OVERNIGHT MARKET UPDATE

OVERNIGHT MARKET UPDATE: ·         In US, the headline ISM non-manufacturing index was a little stronger than expected at 56.7  (mkt: +56.4) in January, up from 56.5 in January. While the ISM manufacturing survey has moderated  recently, the non-manufacturing ISM has remained elevated; combined the surveys continue to point to  US GDP growth of 3.5% y/y or more. Disappointingly, the employment component recorded a sharp decline   to 51.6 from 55.7. ·         Germany's service sector activity growth accelerated at the beginning of 2015 amid rising new business.  The final services Purchasing Managers' Index climbed to 54 in January from 52.1 in December. The flash  score was 52.7. The survey participants partly attributed the latest increase in activity to higher order  intakes, new customers and increased marketing efforts. Service sector output increased for 20 straight  months. Service sector employment rose further, extending the current period of growth to 15 months.  Companies reported another decrease in work outstanding. ·         In the currency markets, the reversal in oil prices overnight took some pressure off of the USD, and  commodity currencies remained range bound. Policy easing in China did little to buoy sentiment as it was  viewed primarily as a liquidity management exercise rather than as outright stimulus. ·         US Treasuries had a whippy night but yields are a touch lower yesterday morning, in contrast to higher  gilt and bund yields.   ·         US indices were little changed, with the Dow up 0.04%, and the S&P 500 down 0.4%.   ·         Crude oil prices declined following a 3-day rally as US crude inventories hit another record high  (413.1 million barrels). Inventories are likely to increase further as US refineries enter maintenance  shutdown season.   ·         Gold found support by the PBoC’s decision to ease policy and improved physical demand from India  but its recovery was held back by the fall in oil prices and stronger USD.

Maybank GM Daily - 5 Feb 2015

FX

Global

      US equities closed flat overnight. US data was generally positive – ADP rose less than expected but remain in 200k-250k range; ISM non-mfg rose. Oil prices took a dump, falling by ~8%, snapping 3 days of rally after US inventories hit another record high. Renewed Greek concerns after ECB took a hard stance, also weighed on sentiment. ECB said to stop banks from using Greek debt as loan collateral. USD benefited against most currencies including EUR and commodity-bloc currencies. USD/JPY was lower, closing around 117.28.

       PBoC cut RRR by 50bps after Asia close yesterday. Move is expected to release about RMB 600bn of liquidity into the system. We view this as liquidity management amid capital outflow, rather than monetary stimulus. Looking ahead we expect PBoC still continue to use the daily USD/CNY midpoint tool to guide exchange rate; expect another RRR cut and/or interest rate cut likely after Chinese New Year holidays. Near term CNY depreciation pressures likely to slow. We still expect further CNY weakness ahead.

       Day ahead brings Indonesia 4Q GDP, Philippines CPI for Asia. For EU,  GE Factory Orders (Dec); EU publishes Economic Forecast; ECB Publishes Economic Bulletin; EC, GE, FR, IT Retail PMI (Jan); ECB's Praet speaks in Frankfurt. For UK, BoE meets later today (expect non-event). For US,  Initial Jobless Claims (31Jan); Continuing Claims (24 Jan); and Trade Bal (Dec). Fed's Rosengren Addresses Conference on Sovereign Risk. Key focus will be on US NFP tomorrow.

G7 Currencies

      DXY – Buy dips. USD strength returned after a shallow dip the day before, on falling oil prices, renewed Greek concerns and relatively strong US data overnight. DXY trades around 94.45 levels this morning. We still favor buying USD on dips. Focus for the week on US payrolls tomorrow. A number within 200-250k should lend support the the USD. Day ahead Initial Jobless Claims (31Jan); Continuing Claims (24 Jan); and Trade Bal (Dec). Fed's Rosengren Addresses Conference on Sovereign Risk

      USD/JPY – Rangy With Downside Tilt. The USD/JPY remained in choppy trades amid a resurgence in the dollar. Still, pair has continued to trade within familiar ranges. Intraday MACD is showing little momentum in either direction this morning, though slow stochastics is slipping lower, suggesting a potential for a pullback. Ahead of US NFP tomorrow night, look for rangy trades to continue within 116.80-118.00 with a slight bias to the downside. Kuroda is back in parliament later this morning.

      AUD/USD – Bearish bias. AUD/USD traded higher towards 0.7850 post-China RRR cut but soon eased 1-biggie lower at 0.7750 levels into NY close on lower oil prices and renewed Greek debt concerns (again). Pair remains soft despite better than expected 4Q retail sales data (just released). Focus on RBA statement (Fri) and US NFP. Intra-day range of 0.77- 0.7830 likely to hold. Still favor fading rallies.

