TODAY, global markets are torn by anxieties.
The fallout
from the UK’s vote to exit the European Union, the prospect of a strengthening
US economy following an anaemic second quarter economic growth, a disappointing
Japanese stimulus plan with a total value of 28 trillion yen over several
years, of which includes ¥7.5 trillion (US$73bil) in new spending to jump-start
the nation’s sluggish economy, concern over the Chinese economy slowing down,
saw the markets tom, and an aggressive monetary policy by Bank of England, are
key issues to have raised the anxiety.
In the near-term, “uncertainty” will be the
buzzword. This begins with the UK, when it kick-starts the process of an
unprecedented withdrawal from EU. Possibilities for the UK to head into a
short-term recession are on the cards. This explains why the Bank of England (BoE)
adopted an aggressive mode in their recent Monetary Policy Committee meeting by
reducing the policy rate and restarting the quantitative easing policy,
commonly known as ‘printing of money’.
Following BoE’S aggressive move, doubts are creeping
up as to whether the US Federal Reserve will be able to raise their policy rate
anytime in remaining months of 2016. Expectations for the US economy to perform
better in second half of 2016 may not be adequate to justify for a rate hike.
More so after a poor economic performance in the first half of 2016.
The US Fed’s potential decision on its interest rate is not just on what is happening with the other countries, but more of its
own issues. Having said that, one remains unable to totally wipe out the
possibility that the Fed will not raise rates in 2016.
The recent approval by the Japanese cabinet of 13.5
trillion yen (US$132.04bil) in fiscal measures as part of its effort to revive
the country’s flagging economy was received with less excitement. Part of the
spending will be on rail besides cash payouts to low-income earners and
infrastructure spending.
Some disappointment was seen over the Bank of Japan’s monetary policy measures with no signs of it
introducing the “helicopter money”, in which the government issues perpetual bonds for the BoJ to underwrite debt.
And now, concerns are that the policies that once
halted and reversed the doom loop between the real economy and risky assets
could be running out of steam.
It appears that the central banks are racing to ease
their respective monetary policy with the hope that low and/or negative
interest rates added with asset purchases would help lift their growth and keep
their respective currencies weak. This despite the fact that such policies
have become less overwhelming.
Should the fear that cheap money policy is becoming
less effective grows, pressure will creep on the risky assets. Hence, the
global markets direction may not lead to any ‘treasure’ but will certainly
entice “treasury papers”. In the past, tail risks tend to be more occasional
where strong policy responses tend to be solid and effective. Authorities were
able to keep risk off and restore asset prices to their previous highs, if not take them even higher.
Today,
the policy mix is suboptimal following overreliance on monetary tools.
Besides,
the decades of globalisation that has been a dominant political theme across
developed and emerging economies, and have generally been successful, have
achieved what they set out to deliver, but worsened the social tensions within
countries. While the globalisation may raise overall economic growth, its speed
has left many unable to adjust. Consequently, global incomes have risen and
worsened inequality.
Hence,
with societies still defined at a local level, while large companies have
become more international, the most successful are doing so through locally
defined tactics. Companies that focus on understanding the environments they
operate in and tailoring their strategies will be in a better position to meet
the diverse needs of customers, employees, regulators and other stakeholders
in the markets in which they compete.
Companies in more global sectors will typically face
both greater challenges and opportunities adapting to an environment in which
local expectations and regulations are unique and require distinct strategies.
Investors will eventually have to focus on
“substance’ and not on noise”.
The Asian ex-Japan markets have opportunities.
Looking at the valuation of these markets, they remain attractive, reflected
by the price-to-book ratio, which is still at a discount with respect to its
long-term average.
Besides, the macroeconomic growth in this region is
still better than many advanced economies, growing on average above 4% compared
to the advanced economies still struggling to grow around 2%. Furthermore, most
Asian markets government bond yields far surpasses the major global government
bond yields, on average around 3% compared to the near zero or negative returns
from the developed countries.
On the equity front, the markets in this region
still provide good value especially for those long-term investors. The region
is ultimately a net beneficiary of lower-for-longer commodity prices and
offers significant growth opportunities led by infrastructure development,
albeit contingent on positive government action.
The Indian market remains the biggest overweight,
while China is faced with many pitfalls in its move to be selective and transition
its economy into a consumption-led one.
