BizHive Weekly captures a few observations on the outcome of Malaysia’s 13th General Election:

FOR A BETTER FUTURE: Photo shows Prime Minister Datuk Seri Najib Tun Razak and his deputy minister Tan Sri Muhyiddin Yassin alongside ministers of the cabinet after reporting the Laporan Tahunan Program Transformasi Negara at Angkasapuri Auditorium in Kuala Lumpur. — Bernama photo

Relief over polls outcome but obstacles remain

With the 13th general elections now behind us, the country’s financial markets are expected to return to “business as usual” with renewed hopes of a stable, smoother economy as the incumbent ruling coalition – Barisan National (BN) – assumes the reins of government over the next five years.

BN won by a slightly lesser majority than the 12th GE (GE12) in 2008, scooping up 60 per cent of the 222 Parliament seats contested – lower than its 63 per cent majority (140 seats) captured in GE12.

Analysts across the board were not surprised by the outcome of the GE13 which saw ruling BN emerging victorious with a lesser but nonetheless, comfortable working majority.

While BN’s victory should welcome back a sense of relief for investors,  the market could still encounter some hurdles as the country’s political uncertainties may still persist.

A manifesto to deliver

BN’s slim victory has undoubtedly given rise to the urgency to implement the ETP projects and policy reforms without delay or disruptions.

“Political continuity and policy are certainly positive in sustaining the investment growth momentum on the dilution of implementation or execution risk in major infrastructure projects and in the committed or approved investments already in the pipeline under ETP, regional economic corridors (such as Iskandar Malaysia), Petronas’ capital expenditure plan and Malaysian Investment Development Authority (Mida) approved investments,” the research arm of Maybank Investment Bank Bhd (Maybank IB Research) said in a research note.

As highlighted in a research note by analysts Terence Wong and Lee Heng Guie of CIMB Investment Bank Bhd’s research division (CIMB Research): “Broad policy continuity under BN should sustain Malaysia’s growth momentum over the medium term. ETP will continue to support private investment growth which had been respectable in recent quarters.”

Nevertheless, the economists cautioned that the country’s growth potential will ultimately depend on the extent of compromise over its reform agenda in the near term.

In this regard, Kenanga Research’s analysts observed that while BN’s victory might have paved way to smoother implementation of ETP projects and policy reforms, given the criticism and pressure to wipe out corruption and review the archaic affirmative action policy, the onus was on BN to make the necessary changes and ensure key infrastructure projects were dished out fairly and completed on time with minimal cost overruns.

“It also needs to put in extra commitment to spruce up the efficiency of the public service, reduce crime rate and reform the national education system,” they added.

With global economic uncertainties still a problem to be reckoned with,  BN could be facing a big challenge in sticking to its election manifesto. Furthermore, BN’s reform momentum could hit a snag, CIMB Research’s economists Wong and Lee opined.

“Without a strong mandate from the people as well as potentially months of political infighting after general elections, some of the policy reforms could be put on the backburner or progress slowly. This will throw off the government’s reform credibility and dent investors’ confidence in the sustainability of the country’s growth momentum.

“Unpopular measures such as the goods and services tax (GST) and subsidy cuts could be delayed on worries of political backlash.

“To gain political mileage, more populist measures, including cash transfers, could be in store, and if not accompanied by earlier planned tax reforms and subsidy rationalisation, the country’s fiscal-reduction plans could be at risk,” they pointed out.

This could pose a great challenge for BN as it could potentially further raise the fiscal operating expenditure (opex) in the near and medium term, Kenanga Research’s analysts said.

They noted that the fiscal opex reached a record high of RM205.5 billion in 2012, up 11.5 per cent or 21.9 per cent of Malaysia’s gross domestic product (GDP).

“At the rate the government is spending and dishing out funds, we will not be surprised to see the opex probably increasing by another five to 10 per cent this year as opposed to the official target of a reduction of 0.3 per cent.

“To mitigate the rise in opex, it all depends on how soon the government willresume its planned fiscal consolidation, mainly by reducing subsidies,”  they said.

However, ample liquidity and relatively large domestic resource surplus should continue to cushion the capability and flexibility of the government to fulfill its election promises while implementing expansionary measures  to support growth without crowding out private sector lending.

Post-GE fever, what’s next?

BizHive Weekly takes a look at the various sectors post elections

MANY projects in the various sectors are slated to continue in  the post-election period.

Some projects, started under the 10 Malaysia Plan (10MP) and Economic Transformation Programme (ETP), are due to be completed within the next few months.

Certain policies within selected industries such as the National Automotive Policy in the automotive sector and the B5 policy in the plantations sector will make major changes.

Automotive

Maybank Research believes positive consumer sentiment will continue for big-ticket item purchases, supported by BN’s manifesto to gradually reduce car prices by 20 to 30 per cent.

On the neutral front, Kenanga Research’s Chan Ken Yew said the revised National Automotive Policy (NAP), which is expected to be unveiled by mid-2013, will focus on positioning the country as a regional hub for hybrid vehicles and energy-efficient vehicles (EEV).

“This will include measures and incentives to promote the growth of EEV,” he said.

“It was reported that the new policy would also look into gradually eliminating the structural issues such as high duties, high selling prices, non-tariff barriers, fuel subsidies and other political considerations.

“Thus, the revised NAP should be positive for all the auto players, especially DRB-Hicom Bhd and UMW Holdings Bhd as both will benefit from their partnerships and affiliations with foreign carmakers which can be developed into further tie-ups and collaborations,” he added.

Banking

The restoration of business and consumer sentiment will be positive for loans growth and capital market activities with Economic Transformation Programme (ETP) said to start flowing again.

Chan noted that the capital market would no longer be clouded by the election risk and that the banking sector rally is like to be sustained.

“Some of the laggards should, hence, catch up in their performance in the future. Our view is underpinned by the buoyant domestic economy where we remain convinced that an infrastructure investment cycle is underway in Malaysia.

“The balance sheets of domestic banks are largely Basel III ready, the liquidity of the market is good and the asset quality of the industry is solid.”

Before the election, Cheah King Yoong from Alliance Research Sdn Bhd (Alliance Research) maintained his neutral recommendation of the sector and continued to impose 10 to 20 per cent discount onto the banking stocks under his coverage although he observed external risks had dissipated recently.

“This is because we are of view that any potential change in political landscape could disrupt the execution of projects under the ETP and implementation of policy reform going forward, which consequently impact the domestic economy and banking sector,” he said.

In view of the continued mandate given to the Barisan National in 13GE, Cheah believed the potential political uncertainties arising from such event is fast dissipating.

As such, he upgraded the domestic banking sector to “overweight.”

Building Materials

Maybank Research noted that the implementation of major infrastructure projects under BN manifesto will provide long-term volume visibility for both steel and cement.

“However, steel’s average selling prices (ASP) could still track the lacklustre international ASP while valuation for the more liquid Lafarge in cement is just about fair,” it said.

Chan from Kenanga Research was also cautiously optimistic on the outlook for steel players despite the fact that the challenging operating environment could be lifted by the recent low raw material prices coupled with the strong local demand, which could help steel players to turn around in the second half of 2013.

 Construction

This sector is the key industry under focus with the implementation of major infrastructure projects under the Barisan Nasional manifesto such as the Klang Valley Mass Rapit Transit 2 and 3, Kuala Lumpur-Singapore High Speed Rail, North South Expressway expansion, West Coast Expressway (WCE), Sarawak’s Pan Borneo Highway and so forth providing long-term jobs visibility.

“It is rather obvious with the success of BN in the election, the economic programmes, initiated by the government previously such as ETP and 10MP, will continue,” Chan noted.

“We believe the construction sector will continue to record robust growth in the foreseeable future — at least for the next five years.

“All the mega projects earlier planned should resume and hence provide a clear order book replenishment visibility for contractors.”

So far, the construction stocks have reacted positively to the news.

KL Construction Index hit its 52-week high on May 6 – the day after the elections – with top gainers including Gamuda, IJM Corp and WCT.

“This certainly tells us that investors’ confidence in the sector has been regained as it is no longer imputing any risk premium which is typically attached to political uncertainties,” Chan said.

Earlier planned contracts will be awarded and while timing of awards is not clear, we do expect this to take place soon, which provides a clear order book replenishment visibility for contractors.

“Hence, we expect the construction sector to continue to register robust growth in the medium term of up to five years,” he added.

“Note that order book continues to run, thereby providing clear earnings visibility. We estimate the listed contractors have a running order book of circa RM45 billion or more.

“With no changes to the incumbent government, we expect the progress of order book to run smoothly for the next three to four years at the very least — which does provide us with brighter earnings visibility as delays in earnings will be reduced.”

Gaming

Within the gaming sector, no new casinos or number forecasting operators (NFOs) were expected to enter the gaming industry any time soon.

There was no indication of higher statutory tax rates (such as casino tax, gaming tax, betting duty) either, Chan noted.

“However, the KL-Singapore high speed link will be a boon for Genting Bhd as it will make it easier for Singaporeans to gamble in Resorts World Genting and Malaysians to gamble in Resorts World Sentosa.”

Oil & Gas

Another sector set to see robust spurs is that of oil and gas with Petronas’ capital expenditure (capex) spending and the Refinery and Petrochemical Integrated Development (RAPID) complex to go ahead and more projects to be rolled out.

Kenanga Research’s Chan noted the sector is likely to go full throttle as the government relies on the sector to promote continuous activities and Petronas will still aim for continued aggressive capex spending in its bid to stem domestic reserves and production declines.

“We believe the contracts to come up will be the Pan-Malaysia hook-up and commissioning (HUC) contracts, further inspection, repair and maintenance contracts and drilling contracts.

“We believe the marginal field contracts will also start to emerge which will prompt further excitement towards the sector.”

AmResearch Sdn Bhd (AmResearch) underscored the importance for the rollout of the HUCC contracts for the continuation of the excitement in the O&G sector, given that fabrication contracts domestically had slowed due to the complexities of the new projects underway.

“While we still expect the award of the Semarang CPP engineering, procurement, construction and commissioning contract in June this year to Sapura Kencana, the rollout of the second phase of the North Malay basin gas cluster project, which will involve a large CPP at the Bergading field and multiple satellite well-head platforms, could be deferred towards the end of 2013.”

Property

Yee Mei Hui from HwangDBS Vickers Research Sdn Bhd (HwangDBS Research) does not expect major changes in key policies for the property sector as federal and state governments for major markets (KL, Selangor, Penang, Johor) remain status quo post-elections.

“Launches should resume while sales should pick up as uncertainty dissipates as both developers and buyers have been holding back for the past six months. Project approvals are also expected  to accelerate,” she said.

These factors should help re-rate the Malaysian property sector’s valuation now hovering between historical average and +1 S.S.

Developers have been major laggards (until recently) compared to MREITs which outperformed them last year.

The recent run-up in the KL Property Index was mainly driven by Iskandar Malaysia beneficiaries but should now broaden out to other segments.

Under the property sector, high-beta developers are expected to outperform the market post-elections as the sector is due for a rally given its valuation consolidation over the calendar year 2012.

Additionally, positive news flow – Iskandar Malaysia, Iskandar Waterfront Holdings Sdn Bhd’s (IWH) listing, the Kuala Lumpur-Singapore high-speed rail, Circle-Line Mass Rapid Transit award and the Tun Razak Exchange, to name a few – will keep the sector buoyant.

“We are particularly bullish on Iskandar-related developers and laggards and expect the re-rating to continue. We have narrowed our average sector discount to a fixed deposit revalued net asset value from 22 per cent to 17 per cent,” noted Chan of Kenanga Research.

Consumer

Spurred by rakyat-friendly measures such as the annual Bantuan Rakyat 1 Malaysia, civil servants’ transformative salary scheme and so forth under the Barisan Nasional manifesto, the consumer sector is pegged to be continuously supported by the consumption of staples.

However, this is expected to be offset by potential excise hikes in cigarettes and brewery, and the implementation of the goods and services tax to “part-finance” these measures.

“We foresee the sector undergoing a de-rating owing to its rich valuation, especially on the bigger cap stocks,” Chan highlighted.

