ASEAN KEY DESTINATIONS
Asean Stock Watch- August 1
On Friday, the Dow Jones Industrial Average fell 96.87 points, or 0.79 percent to 12,143.24 for its worst week in a year.
Stocks fell for a second day on Friday amid a global market rout on concern about credit rating downgrades in the United States, Spain and other nations that would curb economic growth worldwide.
The Jakarta Composite Index dropped 15.03 points, or 0.4 percent, to close at 4,130.80. Even with Thursday’s 0.7 percent decline, the benchmark measure gained 6.3 percent this month.
More than 6.16 billion shares worth Rp 5.72 trillion ($675 million) were traded at the Indonesia Stock Exchange. Decliners far outnumbered gainers, 173 to 83.
“Investors are avoiding risk, and how long this negative sentiment will affect the market is difficult to judge,” said Bagus Hananto, head researcher at ONIX Capital in Jakarta.
On Friday, Moody’s warned it might downgrade Spain’s credit rating amid concerns over economic growth prospects. The United States is also weighing on markets as it faces pressure to resolve its debt impasse.
On the JCI, the “miscellaneous” sector category, which includes footwear, automotive and textile makers, led declines, falling 1.8 percent.
Astra International, the largest automotive distributor, fell 1.7 percent to Rp 70,500, on concern its advance this month was excessive, analysts said. The stock gained 11 percent this month.
Garuda Indonesia, the state-controlled airline, declined 1.9 percent to Rp 510 as it posted a first-half loss.
Buffering the market’s decline, agriculture and financial stocks climbed on expectation that profit growth would continue into the second half. This week most banks and plantation companies posted large profit increases for the first half.
Bank Rakyat Indonesia, the second-largest bank by asset, added 1.5 percent to Rp 6,900. The lender reported on Friday that first-half profit surged 57 percent to Rp 6.8 trillion from a year earlier.
Plantation company Salim Ivomas Pratama gained 6 percent to Rp 1,420. BW Plantation rose 0.8 percent to 1,240.
The rupiah closed at 8,491 to the dollar, down from 8,493.
Bursa Malaysia is likely to be choppy this week ahead of the August 2 deadline for US lawmakers to raise the debt ceiling, dealers said.
With the US debt standoff continuing to dominate investor psychology, the benchmark FTSE Bursa Malaysia KLCI was expected to test the crucial psychological level of 1,545 points.
“The ability to rebound above the 1,545 points level over the next few days will definitely be positive suggesting the 1,560 level as the next target and the end of the debt saga,” a dealer said.
However, any breakdown below the 1,545 level would be the first warning sign that a major peak has been completed with more downside to come possibly towards the 1,530 level as the near-term target, an analyst said.
Affin Investment Bank Head of Retail Research Dr. Nazri Khan said some support for the KLCI was expected, partly due to positive regional spillover, with foreign investors returning to the country. He pointed out that latest trading statistics indicated that foreign equity trading in the local bourse had risen above 30 percent for the first time after being depressed since 2009.
Nazri said the government's decision to add more measures to combat inflation, such as a new price-control mechanism and a new National Key Result Area to deal with rising cost of living, will be supportive for the local benchmark.
“We strongly believe domestic bank stocks would be able to weather the crisis given their limited exposure to US dollar denominated bonds and well capitalised position,” Nazri said.
For the week just ended, persistent selling pressure saw the FBM KLCI end 16.25 points lower at 1,548.81, from 1,565.06, previously.
The Finance Index lost 183.52 points to 14,811.13, the Industrial Index fell 40.16 points to 2,827.74 but the Plantation Index rose 38.09 points to 7,736.2.
Total weekly volume increased to 5.13 billion shares, worth RM8.07bil, from 4.9 billion shares, valued at RM9.24bil, previously.
The Main Market turnover rose to 3.6 billion shares, worth RM7.84bil, from 3.33 billion shares, valued at RM8.98bil, previously.
The resiliency of the Philippine stock market will be put to test as global markets face an August 2 deadline for the US to find a resolution to its debt troubles.
While US lawmakers continue to debate on the provisions of a deal that will raise the debt ceiling, the consensus among local analysts is that Capitol Hill will come up with a solution to avert a potential downgrade and financial crisis.
“A deadlock followed by international rating agencies’ credit downgrade would prod pessimists to appear on the scene, especially on its ripple effect to other neighbor markets,” said Freya Natividad, investment analyst at 2TradeAsia.com.
“Meanwhile, upsides might also unfold in case disagreements are resolved, indicating continued fiscal support for consumer spending and employment,” Natividad said.
In the absence of a resolution to the US debt problems, the momentum of last week’s general sluggishness might carry over to the first two days of trade, analysts said.
“We can thus expect investors to hold in abeyance major trading and portfolio decisions,” said Jun Calaycay of Accord Capital Equities Corp.
In the last two weeks, local equities continue to post gains despite the general weakness in major global markets as investors remain optimistic on first half corporate earnings and portfolio flows continue in emerging markets.
With the release of first half earnings, index issues are expected to make a firm move after trades were dominated by third liners in the previous week.
“For sure, an agreement will be reached and this could be a source of relief for investors. What must be focused on now is the quality of earnings that are scheduled to be released next week,” said Maria Arlysa Narciso of AB Capital Securities Inc.
“Irrespective of the outcome, fund managers seem to support views of improved funds flow in favor of emerging economies in Asia, as US and UK authorities adopt a more acceptable fix to their respective finances,” Natividad said.
Singapore shares opened higher on Friday, with the benchmark Straits Times Index at 3,212.33 in early trade, up 0.72 percent, or 23.07 points.