While being aware of the risk relating to currency
depreciation in the Asean region, Thailand and Indonesia do have several companies with robust and
enduring business models and franchises priced attractively, and we are
encouraged by incremental developments on infrastructure projects in both
countries.
Improvement in the Philippines’ political outlook
warranted adding positions there, given the favourable longer term outlook and
potential for infrastructure led investment cycle. Stable growth could see some
enticement on the Malaysian equity market.
Anthony Dass is head of AmBank Research, AmRank Group.
Adapted from The Star/News/Monday, 8
August 2016
Jobs Data Stoke Expectations of Rate Hike
LONDON: Bumper July
jobs data from the United States have again begun to stoke expectations of a
September rate hike from the Federal Reserve, just when other major central
banks around the globe are unleashing ever-looser policy.
That slightly more positive tone Tiay linger
as a backdrop for the global economy in the coming week, with growth data due
for the euro zone, Germany and Italy, along with key releases on inflation,
industrial production and retail sales in China.
New Zealand’s central bank is also
expected to join the easing brigade with a cut on Thursday.
In the past week, the Bank of England
fired its first post - Brexit salvo
- cutting the bank rate to a new record low of 0.25% while also reigniting its
asset purchase programme and hinted further easing was in the
pipeline.
Governor Mark
Carney
said he had unveiled an “exceptional package of measures” because the economic
outlook had changed markedly following the June Brexit vote. The Bank expects
the economy to stagnate for the rest of 2016 and suffer weak growth next year.
Slow growth and virtually non-existent
euro zone inflation will also force the European Central Bank to extend and
expand the scope of its asset purchase programme, a Reuters poll of economists
showed last month.
Early
indications suggest the bloc has so far largely shrugged off Britain’s decision
to quit the European Union but preliminary data due on August 12 are expected
to show the rate of economic growth across the currency union halved to 0.3% in
the second quarter.
Germany will also publish its GDP numbers,
likely to show a slowdown, but rising employment and wages should continue to
support disposable income growth in the second half of the year.
Italy
probably maintained its slow and steady pace.
“With
the UK potentially on the brink of recession, the resilience in economic
sentiment indicators on the other side of the English Channel in July is
perhaps surprising,” said Christian Schulz at Citi.
The Bank of Japan disappointed markets
last month by keeping bond purchases steady, defying expectations it would buy
up more, and made traders even more nervous after announcing it would re-evaluate
policies in September.
Japan’s economic growth is also expected
to have slowed last quarter, weighed down by weak domestic demand and stagnant
exports, a Reuters poll found on Friday.
That would be a setback for Prime
Minister Shinzo Abe who has said the top
priority for his reshuffled cabinet is growing the economy and beating
deflation.
“The
world’s third-largest economy, continues to take centre stage in global
macroeconomic developments, partly due to the sense that it operates as a
lodestar for the trajectory of both developed and emerging economies,” said
Richard Iley at BNP Paribas.
The actual GDP data won’t be published
until August 14 but on Wednesday the Cabinet Office publishes June core
machinery orders, a leading indicator of capital spending, which likely rose
for the first time in three months.
Three years of reflationary monetary,
fiscal and reform policies dubbed “Abenomics” have done little to revive the
economy, and financial markets are growing worried the BOJ is running out of
ammunition.
“To quash talk that its arsenal is empty,
the BoJ might decide at its September meeting to stop targeting the monetary
base, which conflicts with the negative-rate policy,” Iley said.
Skittish global investors may be reassured
by fairly steady growth expected in a flurry of Chinese data in coming weeks,
but tepid demand, slowing investment and rising debt levels remain pressing
concerns for the world’s second-largest economy.
Reuters
Adapted from The Star/News/Monday, 8 August 2016
Impact of Rate Cuts
Banks reacting differently to declining interest rates
AGAINST interest rate cuts, banks are
reacting differently, depending on competition, cost of funding and their
liquidity situation.
In Australia, banks passed on only half of
the rate cut to customers and raised deposit rates, partly due to regulatory
requirements and to attract quality deposits.
In the Australian case, savers benefit
while customers such as mortgage borrowers would not get the full benefit of
the government’s interest rate cut.
Where deposit growth lags that of lending,
competition for deposits among banks sets in.
Currently, in Malaysia, all banks have lowered
their lending and deposit rates following a rate cut by the central bank.
