Economy

US: Manufacturing mired in weakness, economy heading for slowdown. US manufacturing remained subdued in November, with factory employment declining further as hiring slowed and layoffs increased, more evidence that the economy was losing momentum after robust growth last quarter. The survey from the Institute for Supply Management (ISM) followed on the heels of data showing moderate growth in consumer spending and subsiding inflation in Oct. The ISM said that its manufacturing PMI was unchanged at 46.7 last month. It was the 13th consecutive month that the PMI stayed below 50, which indicates contraction in manufacturing. That is the longest such stretch since the period from August 2000 to January 2002. Economists polled by Reuters had forecast the index creeping up to 47.6. According to the ISM, a PMI reading below 48.7 over a period of time generally indicates a contraction of the overall economy. (Reuters)

US: Powell says Fed to move 'carefully' on interest rates, 'soft landing' taking shape. The risks of the Federal Reserve slowing the economy more than necessary have become "more balanced" with those of not moving interest rates high enough to control inflation, Fed Chair Jerome Powell said on Friday, reaffirming the US central bank's intent to be cautious but also offering fresh optimism on its progress so far. Noting that a key measure of inflation averaged 2.5% over the six months ending in Oct, near the Fed's 2% target, Powell said it was clear that U.S. monetary policy was slowing the economy as expected with a benchmark overnight interest rate "well into restrictive territory." "We are getting what we wanted to get" out of the economy, Powell said noting that the "full effects" of the Fed's 5.25 percentage points of rate hikes to date have likely not yet been felt. (Reuters)

EU: Job cuts, lean bonuses loom over bankers in 2024. It is not only corporate dealmaking that is on the back foot. Banks are wary profits will come under pressure from tighter regulation, including tougher capital requirements dubbed the 'Basel Endgame' which are set to be rolled out by global regulators from 2025. And while consumer lending has boomed on the back of central bank policy moves, margins are now in retreat as interest rates peak and competition for deposits intensifies. "Overall, the outlook for the next few years for banks is flat revenue," said Ronan O'Kelly, partner and head of corporate and institutional banking for Europe at consultant Oliver Wyman. Banks have already turned to cost cuts to try to weather the downturn, which in a people-intensive business means job losses. (Reuters)

UK: Factory downturn shows more signs of easing. Britain's manufacturing sector showed further signs that it might be turning a corner in its long-running downturn but companies remained cautious and pushed up their prices. The final reading of the S&P Global/CIPS manufacturing Purchasing Managers' Index (PMI) improved for a third month in a row to 47.2 in November from 44.8 in Oct. The reading was also up from a preliminary November estimate of 46.7 although it remained below the 50.0 growth threshold for a 16th month in a row. The severity of the downturn eased in output and new orders, the PMI showed. (Reuters)

Japan: Yet to achieve wage-driven rise in inflation. Japan has yet to achieve price gains driven by higher wages with the recent rise in inflation driven by cost-push factors, Bank of Japan board member Asahi Noguchi said, suggesting it was premature to retreat from ultra-loose monetary policy. “It's true the impact of elevated global inflation is reaching Japan's economy with consumer inflation exceeding the BOJ's 2% target since the spring of 2022," Noguchi said, according to the text of his speech posted on the BOJ's website. "But the rise (in inflation) is mostly due to cost-push factors amid higher import prices," contrary to the wage-driven price increases seen in the United States and Europe, he said. "To achieve our 2% inflation target, we must see price rises backed by sustained wage increases," Noguchi said. (Reuters)

China: Has more space to cut reserve ratio instead of interest rates, says ex-official. China is likely to implement proactive fiscal policy next year as there is still a need for the world's secondbiggest economy to realise stable growth, a former central banker was cited. The comment comes as the economy struggles for momentum after being hobbled by lengthy pandemic-busting measures, while market watchers fear severe debt woe among major property developers could spill over to other sectors. (Reuters)

India: Construction sector levels up as housing demand spurs economy. If India needed any more proof that it was in the midst of a huge housing boom, it got in this week's GDP data, heightening expectations that the industry will continue to power the economy for years to come. The construction sector grew 13.3% in July-Sep from a year earlier, up from 7.9% in the previous quarter and its best performance in five quarters, the data showed. That helped India expand at a forecast-beating 7.6%, making it one of the world's fastest-growing major economies. In contrast, Western economies have been squeezed by high interest rates and energy prices, while China has been hobbled by a debt crisis in its property sector. (Reuters)

Markets

Telco (Neutral): Five telcos to collectively own 70% stake in DNB; Putrajaya to retain 30% plus golden share. Digital Nasional Bhd (DNB) is to be 70%-owned by five local mobile network operators (MNOs), while the remaining 30% will be retained by Putrajaya, accompanied by a golden share, according to Communications and Digital Minister Fahmi Fadzil. (The Edge)