Around 242.4 million shares exchanged hands.
Gainers beat losers 205.47.
The SET closed higher, given the stronger-than-expected second-quarter results as well as the easing, albeit short-term, of the debt crisis in the EU.
While investors are concerned about the political standoff in Washington, the odds on the US debt ceiling to be raised tomorrow are quite high, in our view.
We expect that the SET should respond positively to the good news on the US debt ceiling this week.
Since early this year, equities have gained, but investors should be smart on timing. Asean including Thailand leads Asia and equity markets elsewhere.
The Asian economy looks resilient amid the messy debt dilemma in the EU and uncertain growth in the US. Next, deleveraging policies in the EU and US will curb growth prospects next year, while growth in Asia looks normalised.
We believe that fund flows will likely shift into this region more and more.
The new government led by the Pheu Thai Party plans to launch policies in favour of domestic consumption and investment, which should build a platform to immunize Thailand from external slow growth.
The SET may move in a range in trade ahead of positive developments in the US debt ceiling this week. Stock picks are PTL, SAT, CPN, BIGC and KSL.
July has proven to be the SET's best month so far this year with a gain of nearly 9 percent, thanks to Pheu Thai's comprehensive election win and better-than-expected second-quarter bank results.
Other factors lifting the market's mood were the Election Commission's approval of more MPs, including prime minister-in-waiting Yingluck Shinawatra and some red-shirt leaders, and telcom operators' unveiling of 3G rollout plans.
Foreign investors have been net buyers of a massive Bt36.6 billion worth of stocks during last month to Thursday, helping to push the market to 15-year highs. Foreign buying accelerated on impressive second-quarter bank earnings.
Aggregate net profit of the seven banks jumped 28 percent on year and 4 per cent on quarter and was 4 percent higher than our forecast. Our top bank picks- KBANK, KTB and SCB - were the standouts, with earnings exceeding market expectations by 15 percent, 12 percent and 7 percent.
Investor sentiment was also buoyed by stronger-than-estimated export growth in June. The Commerce Ministry reported that customs-cleared exports jumped 16.8 per cent on year to US$21.1 billion, beating consensus forecasts of a 10.7 percent rise. Thailand's trade surplus widened to $1.27 billion in June, bringing the six-month trade surplus to $3.45 billion. Particularly noticeable was the swift recovery in exports of autos and parts - up 2.2 percent on year versus down 22.8 percent in May. This affirms our view that the global supply disruptions caused by Japan's earthquake and tsunami last March are proving short-lived and is a clear sign of improvement in Thailand's manufacturing sector and exports going into the second half.
Following the market's unusually strong gains last month, we now expect near-term consolidation, with some investors using US debt worries as an excuse for profit-taking.
However, the downside should be limited by continued foreign inflows and speculative buying of stocks expected to report strong second-quarter earnings, particularly consumer plays.
Solid first-half earnings from more listed companies are once again expected to attract the attention of investors in the coming week and save the market from steeper losses.
Blue chips which last week reported positive results, including software producer FPT, Vietinbank (CTG), Phu My Fertilisers (DPM) and steelmaker Hoa Phat Group (HPG), all saw gains on the HCM City Stock Exchange last week, helping cushion the decline of the VN-Index.
The Index lost just 0.86 percent of its value over the course of the week, closing on Friday at 405.7.
This was despite sluggish trades and an average daily value that reached only VND371 billion (US$18 million), with an average volume of 21 million shares.
On the Hanoi Stock Exchange last week, the HNX-Index declined by a more substantial 1.89 per cent from the previous week to close Friday's session at 69.55 points.
Trading remained turgid throughout the week, with the daily trading value averaging just over VND196 billion (nearly $10 million) on a volume of nearly 18 million shares.
In the coming week, Ministry of Finance Circular No 74 will take effect, allowing a single investor to open multiple trading accounts with one brokerage and buy and sell the same securities in the course of a single trading day.
By making lawful a practice that has already been taking place in the shadows, the circular is expected to improve market transparancey as well as facilitate investment.
Investors continue, however, to wait on the State Securities Commission to issue a guiding regulation on margin trading, which may be released as early as this week.
The vice chairwoman of the commission, Vu Thi Kim Lien, admitted that the market was undergoing a difficult period in which both benchmark stock indices have fallen precipitously and investor confidence has eroded substantially.
In the current context of unstable economic conditions, including high inflation, investors were likely to abandon the market and put idle capital into banks, where it can earn stable returns, or in a potentially high-return investment like gold, Lien said.
National Financial Supervisory Committee vice chairman Le Xuan Nghia also likened the current stock market to a bazaar filled with cheap merchandise that nobody wanted to purchase.
Nghia expressed concern that many investment funds established during the market's go-go period of 2005-07 – funds representing investment of up to VND30 trillion ($1.45 billion) – would pull these investments out of the market within the next two years.
"If current market conditions persist, investment funds withdraw, and economic conditions don't improve, the existence of the stock market itself will be jeopardised," Nghia warned.
To avoid such an outcome, a number of market watchers have called on the Government to take drastic measures to sustain the stock market, e.g., by allowing banks to once again lend to securities investors (especially larger banks more able to deal with the heavier risks involved in such lending).
In a sign of continued foreign interest in the domestic stock market, foreign investors concluded last week as net buyers on both national exchanges, picking up a combined VND153 billion ($7.4 million) worth of shares – with Friday marking their 16th consecutive net-buy session.
FPT was the most heavily favoured share by foreign investors, who bought up a net buy of VND105 billion ($5 million) worth of FPT shares last week. However, foreign investors unloaded VND23 billion ($1.1 million) worth of shares in real estate developer Vincom (VIC).
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