However, local banks may consider offering
higher deposit rates to protect their customer deposit base as competition for
deposits heats up.
But that would mean lower margins for the
banks. “There may not be much choice if competition heats up,” said Nazlee
Khalifah, CEO of Affin Islamic Bank.
“Every bank would have to accept lower
margins.
“Come year-end, they will also have to
comply with the next phase of the liquidity coverage ratio (LCR) requirement.
“Usually, one can see deposit rates rising
in the fourth quarter of every year,” said Nazlee. (LCR is defined as a stock
of high-quality assets divided by total net cash outflows over the next 30
calendar days. By Jan 1 next year, banks would need to reach a minimum LCR of
80%).
Lowering lending and raising deposit rates
at the same time may not badly hurt banks that are largely dependent on wholesale
funding.
Apparently, Australian banks tap funding
in the international markets which are growing more fearful of problems in the
Australian housing market, hence liquidity from international funding sources
is drying up, said Pong Teng Siew, head of research, InterPacific Securities.
"So there is now a rush to tap
domestic money to fund the loans.
“That is why deposit rates have climbed
sharply even as the Reserve Bank of Australia has dropped its policy rate,”
said Pong.
Such a scenario is less likely to happen
in Malaysia where Bank Negara is believed to set a strong precedence that local
banks tow the line with regard to following changes in the overnight policy
rate (OPR), said Chris Eng, head of research, Etiqa Insurance & Takaful.
“It’s possible that greater scrutiny will
be on whether banks follow the change in OPR in the lending rather than deposit
rates,” said Eng, adding in case of tight liquidity which may trigger a hike in
deposit rates
following a cut in OPR, Bank Negara will
likely cut the statutory reserve requirement (SRR). (The SRR is an amount of
interest-free funds kept by commercial banks with Bank Negara for the
management of liquidity in the banking system).
Should there be further interest rate
cuts, uneven rate adjustments may occur, said Wong Yin Ching, cohead, financial
institution ratings, RAM Rating Services.
“Major domestic banks have responded to
the OPR cut (of 25 bps to 3%) with a reduction in their lending rates by
between 20-25 bps.
Fixed deposits rates have also declined in
tandem. “In some instances, the cut in fixed deposit rate has exceeded that of
the lending rate for the individual bank although not by a large quantum.
“In an attempt to arrest declining net
interest margins, we might continue to see uneven rate adjustments, should
there be further rate cuts although not in the magnitude observed in the
Australian banks recently.
“How rate cuts translate into lending and
deposit rates ultimately could relate to domestic circumstances such as
regulatory and competitive landscapes, which can vary from country to country,”
said Wong.
So far, the impact of the recent cut in
OPR should be manageable.
“Malaysian banks have been experienc
ing net interest margin compression over
the last few years, as a result of keen competition for both loans and
deposits.
“Bank Negara’s recent move to cut the OPR
is generally negative for banks’ profitability as most banks are dominated by
float- ingrate loans while the bulk of their deposits take time to be repriced.
Nonetheless, the impact should be manageable,” said Wong.
The impact of possible future rate cuts
would be interesting to watch. For borrowers, it would be a good time to lock
in the best borrowing rate possible.
For savers, they may have to take stock of
the potential erosion in their income from savings. It is a good things that in
the race for deposits, local banks have raised deposit rates and offered quite
good promotions.
There have already been reports overseas
of savers withdrawing their money before an expected rate cut.
In what type of investment and which
country would savers park their money is a matter of personal choice and would
be based on advice and a certain amount of research done.
Columnist Yap Leng Kuen hopes that
competition for deposits among local banks would drive up savings rates as higher
income from savings could result in higher spending, provided debt is manageable.
STOCKS MARKET REPORTS
KUALA LUMPUR
BURSA Malaysia is expected to continue its
uptrend this week backed by positive factors such as recovery in the crude oil
prices, country’s trade data and Bank of England’s (BoE) cut in interest rate.
Affin Hwang Investment Bank vice-president
and retail research head Datuk Nazri Khan said the rally in the crude oil
prices would provide another lift to the local bourse this week.
US crude oil prices settled 2.7% higher at
US$41.93 a barrel, a day after rising over 3% amid a drawdown in oil
inventories while international benchmark, Brent crude was up 2.67% to US$44.25
a barrel.