“This is mainly due to the fact that their flattish earnings and regular dividend payouts will not have enough sparks to catch attraction under the ‘high beta world’.”

Education

Despite escalating competition in the private higher education institution space fuelled by the growing number of players at the university level, the upcoming lucrative international school segment will still provide the sector a much-needed boost.

However, the sector’s defensive nature may not be the preferred sector for now.

Gloves

Kenanga Research expected the sector to remain resilient, underpinned by solid demand for rubber gloves as a higher sales volume is expected to be led by latex gloves although nitrile gloves, which had consistently been taking up the former’s market share, will continue to show better growth prospects.

“It will be underpinned by potential pent-up in demand for examination rubber gloves due to the recent H7N9 bird flu virus which could further highlight the importance of hygiene as well as defensive and captive earnings stream nature of the of rubber glove industry.”

Healthcare

The healthcare industry in Malaysia is expected to continue to see stable growth, supported by a growing healthcare expenditure, rising medical insurance and aging population demographics.

The healthcare services sector earnings are considered defensive, considering their high predictability and captive earnings streams.

Plantations

The laggards within this sector are expected to perform better, Kenanga Research’s Chan noted, speculating a likely upgrade for the sector to neutral.

“Our sector downgrade to underweight on December 4, 2012, has been proven correct so far as the KL Plantation Index appreciated only 1.4 per cent (as compared to FBM KLCI, which has gained 5.9 per cent),” Chan attested.

Although he thought the coming May (index) results will be disappointing, he also believed the downside was well supported by the high liquidity in the local market.

“In addition, we think crude palm oil prices are already close to bottom and we believe they will not fall below RM2,000 per metric tonne as the bigger implementation of B5 in Malaysia should limit the inventory increase,” he said.

“We believe laggards within the plantation sector should perform better.”

 Technology

The technology sector has seen many ups and downs these past few years, caused by the floods in Thailand and the Japanese earthquakes, derailing the hardware supply system worldwide.

As such, a cautiously optimistic outlook has been pegged for this sector’s recovery in Malaysia with Kenanga Research’s Chan opining that the near-term outlook for local tech companies could continue to be overshadowed by a sluggish personal computer demand coupled with the prolonged global economic uncertainties.

“We believe the industry recovery is likely to  be seen earliest by the second half of 2013, underpinned by a recovery in the global chip demand amid a better global economic condition.”

Transportation and Logistic

Meanwhile, business will be as usual for the transportation sectors such as land transportation, aviation and shipping magnates as they are unlikely to be impacted by any policy changes, given that their businesses are driven by global macro environment factors.

In fact, it is believed the election period would have benefitted the land transportation and airlines players as people from abroad had travelled home to vote.

Stock market rebounds, positive on stable economy

On the stock market front, most analysts expect the market to react positively in a long run, based on the outcome of GE13.

It is to be recalled that before GE13, most investors decided to either remain on the sidelines and play the wait-and-see game or tread cautiously in the market.

As such, FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) lingered under 1,750 points during that time.

The FBM KLCI, however, rocketed by triple-digit to an intraday record high of 1,826 points on Monday morning after the elections, MIDF Research’s head of equity research Syed Muhammed Kifni observed.

To recap, the FBM KLCI climbed to 1,747.85 and rose as much as 7.8 per cent during the day – the most in more than a decade.

All 30 stocks in the KLCI index rose, led by a 12.9 per cent rally in UEM Land Holdings Bhd and a 10 per cent gain in CIMB Group Bhd, the MIDF Research analyst noted.

It was possible the market was focused on the reduction in political-risk premium.

“The FBM KLCI earlier suffered from ‘pre-election discount’,” explained Muhammed Kifni in observing the stock market.

“Recall that, in mid-January, the FBM KLC was bashed down by bouts of selling, likely triggered by jittery investors worried the GE13 would unfavourably alter the political status quo. Consequently, the local benchmark decoupled with the rest of the regional markets, attested by its gaping ‘pre-election discount’.”

However, Muhammed Kifni highlighted, in the research firm’s strategy report, dated January 22, 2013, that the firm alluded to the empirical market behaviour by stating “while the local market performance may temporarily decouple from the rest of the region, it would soon re-track the broad regional trend direction.”

In its true fashion, by early May, the FBM KLCI successfully re-tracked the broad regional trend direction. Furthermore, the post-GE13 ‘relief rally’ has more than erased earlier lost ground relative to its regional counterparts.

With regards to post-GE13 ‘relief rally’, Muhammed Kifni said it was not unexpected.

“In our strategy report, dated May 3, 2013, we spoke of the likelihood of post-election market frenzy but also cautioned on its near-term fundamental underpinnings: FBM KLCI year-end 2013 target of 1,750 points under review.

“We also took cognizance that GE13 on May 5 may return the incumbent to power, hence providing a great fillip to market sentiment the following week.

“Thus, the market may experience a ‘relief rally’ towards 1,800 points or even beyond. Nonetheless, we need to carefully weigh between potentially reduced political risks against the expected tepid earnings growth going forward.”

He further cautioned the post-election may soon give way to more mundane fundamental considerations relating to earnings, growth and valuation.

Meanwhile, Muhammed Kifni outlined that FBM KLCI seldom exceeded price earning ratio (PER) of 16.4-fold or 1.0 standard deviation (SD).

“During the past seven years, there were only two periods – 2007 and 2009 – where the PER (current) of FBM KLCI exceeded 16.4-fold or 1.0 SD level,” he noted.

However, this will not be the case if the FRM KLCI is supported by sheer liquidity or rising expectations.

The MIDF Research analyst said: “Almost all risk-asset markets the world over were in patently bullish mood (fuelled by banks’ balance sheet expansions) in 2007 while were utterly oblivious of the then imminent danger ahead.

“Hence the above normal PER valuation in that year on the backdrop of modest FBM KLCI on-year earnings growth of 9.9 per cent was, on hindsight, unreasonable but yet quite understandable.”

He further explained that “a combination of low base-effect of current year earnings and escalating forward earnings growth expectations, have resulted in the above average PER in 2009. Nonetheless, the above average valuation in that year was totally reasonable.”

On the outlook of FBM KLCI, Muhammed Kifni was of opinion that performance would likely be tame post election, saying: “Current growth prospects limit FBM KLCI retainable upside at 1,790 points in 2013.

“At this juncture, both current and forward consensus earnings estimates are pointing towards relatively tame growth prospects. Thus, by empirical measures, we should not expect the FBM KLCI to be able to retain an upsurge of beyond the 16.4-fold or 1.0 SD level.”

In other words, the analyst pointed out that based on consensus current year earnings per share (EPS) of 109.06 points, the valuation-based ceiling for the local benchmark in 2013 is currently pegged at 1,790 points.

Muhammed Kifni adjusted FBM KLCI year-end target to 1,800 points.

“An adjustment to our market target is warranted post-GE13 due to reduced political uncertainties, and slight upward-bias to corporate earnings expectations,” he said.

Meanwhile, in a separate research note, Maybank IB Research reckoned that the market would sustain its positive reaction post-GE13.

It also expected it resume its uptrend on continuition in policy direction with no impact on economic growth while businesses could start to reinvest while consumer sentiment should stay positive.

“Supporting the KLCI’s uptrend will essentially be greater clarity and stability, at the political and policy fronts, strong domestic economics and corporate balance sheets, continuous corporate earnings growth, and the KLCI’s underperformance (increase of 0.3 per cent year to date) versus regional markets, for the second year running, on political risk,” it added.

On the other hand, analysts Terence Wong and Lee Heng Guie of CIMB Research remained cautious on the outcome of GE13.

They noted: “Overall, the 13th elections can be considered mildly positive for the stockmarket as a comfortable win for BN reduces the odds of a repeat of the shocking 12th general elections in 2008 when the KLCI hit limit-down and circuit-breakers kicked in for the first time ever.

“Also, the KLCI has already significantly underperformed regional markets in 2012 and YTD in 2013.

“Furthermore, the rumour mill went into overdrive during the last days of the campaigning period, speculating about BN’s potential poor performance, and domestic investors were bracing themselves for any outcome.”

However, they expected some stockmarket volatility in the short term on the back of possible political uncertainties in the coming months.

With solar and biowaste power plants already under development, Brunei Darussalam has demonstrated its willingness to meet the renewable energy goals set by the Asean community. A recent agreement with the US could provide an extra boost to these efforts and encourage investors.

In March 2013, the US Department of Energy deputy secretary, Daniel Poneman, and the Brunei Darussalam minister of energy, Mohammad Yasmin Umar, met at the Prime Minister’s office, with the officials proposing to set up a joint working group on renewable energy.

The group, to be called the East Asia Summit Energy Cooperation Task Force, follows in the wake of a larger initiative, the US-Asia Pacific Comprehensive Partnership for a Sustainable Energy Future, which is committed to increasing access to electricity across Asia.

In line with regional priorities, the partnership is focused on renewable energy, encouraging the use of wind, solar, geothermal and other sustainable sources. The US has committed to providing up to US$6 billion in support through the partnership, in part through financing from the US Export-Import Bank.

A number of projects have been proposed for the task force, such as the establishment of a public-private dialogue on removing barriers to investment in alternative energy projects.

The group will also promote the dissemination of information that could facilitate investments.

This will include releasing data on solar power technology testing at Brunei Darussalam’s new demonstration facility, mapping renewable energy resources in Southeast Asia and improving access to resources of the US-based Clean Energy Solutions Centre.

The Sultanate has the capacity to generate 1.2 megawatts (MW) of renewable energy, all from the Tenaga Suria Brunei solar plant in Seria. However, like other Asean countries, Brunei Darussalam has committed to having 15 per cent of total installed power coming from renewable sources by 2015, meaning the country will need to install more than 50MW of new capacity.

While solar is one of Brunei Darussalam’s most promising forms of alternative energies, hydro and wind-sourced power have been identified as possibilities. In 2011, energy officials also started looking at biomass and recycled waste heat from existing natural gas-fired power plants to boost energy supply from renewable sources.

To this end, in March the government opened tenders for the construction of a waste-to-energy plant in Telisai. This project is part of an ongoing feasibility study being conducted by the Centre for Strategic and Policy Studies on alternative energy sources in Brunei Darussalam.

The waste-to-energy facility is expected to have the capacity to produce about 24MW of energy and will open up new job opportunities for locals and reduce pollution. Minister of Finance II Abd Rahman Ibrahim indicated that the project will take the form of a public-private partnership.

To boost solar efforts, the government is keen on establishing feed-in electricity tariffs to provide incentives for Bruneians who invest in renewable energy for their homes. In January 2013, officials confirmed that citizens who sell the excess power generated by their rooftop solar panels could be rewarded under the feed-in scheme.

Another facet of energy sustainability that leaders are being encouraged to examine is power consumption management, with a visiting expert saying last September that conservation efforts are just as important as generating electricity through alternative means. In an interview with the Brunei Times, Alan Dale Gonzales, the chairman of the World Alliance for Thai Decentralised Energy Association, highlighted the benefits of lowering usage.

“Energy efficiency, especially in a place like Brunei where people are not really conscious of the energy they consume… they can save so much.

And once you start saving energy, that is when you start thinking about renewable energy because your consumption is reduced, your demand is reduced and therefore the capacity of renewable energy you need to implement is also reduced,” he said.

While promoting efficiency could be an important element of the government’s plans, it will also need to continue its efforts to develop alternative energy sources if it is to meet Asean objectives.

Affin Investment Bank vice-president/head of Retail Research Dr Nazri Khan said the key index would possibly retest the 1,790 to 1,800 points level against a backdrop of positive leads from the US and news that more central banks would take an accommodative monetary stance.

“On the domestic front, we expect sentiment to pick up again now that policies remain intact following the victorious elections and we are optimistic that the government will push for a reform agenda to revitalise the economy following the new Cabinet line-up,” he told Bernama.

He said investors viewed the composition of the line-up as being    business-friendly and representative of various economic sectors.

“It’s a good match between the right people and the right jobs that can make good decisions to ensure more straight quarters of growth over the next few years.

