Wednesday, August 23, 2017

FW: CIMB Thematic Fixed Income Outlook 23 Aug 2017 - Malaysia’s Sovereign Balance Sheet Improves Further; Positive For Bonds

 

Malaysia's Sovereign Balance Sheet Improves Further; Positive For Bonds


We are positive on the outlook for Malaysia's fiscal finances this year, and our rough calculations signal to us Malaysia's target of 3.0% of GDP fiscal deficit should be easily achievable or even surpassed. This is backed by recent positive data, allowing us comfort in our assumptions going forward.

Malaysian bonds will continue to be well supported and perform better over the next couple of months, particularly if market focus is brought back towards Malaysia's improving sovereign balance sheet which could become increasingly highlighted as we approach the next Budget announcement (potentially in October 2017). The 10-yr MGS, trading near 4%, appears attractively priced, while the feel-good sentiment in regional bond markets could be collectively extended given dovish remarks from central banks, with recent rhetoric emanating from Thailand, Philippines and Indonesia (Indonesia did a surprise rate cut on 22-August-2017, and could continue to do so over the next couple of months).

Our favorable outlook takes into account the following factors:

  • Malaysia's GDP and government revenues on pace to be stronger than assumed in Budget 2017:
    1. At its most basic, this allows for an increase in the denominator for calculation of fiscal balances over GDP. Holding other variables constant translates into smaller fiscal deficit against GDP this year. To recap, 2Q2017 GDP was +5.8% yoy (against 5.4% consensus and 5.6% in 1Q2017). Our economist's view of 2017 GDP is +5.4% whilst Budget 2017 assumes GDP growth of 4-5%.
    1. Improved performance in economic activity is likely to boost the government's revenue stream (such as via higher tax collection and non-tax income revenue).
    1. Higher-than-anticipated global oil price will lift oil-related revenue. Official oil price forecasts from the relevant national authorities such as the Ministry of Finance were quite conservative at the point of budget setting in 2016. For example, MOF's Economic Report 2016/2017 show the government's assumption of $45 per barrel oil price for 2017 ($40 per barrel under revised Budget 2016).  The gap between previous oil prices and the annualized YTD average should easily exceed 10% and Brent is now above $50, hence oil-related revenues to the government could surprise positively. Even though the oil-related share in Malaysia' total revenue has significantly declined (MOF data show share fell to 14.6% in 2016 from 35.4% in 2010), consistently higher global oil prices compared with the Budget 2017 assumptions would lead to higher-than-expected government revenue.
  • Government expenditure showing signs of slowing down after the surge in 1Q2017. We note the government's net expenditure totaled MYR64.2 billion in 2Q2017, down from MYR 66.9 billion in 1Q2017. We anticipate this to decline further in 3Q-4Q2017 as the government takes action in view of its aim for fiscal consolidation. Even though cutting spending will not be easy, there are a number of ways to do this. This includes reduction under the 'supplies and services' and 'subsidies and social assistance' expenditure. The government could also reduce development expenditure. Under Budget 2017, development expenditure was projected at RM46.0 billion. Data in 1Q2017 shows that development expenditure was RM9.3 billion and estimated to have declined in 2Q2017. This coincides with slower growth in government consumption of 3.3% yoy versus +7.5% yoy in 1Q2017 - these GDP component numbers suggest government stimulus was less needed as private consumption and exports were the major drivers in boosting the better-than-expected 2Q2017 GDP. We can see that the interaction between controlled government spending with revenue is contributing to a declining fiscal deficit in MYR terms YTD.



********************************************************************************************************

FW: MARC ASSIGNS PRELIMINARY RATING OF MARC-1IS TO TITIJAYA'S RM150.0 MILLION ISLAMIC CP PROGRAMME; OUTLOOK STABLE

 

FOR IMMEDIATE RELEASE

 

MARC ASSIGnS PRELIMINARY RATING OF MARC-1IS TO TITIJAYA’s RM150.0 MILLION ISLAMIC CP PROGRAMME; OUTLOOK STABLE

 

MARC has assigned a preliminary short-term rating of MARC-1IS to Titijaya Land Berhad’s (Titijaya) proposed RM150 million Islamic Commercial Papers (ICP) Programme. The outlook on the rating is stable.