Nazri said the sentiment on the local
bourse also improved on upbeat trade surplus of RM41.79bil in the first half
of this year, which reflected Malaysia’s strong export sector.
“The benchmark FBM KLCI is ready to stage
further upside if the ringgit and commodities continued to strengthen, with
immediate support at the 1,690 points level while key resistance at the
1,677-1,667 points level,” he told Bemama.
Nazri said another factor that boosted the
market was the cut in interest rate by the BOE from 0.5% to 0.25% and the
stimulus programme to soften the economic shock after the ‘Britain exit’
(Brexit) referendum to leave the European Union.
“The BOE has decided to cut its lending
rate for the first time in more than seven years to a new record low of 0.25%
from 0.5% as measures to prevent post-Brexit recession.
For the week just
ended, the local market saw range-bound trading, helped by trading in
heavyweights led-by energy stocks, trade and services, industrial stocks as
well as volatile in the crude oil prices.
On a Friday-to-Friday basis, the FBM KLCI
added 10.78 points to 1,664.04 from 1,653.26 the previous week.
The FBM Emas Index surged 92.25 points to
11,677.36, FBMT 100 Index rose 94.31 points to 11,378.09 and the FBM Emas Shariah
Index increased 93.03 points to 12,291.80.
On a sectoral basis, the Finance Index
surged 81.31 points to 14,267.76, Industrial Index rose 25.13 points to
3,120.28 and the Plantation Index increased 134.47 points to 7,696.71.
Weekly turnover increased to 10.02 billion
units worth RM8.94bil from 8.88 billion units worth RM8.72bil previous week.
Main market volume fell to 6.25 billion
shares worth RM8.39bil from 6.42 billion shares worth RM 8.29bil previously. –
Bernama.
FBM KLCI FUTURES ROUNDUP
KUALA LUMPUR
The FBM KLCI futures contracts (FKLI) on
Bursa Malaysia Derivatives are expected to be well-supported this week as the
underlying cash market is projected to trade higher.
Inter-Pacific Research Sdn Bhd head of
research, Pong Teng Siew, said in general, Bursa Malaysia was expected to be
positive this week and continue for the rest of the month and extended to
September.
He said the market generally climbed
because the funds, which were mostly from Europe were flowing into emerging
markets and Malaysia will be one of the beneficiaries.
“So far, the funds have been flowing into Indonesia,
Thailand, Taiwan and South Korea, we expect it to be coming here soon,” he told
Bemama.
For the week just-ended, the market was
mainly higher on positive sentiment.
Spot month August 2016 added 11.5 point to
1,659.5, September 2016 advanced 12.0 points to 1,655, December 2016 was 13.5
points higher at 1,636.5.
Turnover declined to 30,059 lots from
107,693 lots previous week while open interest decreased to 41,111 contracts.
The benchmark FBM KLCI up 8.75 points
higher at 1,664.04 from 1,653.26 previous Friday. – Bemama
GOLD FUTURES ROUNDUP
KUALA LUMPUR
Gold futures contracts on Bursa Malaysia
Derivatives are expected to see uncertain trading this week, tracking the US
Comex gold market and the US Federal Reserve (Fed) decision on the interest
rates, said Phillip Futures Sdn Bhd.
Its dealer, Amberlyn How, said the trading
will likely be volatile, especially after the release of upbeat US non-farm
payrolls.
“The gold prices will not go up so much or
down and there is a possiblity of a technical correction,” she told Bemama.
How said the US Fed was expected to consider
a couple of non-farm payroll releases before deciding on rates.
“The downside for the gold price is expected
to be limited after Bank of Englands easing,” she said, adding that the
trading of the local currency will also influence the the gold market.
On a Friday-to-Friday basis, July 2016
last traded rade at RM174.60 a gramme, and new spot month August 2016 improved
52 ticks to RM177.20 a gramme, September 2016 advanced 61 ticks to RM177.85 a
gramme and October 2016 was 54 ticks better at RM178 a gramme.
Weekly turnover eased to 89 lots worth
RM1.58mil from 96 lots worth RM1.52mil previously.
Open interest last Friday decreased to 266
contracts versus 286 contracts previously. - Bemama
On a Friday-to-Friday basis, spot month
August 2016 was pegged at 96.54 while September 2016, October 2016 and December
2016 all stood at 96.59.