“Hence, we anticipate stronger return of retail traders, continuous funds flow, healthy investor confidence and steady economic growth to sustain Bursa’s rally over the coming months,” he added.

Throughout the week, the barometer index touched 1,788.43 points on Tuesday but share prices turned lower thereafter on selling activity.

“Technically speaking, we view the FBM KLCI’s decline of 3.1 per cent or 58 points since May 6, when the index hit an historical high of 1,826.22 points, as a natural correction primarily due to investors taking profits,” Nazri said.

On a Friday to Friday basis, the benchmark FBM KLCI ended 3.22 points lower at 1,769.16.

The Finance Index increased 42.63 points to 16,749.01, the Plantation Index lost 96.20 points to 8,229.30 and the Industrial Index rose 69.35 points to 3,024.45.

The FBM Emas Index added 59.47 points to 12,272.18, the FBMT100 gained  34.24 points to 12,054.50, the FBM Ace Index surged 327.14 points to 4,679.41 and the FBM Mid 70 advanced 266.03 points to 14,091.99.

Weekly turnover increased to 12.677 billion shares, worth RM13.261 million, from last week’s 11.54 billion shares worth RM17.29 billion.

Main market volume increased to 10.65 billion shares, valued at RM12.588 billion, from 10.43 billion shares, valued at RM17.08 billion, recorded last week.

The ACE market volume rose sharply to 1.727 billion units, worth RM265.042 million, from 767.35 million shares, worth RM123.16 million, registered previously.

However, warrants decreased to 272.137 million shares, valued at RM35.623 million, from last week’s 328.44 million units valued at RM39.47 million. — Bernama

(SOURCE: Petronas)

KUCHING: The announcement of the third round of Petroliam Nasional Bhd’s (Petronas) risk service contract (RSC) licensing for 10 marginal fields has excited the sector favourably, attracted up to two dozen players in its process.

According to AmResearch Sdn Bhd (AmResearch) in a sectoral outlook previously, the fields for this third round include Bunga Pelaga, Rompin, Endau, Lada Hitam, D41 and A21 off Sarawak, Rusa Timur, Mutiara Hitam and Kuda Terbang off Sabah and Ophir, the lone field on offer off Peninsula Malaysia.

The research firm noted that five of the fields — Ophir, Bunga Pelaga, Lada Hitam, Rusa Timur and Mutiara Hitam — were offered in two earlier licensing rounds in 2011 and 2012.

“The third RSC licensing round is said to have drawn interest mostly from small to medium-sized oil and gas independents or foreign oilfield services contractors, such as KrisEnergy Ltd, Enquest Sdn Bhd, Genel Energy Plc, Ping Petroleum Sdn Bhd and Hydra Energy Pty Ltd,” highlighted AmResearch.

“We understand that Malaysian players who are interested to participate with them include SapuraKencana Petroleum Bhd (SapuraKencana), Bumi Armada Bhd, UMW Oil & Gas Corporation Sdn Bhd, Puncak Oil & Gas Sdn Bhd, Deleum Bhd and Scomi Group Bhd.

“Recall that the earlier rounds of RSC tenders have resulted in only 3 awards: the Berantai field off Terengganu to Petrofac-SapuraKencana; Balai-Bentara cluster off Sarawak to Australia-listed RocOil-Dialog Group-Petronas Cargali consortium; and Kapal, Banang and Meranti cluster (KPM) off Peninsula Malaysia to the UK-listed Coastal Energy-PetraEnergy joint venture.”

DRAWING MUCH INTEREST: The third RSC licensing round for 10 marginal fields is said to have drawn interest mostly from small to medium-sized oil and gas independents or foreign oilfield services contractors.

For the Berantai RSC, AmResearch noted that the modification of the floating production storage and offloading vessel from a production floater previously called East Fortune, has taken six months longer to complete while the commencement of the field operations took nine months longer than the targeted December 2011.

However, the Berantai joint-venture subsequently went on to beat the field development plan by meeting the contracted flow rate with just half of the 18 pledged development wells.

It was indicated that the total development cost – previously pegged at US$800 million – could rise to US$1 billion.

The second RSC, the Balai Cluster involving Balai, Bentara, West Acis and Spaoh fields, is also facing delivery delays as the key production vessel, the Balai Mutiara, is currently being converted from coastal tanker, Stena Caribbean, in Singapore.

The vessel is due to begin extended well testing in June this year while the pre-development phase at Balai Cluster is now expected to run to September, nine months later than the target completion of late 2012.

The third RSC, the KPM cluster, which has a development cost of US$320 million with an estimated recoverable oil reserves ranging from 15 million to 35 million, will be employing a floating storage and off-loading vessel and mobile offshore production unit, similar to Coastal’s existing field developments in the Gulf of Thailand.

“Coastal is chasing a first oil target of June 2013, within 12 months from the announcement of the RSC award,” AmResearch added.

“Given the pace of the first three RSCs and the abortion of the Tembikai award to Cue Energy Resources-Scomi Group joint venture, the likelihood is that the award rollouts will be gradual as the operators have to conduct extensive data review and project viability studies.

“In view of the multiple flows of contract this year, we maintain our overweight call on the sector with buy calls for SapuraKencana, Alam Maritim, Dialog Group and Petronas Gas Bhd.”

Technical Analysis for FCPO, FCPO Daily Chart Source: BursaStation Professional

Crude palm oil futures (FCPO) on Bursa Malaysia Derivatives rose this week in anticipation of better exports growth in the second half of May.

The benchmark FCPO August contract rose RM17 or 0.73 per cent to settle at RM2,336 per tonne on Friday from RM2,319 per tonne last Friday. The trading range for the week was from RM2,277 to RM2,342.

Total volume traded for the week amounted to 169,143 contracts, up 48,566 contracts from the previous week.

The open interest as at Thursday increased to 177,850 contracts from 167,552 contracts the previous Thursday.

The exports demand for the first half of May showed some improvements compared with the first 10 days of May.

The improvements in exports were mainly led by the European Union (EU) countries which showed an increase of more than 50 per cent in their exports for the first half of May versus the same period in April.

However, the palm oil exports to other top importing countries like China and India remained sluggish.

The cargo surveyor Intertek Testing Services (ITS) released the palm oil export figures for the period of May 1 to 15 on Wednesday at 599,300 tonnes, a fall of 7.55 per cent while another surveyor SGS released figures at 611,277 tonnes, a decrease of 2.97 per cent from the same period last month.

Some analysts were optimistic on the exports demand in the coming months amid the upcoming Muslim festival in August.

In addition, the rising temperature in top importing countries facing the upcoming summer season may also boost the demand for palm oil given the huge discount between the palm oil and soybean oil prices.

The palm oil production was also expected to be lower in May, thus it may further reduce the stock level this month. The tight near term soybean supplies was underpinned by the soybean prices which may be also support the palm oil prices.

Traders were currently monitoring closely on the weather developments in US to gauge the potential outcome of the grain production this year.

As of now, the planting progress for corn and soybean were way behind the average progress for the past five years due to wet weather.

Farmers were able to speed up some planting these few days because of warm and mostly dry weather before heavy rains which is set to occur again during the weekend.

The Malaysian government announced on Wednesday that the crude palm oil export tax for June would remain at 4.5 per cent.

Technical View  

The benchmark August contract rose this week in anticipation of improving palm oil exports demand coupled with technical buying.

The palm oil prices tested the resistance of RM2,335 twice this week and was able to close just RM1 above the level. The prices are expected to remain firm and supportive this week.

However, the prices must be able to remain above RM2,335 and preferably to break above ema50 this week in order to gain more buying momentum.

Otherwise, the prices would be stuck in the sideway trading range again.

Resistance was pegged at RM2,400 and RM2,467 while support were set at RM2,300 and RM2,217.

Major fundamental news this coming week

Malaysian export data for May 1 to 20 by ITS and SGS on May 20 and the export figure for May 1 to 25 by ITS on May 25.

Oriental Pacific Futures (OPF) is a Trading Participant and Clearing Participant of Bursa Malaysia Derivatives. You may reach us at www.opf.com.my 

Disclaimer:  This article is written for general information only. The writers, publishers and OPF will not be held liable for any damage or trading losses that result from the use of this article.

The market was pushed up by leading indicators that showed 0.6 per cent gain for the outlook in coming three to six months.

Japan showed recovery growth in the first quarter (Q1) by 3.5 per cent annualised gains and rising Nikkei stocks have been pulled up by weakening yen.

The eurozone data were pretty neutral due to a consecutive decline in gross domestic production (GDP) for sixth quarter in Q1.

However, exports rose 2.8 per cent in March with trade surplus 18.7 billion euros.

Gold prices closed lower on weekly basis at 1,355 regions.

From the chart patterns, we reckoned a consolidation would be coming soon as the trend moves inside the range of 1,320 to 1,420 regions.

However, we expect the market to whipsaw at bottom prices and might test 1,300 benchmarks before retracing up to immediate resistance at 1,380 areas.

Fundamentally, we expect the yellow metal to face selling pressure for global funds that are moving out to equity markets.

WTI crude prices rose on Friday due to gains in leading indicators despite new heights in dollar rise.

This week, we predict the trend would be capped by 98 resistances while selling interest would begin to emerge at 97.5 areas.

Keep a lookout for the weekly crude oil inventories as the contracting number had been acting as a factor to push up the prices.

Technically, we have identified the 94.2 supports to be resilient in countering the bears in case the trend declines.

Crude palm oil futures (FCPO) on Bursa Derivatives closed in mixed sentiments on Friday due to adjustment in positions among traders. The switch-over to new active month in August contract closed at 2,336.

This week, we foresee the market will hold at 2,280 as immediate support and prone to ascend.

Breaking the immediate 2,380 resistances could drive up to 2,420 regions.

Downside breaking below 2,280 will signal a further liquidation to 2,200 areas.

Disclaimer: This report is written for general information only. No liability by the writers, publisher or any third party involved in the distribution of this work. Dar Wong and Chong HC are the market strategists in APSRI on CPO markets. Wong has 22 years of trading and hedging experiences while HC traded for four years and now coaches institutional customers. They can be reached at www.traderpromaster.com.

The Thomson Reuters BPAM All Bond Index recorded another week of gains to close 0.19 per cent higher at 133.19 from 132.94 last week. This was primarily attributed to the flattening of the Malaysian Government Securities (MGS) curve which shed between three basis points (bps) and seven bps from the seven year curve point onwards whilst the curve points below the five year tenure rose between one bps and six bps.

The fall in MGS yields of the long dated papers was supported by the weaker than expected Gross Domestic Product (GDP) data released this week.

Malaysia’s GDP expanded at a modest pace of 4.1 per cent year on year in the first quarter of 2013 vis-a-vis market consensus of a 5.5 per cent growth.

The modest growth was partly attributed to the slower growth in manufacturing sector which expanded by 0.3 per cent as well as decline in mining sector, which shrank 1.9 per cent. The economy is still supported by robust domestic demand, which had expanded by 8.2 per cent in the quarter.

According to Bank Negara Malaysia (BNM), downside risks to growth remains as advanced economies are vulnerable to policy uncertainties and contagion risk.

The sovereign bonds continued to dominate the list of top 10 most actively traded bonds with the off-the-run MGS paper maturing April 2014 topping the list with RM3.3 billion worth of bonds changing hands.

The trade volume of the top 10 most actively traded bonds reduced by half from RM30.4 billion to RM15.9 billion this week.

The tender for the re-opening of the 3-year MGS maturing in July 2016 closed on 14 May 2013. The RM3.5 billion tender garnered a bid-to-cover ratio of 1.563 times, the lowest seen so far since the start of this year. The highest, average and lowest yield were 2.945 per cent, 2.926 per cent and 2.911 per cent respectively.

On May 13, 2013, RAM Ratings had reaffirmed the long-term ratings of Menara ABS Bhd’s Tranche A1, Tranche A2, Tranche A3, Tranche A4 and Tranche B Sukuk Ijarah at AAA, AA2, A1, A2 and AAA, respectively.

