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ASEAN STOCK WATCH Asean Affairs   8 June 2012

ASEAN Market Preview

 By Shayne Heffernan Ph.D.

China delivered twin surprises on interest rates on Thursday, cutting borrowing costs to combat faltering growth while giving banks additional flexibility to set competitive lending and deposit rates in a step along the path of liberalization.

China's first rate cut since the global financial crisis underlined heightened concern among policymakers worldwide that the euro area's deepening debt problems are threatening economic growth.

Global shares rallied to their highest level in more than a week and the euro advanced on hopes that other major central banks would also take measures to shore up growth.

Equities pared their rally as Federal Reserve Chairman Ben S. Bernanke said the central bank will assess the economy before deciding if more stimulus is needed.

Spain's credit rating was slashed by three notches on Thursday by Fitch, which signalled it could make further cuts as the cost of restructuring the country's troubled banking system spiraled and Greece's crisis deepened.

Fitch cut its rating on Spain's government debt by three notches to BBB and placed the country on 'negative outlook', meaning a further downgrade could come in coming months.

The new rating was Spain's lowest among the three main ratings agencies, and leaves it just two short of junk status, which would force many institutional investors to automatically dump Spanish assets.


The Philippine government’s debts, in relation to the economy, will likely fall below the 50-percent threshold this year, boosting the country’s chances of securing an investment grade from credit watchdogs.

According to ANZ, an international financial services firm, the government’s debt-to-GDP (gross domestic product) ratio may decline further to 48 percent by the end of 2012, from last year’s 50 percent.

Debt-to-GDP ratio is one of the closely monitored indicators of a country’s credit-worthiness.

Analysts believe that the Philippines’ relatively high debt burden is one of the reasons why it is still rated one or two notches below investment grade despite its robust economy.

Over the years, the Philippine government’s debt-to-GDP ratio hovered above the 50-percent threshold, peaking at 84 percent in 2004. But government officials are now saying that the debt burden has been on a downtrend since then.

Last year, the government’s outstanding debt reached P4.9 trillion, which was about 50 percent of GDP.

ANZ said that if the ratio were to decline further to below 50 percent, credit-rating agencies would sit up and pay attention.

Even though international ratings firms have rated the country one or two notches below investment grade, capital markets consider the Philippines to be credit-worthy. Philippine bonds are at par with the instruments issued by countries enjoying investment grade, analysts said.


The Thai stock market on Wednesday halted the two-day slide in which it had retreated more than 40 points or 3.8 percent. The Stock Exchange of Thailand finished just above the 1,115-point plateau, and now traders are looking for the market to extend its gains when it opens on Thursday.

The global forecast for the Asian markets is broadly positive following fairly upbeat news out of Europe. The European Central Bank maintained its key interest rates, keeping the main refi rate at 1 percent, while the European Commission also unveiled plans to avert massive banking failures in future. Adding to the positive sentiment are comments from Atlanta Federal Reserve President Dennis Lockhart, who said that the option of extending "Operation Twist" is still on the table. The European and U.S. markets were sharply higher and the Asian markets are expected to follow suit.

The SET finished sharply higher on Wednesday following gains from the energy producers, cement stocks and financial shares.

For the day, the index spiked 18.80 points or 1.71 percent to finish at 1,117.95 after trading between 1,110.24 and 1,123.44. Volume was 4.290 billion shares worth 23.416 billion baht. There were 387 gainers and 139 decliners, with 119 stocks finishing unchanged.

Among the gainers, energy giant PTT was up 1.65 percent, while PTT Global Chemicals jumped 2.82 percent, Siam Concrete climbed 1.53 percent, Bangkok Bank gathered 1.18 percent, Kasikornbank collected 1.39 percent and Siam Commercial Bank spiked 2.27 percent.


Switzerland-based Bank Sarasin remains bullish about its investment in Indonesian assets given its view that sustainable domestic consumption is driving the economy.

“We do invest and will continue investing in Indonesia,” said Burkhard Varnholt, the bank’s chief investment officer.

He said the bank currently has $100 billion in assets under management globally but refused to reveal the proportion held in Indonesia. But he said the region would likely be more heavily weighted in its portfolio than the size of the market would appear to justify. “We do have a bias for Asia over Western countries,” he said.

He said the bank’s investment in Indonesia had been increasing because of the strength of the economy. He said he was confident that economic growth powered by demographics and the aspirations of young consumers could be sustained for at least a decade.

Indonesia’s $813 billion economy, which expanded by 6.5 percent last year, is forecast by the government to grow 6.5 percent again this year. Many international investors, especially institutional ones, remain bullish about the long term prospects of Indonesia’s economy despite recent skittishness.

“The story remains. The fall in the our market is temporary. Investors will come back here again,” Rahmat Waluyanto, director general of the debt management office at the Finance Ministry, said in a text message to the Jakarta Globe on Tuesday.


Standard & Poor's Ratings Services (S&P) has revised the outlook on Vietnam to stable from negative.