KLIBOR FUTURES ROUNDUP
KUALA LUMPUR
The three-month Kuala Lumpur Interbank
Offered Rate (Klibor) futures contracts on Bursa Malaysia Derivatives is
expected to remain untraded this week.
The futures market was untraded for the
week just-ended.
On a Friday-to-Friday basis, spot month
August 2016 was pegged at 96.54 while September 2016, October 2016 and December
2016 all stood at 96.59.
The underlying three-month Klibor on the
cash market stood at 3.40%. – Bernama.
COMMODITIES ROUNDUP
CPO
KUALA LUMPUR
Crude palm oil (CPO) futures prices on
Bursa Malaysia Derivatives are expected to see profit-taking this week after a
strong surge last week.
Interband Group of companies senior palm
oil trader, Jim Teh, said the prices could go down to RM2,300- RM2.350 a tonne
this week on the back of news reports that China has released two million
tonnes of rape- seed oil from its state reserves.
“This could mean that imports from top
consumers, China and India, would be lower,” Teh told Bernama.
Teh said this, however, may be limited as
speculators expected La Nina, usually associated with wet weather, to take
place in the coming months.
“If it happens, it could cause supply
distruptions that are positive for CPO prices overall,” he said.
Nevertheless, he said, the CPO market
remained ‘healthy.
He also said investors would also expect
the Malaysia Palm Oil Board monthly report, expected to be released on Aug 10,
to show higher inventories in July.
On a Friday-to-Friday basis, August 2016
jumped RM131 to RM2.505 per tonne, September 2016 surged RM94 to RM2,430 a
tonne, October 2016 rose RM91 to RM2,407 a tonne and November 2016 improved
RM85 to RM2,311 a tonne.
Weekly turnover fell to 196,644 lots from
197,456 lots previously, while open interest eased to 248,914 contracts from
257,412 contracts previously.
On the physical market, August South
gained RM130 to RM2,510 per tonne. - Bemama
RUBBER
KUALA LUMPUR
The Malaysian rubber market is likely to
remain stable this week amid fluctuating crude oil prices, dealers said.
A dealer said there were also
uncertainties in the benchmark Tokyo Commodity Exchange futures market
following Japan’s stimulus package announced earlier last week.
“The current development in Japan,
including the yen’s performance, would be among the factors affecting the
rubber market in the region.
“On the home front, the rubber market
would also depend on the ringgit’s performance against the US dollar. The local
rubber market, despite these factors, is still stable overall,” he told Bemama.
On a weekly basis, the Malaysian Rubber
Board’s official physical price for tyre-grade SMR 20 gained 10.5 sen to 517.50
sen a kg while while latex- in-bulk dipped 2.5 sen to 453.0 sen a kg. The
unofficial physical price for tyre-grade SMR 20 added 10.5 sen to 515.50 sen a
kg and latex-in-bulk fell 12 sen to 449.0 sen a kg. - Bemama
TIN
KUALA LUMPUR
The Kuala Lumpur Tin Market (KLTM) is
expected to be firm this week with prices moving US$17,900 and US$18,200 a
tonne, a dealer said.
He said this trend will also be in line
with the uptrend on the London Metal Exchange.
“The local market was bullish throughout
the week, except on Aug 4, where it declined marginally on technical
correction.
The price has breached the US$18,000 level
and is poised to prompt encouraging demand from traders in the days ahead,” he
told Bemama.
For the week just-ended, tin finished
US$110 higher at US$18,080 per tonne compared with US$17,900 per tonne previous
Friday. Turnover fell to 177 lots from 201 lots previously.
The premium between KLTM and the LME
narrowed to US$410 from US$425 per tonne previously. - Bemama
CRUDE OIL
LONDON
Chronic oversupply sent oil prices
slumping last week into a so-called bear market, losing 20% from recent June
peaks above US$50.
In tumultuous trade on Wednesday, US
benchmark West Texas Intermediate (WTI) struck US$39.19 - which was the lowest
level since April 18.
And on Tuesday, Europe’s main contract
Brent North Sea crude slid to US$41.51 - which was also a trough last reached
on that same day.
Oil industry experts argue that the market
got caught up in forecasts that supply and demand would shift into balance in
2016.
The International Energy Agency had
forecast in April that oil was expected to almost balance out in the second
half of the year.