On May 16, 2013, the Malaysian Rating Corporation Bhd (MARC) had downgraded its ratings on Kinsteel Bhd’s  RM100 million Murabahah Commercial Papers/Medium Term Notes Programme and RM100 million Murabahah Medium Term Notes Programme from MARC-2ID/A-ID and A-ID to MARC-3ID/BBBID and BBBID respectively with negative outlook.

Disclaimer: Information on this page is intended solely for the purpose of providing general information on the Ringgit Bond market and is not intended for trading purposes. None of the information constitutes a solicitation, offer, opinion, or recommendation by Bond Pricing Agency Malaysia Sdn Bhd (“BPAM”) to buy or sell any security, or to provide legal, tax, accounting, or investment advice or services regarding the profitability or suitability of any security or investment. Investors are advised to consult their professional investment advisors before making any investment decision. Materials provided on this page are provided on an “as is” basis, and while care has been taken to ensure the accuracy and reliability of the information provided in this page, BPAM provides no warranties or representations of any kind, either express or implied, including, but not limited to, warranties of title or implied warranties of fitness for a particular purpose, accuracy, correctness, non-infringement, timeliness, completeness, or that the information is always up-to-date.

Asia ex Japan, up 0.58 per cent for the week, was boosted by strong performances in China (2.1 per cent), Hong Kong (1.6 per cent) and Malaysia (4.6 per cent) with export and GDP data boosting China and Hong Kong while the removal of political uncertainty in Malaysia following its elections saw the local stock market surge.

As a result, Malaysia Ringgit advanced strongly by 1.4 per cent and 3.7 per cent against US dollar and Aussie dollar, reduced foreign market gains despite they posted positive returns in local currency term.

The US posted gains of 0.1 per cent with initial jobless claims surprising to the upside in what was a relatively quiet week for the market in terms of economic data. Europe slid 0.8 per cent following better than expected German factory orders and as markets continued to weigh the possibility of negative deposit rates in the eurozone. Global Emerging Markets ended the week with a return of -0.3 per cent buoyed by positive investor sentiment.

Greater China: Exports data

In China, April’s exports grew by 14.7 per cent on a year-on-year basis, surging past consensus estimates for a 9.2 per cent growth rate and coming in significantly better than March’s 10 per cent reading.

Despite the positive headline number, exports to the US and Europe fell by 0.1 per cent and 6.4 per cent respectively and continued to reflect a generally weak external environment, an observation bolstered by the export figures for the other export-oriented Asian countries which were not ideal, leaving the outlook for Chinese exports uncertain.

Central banks cut rates: Australia, Korea

The central banks of both Australia and Korea moved to cut their respective policy rates by 25bps last week, leaving their benchmark rates at 2.75 per cent and 2.5 per cent respectively.

The unexpected rate cuts by both central banks to boost domestic demand come in the wake of weak exports as global demand remains fragile. Following the rate cuts, both the Aussie dollar and the Korean won ended the week in negative territory against the US dollar, with the former losing 2.83 per cent.

Europe: German industrial production

In European news, after an upward revised 0.6 per cent month-on-month gain in February, German industrial production unexpectedly rose in March with a 1.2 per cent seasonally-adjusted month-on-month expansion representing a 2.5 per cent year-on-year decline.

The latest reading highlights the persistent difficult conditions for Europe’s manufacturing powerhouse and that a swift economic recovery for the region is not on the cards.

Still, recent forward-looking economic data has painted a picture of improvement for the German economy, with April’s PMI manufacturing composite coming in better-than-expected (albeit still suggesting a contraction in the sector), while factory orders recorded a second month of positive month-on-month growth for the month of March.

NEW JETTY: Photo shows the new jetty at New Township Tanjung Manis. Regarding the halal industry, the high-level event will showcase the Tanjung Manis Halal Hub, which will be the destination of a post-event visit by delegates, who will observe infrastructure developments made in the industrial node first hand. — Bernama photo

What does it mean to be halal?

It is, admittedly, a concept that is altogether foreign to many, especially a Colombian-American from New York, like myself. But it is nonetheless a topic that now more than ever merits a pause for discussion.

Halal, it can be said, is a lifestyle that priortises cleanliness and safety, one that is not constrained by religious beliefs, as the rise the industry is experiencing in Shinto-dominated Japan clearly shows. Moreover, halal is not simply defined by food ingredients, but extends the boundary of its definition to clothing, cosmetics and more.

The global halal industry is now worth an estimated US$2.3 trillion, a figure that will be undoubtedly quoted as part of a high-level discussion on June 12, when innovative scientists and industry leaders are brought together in Kuching to discuss how consumers’ perspective of halal is developing and how the industry is keeping apace.

The Inside Investor Roundtable and Dialogue Sarawak 2013, to be held in the Pullman Hotel, will also gather a number of top official and business people from Asean and the Gulf Cooperation Council (GCC), who will participate in panel discussions on halal aquaculture and agriculture, as well as energy and infrastructure integration in the region.

Regarding the halal industry, the high-level event will showcase the Tanjung Manis Halal Hub, which will be the destination of a post-event visit by delegates, who will observe infrastructure developments made in the industrial node first hand.

This is the long-awaited kicker. While the Samalaju Industrial Park has stayed in part true to its Bahasa meaning, Tanjung Manis Halal Hub has been waiting for just such an opportunity to showcase investors its natural assets.

One such point: the 70,000 hecatres gazetted by the State of Sarawak for the development of the Tanjung Manis Halal Hub is strategically located in a deep delta suitable for sending large vessels into the South China Sea, offering the potential for a export industry to spring up with channels to some of the fasting growing consumer markets in the world.

To date, Tanjung Manis has received US$400 million of state-led investment into the development of infrastructure. Within the first phase of development, Phase 1A has thus far been the major recipient of infrastructure development, a zone that consists of over 1,000 hectres, which is where the first foreign investor, Taiwan-based Sea Party, is located.

Expanding halal’s definition

Through forward-thinking breakthroughs, the concept of halal has become increasingly malleable, extending its definition to consumer products, such as cleaning fluid, cosmetics and clothing.

At the forefront of the task to all at once broaden and focus the halal industry is Dr Winai Dahlan, director of the Halal Science Center (HSC), Chulalongkorn University, Bangkok, who will be a featured panelist at Inside Investor’s upcoming event.

“The HSC has developed Najis cleaning liquid, a cleaner used in factory machinery that adheres to the principles of halal by obeying chemical requirements,” Dr Winai told Inside Investor late last year.

“Porcine DNA Primer is another one, which is used for forensic research to identify tracts of pork in foodstuffs. We have also developed a food management system for halal for food manufacturing called Hal-Q, which sets hygiene standards, a kind of halal ISO equivalent,” he added.

Innovative developments such as these are now setting goalposts that the industry once could never imagine. For example, HSC’s Najis cleaning liquid is just the start of a consumer revolution that could spread to countless other projects like it, with halal-conscious companies gobbling up the stuff.

In turn, consumers far and wide are already catching on, attracted by the industry’s piety to environmental and physiological safety.

“The Japanese have discovered halal as a business and are very interested to build up trade relations with halal producers,” Dr Winai said.

Tanjung Manis’s design offers one such springboard to reach and grow the industry in this direction, a topic that will be on top of the agenda of discussions carried out by incoming delegates to Kuching.

Justin Calderon is a research analyst at www.investvine.com, a news portal owned by Inside Investor focusing on Southeast Asian economic topics as well as trade and investment relations between Asian and the Guld Cooperation Council. The views expressed are his own.  

Catching up on private healthcare provision

Rhenu Bhuller, Frost & Sullivan Asia Pacific vice president for healthcare

As a rapidly urbanising country, Malaysia is fast catching up in various sectors that play a crucial role in society.

One such segment is the healthcare sector, whereby its services are required at all stages of life. Birth, life, disease and even death require the aid of medical practitioners and equipment at some point in time.

In Malaysia, the sector is rapidly expanding to meet the needs of an ever-expanding society. In 2012, the Malaysian healthcare market was pegged to be worth US$2.25 billion and will grow to US$3.65 billion by 2018, representing a cumulative annual growth rate (CAGR) of 8.4 per cent within those six years.

According to Frost & Sullivan Asia Pacific vice president for healthcare, Rhenu Bhuller in an email to BizHive Weekly, Malaysia’s growth was parallel with the Asia Pacific healthcare market which was worth US$369.9 billion in 2012 and was expected to reach US$752 billion in 2018, growing at a CAGR of 12.8 per cent.

This contrasted starkly with global growth rates continuing at less than an estimated six per cent during the same period.

“Frost & Sullivan finds that healthcare expenditure in Asia Pacific will almost double in the next six years with the largest share coming from China, Japan and India,” she said.

“Healthcare expenditure continues to experience growth as rising patient demands for better healthcare will result in healthcare reforms in Asia Pacific,” said Bhuller.

“The increasing life expectancy in the region will also result in more elderly requiring long-term care.

“The Economic Transformation Programme is expected to generate 181,000 healthcare jobs in Malaysia by 2020 through EPP projects in the pharmaceutical, biotech and medical devices industry.”

The Malaysian healthcare industry has progressed tremendously over the past decade with strong economic growth aiding the construction of a comprehensive network of hospitals and clinics nationwide.

The government will also be intensifying public sector expenditure in the healthcare industry to further develop its infrastructure. This move incorporates initiatives to enhance collaboration between public and private healthcare providers.

Incentives include tax exemptions equivalent to 100 per cent of qualifying capital expenditure incurred for a period of five years for the construction of new hospitals or for expansion, modernisation or refurbishment of existing hospitals from 2010 to 2014.

Private medical centres in Malaysia are approved and licenced by the Ministry of Health. Most private medical centres have achieved certification for internationally recognised quality standards such as MS ISO 9002 or accreditation by the Malaysian Society for Quality of Health (MSQH).

“The private hospital market size is forecast to grow to close to US$5 million in 2016 at a CAGR of 18 per cent during the period 2011 to 2016 due to the fact that new hospitals are expected to be completed within five years and investments that are being made in new areas like Iskandar Malaysia,” highlighted Bhuller.

To note, in 2012, there were 225 private hospitals in Malaysia and the number is expected to increase to 239 by 2018.

Changing consumer profiles, awareness

Asia Pacific will consist of over 2.3 billion people above 65 years of age and the average percentage of people above 65 will rise from 9.8 per cent in 2013 to 11 per cent in 2018 across the region. 68.5 per cent of people will be in the working age of 15 to 64 years.

The urbanisation rate is expected to increase at a CAGR of 1.2 per cent between 2013 and 2018 in Asia Pacific. About 2.6 million people are expected to move from rural to urban areas in Malaysia between the same period.

“Increasing urbanisation is accompanied with growing consumer awareness and an expanding middle class, progressively skewing population density. This all translates to an increased demand for improved healthcare services,” said Bhuller.

The increase of ageing population and middle class population contributes strong continual revenue growth of private hospitals due increased awareness on healthier lifestyles (such as leads to growth in health check ups).

This segment of the population may be turning too private healthcare due to the high load in public hospitals.

The growing middle class is also more aware of the value and need for private insurance (whereas before the focus was only on life insurance), and this allows for more access in private hospitals.

On top of that, there is an increasing diagnosis of complex illnesses among the Malaysian population (due to more screening and health check ups) which leads to growth in treatments and procedures.

In 2011, there were 221 private hospitals in Malaysia attributed to 13,568 beds in total. Most of the hospitals are part of a wider network of hospitals operated by several key service
providers.

Other than private hospitals, there is an increase trend on the establishment of other private health care service facilities which further enhance the private healthcare sector namely maternity homes, nursing homes, ambulatory care centres, blood banks, haemodialysis
centres, and combinatorial facilities.

Bhuller further believed that there was an access gap between the East Malaysia and West Malaysia, adding how important for the government to look at the differences and possibly work with the private sector in public-private partnerships to develop the infrastructure.

“It is not only hospital infrastructure that would need to be developed, but also the ability to access that infrastructure (namely road/rail networks) so that patients can get to healthcare facilities.”

Growth opportunities in Top 5 sectors

Specialty Hospitals

Bhuller noted that due to increasing lifestyle diseases, such as diabetes and chronic heart disease, Asia would be a big market place for specialty hospitals.

