0.1%, Japan’s Nikkei Stock Average added 0.5% and Hong Kong’s Hang Seng Index reversed early losses and ended up 0.6%, buoyed by financial and energy stocks as oil prices rose. Markets in mainland China remained closed for the week.

Source: PublicInvest Research - 6 Oct 2016