 

The rating incorporates Titijaya’s fairly established property development track record, strong profitability margins and moderate financial flexibility. Notwithstanding these factors, the present challenging outlook for the domestic property industry would dampen the group’s business prospects should it depart sharply from its current strategy of undertaking small-to-medium projects to larger-scale developments that are more susceptible to market risk.

 

Titijaya is a mid-sized property developer with a primary focus in the Klang Valley, having established a fair track record in undertaking projects in mature areas such as Subang Jaya, Seri Kembangan and Ara Damansara. The group has historically achieved strong sales with its ongoing developments registering an average take-up rate of 86% as at end-March 2017. However, the take-up rate for recent launches has been generally weaker on concerns of oversupply and weaker consumer sentiments. MARC views that the prevailing slowdown in the property market would weigh on the performance of property developers although those with offerings that are skewed to the affordable housing segment are less likely to be affected. 

 

In this regard, MARC notes that Titijaya’s current and near-term planned launches consist largely of affordable and medium-cost units which would be more resilient to demand risk. Its two key projects, namely Riveria Sentral in Brickfields and 3rdNvenue in Ampang, have an average unit price of RM604,055 and RM710,059 respectively. The soft launch of 800 units for the 3rdNvenue Ampang project in January 2017 was fully taken up. For some of its larger projects, Titijaya has entered into partnerships with China-based China Railway Engineering Corporation (CREC) and Binapuri Holdings Berhad, both of which are construction companies. These collaborations are expected to mitigate construction risk and reduce initial working capital requirement. Proceeds from the issuance of the proposed ICP will be mainly used to meet the group’s working capital needs during the inception stage of its property projects.

 

For the nine months ended March 31, 2017 (9MFY2017), Titijaya recorded revenue decrease of 11.8% y-o-y to RM258.7 million due to fewer launches during the period. However, profit before tax rose by 16.7% y-o-y to RM83.1 million due mainly to higher margins for some of its recent developments. The group’s strong profitability was also attributable to lower land costs and good cost control. To fund its working capital requirements, Titijaya is raising up to RM101.5 million from a rights exercise apart from the proposed ICP issuance of RM150 million. The corresponding increase in shareholders’ funds from the rights issue will partly offset the rise in gearing from the ICP issuance. Assuming full issuance of the ICP, group gearing would increase to about 0.7 times (end-March 2017: 0.59 times).

 

MARC notes that Titijaya has moderate liquidity, stemming from RM278 million in undrawn banking lines under various project-level facilities and RM77 million cash on hand as well as unencumbered land parcels as at end-March 2017.

 

The stable outlook incorporates expectations for Titijaya to maintain its credit metrics that are commensurate with the current rating band. The rating and/or outlook could change should the group’s financial risk increase from any sharp spike in debt level and/or weakening liquidity position due to weaker-than-expected sales performance.    

 

Contacts: Hari Vijay, +603-2717 2937/ harivijay@marc.com.my; Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my

 

August 23, 2017

 

 

 

  

FW: RHB FIC Credit Markets Update - 23/8/17

 

 

23 August 2017

 

 

Credit Markets Update

                                               

Treasury Fall on Risk Rally; Malaysia FX Reserve Breach USD100bn

MYR Credit Market:

¨         MYR climb on improved forex reserve. MYR advanced 0.11% to 4.2825/USD after BNM reported forex reserves climbed above the USD100bn mark to USD100.4bn, up USD1bn from USD99.4bn as at end-July. Reserves were sufficient to cover 7.9 months of retained imports and 1.1x of short-term external debt. Benchmark MGS tightened across the curve with the 3y settling at 3.36% (-1.5bp) and 10y at 3.96% (-0.6bp). On economic data releases, Jul CPI is expected to moderate to 3.4% from 3.6% in its prior print.

¨         Govvie Trading averaged at MYR2.5bn compared to MYR3bn seen in the previous trading session. Trades were mostly concentrated in the belly-to-longer end of the curve (70% of total trades). Benchmark MGS were again in focus, the 7y on MYR358m dealt tightened almost 1bp to 3.88%. Both 3y and 10y saw a combined MYR380m trades, while the longer-tenure 20y saw MYR112m changed hands, narrowing 0.9bp to 4.55%. The GII spectrum continue to receive decent flows, particularly with the benchmark 3y and 5y GII and the non-benchmark 7/22 GII garnering trades on MYR134m, MYR190m and MYR230m respectively.