“With the ageing population, there will be specific diseases and areas we will need to tackle like geriatric diseases, cardiac areas, oncology.

“Hospitals that have specialisation in this area would be attractive as they will provide expertise in diseases that will be of high load.”

Medical Tourism

Driven by rising affluence and increasing demand of quality healthcare, medical tourism will be one of the top growth sectors in Asia Pacific in the short to medium term, highlighted Frost & Sullivan’s Bhuller.

“Internationally, the medical travel market growth in Malaysia is on an upward trend where in 2011, Malaysia generated RM509.8 million (US$167 million) in revenues for medical travel and is expected triple the amount to RM 1.57 billion in 2016, registering a CAGR of 25.2 per cent during the period,” she stated.

“The upcoming and potential medical travel hub in Malaysia include the Medini Health Hub in the Iskandar Development Region will attract more Singaporeans and expatriates where more hospitals are setting off to acknowledge Singapore national insurance fund (Medisave) for high quality yet cost effective healthcare services.

“The flows of medical tourists are expected to inflate when the planned high-speed rail link between Johor and Singapore completed by 2020.”

Private Medical Insurance

Increasing cost of healthcare coupled with existing low penetration rates of public insurance will create a big market for private insurance companies.

Currently in Malaysia, there are a variety of insurance players with tie-ups with major private healthcare providers to capitalise on this, offering different types of packages to suit the many needs of domestic patients.

Some even have plans to aid foreign medical travellers seeking treatment in Malaysia.

Healthcare IT

“In order to remain competitive by increasing operational efficiency, clinical outcomes and financial profitability, private and public hospitals will invest extensively in installing, maintaining and upgrading Healthcare information technology (IT),” Bhuller
noted.

“Currently the hospital sector is moving towards high technology implementation – private hospital networks have electronic medical record systems that can link patients in their branches.

“The growth for this will be more in the mid to longer term post 2015 as this is a high investment area, but will ultimately enable providers to increase efficiency.”

Day Care Surgery / Healthcare Centre

Day Care Centre is a medical service entity which performs medical and surgical procedures on patients within a day. Day Care Centre is a lucrative business option which requires lesser investment and offers better profitability.

“As healthcare costs rises and technologies advance, people are also time poor, the industry is moving towards minimally invasice procedures that don’t require hospital stays. This also leads to less requirements for infrastructure like hospital beds and fast recovery periods,” Bhuller underscored.

Tapping into the medical tourism segment

SEAMLESS EXPERIENCE: Photos show the recently launched Tourism Concierge and Lounge at the Kuala Lumpur International Hall. This venture is hoped to enable seamless healthcare travel experience for both medical tourists and patients alike.

Another major segment in the domestic healthcare industry rapidly gaining traction is medical tourism.

“Medical travellers” are a growing, lucrative segment to tap into.

As private health care costs escalate in countries overseas amid long waits for treatment at public hospitals, more people are pursuing cross-border options for a range of procedures.

Most are drawn to nearby countries that can offer equivalent treatment at a fraction of the cost.

Under the tutelage of the Malaysian Healthcare Travel Council (MHTC), Malaysia has made much progress in this segment bearing in mind how relatively new it is here (about five years) compared with peers such as Thailand who has been promoting medical tourism for some 30 years.

“Malaysia received 392,000 healthcare travellers in 2010 and the number grew to 671,000 in 2012, a remarkable accumulated growth rate of 63 per cent in the last three years,” revealed Dr Mary Wong Lai Lin, MHTC chief executive officer.

“There is growing demand in healthcare tourism in this region due to its value-for-money, high quality care and competitive pricing. In terms of total revenue generated, it grew from RM379 million in 2010 to RM594 million in 2012, with an accumulated growth rate of 51 per cent for the same period.”

Graph shows the number of healthcare travellers from 2007 to 2012 (SOURCE: MHTC)

Wong further highlighted the top ten countries from which most of the medical travellers come from were Indonesia, India, Japan, China, Bangladesh, United Kingdom, Nepal, Australia, US and the Middle East.

Moreover, she noted that “Hospitals involved in medical tourism can get 100 per cent tax allowance for capital expenditure on medical equipment. So the cost of advanced equipment won’t be transferred to customers.

“Seventy-two out of 253 private hospitals in Malaysia are open to medical travellers. Popular travel packages include exams such as colonoscopy and coronary angiogram.”

The MHTC has ensured that we were not left far behind in this context, exemplified by unique efforts such as the recently-launched Tourism Concierge and Lounge at the Kuala Lumpur International Arrival Hall on April 29 this year.

The first of its kind MHTC Concierge and Lounge 2013 is set-up at the Kuala Lumpur International Arrival Hall for a “seamless healthcare travel experience for both the medical tourists and patients alike.”

This one-stop-centre will add a further boost to the developing medical tourism industry in this region; providing medical tourist a seamless healthcare travel experience.

OFFICIALLY OPENED: Chief Secretary to the Government Datuk Seri Dr Ali Hamsa signs a plaque to officiate the opening of the MHTC Tourism Concierge and Lounge here on April 29. Also present were Malaysia Airport Holdings Bhd senior general manager of Operation Services Datuk Azmi Murad (left) and Wong (right). — Bernama photo

“Supported by Malaysia’s Ministry of Health, the MHTC Concierge and Lounge is certainly a milestone achievement for us as it is the first point of contact for medical tourists upon their arrival to our country,” Wong highlighted.

“Thus, giving much assurance to the medical travellers’ and providing easy access to all their medical tourism enquiries for a comfortable and fruitful stay in Malaysia.”

The MHTC Concierge and Lounge began operation on April 1, 2013 and the main purpose is to disseminate and facilitate healthcare services information as well as questions pertaining to transportation, accommodation and travel within Malaysia.

A team of dedicated medical personnel will assist and facilitate all medical travel inquiries from providing information pertaining to treatment centres to certified doctors, treatment available and even up to assisting with the appointment requests with participating hospitals.

In 2009, under the patronage of MHTC, there were only 35 hospitals that were registered to promote medical tourism. This figure has grown to 72 today which mean more healthcare facilities in Malaysia are becoming ready to cater to international patients, according to statistics provided by the MHTC.

BP Healthcare striving for market dominance

Chevy Beh, BP Healthcare Group executive director

With humble beginnings as a clinical laboratory in Ipoh in 1982, BP Healthcare Group of Companies (BP Healthcare) has grown into a fully-fledged heavyweight as Southeast Asia’s largest medical diagnostic chain with more than 100 outlets so far spanning every state in Malaysia.

BP Healthcare Group executive director Chevy Beh in a telephone interview with BizHive Weekly gave an in-depth update on the group’s various strategies to aggressively grow itself on the back of an ever-expanding healthcare market.

“Malaysia’s healthcare in general is on the rise with more spending seen in both private and public healthcare facilities,” he said to BizHive Weekly. “In the past five years, the industry has seen a cumulative annual growth rate (CAGR) of 10.5 per cent.

“BP Healthcare is catering to this growth by expanding not only its current services but also into other new sectors as well.”

The group started the year strong with a takeover of the Sime Darby Specialist Centre Megah daycare facility in Petaling Jaya as its first ever maiden acquisition.

Beh noted this was in line with BP Healthcare’s plans to own a chain of hospitals.

Currently, the group has over 20 companies in its forte, involving several key sub-sectors such as dental, clinical services, pharmacy business, laboratory services, medical and specialist divisions, IT solutions, medical equipment and so forth.

“This year, we have plans to significantly add over 30 new outlets each under diagnostic centres, Lovy Pharmacy, hearing centres and food testing facilities,” Beh outlined.

“We also have plans to increase the number of existing five specialist centres, another three specialist dental clinics and a second Garvy’s health and wellness restaurant.”

The group has also expanded into several segments such as diagnostic and imaging, pharmacy, hearing solutions, specialist centres and dental solutions. These subsectors within the healthcare industry have seen exponential growth within the healthcare industry itself with high demand seen to date.

Perhaps this also served to be the main advantage of BP Healthcare, allowing for affordable and competitive pricing also made able by its sourcing and range of patient services.

“We are looking to extend our growth in Sabah and Sarawak. We are looking at more outlets in Kota Kinabalu and Kuching,” Beh noted, adding that he was looking to provide third tier medical facilities there.

BP Healthcare’s efforts has been far reaching. For example, its BP Diagnostic Centre has even been appointed by the Ministry of Health to promote medical tourism.

“BP Healthcare has actually been appointed by the government to help growth this industry, with various incentives such as tax breaks and such to help patients,” Beh said. “This all boils down to BP Healthcare’s pricing which is comparatively lower than other local private healthcare players.

“For example, to go for health screening here (at BP Healthcare) is easily 40 to 50 per cent lower than other domestic hospitals. This, including the fact that Malaysia is cheaper than other developing countries by about 30 to 40 per cent, would give tourists a cost savings of up to 70 to 80 per cent,” he gave as an example.

“Some might have red flags raised when they see our competitively low prices – thinking it might mean a lack in quality. But this is not the case. We are always striving to reduce the cost for patients.”

Such notions are also dispelled by BP Healthcare’s various accolades, such as the Joint Commission International accreditation for its laboratories, the Frost & Sullivan Malaysia Health Screening Company of the Year 2013, the Europe Business Assembly 2012, the 7th Asia Pacific Super Excellent Brand 2011, the Brand Laureate Best Brand in Wellness-Primary Healthcare and Screening category and many more.

Speaking on increasing competition, Beh was confident that his group’s unique aforesaid qualities were its key advantages which made itself outstanding not only in one specific niche but in all sectors that it was expanding into.

“We are unique in that we started off as labs and then grew into other healthcare subsegments like clinics, pharmacies and so on. So, our advantage will be that we strive to cover all healthcare segments and become and integrated yet coordinated healthcare service provider in Malaysia,” he explained.

“Looking ahead, we predict to see significant good growth as the government hopes to decentralise certain services.”

To note, currently the market share for healthcare services is about 80 per cent undertaken by public hospitals with the remaining 20 per cent done by private practitioners, revealed Beh.

“If there will be a government shift, say from 80 per cent to 75 per cent, then the five per cent entering to private healthcare is a significant number,” he said, adding that other factors also came to play such as an ageing society, increase in population growth and diseases.

On its ambition to expand overseas, Beh noted  its plans to ‘conquer’ all countries within the Southeast Asian region.

The group has already entered into joint ventures with the Ciputra Group in Indonesia and with Red Bull International in Thailand to open up branches in those two countries. The group has plans to open up to 100 outlets in Indonesia and 50 in Thailand within the next two or three years.

“We are looking at the other Asean countries, such as Singapore, Myanmar, all of them,” he said. “We are still in the planning stages.”

The BP Healthcare executive director affirmed that the group will strive to continue affirming its brand with better quality and deliverance, at the same time maintaining low costs.

“It is a value game, and everything has a market price,” he underscored.

“For example, there was already a dental market before we entered the industry. There was already a hearing solutions market. But when BP came in, we were able to provide quality services and still undercut other players in terms of pricing.”

In a way, Beh said BP healthcare was fulfilling its social obligations without compromising quality.

“We hope that anything healthcare in the future, people will first think of BP Healthcare.”