“Crude prices have re-entered bear market
territory,” said analysts at London-based consultancy Energy Aspects in a
research note.
“The problem has been that the market
priced in a full rebalancing too quickly and discounted the scale of the
inventory overhang, which has left many disappointed.”
The market had nosedived from above US$100
in mid-2014 to 13-year lows of around US$27 in February, plagued by the supply
glut, but have since rebounded somewhat.
That collapse was triggered by a glut that
was worsened by rising unconventional oil production, mainly from booming US
shale crude, alongside the OPEC cartel’s reluctance to cut output.
Last week, meanwhile, the US government’s
Department of Energy (DoE) revealed that crude reserves rebounded by 1.41
million barrels in the week ended July 29.
That confounded analysts’ forecasts for a
drop of 1.75 million barrels, and left total stockpiles at 522.5 million.
That was 14.8% more than was recorded at
the same point last year and marked the highest seasonal level in decades.
Data showing an increase in inventories
tends to heighten worries about oversupply and push the market lower.
However, prices rose over Wednesday and
Thursday on signs of rebounding demand for motor fuel amid the peak-demand
driving season, when many Americans hit the road for vacations.
“The DoE inventory data (provided) further
evidence of a supply overhang returning to the market,” XTB analyst David
Cheetham told AFP, adding gasoline demand was nevertheless weak.
Average US daily domestic crude production
was meanwhile down 55,000 barrels at 8.5 million.
The US Labour Department report showed
that nonfarm payrolls rose by 255,000 in July, far outpacing expectations for
a gain of 180,000.
While the unemployment rate remained
unchanged at 4.9%, it held below the 5% mark associated with full employment.
On the New York Mercantile Exchange, a
barrel of West Texas Intermediate benchmark crude for September delivery fell
13 cents to close at US$41.80.
In London, North Sea Brent for October
delivery fell two cents to US$44.27 a barrel on the Intercontinental Exchange. –
AFP
Adapted from The Star/Stocks/Monday, 8 August 2016
Adapted from The Star/Stocks/Monday, 8 August 2016
Crude seen at US$50, prices may remain
for next five years
KUALA LUMPUR: The new normal for oil
is US$50 per barrel, says a leading consultancy firm.
Bain & Co feels that this
scenario of prolonged low oil prices will remain for the next five years and
predicts that the industry will continue to grapple with deleveraging and cash
flow issues.
“We believe that this scenario is
likely to exist for a while due to the tremendous amount of supply coming from
low-cost sources such as Russia and members of the Organisation of the
Petroleum Exporting Countries.
“There is also the likelihood of a
slowdown in demand towards the end of this decade,” Jorge Leis, a partner in
Bain & Co, told reporters at a briefing.
Brent crude prices have fallen from
their highest point this year recently. After peaking at US$52.51 per barrel back
in June, it was last traded at US$45.29 per barrel on Tuesday.
Despite major restructuring and
refinancing efforts since oil prices began to plummet in late 2014, the
leveraged positions of some South-East Asian upstream players are still causing
financial distress.
Prominent Singaporean offshore
services firm Swiber Holdings Ltd was the latest casualty from the low oil
price situation.
Last week, the company narrowly
averted bankruptcy after putting itself under judicial management to facilitate
a restructuring exercise.
According to Leis, the “new normal”
scenario calls for a major transformational effort in order for companies to
survive over the next five years, as the worst is not over yet for the industry
players.
“The adjustments made over the past
two years may have gone slower than we expected. However, companies have better
access to capital markets today, which will avert the possibility of extreme
situations such as bankruptcy,” he remarked.
During its oil and gas (O&G)
roadshow in Kuala Lumpur, among the questions asked by prominent Malaysian
O&G firms was on what it would take to cope with the long-term
ramifications of the low oil prices, said Dale Hardcastle, who is a Bain
partner for its Singapore office.
“As for Malaysia, attracting new investments
into the upstream segment will be very challenging due to the current
volatility in crude prices. If this prolonged low oil price scenario occurs,
the industry will need to see a lot more consolidation of assets going
forward,” he explained.
On the other hand, Hardcastle lauded
the efforts made by Petroliam Nasional Bhd in its bid to lower operating
expenses. The oil giant plans to reduce tens of billions in capital expenditure
over the next several years to account for lower commodity prices.