¨         Flows in the corporate market rose to MYR735m. Cagamas was the most actively traded on combined MYR410m trades where tranches 11/17-7/24 compressed 1.8 to 7.1bps to 3.58% and 4.32%. Other notable transactions were Digi 4/27 tighten 1.6bp to 4.53%, while interest was yet again recorded in YTL Power with both 3/23 - 5/27 tranches tightening 1bp to 4.56% and 4.91% on a total of MYR45m dealt.

¨         RAM assigned preliminary AAA/Sta and AA1/Sta ratings to Danajamin Nasional Berhad's proposed senior and subordinated Sukuk Murabahah to be issued under Danajamin's proposed MYR2bn Sukuk Murabahah programme. The same issues were assigned similar ratings by MARC at AAAis and AA+is respectively.

APAC USD Credit Market:

¨         Treasuries fall on a risk rally as the 10y UST yields rose +3.1bps to 2.21%, while the 2y rose 2.0bps to 1.30%. The risk rally occurred as the US Secretary of State suggested restraint and negotiations in relation to North Korea, seen as an opening for diplomatic dialogue and allaying geopolitical concerns. As sentiments improved on the plans announced by President Trump on Afghanistan Monday night, and positive news flow come from the US Administration on progress made in the awaited tax reform bill,  the risk rally has also spilled over to the USD. The DXY index rose +0.48% to 93.55.

¨         Asian credit markets mostly firm. The average IG credit spreads rallied as the average speculative bond yields were flat at 172.5bps (-1.0bps) and 6.71% respectively while the UST yield curve spiked. The iTraxx AxJ IG spreads on the other hand rallied to 82.0bps (-1.6bps) led higher by SBI (-3.6bps), Reliance Industries (-3.5bp), China Development Bank (-2.5bps), and Telekom Malaysia (-2.3bps). Indian lender IDBI Bank saw spreads widen +7.8bps as announcements by the Indian government of fast tracking consolidation of public sector banks, which includes the reduction in government shareholding. This occurs amid a workers strike on the bank yesterday and while concerns increase on the health of the loan books in India. The Securities and Exchange Board of India (Sebi) directed that from 1 Oct, listed companies needed to disclose defaults on loan repayments to financial institutions within one day, with a separate report to ratings agencies.

¨         West China Cement Ltd was upgraded by Fitch to BB-/Sta from B+/Sta. The upgrade was due to the significant improvement in its financial profile. The FCF has once again returned to positive while the net leverage has come down to 2.1x 2016 (3.6x in 2015), expected to reach 1.8x and 1.5x in 2017 and 2018.

¨         S&P revised Weichai Power Co Ltd to BBB/Sta from a Negative outlook. This follows successful debt deleveraging with the recent equity issuances of its subsidiaries in Germany. S&P expects that business integration, improved business performance from a solid market position in commercial vehicles and geographical diversification, supported by continued deleveraging plans to support the rating. S&P revised Beijing Automotive Group Co Ltd down to A-/Neg from a Stable outlook driven by a material decline in sales volume from increased market competition, unsatisfactory execution and reduced product appeal. The weakened competitive advantage of its propriety brands and joint venture business show 40% YoY declines. The increased reliance therefore from the Benz JV moving forward will increase concentration risk and therefore leave the company vulnerable to premium market volatilities.

 

 

 

FW: RHB | Indonesia | BI Cuts Key Policy Rate, Maintains Neutral Stance

 

 

 

Economic Research

23 August 2017

Indonesia

 

Economic Update

 

 

 

BI Cuts Key Policy Rate, Maintains Neutral Stance

 

Bank Indonesia’s (BI) board of governors unexpectedly cut the 7-day (reverse) repo rate – the benchmark policy rate – by 25bps to 4.5% on 22 Aug. As risks of financial volatility linger, we believe the Central Bank would maintain its key policy rate for the rest of 2017.

Deposit facility and lending rates were also cut to 3.75% and 5.25% respectively. BI believes the decision is consistent with there being room for further monetary policy easing, as evidenced by relatively low inflationary pressure in 2017, while 2018 inflation is projected to be within the target range. Also, the country’s current account deficit appears to be well under control.

