The markets have been volatile and difficult to call for the last two weeks, but we faithfully declined to call for the bears for our local markets and instead held firm to our status quo bullish view of the KLCI. It appears that our perseverance might be rewarded by the bulls soon.
Yesterday, the KLCI rallied by a significant 15.9 pts after an equally significant overnight rally in the Dow provided some sparks to the KLCI. Now the KLCI is on the verge of breaking through the psychological 1,100 level with20 more pts to go.
If the KLCI can break out of the 1,028-1,095 trading box by breaking above the high/resistance of 1,095, its odds of breaching the psychological 1,100 mark would improve drastically. Based on the current momentum of the KLCI, we opine that the likelihood of the KLCI venturing beyond the 1,100 levelis considerably high.
We maintain our bullish view of the KLCI and reiterate our call to trade in property and construction counters like E&O, DNP and FAJAR which we have written about in our most recent reports.
News Highlights
Malaysia
SapuraCrest Petroleum Bhd (SCRES MK, Hold, TP: RM1.32) has teamed up with GE Oil & Gas (GEOG), a unit of US-based global industrial conglomerate General Electric (GE) to further expand and enhance its 7-year-old service centre for the regional oil and gas industry. The group had entered into an agreement with GEOG last month via its subsidiary Sapura Power Services Sdn Bhd, to further improve the centre’s capabilities. Under the deal, the service centre will use the most advanced service and repair technologies from GEOG to maintain, repair and refurbish heavy industrial gas turbines and its components. (NST)
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Malaysia Airports Holdings Bhd (MAHB), which has been at loggerheads with AirAsia Bhd (AIRA MK, Buy, TP: RM1.90) over the timeline for the completion of the new low-cost carrier terminal (LCCT), said yesterday the terminal would be ready by 2011, dispelling any notions of a possible delay. AirAsia, on its part, said that if that was the case, it would stick to and may even accelerate its fleet expansion plans. “We are only contemplating the deferment for 2011, we have not confirmed. We may even accelerate the delivery of Airbus A320s if the LCCT is ready on time,” AirAsia group chief executive officer Datuk Seri Tony Fernandes said. (Financial Daily)
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Bumiputra-Commerce Holdings Bhd’s (BCHB MK, Hold, TP: RM8.80) subsidiary CIMB Islamic Bank Bhd (CIMB) has extended a RM1.5bn loan to the National Higher Education Fund Corporation (PTPTN). CIMB was also PTPTN’s repayment agent, via its bank branches and online banking portal, in addition to being its agent for the opening of accounts and deposit-taking for the National Education Savings Scheme. Total repayments collected via CIMB amounted to RM232m which makes CIMB’s deposit taking for SSPN the highest among SSPN agents. (Financial Daily)
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Kuala Lumpur Kepong (KLK) Bhd’s (KLK MK, Sell, TP: RM10.40) unit PT Steelindo Wahana Perkasa (SWP) is buying 95% of PT Bumi Makmur Sejahtera (BMS) for RM2.3m to further increase its oil palm plantation area in Indonesia. KLK expects the acquisition to be completed in 1Q10, subject to the fulfilment of all conditions stated in the sale and purchase agreement. (Financial Daily)
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Malaysia Airlines Cargo Sdn Bhd (MASkargo), unit of Malaysia Airlines System Bhd (MAS MK, Sell, TP: RM2.00) sees a turnaround of its cargo volume in 2H10 in line with the recovery of global economic conditions. Its general manager of business development and sales (cargo), Mohd Yuus Idris, said the company saw a 28% contraction in cargo volume in 1H09 against the same period last year. He said that demand from its main market, China, fell by more than 30%. However, he stated that the group see some flattening at the bottom, though there is not really a jump yet. (The Malaysian Reserve)
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Metal Dealers’ Association of Selangor and Kuala Lumpur (MDA) is calling on the government to delay the implementation of some of the measures under the recent steel policy review that are scheduled to come into force on August 1, such as the impending mandatory standard requirement and the need for certificate of approval (COA) for all imported steel products. MDA president Lim Sin Leong said importers of industrial steel products needed time to make arrangements with overseas steel manufacturers to comply with the new ruling. He also said that the decision to liberalise the steel sector was done without proper consultation with downstream players and could cost their members up to RM3,000 in extra cost for every 100 tonnes of imported steel products. (Financial Daily)
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Malaysia is reviewing domestic laws and regulations to make them more investor friendly to woo foreign direct
investments (FDIs) and boost investor confidence. International Trade and Industry Minister Datuk Mustapa Mohamed said immigration policies would also be overhauled to facilitate the entry and temporary stay of expatriates and foreign professionals. He said that FDI remains crucial for Malaysia’s industrial development in view of its contribution, technology transfer, capital inflow, access to international markets and spin-offs generated. (The Malaysian Reserve)
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The 20% toll rebate announced last Saturday will be for Touch ‘n Go and SmartTag users who clock 80 or more transactions a month. The rebate starts on September 1 and will be credited to the electronic cards. Rebates can be claimed at 136 Touch ‘n Go counters at selected highways either every month or every three months. The rebate is a temporary measure as EPU is to carry out a study to find a long-term solution to reduce the cost of highway travel. (NST)