Over the long term, Leis ruled out
the likelihood of prices returning to US$100 per barrel as seen during the
industry’s boom phase several years ago.
“Even in the best-case scenario, we
do not foresee oil breaching above US$85 per barrel over the next five years.
Oil prices returning to US$100 per barrel will only likely be triggered by some
large-scale geopolitical strife, which is not something that the industry
wants,” he said.
Tourism, Infrastructure to Support Thai Economy
The Star/Business News/Tuesday, 9 August 2016
BANGKOK: Thailand’s record tourist
arrivals and public works spending are expected to offset weak domestic demand
and global economic drag, keeping South-East Asia’s second-largest economy on
course for 3.1% growth this year, the central bank governor told Reuters in
an interview.
The trade-dependent economy has been
hit hard by the deteriorating global economic environment and the slowdown in
demand for exports, which the Bank of Thailand (BoT) expects to decline for the
fourth consecutive year in 2016.
Tourism has been one of the few
bright spots in the Thai economy, and government spending on big ticket
infrastructure should give a jolt to the sluggish economy later in the year,
BoT Governor Veerathai Santiprabhob said.
“We are on track,” Veerathai told Reuters in
an interview on Friday. “We’ll have to monitor the secondary impacts of Brexit.
“Certain sectors of our economy have
been hit by China’s transition. But we expect to see better government
disbursement for large projects in the second half of the year.”
The central bank has predicted
economic growth of 3.1% this year, with exports contracting 2.5%. The economy
expanded 2.8% last year, picking up from 0.8% growth in 2014 when political
turmoil brought the country to the verge of recession.
In the first quarter, the Thai
economy grew 0.9% on the previous quarter and 3.2% on the year.
The military government has talked up
plans for big infrastructure projects since seizing power in a May 2014 coup,
but has spent little. That should change now big projects have gone to auction,
Veerathai said, adding spending would increase again in 2017.
Veerathai said while the central bank
can ease policy if conditions worsen considerably, there was no immediate need
to cut interest rates to stimulate growth as liquidity remains ample.
“There are limits on what monetary
policy can do to help stimulate economic growth further,” he said.
“It’s more of the supply-side
policies that we need to tackle...and I think the government fully realises
this. The fiscal engine is moving forward.”
The central bank has left the
benchmark one-day repurchase rate at 1.5%, where it has been since April 2015,
just a quarter-point above the record low reached during the global financial
crisis.
It next reviews policy on Sept 14, and
expectations for a cut are rising due to slow economic growth and upward
pressure on the baht. — Reuters
Money Managers
Money Managers Pour
in US$13bil Into Thai Stocks
The Star/Friday 26 August 2016
Despite political shocks, the economy has been able to bounce back
Growing economy: A
file picture showing a Bangkok Mass Transit System Skytrain travelling along
the city skyline in Bangkok. Overseas investors have bought US$10.3bil of the
nation's debt, heading for the largest annual inflows since 2013.
KUALA LUMPUR: Even in a region where
investors are accustomed to political risks, Thailand stands out.
Having weathered a dozen coups in the past
century and a decade of Muslim insurgency, South-East Asia’s second-biggest
economy now faces a tentative transition to democracy which may reshape its
political landscape.
Money managers have set such uncertainties
aside to pour US$13bil into baht-denominated stocks and bonds this year, the
most across emerging Asian markets outside of South Korea.
"The Thai economy has thus far proven
to be resilient and able to bounce back from political shocks,” said Edward Ng,
a Singapore-based fixed-income portfolio manager at Nikko Asset Management,
which was overseeing more than $170 billion as of end- March.
‘Therefore, depending on the severity of
each political event in Thailand, benchmark investors will still need to have
certain exposure to Thailand given that Thailand is part of many bond and
stock indices.”
Global bond funds have boosted their
investments in emerging-market debt to the highest levels in four years, as
sub-zero yields in Japan and Europe bolster the allure of positive yields. The
JP Morgan EMBI Global Core index has gained 15% year to date, the best
performance for the period since 2009.
Low inflation, a strengthening currency
and an easy monetary policy have burnished the appeal of Thai debt, with yields
on benchmark 10-year notes dropping 42 basis points this year and touching an
unprecedented 1.53% in April.