CONTINUING ECONOMIC REFORMS: Datuk Seri Najib Tun Razak sworn in as the Prime Minister in front of the Yang di-Pertuan Agong Tuanku Abdul Halim Mu’adzam Shah at the Istana Negara on May 6. During the 13th General Elections, Barisan Nasional remained as the winning coalition with 133 seats out of 222 Parliament seats to form a new federal government. The ringgit rallied the most since 2010 and stocks rose to a record after Najib won a clear majority in the election, giving him a mandate to continue his economic reforms. — Bernama photo

KEY THEMES: Mayor of London Boris Johnson speaks at the Global Investment Conference 2013 in London on May 9. Organised by the UK Trade and Investment, the key themes at the conference include international economic growth and global business investment in the year ahead. — Reuters photo

NEW FINANCIAL ZONE: Buildings are seen at Sowwah Square on Marayah Island in Abu Dhabi’s new central business district. Last week Abu Dhabi outlined plans for a full-service financial zone on the island near Abu Dhabi’s downtown area; the zone will have its own administration, court system and tax incentives to lure banks and other firms from around the world. — Reuters photo

FACTORY LAUNCHING: Toyo Tire & Rubber Co Ltd (Toyo Tyre) chairman Kenji Nakakura (third right) along with (from left) Toyo Tyre Group chief executive pffocer Takakuji Yamamoto, Ministy of International Trade and Industry Secretary-General Datuk Dr Rebecca Fatima Sta Maria, Japanese Ambassador to Malaysia Shigeru Nakamura and Toyo Tyre Malaysia Kanji Kasai officiating the new Toyo Tyre Malaysia factory located at Kamunting Raya Indostrial Zone on May 8. These facilities are equipped with the latest technology worth RM800 million. This factory will begin with 2.5 million tyre production that will be doubled to five million by 2015. — Bernama photo

RESOLVING ISSUES: (From left) Irish minister for Foreign Affairs and Trade Eamon Gilmore, European Commission President Jose Manuel Barroso, European Parliament President Martin Schulz, Irish Prime Minister Enda Kenny and MEP Alain Lamassoure pose prior to their working session on a crisis meeting between the presidents of the three European Union (EU) institutions (Council, Commission and Parliament) in an attempt to unblock the negotiations on the budget from 2014 to 2020, at the EU Headquarters on May 6 in Brussels. — AFP photo

PROPERTY SHOW: Visitors discuss property deals near a model of a project during the Gulf Property Show at the Bahrain International Exhibition Centre in Manama on May 8. — Reuters photo

With interest rates in developed countries at record lows, many investors are looking for better returns in emerging markets, including Malaysia, where sound macroeconomic fundamentals and attractive yields are driving demand for sovereign debt.

The May 5 re-election of the business-friendly Barisan Nasional (BN) party is likely to raise further the profile of Southeast Asia’s largest bond market.

Even prior to the election, activity on Malaysian government debt markets had jumped, with average daily trade volumes for sovereign bonds surging during the first two weeks of April to reach three times the figure recorded for the same period in March, international press reported.

While this news came with the caveat that the increase in trading was in a market that is not always particularly dynamic, there is no doubt international investors have an eye on Malaysia.

One recent auction of 20-year government notes was three times oversubscribed, and as of mid-February, foreigners held almost half the outstanding sovereign debt, worth about RM130.6 billion (US$42.5 billion).

The BN’s re-election has returned a government familiar to investors, and one that is committed to a programme of infrastructure investment and pro-business reform in a push to achieve ‘developed-nation’ status by 2020.

In the wake of the election, the yield on the 10-year Malaysian government bonds fell to 3.348 per cent, while the FTSE Bursa Malaysia Kuala Lumpur Composite Index reached a record high of 1,826.22.

The local currency also strengthened, with the ringgit closing on May 6 at RM2.976 per dollar.

Although the immediate reaction was overwhelmingly positive, the government will likely still have to address some long-standing concerns regarding the fiscal balance.

Critics point to an inefficient and expensive system of subsidies, as well as high debt levels. The government is aiming to narrow its deficit to four per cent of gross dosmestic product (GDP) this year while keeping debt below the official ceiling of 55 per cent of GDP.

In mid-2012 ratings agencies Fitch and Standard & Poor’s both issued warnings about possible downgrades over fiscal policy.

Following the BN victory, Andrew Colquhoun, head of Asia-Pacific sovereigns at Fitch, said, “Fitch looks forward to greater clarity on the government’s fiscal and economic policy program following Sunday’s elections.”

However, the IMF seems relatively sanguine about Malaysia’s fiscal position, which may have alleviated some investor concerns in the months prior to the election.

In its most recent Article IV staff report, which was released in February, the IMF provided a broadly positive assessment.

“Malaysia’s economy enjoyed robust, domestic-led growth in 2012, and is expected to grow by about five per cent this year, accompanied by low unemployment and subdued inflation…skillful macroeconomic management has underpinned strong, non-inflationary growth despite the unsettled global conditions.”

The rebalancing of the economy towards domestic demand has helped shield it from international headwinds, as has the growth of its Asian neighbours, increasingly important trade partners.

The fund praised Malaysia’s monetary policy, which has been supportive of growth but has helped to keep inflation in check.

It welcomed the government’s commitment to medium-term fiscal consolidation but noted that structural reforms were necessary to improve the efficacy and equity of fiscal policy.

These could include a broadening of the tax base away from the energy sector, replacing universal fuel subsidies with targeted social transfers, and a strengthening of public financial management.

While these are longer-term solutions, in the short run, the government will continue to issue notes to fund its deficit and refinance some maturing debt.

According to a February 2013 report from the Malaysian Rating Corporation (MRC), the government was expected to issue around RM90 billion to RM95 billion (US$29.3 billion to US$30.9 billion) in bonds this year.

The domestic ratings agency also noted that activity in Malaysia’s corporate bond market was likely to be more subdued this year, following a record RM124.6 billion (US$40.5 billion) in fixed-income securities floated in 2012.

Gross issuance is expected to reach around RM70 billion to RM90 billion (US$22.8 billion to US$29.3 billion), mainly from projects associated with the Economic Transformation Programme.

Because a large portion of this debt would be government-guaranteed notes, the yields were expected to be in the range of 3.8 per cent to 4.3 per cent, the MRC said.

If post-election enthusiasm remains high, yieldson Malaysia’s bonds – both government and corporate – could be even lower, suggesting that now is a good time for businesses to look to bonds to fund investment in the future.

Affin Investment Bank vice president/head of Retail Research Dr Nazri Khan said with the political overhang out of the way, the local market should gradually move higher on global liquidity, play catch-up and narrow the gap with regional peers given its recent underperformance.

“The local benchmark FBMKLCI is expected to hit the 1800 level (led by properties and construction sectors) as the focus shifts to the continuity of pro-economic growth policies following the win of the incumbent government on May 5,” he told Bernama.

Nazri said the local market should also get support from the central bank’s decision to stand still at its latest monetary policy meeting, leaving the overnight policy rate (OPR) unchanged at three per cent.

“Amidst the still benign inflation, the pause in the policy rates should be supportive of higher equity prices,” he said.

On the technical front, he is pegging immediate resistance at between 1,800 points and an all-time high of 1,826.22, while support is estimated at between the 1,740 and 1,720 levels.

Meanwhile, during the week just ended, blue chips extended profit-taking correction while trading momentum shifted to lower liners and small-cap stocks on rotational play such as Cliq Energy, LBS, Karambunai, Olympia and Johan Holdings, he said.

Nazri added the market breadth continued to be positive as average daily gainers led losers five to two on robust trade averaging 2.1 billion shares worth RM2.4 billion per day.

On a Friday-to-Friday basis, the benchmark FBM KLCI ended 77.61 points firmer to 1,772.38.

The Finance Index increased sharply by 854.89 points to 16,706.38, the Plantation Index jumped 361.89 points to 8,325.50 and the Industrial Index rose 119.08 points to 2,955.10.

The FBM Emas Index surged 655.74 points to 12,212.71, the FBMT100 soared 614.34 points to 12,020.26, the FBM Ace Index chalked up 450.15 points to 4,352.27 and the FBM Mid 70 shot up 1,064.58 points to 13,825.96.

Weekly turnover rocketed to 11.54 billion shares worth RM17.29 billion from last week’s 3.23 billion shares worth RM7.97 billion.

Main market volume more than tripled to 10.43 billion shares valued at RM17.08 billion from 2.78 billion shares valued at RM7.87 billion last week.

The ACE market volume rose sharply to 767.35 million shares worth RM123.16 million from 106.21 million shares worth RM10.30 million previously.

Warrants decreased to 328.44 million units valued at RM39.47 million from the previous week’s 337.338 million units valued at RM66.747 million. — Bernama

TRADING PARTNERS: Maybank Research notes that China is the largest trading partner for the month (accounting for 13.2 per cent of exports) as exports bound there gained by 3.3 per cent y-o-y following the 15.8 per cent y-o-y decline in the preceding month. – Reuters

KUCHING: The country’s exports continue to remain depressed for a second consecutive month with weak earnings seen in agriculture goods such as palm oil and rubber as well as weak external demand from electrical and electronic (E&E) goods.

According to MIDF Amanah Investment Bank Bhd (MIDF Research) chief economist Anthony Dass, this soft trend was expected to continue in coming months.

“Meanwhile, we expect imports of intermediate and capital goods that exclude lumpy imports to grow on a healthy trajectory in the coming months. While this will weigh on trade surplus in the near term, we believe it will yield positive impact on domestic demand and/or exports.

“Our concern on strong imports will arise only when we find lumpy imports continuously flares up the import of capital bills.”

Dass noted that exports continued to remain weak as it fell for the second consecutive month. In March, exports fell by 2.9 per cent year on year (y-o-y) from a larger contraction of 7.7 per cent y-o-y, wiping out the entire gains registered in January, up 3.5 per cent y-o-y.

Hence, exports growth on a quarterly growth basis continued to shrink for the third quarter. In 1Q2013, exports fell by 2.4 per cent y-o-y from a decline of 2.3 per cent y-o-y in 4Q2012.

“However, when we looked at exports data based on month on month (m-o-m), it turned around for the first time since November 2012. In March, exports surged by 14.4 per cent  after shrinking by 8.0 per cent  in February, wiping out the entire declines in the previous two months of 2013.”

This, however, did not mean that exports have rebounded, Dass forewarned.

“Despite the turnaround in exports based m-o-m, we are not concluding that our exports have rebounded. In our view, one of the main contributory factors for the improved exports growth based on m-o-m is the low base effect, apart from slight pick-up in external demand.

“Supporting our view is the seasonally adjusted exports data which contracted for the first time in March by 7.4 per cent m-o-m, erasing about 84 per cent of the gains registered in the previous two months.”

Graph shows Malaysia’s trade balance, exports and imports on a quarterly basis (SOURCE: MIDF Research)

Sector by sector

Dass noted that export revenue from agriculture and manufacturing – which usually accounted for 76.8 per cent of total revenue – remained weak for the period with total export earnings from agriculture and manufacturing falling by 16.3 per cent y-o-y and 3.5 per cent y-o-y respectively, more than erasing the gains from mining by 6.4 per cent y-o-y.

“The drag from agriculture goods was primarily from palm oil (drop of 18.6 per cent y-o-y) and crude rubber (drop of 12.6 per cent y-o-y), hurt from the weak prices. Meanwhile, manufactured goods were affected mainly by E&E (3.4 per cent dip y-o-y) and chemicals or chemical products (3.7 per cent dip y-o-y).

“We expect weak commodity prices and soft demand for E&E to continue into the first half of 2013,” he predicted. “Meanwhile, the 16.8 per cent y-o-y gains in refined petroleum products and 11.8 per cent y-o-y gain in crude petroleum more than offset the 3.5 per cent y-o-y drop in liquefied natural gas (LNG).”

Reduction in trade surplus

One point to note was overall trade surplus in March easing to RM5.1 billion from RM8.2 billion in February, Dass highlighted.

“When we looked at the quarterly cumulative trade surplus trend, we found the 1Q13 cumulative trade surplus dipped below the RM17 billion mark for the first time since 3Q02.

“In 1Q13, the cumulative trade surplus was RM16.6 billion. With exports being weak and imports continuing to outpace exports, we can expect the trade surplus to remain thin in the coming months, and possibly dip below RM10 billion with respect to quarterly cumulative terms.”

In MIDF Research’s view, the overall trade trend could be read in two different perspectives.

“One possibly way of looking at the trade surplus is coining it to the current account of the balance of payments, reserves and the exchange rate.

“Improving trade surplus is viewed positive and declining trade surplus as negative. But more importantly, one must look at the compositions of exports and imports.

“While exports are linked to earnings, imports are coined to expenditure. In the case of imports, one will have to look at the import composition. Should imports of intermediate and capital goods that excludes lumpy imports are on the healthy trend, it will translate into potential economic growth that will benefit domestic demand and/or exports.”

