ASEAN KEY DESTINATIONS
Asean Stock Watch-May 30
On Friday, the Dow Jones industrial average rose 38.82 points, or 0.3 percent, to 12,441.58 after consumer confidence rose unexpectedly this month coupled with rising personal income and spending.
US economic indicators that will be released this week are consumer confidence, ISM manufacturing index, jobless claims and employment situation. Trading in Wall Street will be shortened by the Memorial Day holiday on Monday (Tuesday in Manila).
Indonesia’s foreign exchange holdings have surged 21 percent this year as a result of continued investor appetite for Indonesian assets, the central bank announced on Friday.
“Our foreign exchange reserves as of May 20, 2011, were $116.5 billion, and persistent overseas funds inflows into the country have helped the rupiah strengthen,” said Darmin Nasution, governor of Bank Indonesia. “The trend is still the same, the pressure is still for the rupiah to strengthen, although perhaps not as quickly as in past months.”
The currency has appreciated 4.6 percent this year, rising to 8,575 against the dollar as of Friday, while the Jakarta Composite Index has risen 3.5 percent.
Economists have said loose monetary policies to spur recovery in major developed economies such as the United States, Japan and Europe have prompted overseas funds to seek higher returns in emerging economies, including Indonesia.
But Darmin said the central bank was well aware that the flow of capital could reverse, causing a shock to the economy.
“We are always watching the effects of the crisis on the world economy,” he said. “But in essence, there is no need to worry. We’ve been preparing [for a reversal].”
The biggest target for foreign investors is Indonesian government bonds, with overseas holdings of the debt rising 15 percent this year to Rp 225.9 trillion ($26 billion) as of May 20, according to the Finance Ministry’s debt management office.
“If there are no interest rate raises in America and Europe, then the foreign reserve growth will likely last until the end of the year,” said Juniman, an economist at Bank Internasional Indonesia. Low interest rates in developed economies have kept down returns, making Indonesia with its 6.75 percent key rate especially attractive.
Share prices on Bursa Malaysia are likely to trade sideways this week with a hint of positivity. Affin Investment Bank's head of retail Dr Nazri Khan said a rebound in Bursa Malaysia would be triggered by a continous release of good corporate results, amid wobbly external developments. “Given the higher weekly volume momentum and good corporate results such as YTL Corp, Genting and DRB-Hicom, we believe sentiment has improved.
“The fact that FBM KLCI gained, despite a weaker external front, and slower local growth confirms that Malaysia is still resilient to trend higher and overcome the global trouble spots,” he said.
However, Nazri added that concerns over further tightening of bank lending rates, subsidy policies and the impact of United States' second stimulus package may weigh on market sentiment in the near term.
The Bursa Malaysia, however, saw lack of interest for second and third liners.
The benchmark FBM KLCI closed the week 7.66 points firmer at 1,548.69, from 1,541.03 points. The Finance Index lost 29.68 points to 14,363.48, the Industrial Index declined 25.70 points to 2,717.76, the Plantation Index advanced 11.41 points to 7,743.48 and the FTSE Bursa Malaysia Emas Index added 5.50 points to 10,634.08.
Weekly volume increased to 4.197 billion shares, valued at RM7.321bil, from 3.56 billion shares valued at RM6bil.
The main market turnover rose to 3.032 billion shares, valued at RM7.110bil, from 2.56 billion shares, valued at RM5.77bil, recorded in the previous week.
Volume on the ACE market was higher at 785.488 million units, worth RM141.767mil, against 621.67 million units, valued at RM149.74mil, registered last week.
Warrants declined to 355.754 million shares, worth RM50.858mil, from 362.48 million shares, worth RM67.94 million, transacted previously.
Philippine share prices may continue consolidating in the absence of leads to lift the market higher.
The market is seen to stay within its current trading range of 4,200 to 4,300 and may begin the week on an upbeat mode following its strong two-day winning run.
“The main index may top 4,300 once again but will not find enough reason to post a new year-to-date high,” said Prince Anthony Yeung of AB Capital Securities Inc.
“Technically, the market leaves investors on the sidelines waiting for a more convincing signal that a sustainable rebound is underway,” said Jun Calaycay of Accord Capital Equities Corp.
The back-to-back gains that ended the previous week erased nearly the 94.18 points of aggregated losses to just 10.65 points or 0.25 percent on Friday following volatile trading in the US market and debt jitters from Europe.
Support is at 4,230 with initial resistance at 4,300, extending to 4,330, Calaycay said. The trading week opens with the release of the first quarter gross domestic product report. Expectations suggest a significantly slower year-on-year pace on the back of a normalization in farm output.