At a time when the rule of law has come
under scrutiny in neighbouring Malaysia and the Philippines, a military-backed
constitution aimed at paving the way for Thai elections in 2017 is drawing
criticism from New York-based Human Rights Watch that the charter will further
entrench the rule of the junta that seized power more than two years ago.
Overseas investors have bought US$10.3bil
of the nation’s debt, heading for the largest annual inflows since 2013. The
baht strengthened about 4% in 2016 and reached a one- year high of 34.500 per
dollar last week.
The baht has gained since Thai voters
voted in favour of the military-backed constitution on Aug 7.
While the result makes it more likely the
junta will stick to its current timeline of holding elections by late 2017, it
has also raised concern about longer-term political stability and the lingering
role of the current leadership and its influence over the appointment of the
senate and prime minister.
“The constitution will make the military
more powerful and allow it to remain to a very large degree in the driver’s
seat,” said Michael Montesano, co-coordinator of the Thailand Studies Programme
at the ISEAS Yusof Ishak Institute in Singapore.
“They certainly want a more restricted
democracy. The effort to institutionalize this kind of order through the new
constitution will not work.”
AllianceBemstein Holding LP has a positive
near-term view of Thai debt, citing the prospect of further easing by the Thai
central bank and the nation’s sizable current-account surplus.
“Following years of political unrest,
political risks are well recognised by the market,” said Vincent Tsui, a Hong
Kong-based economist at AllianceBemstein, which oversaw US$490bil as of June.
"In fact the political development
has been generally stable after the coup and that shall not be the primary
consideration for foreign investors gaining Thai exposure.
Putting politics aside, Thailand’s fundamentals
have improved noticeably over the past quarters.”
Democracy has had a checkered history in
Thailand, which has seen 12 coups since 1932 and bouts of political violence.
The country has been under military rule
since a 2014 coup which had ended more than six months of turmoil that led to
the ouster of Prime Minister Yingluck Shinawatra. Insurgents in Thailand’s
three Muslim- majority provinces are seeking independence and have staged
regular explosions.
No one has claimed responsibility for two
blasts late Tuesday in the southern province of Pattani, which killed one and
injured 30.
“Investment opportunities will improve
only after democracy returns in 2017,” said Paul Chambers-, director of
research at the Institute of South East Asian Affairs in Chiang Mai. –
Bloomberg
Indonesia mulls Iran’s
proposal to build US$8.4 bil oil refinery
The Star/Wednesday,
10 August 2016
JAKARTA: Indonesia will study a
proposal from Iran to build an oil refinery, along with bids from other
countries, as it seeks to boost refining capacity to catch up with rising
consumption.
Iran proposed a plant with processing
capacity of more than 100,000 barrels a day and pledged to provide the crude,
IGN Wiratmaja Puja, director-general of oil and gas at the Energy and Mineral
Resources Ministry, said in Jakarta yesterday.
The project’s value is estimated at
US$8.4bil and would be built over four or five years in Java, Iran’s state run
news agency Mehr reported, citing Hassan Khosrojerdi, head of
the joint Iran-Indonesia refinery’s board of directors.
Indonesia, already the only
Organisation of the Petroleum Exporting Countries (Opec) member that’s a net
oil buyer, may need to import half of its annual fuel needs even after
increasing its refining capacity by 500,000 barrels a day in the next seven
years, according to BMI Research. Iran is seeking to boost crude exports after
international sanctions on its economy were eased in January.
A feasibility study on the refinery’s economic justification is being conducted, a spokesman for Iran’s oil ministry
said. The National Iranian Oil Co has not signed any deals on the project, he
said. Indonesia has made no decision on Iran’s proposal because it's still
preliminary, Puja said.
Indonesia has also received proposals
from China, Kuwait and Russia, Puja said. The ministry hasn’t come to any
decisions on the bids. The government plans to offer the Bontang refinery in
east Kalimantan to investors before other projects, he said.
Indonesia’s refining capacity may grow 2% by 2025 while consumption surges 31% in the same period, according to BMI. The country, which reactivated its membership in the Opec this year, produced 740,000 barrels a day of crude in July, according to data compiled by Bloomberg. – Bloomberg
Indonesia’s refining capacity may grow 2% by 2025 while consumption surges 31% in the same period, according to BMI. The country, which reactivated its membership in the Opec this year, produced 740,000 barrels a day of crude in July, according to data compiled by Bloomberg. – Bloomberg
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