 

 

Economist:  Rizki Fajar| +6221 2970 7065

 

 

To access our recent reports please click on the links below:

16 Aug: Exports And Imports Rebounded in July After Festivities

14 Aug: CAD Continues To Widen In 2Q17, BOP Surplus Declines

08 Aug: Economic Growth Sustained In 2Q17

02 Aug: July Inflation Eases Off After Aidil Fitri Festivities

01 Aug: June M2 Growth Picks Up, Loan Growth Moderates

21 July: BI Continues To Hold Key Policy Rate In July

 

Economics Team

 

 

 

 

Peck Boon Soon

Chief ASEAN Economist

bspeck@rhbgroup.com

+603 9280 2163

Vincent Loo Yeong Hong

Malaysia, Vietnam

vincent.loo@rhgroup.com

+603 9280 2172

Ng Kee Chou

Singapore, Thailand

ng.kee.chou@rhbgroup.com

+603 9280 2179

Rizki Fajar

Indonesia, Philippines

rizki.fajar@rhbgroup.com

+6221 2970 7065

Aris Nazman Maslan

Malaysia, Vietnam

mohd.aris.nazman@rhbgroup.com

+603 9280 2184

 

 

 

FW: RHB FIC Rates & FX Market Update - 23/8/17

 

23 August 2017

 

 

Rates & FX Market Update

 

 

Marginal Movement on IndoGB and IDR despite BI's Surprise Rate Cut

 

Highlights

 

¨   Global Markets: Peripheral EGBs underperformed their core counterparts yesterday, with losses on peripheral EGBs skewed towards the longer end of the curve as expectations for ECB to shift incrementally towards a hawkish stance spurred investors' repositioning ahead of ECB's Draghi Jackson Hole speech. Eye Manufacturing and Services PMI data out of EU later today, with strong expansions likely to further buttress expectations of the economic recovery, fuelling the prospect of a medium term policy normalisation next year; keep a neutral duration view on EGBs.

¨   AxJ Markets: Malaysia's foreign reserves climbed past the USD100bn mark for the first time since 2015, edging higher to USD100.4bn (+USD1bn m-o-m) which is sufficient to finance 7.9 months of retained imports and 1.1x of short-term external debt. Despite so, we expect no change to BNM's OPR for the rest of the year, underscoring our neutral view on MYR over the medium term. Additionally, abetting strength on USD buoyed modest gains on MGS yesterday, registering c.1bp gains across the curve; relative value on MGS vs regional bonds likely to remain supportive of MGS, where we continue to recommend a neutral duration over the coming months.

¨   BI surprised investors with a 25bps rate cut yesterday, bringing the benchmark rate lower to 4.50% after keeping it on hold for 9 consecutive months. The Central Bank has cited (i) stability on IDR and manageable current account deficits, (ii) decelerating inflationary pressures, and (iii) the gradual pace of FFR hikes, as conditions that supported increased monetary policy manoeuvrability. With incremental concerns of financial stability across the region, we see prospects of further BI rate cuts to be limited, with expectations for BI keeping rates on hold for the year. Movements on USDIDR remained marginal this morning, with the pair holding at the 13,350 handle where we expect the pair to inch higher towards the 13,500 mark over the medium term; keep a neutral view on IDR.

 

 

FW: [Maybank] Buoyant Mood

 

header

GBL: Buoyant Mood

Global Markets Daily
by Saktiandi Supaat

FX Research

Equities opened higher and continued to rise in NY session, buoyed by hopes of tax reforms amid talks that the mortgage interest tax deduction could see some modifications. Some revival of "Trump hope" trades lifted the UST yields as well as the USD overnight as well. At the same time, "Trump fears" may be evoked as the US treasury sanctioned 10 entities and six individuals from Russia and China for their violations of UN Security Council resolutions and attempted evasions of US sanctions...

FW: CIMB Daily Fixed Income Commentary - 23 Aug 2017 - Bank Indonesia cuts interest rate / Change on fiscal front in Washington?