Comment: The five telcos, CelcomDigi, Maxis, Telekom, YTL and U Mobile, will subscribe to an equal stake of 14% and will inject RM233m each in DNB. In Oct 2022, Celcom Axiata (prior to the completion of merger with Digi), Digi, YTL and Telekom were supposed to collectively take up 65% stake in DNB while U Mobile and Maxis opted out. The proposed equity sale was called off after the government announced the transition from a single wholesale network to dual network in May 2023. The current valuation of RM233m appears to be 16.5% higher than what was previously determined. No further details were announced but questions remain on what would happen to these non-controlling equity stakes when the country eventually transitions to dual network i.e. what is the exit clause for those interested to form the second entity. We maintain our Neutral stance on the sector as we do not expect the rollout of 5G to generate any meaningful earnings contribution in the near term while the deployment cost would lead to lower profit margin in FY24-25F.

Apex Healthcare (Neutral, TP: RM2.41): Unit to acquire industrial complex in Melaka for RM66.5m. Apex Healthcare via its wholly-owned subsidiary Xepa-Soul Pattinson (M) SB has proposed to acquire an industrial property in Cheng Industrial Estate in Melaka from Panasonic Appliances Refrigeration Devices Malaysia SB for RM66.5m. (StarBiz)

Comment: We view this strategic land acquisition positively as it aligns with XEPA’s plan to expand warehousing and liquid production capacity, positioning the company strategically for future growth. The acquisition will be funded through a combination of internally generated funds and possibly external borrowings. We gather that the property is located within the existing Cheng Industrial Estate in Melaka, in close proximity to XEPA, offering operational advantages by minimizing support service duplication. We maintain our earnings forecast and Neutral call on ApexH, as the acquisition is expected to only be finalised by the end of July 2024 with no near-term earnings contribution.

Citaglobal: To build RM9.75bn solar farm in Pahang. Citaglobal has proposed to build a two-gigawatt (GW) solar farm worth RM9.75bn in the state of Pahang. (StarBiz)

Pansar: Unit receives letter of acceptance for RM107.5m Sarawak Coastal Road job. Pansar's wholly-owned subsidiary Perbena Emas SB has received a letter of acceptance from the Sarawak Public Works Department for the remaining works for the construction of the Sarawak Coastal Road Package D2A, with a contract value of RM107.5m. (StarBiz)

Jadi Imaging: To dispose of Glenmarie property for RM18.5m. JADI Imaging Holdings has entered into a SPA with TT dotCom SB for the disposal of a property for RM18.5m. The property is a tract of freehold industrial land measuring 4,260 sqm in Glenmarie, Petaling, with a two-storey office building with four detached warehouses. (StarBiz)

MARKET UPDATE

The FBM KLCI might open higher today after the Dow Jones Industrial Average closed at its highest level since January 2022 as investors crossed the finish line of a banner month for stocks and viewed cooling inflation data as a harbinger of easing Federal Reserve monetary policy. On Friday the benchmark S&P 500 got another boost when Federal Reserve Chair Jerome Powell vowed to move "carefully" on interest rates, describing the risks of going too far with tightening as "more balanced" with risks of not controlling inflation. The Dow Jones Industrial Average rose 0.82%, the S&P 500 gained 0.59% and the Nasdaq Composite added 0.55%. European shares also extended their gains from November on Friday, propelled by sharp rises in miners and as euro zone bond yields continued to fall on growing expectations of interest rate cuts. The pan-European STOXX 600 rose 1.0% to its highest level since August, after a monthly gain of 6.4% in November. It closed higher for a third straight week, supported by weekly gains in rate-sensitive real estate stocks.

Back home, Bursa Malaysia ended the week marginally higher due to late buying, particularly in telecommunications and banking stocks. At the closing bell, the FBM KLCI improved 0.25% or 3.64 points to 1,456.38 from Thursday’s close of 1,452.74. The benchmark index opened 0.74 of-a-point lower at 1,452 and moved between 1,450.09 and 1,456.52 throughout the trading session. Regional stocks ended broadly lower on Friday as mixed economic signals from China pointed to feeble economic recovery in the world's second-largest economy. China's Shanghai Composite index recovered from early losses to finish marginally higher at 3,031.64 after China's Caixin Manufacturing PMI unexpectedly expanded in November and an unidentified state institution reportedly bought exchange-traded funds. Hong Kong's Hang Seng index fell 1.25% while Japanese markets edged lower after the release of disappointing manufacturing data. The Nikkei average slipped 0.17%.

Source: PublicInvest Research - 4 Dec 2023