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Stocks gained Tuesday after a choppy session in which investors welcomed Goldman Sachs' better-than-expected results but showed caution ahead of all the quarterly reports due in the weeks ahead. The Dow Jones industrial average gained 0.3% (+27.8 pts, close 8,359.5). The Nasdaq gained 0.4% (+6.5 pts, close 1,799.7) and the S&P 500 index gained 0.5% (+4.8 pts, close 905.8). In currency trading, the dollar gained versus the euro and fell versus the yen. U.S. light crude oil for August delivery fell 17 cents to settle at US$59.52 a barrel on the New York Mercantile Exchange. (CNNmoney)
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U.S. businesses cut inventories again in May, according to a report signalling firms are making slow progress toward reducing excess supply but that more work lies ahead adjusting to lower sales. Inventories fell more than expected, Commerce Department data yesterday showed. The 1.0% drop from the prior month to a seasonally adjusted US$1.368trn followed a revised 1.3% decrease in April. Originally, April inventories were seen down 1.1%. Economists surveyed by Dow Jones Newswires forecast a 0.8% decline in May inventories. Business sales dipped by 0.1% to US$966.1bn in May. Sales in April fell an unrevised 0.3%. (Dow Jones Newswires)
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Surging gasoline costs spurred gains in U.S. retail sales and wholesale prices in June, while a drop in spending outside of auto dealers and service stations reinforced concern an economic recovery will be limited. Sales at retailers rose 0.6% from May, more than forecast and the biggest gain since January, Commerce Department figures showed yesterday in Washington. Excluding autos and gas, purchases dropped for a 4th consecutive month. The Labour Department’s producer-price index gained 1.8%, twice as much as anticipated. Yesterday’s figures indicate that consumer spending likely fell last quarter, with little momentum heading into the latter part of the year. Job losses and declining home values are weighing on households, leaving them with little appetite to spend more, other than on necessities. (Bloomberg)
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Industrial production in the 16 countries that use the euro posted its first m-o-m rise in nine months in May, in one of the first signs that the economy could be on the road to recovery. According to figures released yesterday by the European Union's statistics agency Eurostat, industrial production rose by 0.5% from April - the first monthly increase since August 2008 and also the largest monthly increase since a 1% rise in April 2008. Production in May fell by 17.0% y-o-y. The annual drop was the smallest since January this year, Eurostat said. The report of a rise in the monthly measure of output, as well as a slowdown in the pace of the y-o-y slump, suggests that the recent improvements reported in the more timely purchasing managers manufacturing survey are now evident in the official indexes. In the 27 countries that are in the European Union, output rose 0.1% on the month and fell 15.9% on the year, Eurostat said. (Dow Jones Newswires)
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German investor confidence unexpectedly fell in July, suggesting the recovery in Europe’s largest economy may take longer to materialize. The ZEW Centre for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months ahead, declined to 39.5 from 44.8 in June. Economists expected a gain to 47.8, the median of 36 forecasts in a Bloomberg News survey showed. European investor confidence fell for the first time in four months in July, according to an index published by Germany’s Sentix research institute last week. (Bloomberg)
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Eastern Germany’s recession probably eased in 2Q09 - and the economy may grow in 2H09 - as companies benefit from economic stimulus, the Halle-based IWH institute forecast yesterday. Economic contraction in Germany’s six eastern states including Berlin may have been 1.1% q-o-q in 2Q09, the institute said. IWH Director Udo Ludwig said 3Q09 could return to growth of as much as 0.3%. “The crisis has been less severe in the eastern region compared with the western states,” Ludwig said. Eastern Germany, which has an unemployment rate about twice that of the west, accounts for as much as 11% of Germany’s gross national product. Unlike the export-orientated 10 western German states, companies in the eastern region focus their goods and services on supplying domestic demand and have benefited from economic stimulus programs, IWH’s forecasters said. (Bloomberg)
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The U.K. inflation rate dropped in June below the Bank of England’s 2% target for the first time since September 2007 as the recession sapped price pressures in the economy. Consumer prices rose 1.8% y-o-y, compared with 2.2% in May, the Office for National Statistics said yesterday in London. The result matched the median forecast in a Bloomberg News survey of 35 economists. The retail price index measure of inflation fell 1.6%, the most since records began in 1948. Officials say the inflation target will guide their strategy as they fight the threat of deflation with a 125bn-pound (US$204bn) asset-purchase program. On the month, consumer prices rose 0.3%. The annual inflation rate dropped as the cost of food and non-alcoholic drinks fell, the statistics office said. The Bank of England’s Monetary Policy Committee currently predicts it may not return to the target by 2011. (Bloomberg)
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The U.K. housing market improved last month as more London real-estate agents and surveyors said home values increased rather than fell for the first time in 20 months, the Royal Institution of Chartered Surveyors said. Across Britain, the number of respondents saying prices dropped exceeded those reporting gains by 18.1 percentage points, the highest reading since September 2007, RICS said in its monthly survey released yesterday in London. The two-year long collapse in prices may be starting to end as the U.K. starts to emerge from its deepest recession in a generation. A majority of surveyors now expect property prices to increase for the first time since May 2007, RICS said yesterday. The indexes for new sales and buyer interest rose to the highest since 1999, according to the report. (Bloomberg)
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