 

Market Roundup

  • US Treasuries weakened with the 10T hovering just above 2.20% overnight amid some positive developments on the fiscal front. A Politico report suggested that White House and congressional leaders have found some common ground on how to fund reductions in individual and corporate taxes. Still, a fresh tax plan is not concrete at the moment with Trump faced with other stress in his administration. Meanwhile, Treasury secretary Mnuchin and GOP senate leader McConnell indicated confidence the debt limit would be lifted before the 29 Sep deadline.
  • Bank Indonesia surprised with a 25 basis point cut to 4.50% extending the six rate cuts they had done last year. It also lowered the deposit and lending facility rate by 0.25% to 3.75% and 5.25% respectively. The central bank believes there is room to cut rates due to the low inflation projected for 2017 and 2018 and with the current account deficit under control. It also indicated that risks relating to Fed rate hike and balance sheet unwind had diminished resulting in local rates remaining comparatively attractive. (Source: http://www.bi.go.id/en/ruang-media/siaran-pers/Pages/sp_196417.aspx)
  • Malaysia: Bonds extended gains, aided by low UST yields, while we suspect there was net foreign inflows pressuring USD/MYR lower to 4.2825 on Tuesday. Daily trading volume edged lower from RM2.9 billion to RM2.3 billion, with flows led by MGS Sep'24 and Feb'21, and GII Jul'22. Foreign reserves climbed to $100.4 billion as at 15 Aug, from $99.4 billion two weeks prior. The amount was able to fund 7.9 months of retained exports and is equivalent to 1.1 times of short term external debts.
  • Thailand: Govvies curve bear-steepened mainly by local trading flows among financial institutions in light macro day. Short-end sentiment worsened due to concerns about BoT attempt to prevent speculation on the Baht, and thus auction of 91-day and 182-day CB bonds drew weak demand with average yield at 1.2219% and 1.4366%, respectively. Even foreign investors bought short-term and long-term bonds at Bt1.11 billion and Bt702 million, pending sell-interest in the short-ends. As curve is steep at the 10-year, real investors appeared to have interest in LB25DA -  attractive at 2.314%(+5bps from previous day).
  • Indonesia: BI unexpectedly cut its policy rate to 4.50% on Tuesday which should aid sentiment rest of the week. Aside IndoGBs were traded up on auction day Tuesday, and investors looked eager to buy benchmark bonds in every tenors. The buying activities set the tone for a very good auction, as the government received IDR46.3 trillion incoming bids, and issued "only" IDR15 trillion as per their initial target, and elected not to upsize the issuance.



*****************************************************************************************************************

FW: RHB FIC Daily Snapshot 230817

 

RHB FIC DAILY SNAPSHOT

 

 

 

 

 

8/23/2017 8:21

 

 

 

 

 

 

 

 

1-Day

3-Mth

6-Mth

 

22-Aug-17

21-Aug-17

Chg (%)

Avg

Avg

Commodities

 

 

 

 

 

Brent Crude Oct 17

51.87

51.66

0.41

49.63

51.13

Brent Crude Nov 17

51.58

51.28

0.59

49.80

51.37

Brent Crude Dec 17

51.51

51.12

0.76

50.00

51.59

WTI Crude Oil

47.83

47.53

0.63

47.30

49.27

CPO Future Oct 17

2,729

2,703

0.96

2,603

2,678

CPO Future Nov 17

2,737

2,711

0.96

2,560

2,616

CPO Future Dec 17

2,743

2,717

0.96

2,541

2,580

GOLD spot US$/Oz

1,285

1,292

-0.52

1,257

1,252

DJ-UBS Metals Subindex

127.4

127.3

0.09

115.2

114.4

DJ-UBS Agriculture Subindex

48.11

48.34

-0.48

51.11

52.00

 

 

 

 

 

 

Forex

 

 

 

 

 

USD/MYR

4.283

4.287

-0.10

4.285

4.342

GBP/USD

1.282

1.290

-0.59

1.292

1.277

EUR/USD

1.176

1.182

-0.45

1.146

1.113

USD/JPY

109.6

109.0

0.54

111.2

111.5

AUD/USD

0.791

0.794

-0.35

0.772

0.763

USD/SGD

1.362

1.361

0.12

1.374

1.388

USD/HKD

7.826

7.824

0.03

7.807

7.790

USD/KRW

1,134

1,139

-0.45

1,131

1,132

USD/CNY

6.662

6.666

-0.05

6.771

6.830

USD/THB

33.24

33.25

-0.02

33.74

34.19

USD/IDR

13,344

13,351

-0.05

13,327

13,326

USD/PHP

51.23

51.43

-0.39

50.37

50.20

USD/INR

64.10

64.14

-0.05

64.36

64.70

 

