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Wednesday, July 22, 2009

Dow Spreading Wings/News Highlights

The US Dow Jones market has been impressively bullish the last one week when it recorded its 7 consecutive positive trading session last night. It is fully confirmed, the Dow is now in full bull mode.

Recent High Broken
The Dow Bull is now spreading its newfound proverbial wings withthe GMMA chart showing an upwards expansion of the shorter term trend lines above the longer term lines. This sign is indicative of the strong momentum of the bull. Thus, it was no surprise at all that the Dow broke through its critical high of 8,877.9. With the Dow closing marginally above the recent high at 8,915.9, it is now very critical for the Dow to stay above 8,877.9 and to break above the 9,000 psychological level in the next one week, lest it loses its momentum.

FBM-KLCI sideliners to jump in today
Since the KLCI’scorrelation with the Dow has now increased to 86%, expect the Dow’s break above its high last night to draw our local sideliners into the market today. Expect previously hesitant and non-believing sideliners to push the KLCI Team Coveragemarket up via its second liner counters such as property stocks.We maintain our bullish call on the FBM-KLCI as well as recommendations on our top property and construction trading picks such as DNP, E&O, FAJAR and FAJAR-WA.

News Highlights

Malaysia

Sime Darby Bhd (SIME MK, Buy, TP: RM7.70) says its current year's earnings will not match what it has achieved in the previous period, given the lower crude palm oil (CPO) prices but will remain within expectations. Group president and managing director Datuk Seri Ahmad Zubir Murshid said the lower performance is anticipated in all of its business divisions due to the global economic slowdown, but it will not be as bad as expected. "It will be within our expectations. Although crude palm oil prices have gone down, it would be offset by other divisions," Ahmad Zubir told reporters in Selangor yesterday. (BT)
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Sime Darby Bhd (SIME MK, Buy, TP: RM7.70) is sending a team to China to conduct further studies on its proposed participation in the 700-sq km economic development zone (EDZ) near Weifang city. “The initial size that we are looking at is about 100-sq km but we don’t know the gross development value yet,” said its president and group chief executive Datuk Seri Ahmad Zubir Murshid. (Financial Daily)
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HeidelbergCement AG is looking to sell its Malaysian assets for US$400m to US$500m. An information memorandum recently went out and bids were said to have come in from private equity sponsors and strategic investors, according to banking sources. Financial adviser Standard Chartered Bank is providing a staple financing for the debt portion of the deal. Meanwhile, Sunway Holdings Bhd (SGW MK, Hold, TP: RM1.09) is said to have placed its bid to acquire HeidelbergCement’s local concrete plants, quarries and asphalts, but might pull out after the indicative selling price was raised to US$250m. (Starbiz)
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Proton Holdings Bhd recorded a slight improvement in sales in the first half of this year boosted by its newly launched multi purpose vehicle (MPV) Exora. Bookings for the MPV so far stand at 15,767 units, while 6,200 units have already been sold since it was launched in February this year. Proton is aiming to sell about 27,000 Exora units locally by end of this year. (The Malaysian Reserve)
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Dialog Group Bhd has teamed up with Vopak Asia Pte Ltd, a member of the world’s largest independent tank terminal operator Royal Vopak Group (Vopak), to study the feasibility of developing an independent storage terminal for oil products in Pengerang, Johor. The total investment outlay of the proposed terminal had yet to be determined, pending results of the feasibility study. Subject to the feasibility study, the parties would enter into definitive agreements not later then Sept 30, 2010. The parties would then form a joint-venture company (JVC) here, in which Dialog would hold a 51% stake and Vopak 49%. The JVC will have an initial paid-up capital of RM1,000 comprising 1,000 ordinary share of RM1 each. (Financial Daily)
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Bursa Malaysia Bhd aims to attract as many as 40 new listings a year as the easing of investment rules in the country helps draw foreign investors. Bursa attracted 23 listings last year and 26 in 2007.The benchmark FTSE Bursa Malaysia KLCI has risen up 30% this year, lagging behind regional markets. Bursa said more than 20 companies are already in the “pipeline” for initial share sales, with more expected following the easing of investment rules. (Financial Daily)
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Axis Real Estate Investment Trust, which has just agreed to buy its first property this year, is in talks for another four buildings worth RM220m. They include logistic warehouses in Johor, Puchong and Petaling Jaya, said Stewart LaBrooy, chief executive officer of Axis REIT Managers Bhd, which manages the property trust. Axis REIT plans to sell the maximum number of new units it can to private investors for the acquisitions since its debt-to-assets ratio is already close to the 50% limit under the rules, leaving it little room to gear up further. A REIT is only allowed to sell up to a fifth of its current units according to Securities Commission rules, LaBrooy said, which means that it may be able to raise about RM75m from the private placement. (BT)
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The federal government has restructured and taken over the management of the RM5bn Terengganu Investment Authority (TIA), which will now be known as 1Malaysia Development Bhd (1MDB). To kick start 1MDB, a sovereign wealth fund (SWF) from Abu Dhabi will invest US$1bn (RM3.45bn) to jointly carry out investments in the Malaysian energy, real estate and hospitality sectors. The features and structures of 1MDB are supposed to be the same as those of TIA except that it will invest not only in Terengganu but the whole of Malaysia. The principal shareholder of 1MDB is Minister of Finance Inc (MoF Inc) instead of Menteri Besar of Terengganu (MB Inc). (Financial Daily)
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Malaysia’s consumer price index (CPI) is likely to have fallen in June from a year earlier by 1.35%. It is the first annual decline in two decades, although a period of deflation is expected to be short lived. The fall would compare with an annual rise in May 2.4% and would largely reflect a fall in oil prices from high year-earlier levels. A 30% hike in bus and taxi fares due in August will offset deflationary pressures as transportation costs make up 31.4% of the CPI basket. (Financial Daily)
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The possibility of higher electricity rates will be discussed at the Cabinet meeting today and, if approved, will take effect next month, said Energy, Green Technology and Water Minister Datuk Peter Chin Fah Kui. However, he pointed out that any potential increase would not be “too drastic” so that it would not overly burden consumers. Electricity tariffs are expected to be raised in tandem with the upward revision in gas prices which Petronas supplies to the country’s power sector. It is speculated that gas price will be raised 4% to 5% followed by a corresponding upward revision in electricity tariffs. Chin said it would definitely be lower that what was speculated. (The Star)
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Global