The projected expansion is between 4.8 and 5.8 percent, slower than the 7.1 percent growth in the same period last year, which got a boost from election spending. Lingering uncertainties in the global markets may also temper risk-taking among investors.
“Principal sources of negative volatility and increased risk will come from developments in Europe’s struggle to address, contain and prevent a recurrence of the debt and deficit problems besetting at least five member economies,” said Calaycay.
Singapore shares opened higher on Monday, with the benchmark Straits Times Index at 3,136.65 in early trade, up 0.04 per cent, or 1.13 points.
Around 64.1 million shares exchanged hands.
Gainers beat losers 76 to 48.
OIL was lower in Asian trade on Monday amid fresh concerns over Europe's sovereign debt woes, analysts said.
New York's main contract, light sweet crude for July delivery, lost eight cents to US$100.51 (S$123.91) a barrel and Brent North Sea crude for July delivery was down 32 cents at US$114.71. 'If the EU has trouble, it will have a drag on economic growth globally,' Jason Feer, a Singapore-based analyst at Argus Media, told AFP. There are worries the stronger euro zone economies could be affected eventually by its weaker members, thereby affecting crude demand.
Greece was the first of three members of the 17-nation euro zone to need a multi-billion-euro bailout. Ireland and Portugal have since followed suit and markets fear that Spain might eventually need help too.
EU, IMF and ECB officials experts are in Greece now reviewing progress on its May 2010 bailout programme, and must report soon on whether to grant the next tranche of funds.
Greek Prime Minister George Papandreou warned the country will “most likely” go bankrupt without the next aid installment while Finance Minister George Papaconstantinou said “no wages, pensions or state obligations will be paid” without the money.
Trading on the Stock Exchange of Thailand was volatile last week, driven by foreign capital outflows and what analysts saw as a correction. The SET Index swung in a tight range between 1,052.18 and 1070.49 points and closed on Friday at 1067.00, down 0.55 percent from the previous week. Foreign investors continued to be net sellers of 7.029 billion baht worth of Thai shares, retail investors were a net buyers of 5.286 billion, local institutions net buyers of 1.49 billion and brokers net buyers of 252.52 million baht.
Big movers: The shipper Thoresen Thai Agencies (TTA) was among the top five in turnover with 5.04 billion baht worth of shares traded over the week in response to what the company claimed was a hostile takeover attempt. The shares climbed to 23.30 baht on Friday before easing back to close at 22, down 20 satang from a week earlier.
- United Securities (US), climbed 28.57 percent over the week after the business transfer to UOB Kay Hian Securities was announced. US closed last week at 5.40 baht, up from 4.20 the previous week.
Newsmakers: Bangchak Petroleum has set up subsidiary Bangchak Solar Energy to develop capacity of 500 megawatts at a cost of 50 billion baht as it continues to diversify beyond petroleum refining and retailing.
- Khonburi Sugar Plc, the country's ninth largest sugar producer, made its SET debut on Friday, rising as high as 10.30 baht before closing at 9.30, against an IPO price of 9.10, in heavy trade worth 1.39 billion baht.
- Salee Colour announced plans to list 30 million IPO shares on the Market for Alternative Investment within the second quarter.
- Morgan Stanley said it was underweight on Thai stocks as they were fully valued, adding that it expected rising political risk and possibly even violence after the July 3 election, which could pull the economy down.
Coming up this week: The central bank's Monetary Policy Committee will meet on Wednesday and the market expects another 25-basis-point rise in the policy interest rate to 3 percent.
- Market participants will continue to watch the drama surrounding Thoresen Thai Agencies. Management is demanding that the investor group seeking to shake up the company prove that it can muster 30% of shares it claims in order to force an emergency general meeting.
- The worst drought in 25 years in China is putting pressure on food output and prices and in turn could push inflation higher. The market expects more interest rate increases as a result in June and July, and subsequent economic impact, not only on China but elsewhere as well.
- Greece will remain in the headlines, with a report due tomorrow on its ability to restructure its debt. A default could have a severe impact on confidence in other European economies and push down the euro against major currencies.
- As the US quantitative easing program winds down, more dollar appreciation is expected, which in turn could lead to further stock market volatility as large funds move in and out of equities, especially in emerging markets.
Stocks to Watch: Capital Nomura Securities recommends being underweight in high-beta as well as blue-chip stocks, and accumulating defensive stocks such as electricity including RATCH and GLOW; the retailing players MAKRO, BIG C and CPALL; entertainment firms such as BEC and MAJOR; and food producers such as CPF.
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