In the case of Malaysia, Dass believed the increase in imports of intermediate and capital goods that excludes lumpy imports were on the healthy trend, suggesting that the domestic economic growth was being driven by domestic activities and compensating for the shortfall in exports.

Country by country

Meanwhile, on a country by country basis, researchers at Maybank Investment Bank Bhd (Maybank Research) noted that shipment to Asean and China were positive but was offset by the declines to other major trading partners.

“Exports to Asean countries gained by three per cent y-o-y, led by double digit growth to Indonesia.

“Positive shipments to neighbouring countries within the region included Thailand (2.9 per cent y-o-y), Singapore (1.1 per cent y-o-y) and Vietnam (1.6 per cent y-o-y) but on the downside was shipments bound for the Philippines (8.1 per cent decline y-o-y) which slid for a third month.”

Meanwhile, Maybank Research noted that China was the largest trading partner for the month (accounting for 13.2 per cent of exports) as exports bound there gained by 3.3 per cent y-o-y following the 15.8 per cent y-o-y decline in the preceding month.

“This was on the back of higher shipments of soft commodities including palm oil, LNG and crude petroleum as well as iron and steel products used in the O&G industries.”

The firm went on to note the biggest drag on overall exports growth coming from the US (5.9 per cent dip y-o-y) followed by the European Union (5.5 per cent drop y-o-y), Hong Kong (a dip of 8.8 per cent y-o-y) and Japan (a drop of 3.2 per cent y-o-y).

Future forecast

Looking ahead, Maybank Research tweaked its full-year 2013 external trade forecasts slightly to take into account the International Monetary Fund’s (IMF) revised global gross domestic product (GDP) and world trade growth in its World Economic Outlook released late last month.

“The IMF lowered its global GDP growth for 2013 to 3.3 per cent from 3.5 per cent previously, while growth in world trade volume was trimmed to 3.6 per cent from 3.8 per cent previously.

“At the same time, our plantation analyst last week lowered the forecast for CPO average price to RM2,400 per tonne from RM3,000 per tonne. Consequently, we are looking at Malaysia’s export growth of 3.9 per cent (4.5 per cent previously),” it
concluded.

The US dollar/Japanese yen rate also crossed above 100 benchmarks in a four year record and weakening yen helped in lifting stocks in Asia hours. We foresee regional stock markets will continue in bullish trends in coming week.

Gold prices have faced selling pressure amid flight to quality and also rising dollar. This week, we foresee the resistance will act strong at 1,450 to 1,455 regions while bears will emerge to liquidate losses from previous tops.

As the stock markets climb higher, the yellow metal will descend further to our target prices identified at T1 – 1,410 and T2 – 1,380. Abandon your short-view if the market penetrates above 1,460 levels.

WTI Crude prices have behaved in resilient patterns at 96 areas. Despite higher dollar, this market has been staying strong due to tremendous cut in inventory holdings. The Energy Information Agency (EIA) reports the crude inventory for week ended May 4 contracted to 200,000 barrels and much below the expectation of 2.1 Million barrels. This week, we reckon the market will trend form 93 to 98 ranges with some bullish signs expected to be seen in early week.

Crude Palm Oil Futures (FCPO) on Bursa Derivatives closed higher on last Friday due to short coverings in market. The July contract closed at 2,320 with approximately 32,000 contracts traded.

This week, we expect the market will continue to surge up. Breaking above 2,340 immediate resistances may aim at 2,400 regions while downside support lies at 2,230 to 2,250 levels.

Disclaimer: This report is written for general information only. No liability by the writers, publisher or any third party involved in the distribution of this work. Dar Wong and Chong HC are the market strategists in APSRI on CPO markets.

Wong has 22 years of trading and hedging experiences while HC traded for four years and now coaches institutional customers. They can be reached at www.traderpromaster.com.

Technical Analysis for FCPO, FCPO Daily Chart Source: BursaStation Professional

Crude palm oil futures (FCPO) on Bursa Malaysia Derivatives rebounded this week due to lower palm oil stocks which spurred technical buying and short covering in the market.

The benchmark FCPO July contract rose RM67 or 2.98 per cent to settle at RM2,319 per tonne on Friday from RM2,252 per tonne last Friday. The trading range for the week was from RM2,230 to RM2,334.

Total volume traded for the week amounted to 120,577 contracts, up 4,394 contracts from the previous week. The open interest as at Thursday increased to 167,552 contracts from 164,551 contracts the previous Thursday.

MPOB released bullish monthly reports on Malaysian palm oil’s supply and demand for April 2013 on Friday with palm oil stocks continuing to fall sharply to 1.927 million tonnes, a decrease of 11.35 per cent from the previous month. This was the lowest palm oil stocks level in nine months and was far below the average estimation of Reuter’s poll at 2.04 million tonnes.

According to the report, the exports in April fell 5.62 per cent to 1.449 million tonnes while the palm oil production rose 3.12 per cent to 1.366 million tonnes. Again, both exports and production figure were bullish as the exports fell lesser than the Reuter’s poll at 1.4 million tonnes while the production increased lesser than the expectation of 1.388 million tonnes.

However, the gains were limited with the poor performance of the first 10 days exports demand in May.

The cargo surveyor ITS released the palm oil export figures for the period of May 1 to May 10 on Friday at 380,047 tonnes, a sharp fall of 16.74 per cent while another surveyor SGS at 377,193 tonnes, a plunge of 18.41 per cent from the same period last month.

During the beginning of the week, palm oil prices were under selling pressure as the ringgit was strengthening to below RM3 level against dollar after the previous ruling party won the general election on Sunday.

Meanwhile, USDA released its bearish monthly report on soybean supply and demand on Friday with US soybean production for 2013/14 was estimated at record high of 3.390 billion bushels, up from 3.015 billion in the previous report.

USDA pegged the soybean ending stocks for 2013/14 at 265 million bushels, more than double from the ending stocks for 2012/13 at 125 million bushels.

The bearish USDA reports were pressuring the forward months’ soybean prices while the tight soybean supply in near term would remain supportive to the near month’s prices.

Technical view

The benchmark July contract rose this week boosted by falling palm oil stocks and technical buying.

Palm oil prices had successfully broken above the downtrend channel, signalling more room for the prices to move upward.

The prices tested the resistance level of RM2,335 again on Friday but failed to cross above the line.  Since most of the technical indicators turned to positive signals currently, the chances to break above RM2,335 level is very high in the coming session and the prices are expected to rebound further to RM2,400 level.

The benchmark month will switch from July to August month on Thursday.

Resistance is pegged at RM2,335 and RM2,467 while support is set at RM2,260 and RM2,217.

Major fundamental news this coming week

Malaysian export data for May 1to May 15 by ITS and SGS on May 15.

Oriental Pacific Futures (OPF) is a Trading Participant and Clearing Participant of Bursa Malaysia Derivatives. You may reach us at www.opf.com.my 

Disclaimer:  This article is written for general information only. The writers, publishers and OPF will not be held liable for any damage or trading losses that result from the use of this article.

The ringgit bond market rallied this week as the Thomson Reuters Bonds Pricing Agency Malaysia (BPAM) All Bond Index rose by 0.57 per cent to 132.94 this week from132.18 recorded last week.

The bullish momentum in the bond market was backed by healthy gains in the Malaysian Government Securities (MGS) segment. MGS yields shed between 13 basis points (bps) to 26 bps from the five-year curve point onwards. Confidence of foreign investors escalated this week as Barisan Nasional secured victory in Malaysia’s 13th General Election (GE13) held last weekend.

The Malaysian ringgit strengthened significantly to below three against the US Dollar post-GE13.

On a separate note, Bank Negara Malaysia (BNM) decided to maintain the benchmark Overnight Policy Rate at three per cent on Thursday and reiterated its view that the current rate was appropriate citing that the economy was still supported by robust investment activity as well as private consumption. In its statement,

BNM had stated that the external sector remained weak, while inflation was low but was expected to rise during the year.

The trade volume of the top 10 most actively traded bonds escalated by more than three times from RM9.6 billion to RM30.4 billion this week.

The seven-year MGS maturing in March 2020 topped the list with RM8.6 billion changed hands. The rest were made up of other sovereign issues.

On May 6, 2013, Al-Aqar Capital Bhd issued one AAA-rated and one AA2-rated seven-noncall-five year sukuk with profit rates of 4.19 and 4.53 per cent respectively. The issues are rated by RAM Ratings.

On May 9, 2013, UMW Holdings Bhd issued one 1.3-year sukuk with a profit rate of 4.55 per cent to replace an existing issue with the same tenure and profit rate via a ‘Sukuk Swap Exercise’. Similar to the existing issue which was rated AAA by MARC, the new sukuk was also rated AAA by RAM Ratings.

On May 10, 2013, Perbadanan Tabung Pendidikan Tinggi Nasional issued two tranches of sukuk with tenures of 10 and 15 years each.

The profit rates were 3.8 and 4.19 per cent respectively.

On May 10, 2013, BNM announced the auction details for the reopening of the three-year MGS maturing in July 2016. The reopening amount was RM3.5 billion.

The tender closing date falls on May 14, 2013 and the reopening date is slated for May 15, 2013.

Disclaimer: Information on this page is intended solely for the purpose of providing general information on the Ringgit Bond market and is not intended for trading purposes. None of the information constitutes a solicitation, offer, opinion, or recommendation by Bond Pricing Agency Malaysia Sdn Bhd (“BPAM”) to buy or sell any security, or to provide legal, tax, accounting, or investment advice or services regarding the profitability or suitability of any security or investment. Investors are advised to consult their professional investment advisors before making any investment decision. Materials provided on this page are provided on an “as is” basis, and while care has been taken to ensure the accuracy and reliability of the information provided in this page, BPAM provides no warranties or representations of any kind, either express or implied, including, but not limited to, warranties of title or implied warranties of fitness for a particular purpose, accuracy, correctness, non-infringement, timeliness, completeness, or that the information is always up-to-date.

The S&P 500 Index also broke above the major psychological resistance at 1,600 levels and sat on 1,630 new highs.

Similarly, Nasdaq Composite Index breached above crucial 3,300 resistances and escalated to above 3,400 areas.

The bull trend started in April when US President Obama called for budget spending cut of US$1 trillion. Subsequently, Fed policymakers stressed in FOMC statement on second week of May that they would monitor the market recovery and continue broadening money supply to ensure jobs growth.

In addition, the good gain of 165,000 new payrolls for April put the optimism in equity markets inversely to receding USDX value. Moreover, European Central Bank also cut 25 basis points in refinance rate in early May.

President Maro Draghi reiterated that after one week, European leaders were prepared to continue further cuts and would even stay open to negative deposit rates if such a situation arose. On China side, the government called for slowdown in April for Manufacturing and Services index.

On May 8, the magnificent gains in trade balance marked at US$18.2 billion and above expected US$15.5 billion.

The subsequent rise in consumer prices at 2.4 per cent gains was also above forecast. In our opinion, the forthcoming Purchasing Manager Index to be released on forth week of May would definitely play important part to decide the Asia stock market trends.

From all the above cases, it was not surprising to speculate the US and European equities would continue to elevate in the month of May.

If US persisted to project better housing recovery and new jobs creation this month, our projection for DJIA would reach T1 – 15,330 before month end.

In Asia, the KLCI had pierced the previous all-time high 1,706 and moved up to 1,840 regions but declined fast.

Technically, we reckoned the market would play in this region this month while capped beneath 1,840 resistances. Most likely, we foresee the Malaysia index would trend from 1,700 to 1,840 in large sideways for the time being.

Singapore FTSE.STI targets to rose to 3,600 in our studies. We believed the Singapore index would invite more players to invest in the blue chips as the market maturity was always welcomed by genuine long-termed investors. The support at 3.300 turns into resilient buying interest in case the market draws down in correction.

Thailand SET Index seemed to have most rooms for elevation in May. Technically, the market had made drawdown from mid March to mid April and new buying interests were ready to acquire after this digestion.

Rising above 1.600 levels, we reckoned the higher target would be set at T1 – 1,670 and the subsequent T2 might jump to 1,720 if Asia equities rattle into crazy bulls in May.