The revision is due to the government’s successful drive to bring down sky-high inflation, according to AFP.

“The outlook revision reflects our assessment of a reduction in the risks to macroeconomic and financial stability in Vietnam” due to this tight credit policy, said the agency’s statement.

Vietnam last year had to switch its focus from economic growth to stabilization to deal with soaring inflation, price hikes, and other challenges, including shrinking foreign reserves, an expanding trade deficit and the devaluation pressure for its currency, the Vietnam dong.

“By continuously rising interest rates throughout the year 2011, the government reined in inflation from the peak of 23 percent last August to 8.34 percent year-on-year this May,” according to AFP, citing S&P statement.

Key indicators such as credit growth, the level of foreign exchange reserves, and domestic currency interest rates have improved over the past 18 months.

"We expect Vietnam to maintain these improvements as the government has expressed its intention to keep price stability high on its policy priorities," said Standard & Poor's credit analyst Kim Eng Tan.

“The stable outlook on the ratings reflects our view that Vietnam will maintain an appropriately tight economic policy stance until there are clear signs of macroeconomic instability receding, including sustained single-digit rates of inflation.”

“This would allow fiscal, external, and economic indicators to remain close to current levels or improve over the next two to three years.”

However, fiscal tightening has also caused economic growth to slow to 4.0 percent in the first quarter of 2012, the weakest pace in three years, forcing the central bank to slash interest rates three times this year already.

Vietnam’s economy grew 5.9 percent last year, just below the six percent target. The government is aiming for a 6.0 to 6.5 percent expansion this year.

The ratings agency, on the other hand, reaffirmed the 'BB-' long-term and 'B' short-term sovereign credit ratings for the Southeast Asian country.

The ratings on Vietnam reflect the country's low-income economy, its weak fiscal position, a developing monetary and financial framework, and the possibility that its evolving policy framework could weaken sovereign risk indicators.

Getting better

S&P has also revised the outlooks on Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) and Bank for Investment and Development of Vietnam (BIDV) to stable from negative.

At the same time, S&P affirmed its 'B+/B' issuer credit ratings on both the banks. It also revised the ASEAN scale ratings on BIDV to 'axBB/axB' from 'axBB-/axB'.

“We revised the outlook on the two banks following a similar sovereign rating action on Vietnam (BB-/Stable/B; axBB+/axB) earlier today.”

“The ratings on Vietinbank and BIDV are one notch above the banks' respective stand-alone credit profiles, reflecting the banks' "high systemic importance" in Vietnam's banking system; and our assessment of a "highly supportive" government, which qualifies for a one-notch rating uplift from the banks' stand-alone credit profile of 'b'.”

No change for Vinacomin

The credit ratings agency also announced that its rating and outlook on Vietnam National Coal and Mineral Industries Holding Corp (Vinacomin), at “BB-/Negative”, are not affected by the sovereign rating action on Vietnam.

“We are not revising the outlook on Vinacomin because the rating and outlook on the company primarily reflect its stand-alone credit profile of 'bb-'.”

“We believe there is a "low" likelihood of extraordinary government support in the event of financial distress, as defined in our criteria for rating government-related entities."

"Our view is based on the "limited" importance Vinacomin's creditworthiness represents to the government.”

S&P also threatened that there is a one in three chance the rating on Vinacomin could be lowered in the next 12 months if the company's operating cash flows weaken because of increasing domestic sales at government-regulated prices.

“Vinacomin will have to rely more on debt to fund its significant capital expenditure program if cash flows weaken. This could lead the company's credit protection measures or liquidity to deteriorate.”


OCBC Investment Research lowered its target price on shares of Ascendas Real Estate Investment Trust, which owns industrial properties, to S$2.22 from S$2.31 but kept its 'buy' rating.

Units of Ascendas REIT were down 1 percent at S$2.00, while the FT ST Mid Cap Index was nearly flat. The stock has risen around 9 percent so far this year, matching the gain in the index.

OCBC said it factored in an enlarged unit base following Ascendas REIT's unit placement and an expected loss in income after the firm sold one of its properties, partially balanced out by lower interest expenses from fewer borrowings.

Despite market concerns that industrial rents may ease slightly in 2012, OCBC said it saw upside potential for Ascendas REIT's rents that are due for renewal. This should support the estimated distribution per unit yield of 6.9 percent for the firm's 2013 fiscal year, which OCBC said is attractive.

OCBC added that Ascendas REIT's stronger financial position will likely give it a greater ability to tap on growth opportunities, as well as secure borrowings at potentially more competitive terms to fund its committed investments.

Macquarie upgrades Keppel Corp to outperform

Macquarie Research raised its rating on Keppel Corp , the world's largest rig-builder, to outperform from neutral, citing cheap valuations and a strong order pipeline.

Shares in Keppel and rival Sembcorp Marine Ltd have underperformed the market over the past two months on concerns of a weak outlook as oil prices weaken.