Stocks finished higher Tuesday with the Dow ending at a 6-month high after a volatile session in which investors weighed better-than-expected corporate earnings with Federal Reserve Chairman Ben Bernanke©s warning that the economic recovery would be slow. The Dow Jones industrial average gained 0.8% (+67.8 pts, close 8,915.9). The Nasdaq gained 0.4% (+6.9 pts, close 1,916.2) and the S&P 500 index gained 0.4% (+3.5 pts, close 954.6). In currency trading, the dollar gained against major currencies, including the euro, British pound and Japanese yen. U.S. light crude oil for August delivery rose 72 cents to settle at US$64.72 a barrel on the New York Mercantile Exchange. (CNNmoney)
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Federal Reserve Chairman Ben S. Bernanke said while the economy is showing “tentative signs of stabilization,” the central bank intends to maintain a “highly accommodative” monetary policy for “an extended period.” “The pace of decline appears to have slowed significantly,” Bernanke said yesterday in semi-annual testimony before the House Financial Services Committee. At the same time, “in light of the substantial economic slack and limited inflation pressures, monetary policy remains focused on fostering economic recovery,” he said. Fed officials said in a report submitted as part of Bernanke’s testimony that policy will be “tightened” when the labour market improves, an economic recovery takes hold and pressures holding down inflation “diminish.” The comments follow a rally in stocks and a rebound in corporate earnings that have stoked speculation the worst recession in half a century is ending. (Bloomberg)
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Regional Federal Reserve bank directors expressed concern that rising unemployment and loss of wealth from falling incomes and house prices posed a risk to recovery from the worst recession in at least half a century. The boards of directors of all 12 regional Fed banks voted to request leaving the so-called discount rate, or the rate on direct loans to commercial banks, unchanged at 0.5% in meetings before the Fed’s Open Market Committee gathering in June, the central bank said yesterday. “While pointing to signs of some stabilization in economic conditions, most notably the slowing pace of decline in GDP, and to modest improvements in financial markets, they generally considered economic activity to be weak and the financial system to remain somewhat fragile,” the Fed said in minutes of the Board of Governors’ discussions on the
discount rate. (Bloomberg)
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Britain had a £13bn (US$21.4bn) budget deficit in June, the most for the month since records began in 1993, as the worst economic slump in a generation ravaged tax revenue and drove up jobless claims. The shortfall compared with £7.5bn a year earlier as tax income fell 5.7% and spending increased 2.8%, the Office for National Statistics said in London yesterday. The median of 13 forecasts in a Bloomberg News survey was £15.5bn. Prime Minister Gordon Brown risks putting pressure on the pound unless he commits to a “credible” plan to narrow the deficit once the recession is over, the International Monetary Fund warned last week. (Bloomberg)
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Italian research institute Isae said the nation’s economy will contract 5.3% this year, twice as it previously forecast, according to written testimony presented to parliament in Rome yesterday. Italy’s economy, Europe’s fourth biggest, will expand 0.2% next year, compared with a February forecast of a 0.4% increase. Isae in February said the economy would shrink 2.6% this year. (Bloomberg)
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Asia’s export-dependent nations may see their recoveries falter in 2H09 as overseas demand remains subdued, economists said. “Recovery in Asia does not look especially durable,” said Michael Taylor, a senior economist at Lombard Street Research Ltd. in London. “Sustainable Asian growth still depends on a global recovery lifting demand for exports.” Improvements in Asia’s economic performance in 2Q09 were largely due to “front-loaded” fiscal stimulus that cannot be sustained, Taylor said. The Organization for Economic Cooperation and Development expects the world’s most-industrialized nations, which buy the bulk of Asia’s exports, to shrink 4.1% this year and grow only 0.7% in 2010. “The shape of the recovery over the next 12 months will vary across the region,” said Kevin Grice, a senior international economist at Capital Economics Ltd. in London. “For the most trade-dependent economies, the recent spurt in growth will fade in the second half of the year as demand from the rest of the world remains weak.” (Bloomberg)
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Most investors are shaking off the world economic crisis and many are willing to take on more risk as they hunt for opportunities, especially in China and India, according to a survey by Bloomberg News. The first Quarterly Bloomberg Global Poll of financial investors and analysts singled out stocks and commodities as offering the most promising returns over the next year. The survey shows scepticism about the recovery in the U.S. and Europe, with 44% of respondents saying Europe poses the greatest risk for investors and 20% citing the U.S. The poll was conducted between July 14 and 17 of investors and analysts on six continents. It’s based on interviews with a random sample of 1,076 Bloomberg subscribers, representing decision makers in markets, finance and economics. The poll has a margin of error of plus or minus 3 percentage points. (Bloomberg)
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