The downside bargaining levels would emerge at 1,570 to 1,600 regions. In the month of May, we predicted the overall sentiments in global stock markets would be bullish.

Asia equity markets would be better off in rising percentage since hot monies would seek footage in our economic regions.

Some favourable factors that might push the prices higher include US housing demands, better jobs recovery, narrowing trade deficits and lower treasury yields and benchmark rates.

In Asia, we expected the receding US dollar value would spike climbing commodity prices like palm oil, rubber, soybean oil, sugar, cocoa etc and also bullish stock markets from moderate China’s economic gains.

However, the month of June is opened to risk. Our greatest fears would come from euro debt crisis returning at the end of Q2 when this revolving squabble always erupts in every quarter with no sign of stubbing it out. Hence, stay alert and plan to make some good cash profits in May while stay sideways to observe in June.

Risk management and foresight will help you to stay +alive in markets.

Dar Wong is the Principal Consultant of APSRI. The expressions are solely his own. He can be reached at dar@pwforex.com.

BECOMING APPARENT: Photo shows Singapore’s key financial district; When banks in Singapore began MAS-ordered reviews into their domestic lending reference rates, it became clear a Libor-style pattern of rate rigging was apparent in the NDF market. – Reuters photo

SINGAPORE: Mukesh Kumar Chhaganlal said he tried to warn his manager at UBS AG about the ‘increasingly unrealistic’ currency rates being set last year for the Indonesian rupiah against the dollar.

His manager told him nothing could be done because ‘there was no way to control the market or how people set the rates on the market’, according to court documents Mukesh filed in Singapore recently in his wrongful termination suit.

Months after this alleged conversation, UBS fired Mukesh. He said in court papers he had not been given the reasons for his sacking, and that he was not a party to the fixing of any reference rates in the market. Six of his colleagues on the UBS trading desk also left the firm.

The staff departures came after regulator Monetary Authority of Singapore (MAS) ordered banks to review how they set currency and interest rates following scandals in London and the US.

Mukesh’s battle with the Swiss bank was part of a broader story about how a clubby, foreign exchange trading community was torn apart in a rate-fixing manipulation probe in Southeast Asia’s financial hub.

It also exposed weaknesses in the way central banks in the region managed their currencies — particularly in Indonesia. Bank Indonesia, the central bank, told Reuters it had been holding discussions with currency traders about how to strengthen its rate-setting mechanism.

UBS had declined to make any statement on the lawsuit by Mukesh, which it was defending, or the departure of its traders, saying it did not comment on legal cases or staff matters. It said it was ‘co-operating fully’ with Singapore’s reviews on how banks fixed interbank lending and currency rates.

The main product at issue, a non-deliverable forward (NDF), allowed foreign investors and companies to hedge or speculate on emerging market currencies when exchange controls in those countries made it difficult to trade directly in the spot market.

Jakarta had strongly opposed the creation of an NDF market for the rupiah when it was first set up after the 1997to 1998 Asian financial crisis.

Unlike neighbouring Malaysia, Indonesia did not impose capital controls during or immediately after the financial crisis — it was under an International Monetary Fund programme at the time and the IMF frowned on such controls.

But Bank Indonesia thought the lack of such controls made the rupiah vulnerable to speculators. So it imposed new rules in January 2001 banning the transfer of rupiah to non-Indonesian residents, making it harder for dealers in Singapore to trade the Indonesian currency.

Within a month, Singapore’s bankers had found a way round the obstacle by establishing the rupiah NDF market — similar to what traders had done previously in Latin America, Eastern Europe and elsewhere in Asia.

SETTING STANDARDS: The MAS told banks on rate-setting panels to review how they determined reference rates used to benchmark bank lending and, subsequently, NDFs. – Reuters photo

Singapore’s NDF market increasingly rankled central banks in the region, that loathed the idea that a handful of foreign bankers could undermine their exchange rate regimes by creating alternative offshore markets.

A trigger to act against them came in the midst of a probe by global regulators into bank manipulations of the London interbank offered rate (Libor) in Britain and the US last year.

The MAS told banks on rate-setting panels to review how they determined reference rates used to benchmark bank lending and, subsequently, NDFs.

Reuters revealed in January those reviews had found evidence in electronic messaging conversations that traders from different banks were colluding with each other to set NDF rates to benefit their trading books rather than reflecting market conditions.

Banks on the rate-setting panels had declined to comment on the investigations.

As banks pored over thousands of emails and electronic message conversations, they were under public instructions from MAS to take disciplinary action against anyone involved in ‘irregularities’.

People with direct knowledge of the matter said that process had led to the decimation of a once robust community of NDF and interest rate traders.

At least 50 were suspended by their banks at one point — around half the Singapore market — though some had since been allowed to return to work, they said. The rest were fired or left voluntarily.

The fallout from the rate-manipulation scandals in London, New York and now Singapore had put more regulatory pressure on banks — under scrutiny since the 2008 global financial crisis — to reform the way interest and currency rates were set.

FURTHER REFORMS SOON: Photo shows automated teller machines of a few Singaporean banks. Banks in Singapore had already decided they would stop setting reference rates for Malaysia’s ringgit and Vietnam’s dong. The local foreign exchange and banking associations were expected to announced further reforms in the coming months. – Bloomberg photo

Banks in Singapore had already decided they would stop setting reference rates for Malaysia’s ringgit and Vietnam’s dong. The local foreign exchange and banking associations were expected to announced further reforms in the coming months.

The scrutiny might also create more transparency in the way currency rates were set in countries such as Indonesia.

Singapore’s NDF trading market was an especially tight-knit group, according to people involved. One of their favourite hangouts was the Il Fiore (or The Flower), an easy-to-miss basement bar below a Singapore office block.

Nicknamed ‘The Blackhole’, it was dark and cosy inside, with a portrait of a topless woman in a red thong greeting patrons heading to the toilet. — Bloomberg

SIGNING CEREMONY: File photo shows Datuk Seri Najib Tun Razak (centre), witnessing the ceremony, as Datuk Shahrol Halmi, chief executive officer of 1Malaysia Development Bhd (1MDB), signs agreement documents with Du Zhingang, chief economist of State Grid Corporation of China, in Kuala Lumpur in early January 2010. — AFP photo

Goldman Sachs Group Inc (Goldman) made an estimated US$500 million arranging three bond sales in the past year for 1Malaysia Development Bhd, the state investment fund led by Prime Minister Datuk Seri Najib Tun Razak, said a person familiar with the matter.

The total was almost as much as Malaysia, Southeast Asia’s third-largest economy, pays each month on its debt and compares with Goldman’s (Goldman) record US$694 million of global bond underwriting fees in the first quarter, according to data compiled by Bloomberg.

Goldman, the securities firm with the fastest-growing investment-banking fees, arranged US$6.5 billion of bond sales for the fund.

1MDB, as the fund is known, was started in 2009 to invest in energy assets, tourism, agriculture and property developments such as the US$8.5 billion business district in Kuala Lumpur named after Najib’s late father.

Opposition lawmakers said the fund lacks transparency, pointing to the timing of the latest note sale in March as well as the fees. Goldman won the underwriting work without competing for the deals, according to the person, who asked not to be named as the details were confidential.

“Relationships are what I’ll attribute these wins to,” said Ang Ser-Keng, a senior lecturer of finance at the Singapore Management University. “If they wanted to issue a bond very quickly, maybe Goldman had the appetite and balance sheet to do the deal.”

Goldman’s revenue from the 1MDB deals amounted to about 7.7 per cent of the face value of the securities. Underwriters collected average fees of 1.32 per cent this year on junk bonds, rated below Baa3 by Moody’s Investors Service and BBB- at Standard & Poor’s, according to data compiled by Bloomberg.

INCREASE IN FEES: In the first quarter, New York-based Goldman reported a 36 per cent increase in investment banking fees, including a 69 per cent rise in fixed-income underwriting revenue. — Bloomberg photo

In the first quarter, New York-based Goldman (Goldman) reported a 36 per cent increase in investment banking fees, including a 69 per cent rise in fixed-income underwriting revenue. Fees across the industry gained 17 per cent, according to a report by Alison Williams, a Bloomberg Industries investment banking analyst.

1MDB and Goldman were coming under increased scrutiny after the fund sold US$3 billion of 4.4 per cent, 10-year notes privately on March 19. The sale was hurried because it required a government letter of support, said the person familiar with the process.

Najib dissolved parliament two weeks later, ahead of national elections on May 5. His Barisan Nasional coalition retained its parliamentary majority, extending its 55-year rule, even though his alliance took 47 per cent of the popular vote, the lowest since 1969.

1MDB’s bonds ‘raised too many red flags, coming so close to the election date’, Wong Chen, a 44-year-old corporate lawyer and opposition candidate, said in an interview May 2.

The Wall Street Journal reported May 1 that Goldman earned US$200 million from four government-linked bond sales, two for 1MDB and two for Sarawak, the biggest state in the nation, on Borneo island.

Edward Naylor, a Goldman spokesman in Hong Kong, declined to comment on fees for specific offerings. “Clients seek us out for our ability to develop and deliver complex financing solutions,” he said in a May 2 e-mail.

Najib is the chairman of the fund’s advisory board. 1MDB has its origins in Terengganu Investment Authority, which was created in 2009 to invest oil royalties from the state of Terengganu.

When Najib became prime minister that year, it was renamed 1MDB, became a national entity and its funding source was changed to government-backed debt instead of oil income.

The Star newspaper reported in July 2010 that the government would not table 1MDB’s annual financial report in parliament because disclosures weren’t required.

1MDB had a total of RM29.8 billion (US$10 billion) of bonds and loans outstanding, according to data compiled by Bloomberg.

The opposition was making false allegations against Najib, 59, to smear his name, a government spokesman, who asked not to be named according to policy, said May 6. Shahriza Embi, a spokeswoman for 1MDB, didn’t return e-mails and calls to her office and mobile phone.

1MDB’s bonds were unrated when Goldman bought them and got an A- grade, the same as on sovereign debt, from Standard & Poor’s on April 12. The sale matched a Petroliam Nasional Bhd (Petronas) deal in 2009 as the largest by a Malaysian company in the international market, according to data compiled by Bloomberg.

It made Goldman the second-biggest underwriter of Malaysian dollar bonds after Citigroup Inc, with 18.5 per cent of the market, the data showed.

Part of the US$500 million came from Goldman buying the notes at a discount to face value before marking them up to sell to investors, said the person familiar with the deal.

Goldman purchased the bonds for 91 cents on the dollar, according to the person. At that price, the notes yielded about 5.6 per cent, or 364 basis points more than Treasuries and 261 basis points more than the rate on Malaysia’s sovereign Islamic dollar debt due July 2021.

Quasi-sovereign bonds due in seven to 10 years yielded 2.3 per cent on average, according to data compiled by Bank of America Corp.

Prices of the notes surged as they began trading, rising to 102.24 cents on the dollar on May 3 and at 99.99 cents on May 6, according to data compiled by Xtracker, a London-based market data vendor.

The latest price means a yield of 4.4 per cent, or 157 basis points more than the sovereign bonds maturing in 2021.

The discount accepted by 1MDB was steep compared with other issuers that were linked to governments. Korea Development Bank, rated A by S&P, sold US$750 million of three per cent bonds due 2022 in September at 98.78 cents on the dollar.

The yield was 155 basis points, or 1.55 percentage points, more than Treasuries, or less than half of the premium for 1MDB. The Korean bank paid underwriting fees of 0.25 per cent.

“For a company like Goldman, which has enough confidence in getting the bonds off its books at some point, there’s certainly cost involved” for the borrowers, Prashant Singh, the Singapore-based lead manager for Asian emerging-market debt at Neuberger Berman Group LLC, which oversees US$216 billion, said in a phone interview yesterday.

1MDB also paid more to Goldman than the government had been charged by its underwriters. Malaysia had sold eight dollar bonds since the start of 1999, raising a US$7.1 billion, according to data compiled by Bloomberg.

The last was in June 2011, when the government issued US$2 billion.— Bloomberg