Macquarie said both Sembcorp and Keppel are now trading at 10 to 11 times one year forward price to earnings and at large discounts of about 20 percent to their five-year mean multiples on price to book.

It said firms ordering rigs in the current industry upturn had better credentials allowing them access to funding despite the credit squeeze. Macquarie said deepwater projects can remain profitable as long as Brent crude oil stays above $75 a barrel.

Keppel shares are still up 7 percent so far this year, while Sembcorp Marine has risen more than 14 percent versus a 4.5 percent rise in the Singapore's benchmark index.

UOB Kay Hian raised its price target on the stock of offshore services provider Ezion Holdings to S$1.42 from S$1.34 after the firm won a third service rig contract worth $86.3 million.

Ezion shares were up 0.65 percent at S$0.780 at 0145 GMT, outperforming the FT ST Small Cap Index, which was up 0.3 percent. The stock has risen 19 percent so far this year, outperforming a 6 percent gain in the index.

The charter contract is for four years with total revenue at $86.3 million or $21.6 million per year, and UOB estimates the project to yield a net profit of $7 million, adding 7 percent to its 2013 and 2014 earnings forecast. The broker said the customer is Mexico's Pemex.

The project also has a "very high" return on equity (ROE) of 42 percent, well above Ezion's minimum project ROE requirement of 30 percent, said UOB and maintained its 'buy' rating on the stock.

The broker added that it expects Ezion's share price to benefit from a ramp-up in earnings as more liftboats and service rigs come onstream and demand is seen strong.


The FBM KLCI index gained 5.88 points or 0.37% on Thursday. The Finance Index increased 0.15% to 14075.07 points, the Properties Index up 0.01% to 989.4 points and the Plantation Index rose 0.90% to 8357.99 points. The market traded within a range of 6.44 points between an intra-day high of 1578.76 and a low of 1572.32 during the session.

Actively traded stocks include FOCUS, MEDIA, PERMAJU, AIRASIA, SKPETRO, FOCUS-WB, AXIATA, MTRONIC, AMEDIA and MAYBANK. Trading volume increased to 779.86 mil shares worth RM1446.41 mil as compared to Wednesday’s 699.96 mil shares worth RM1140.06 mil.

Leading Movers were MAXIS (+13 sen to RM6.51), BAT (+198 sen to RM55.50), KLK (+30 sen to RM22.84), YTL (+3 sen to RM1.95) and AIRASIA (+7 sen to RM3.70). Lagging Movers were TENAGA (-4 sen to RM6.39), MAYBANK (-1 sen to RM8.72), PETGAS (-6 sen to RM17.54), PETDAG (-4 sen to RM20.74) and HLFG (-2 sen to RM11.78). Market breadth was positive with 411 gainers as compared to 278 losers.

In Asia Yesterday

Tokyo closed 1.24 percent, or 106.19 points, higher at 8,639.72, while Seoul soared 2.56 percent, or 46.10 points, to 1,847.95, and Sydney rose 1.31 percent, adding 53.3 points, to 4,108.6.

In the afternoon Hong Kong rose 0.85 percent, or 157.76 points, to 18,678.29 but Shanghai closed 0.71 percent lower, shedding 16.43 points to 2,293.13 owing to nervousness ahead of the release of key economic data at the weekend.

– Singapore closed flat, edging down 1.57 points to 2,759.26.

Real estate developer Capitaland was up 0.39 percent at Sg$2.59 while Singapore Airlines fell 0.20 percent to Sg$10.19.

– Taipei gained 0.34 percent, or 24.16 points, to 7,080.31.

– Manila closed 1.14 percent, or 56.37 points, higher at 5,022.95.

– Wellington closed 0.27 percent, or 9.44 points, higher at 3,273.96.

Auckland Airport rose 0.8 percent to NZ$2.53, Telecom climbed 1.01 percent to NZ$2.50 and Contact Energy was up 0.42 percent at NZ$4.76, while Fletcher Building eased 0.16 percent to NZ$6.29.

– Kuala Lumpur rose 0.37 percent, or 5.88 points, to 1,575.31.

Budget carrier AirAsia added 1.93 percent to 3.70 ringgit, financial firm CIMB Group Holdings gained 0.13 percent to 7.50 ringgit and utility Tenaga Nasional lost 0.62 percent to 6.39 ringgit.

– Jakarta was almost unchanged, nudging down 0.74 points to 3,840.60.

– Bangkok was flat, edging up 0.58 points to 1,118.53.

– Mumbai rose 1.18 percent, or 194.75 points, to 16,649.05.

Shayne Heffernan Ph.D.  

Linda Johnson, Business Development Director - Private Client Group, Heffernan Capital Management
3 Raffles Place #07-01
Bharat Building Singapore 048617
Tel: +65 6329 6408 Fax: +65 6329 9699
Email :
Suite 53 Athenee Tower
63 Wireless Road, Lumpini, Pathumwan, Bangkok 10330
New York 347 5th Avenue, Suite 1402-508 NY, NY 10016


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It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

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