 

 

 

 

 

 

 

 

 

 

 

Equity Indices

 

 

 

 

 

FBM KLCI

1,774.2

1,771.6

0.15

1,771.2

1,758.0

DJIA

21,899.9

21,703.8

0.90

21,529.2

21,171.0

S&P 500

2,452.5

2,428.4

0.99

2,444.3

2,408.0

NASDAQ

6,297.5

6,213.1

1.36

6,264.2

6,104.2

 

 

 

 

 

 

 

 

 

1-Day

3-Mth

6-Mth

Government Bonds

22-Aug-17

21-Aug-17

Chg (bps)

Avg

Avg

MGS 2/21 (3y)

3.36

3.38

-1.50

3.40

3.40

MGS 03/22 (5y)

3.57

3.56

0.90

3.63

3.68

MGS 09/24 (7y)

3.88

3.89

-0.90

3.88

3.90

MGS 11/27 (10y)

3.96

3.97

-0.60

3.94

3.93

MGS 04/33 (15y)

4.33

4.34

-0.80

4.37

4.42

MGS 07/37 (20y)

4.55

4.56

-0.90

4.56

4.59

MGS 03/46 (30y)

4.73

4.74

-0.70

4.75

4.77

UST 2YR

1.32

1.30

2.04

1.34

1.31

UST 5YR

1.78

1.75

3.30

1.81

1.85

UST 10YR

2.21

2.18

3.14

2.24

2.30

UST30YR

2.78

2.76

2.16

2.84

2.92

UK 2YR

0.22

0.22

-0.40

0.22

0.17

UK 10YR

1.09

1.07

1.70

1.13

1.13

GE 2YR

-0.72

-0.72

-0.30

-0.66

-0.71

GE 10YR

0.40

0.40

0.00

0.41

0.37

JGB 2YR

-0.13

-0.13

0.50

-0.12

-0.17

JGB 10YR

0.04

0.03

1.20

0.06

0.06

AU 2YR

1.83

1.81

1.30

1.73

1.73

AU 10YR

2.65

2.64

0.70

2.56

2.61

SGS 2YR

1.26

1.25

0.90

1.23

1.23

SGS 10YR

2.13

2.11

2.04

2.10

2.16

HK 2YR

0.84

0.84

0.00

0.80

0.85

HK 10YR

1.58

1.58

0.00

1.47

1.54

SK 2YR

1.72

1.70

1.70

1.63

1.62

SK 10YR

2.31

2.31

0.00

2.23

2.22

CH 10YR

3.66

3.65

0.90

3.60

3.52

TH 2YR

1.41

1.42

-0.30

1.45

1.48

TH 10YR

2.39

2.37

1.90

2.46

2.58

ID 2YR

6.41

6.41

-0.10

6.53

6.64

ID 10YR

6.88

6.90

-2.20

6.93

7.06

PH 2YR

2.96

2.96

0.00

2.96

3.02

PH 10YR

4.55

4.54

0.80

4.56

4.59

IN 2YR

6.34

6.34

-0.30

6.48

6.57

IN 10YR

6.54

6.51

2.50

6.51

6.67

 

 

 

 

 

 

Daily Headlines

 

 

 

 

 

Malaysia

 

 

 

 

 

RHB Bank, AMMB Scrap Proposed Merger After No Agreement on Terms.

Malaysia's Foreign Reserves Rise to $100.4b as at Aug. 15.

Global

 

 

 

 

 

Treasuries Sell Off, Equities Gain as Tax Reform Seen Advancing.

Bank Indonesia's Rate Cut Shows Its Comfort With Rupiah Outlook.

High-Grade U.S. Bonds Run at Fastest Pace Ever Past $1 Trillion.

Indonesian Rupiah Contracts Fall After BI Rate Cut.

Record Reserves Become Costly Cash Pile for India's Central Bank.

 

 

Related Posts with Thumbnails