      EUR/USD – Fade Relief Rally.  EUR/USD took a dump towards 1.1330s as Greek fears reignited after ECB took a hard stance – “ECB can’t assume successful conclusion of Greek review”. Fade rallies remains the name of the game. 4-hourly momentum and oscillator are suggesting further downside. Intra-day range of 1.1270 – 1.1370 expected. Day ahead sees GE Factory Orders (Dec); EU publishes Economic Forecast; ECB Publishes Economic Bulletin; EC, GE, FR, IT Retail PMI (Jan); ECB's Praet speaks in Frankfurt.

      EUR/SGD – Range. EUR/SGD rejected the 1.5490 levels (38.2% fibonaccir retracement of 1.6389 – 1.4936), and traded down to 1.5280 (23.6% Fibonacci retracement). Greek risk and oil prices remain a key driver of sentiment. 1.52 – 1.5350 range likely intra-day. Daily stochastics is showing tentative signs of falling from overbought levels.  

Regional FX

      The SGD NEER trades around 1.38% below the implied mid-point of 1.3296 and the top end is estimated at 1.3026 and the floor at 1.3565.

      USD/SGD – Rangy. The USD/SGD has rebounded on the back of a firmer dollar tone after edging lower to 1.3436 yesterday and is now sighted around 1.3486. Pair is now trapped within an intraday ichimoku cloud, suggesting that range-bound trades are likely ahead. Immediate resistance today is seen around the top of the cloud at 1.3500 with a break exposing the next barrier at 1.3555. 1.3460 remains supportive.

      AUD/SGD – Sideways. The AUD/SGD has settled lower at around the 1.0445 levels after failing to move higher yesterday. Even the PBOC RRR cut yesterday did not provide a significant lift to the cross. Lacking fresh impetus and ahead of US NFP tomorrow, expect the pair to move sideways within 1.0325-1.0640 today. Slow stochastics are now flat-lining, suggesting range-bound trades could be in store.

      SGD/MYR – Rebound. The SGD/MYR is back on the rebound after yesterday’s massive move lower. Cross is now sighted around 2.6585 with intraday momentum indicators showing little directional clarity for now. With oil prices on the uptick, expect further MYR weakness to lift the cross higher today with topside guarded by 2.6850 still and any dips limited by 2.6430.

      USD/MYR – Downside Bias. USD/MYR rose towards 3.59 high (1s NDF was at 3.6) this morning, tracking the fall in oil prices (Brent -7.8%). Day ahead sees Malaysia trade data. Intra-day expect 3.57 – 3.6 range. Some levels to watch include 3.57 (23.6% Fibonacci retracement of 3.3478 – 3.6375);  3.53 levels (38.2 fibo retracement and 50 DMA).

      USD/CNY was fixed at 6.1366 (+0.0048) vs. Previous 6.1318 (+2.0% upper band limit: 6.2618; -2.0% lower band limit: 6.0163). CNY/MYR was fixed at 0.5760 (+0.0044). USD/CNH – Range. PBoC cut RRR by 50bps after Asia close yesterday. Move is likely to release about RMB 600bn of liquidity into the system. We view this as liquidity management amid capital outflow, rather than monetary stimulus. Initial market reaction was rather muted, as moves were soon reversed.  USD/CNH initially traded higher towards 6.26 following the RRR cut but soon eased towards 6.25 levels. USD/CNH continues to trade higher towards 6.26 this morning. Intra-day range of 6.25 – 6.27 likely. Onshore USD/CNY also higher around 6.2550, tracking higher USD/CNY fix. Pace of CNY depreciation likely to slow and we remain convicted to our view for USD/CNY to be at 6.32 (1Q); 6.38 (2Q). 

      USD/IDR – Edging Higher. The USD/IDR is edging higher this morning, lifted by the dollar resurgence but tempered by the China’s move to cut the RRR yesterday. Pair, currently sighted around 12639, has lost most of its bullish momentum. Trades today should remain within 12480-12700 today, any upside surprises to 4Q14 GDP (cons.: 4.96% y/y) could lift the IDR and see a move back to the lower end of the range. Yesterday, foreign funds bought a net USD69.35mn in equities, providing support for the IDR. However, a net IDR1.1tn was taken out from their outstanding holdings of debt on Tue. The 1-month NDF is inching slightly higher this morning, sighted around 12721, with slow stochastics showing an uptick. The JISDOR was fixed lower at 12609 on Wed from Tue’s 12643 and could be fixed higher given the spot’s uptick this morning.

      USD/PHP – Gapped Higher. The USD/PHP gapped slightly higher at the opening to 44.150 from yesterday’s close of 44.100, probably on the back of EUR weakness and a firmer dollar tone. Pair has retraced a little since, sighted around 44.145, helped by expectations that interest rates could be kept on hold for now given higher-than-expected inflation in Jan. The 44-figure remains key support and we need to see a firm break of this level for bearish control to be extend with the next support around 43.810. Resistance remains at 44.280. Pair has lost most of its bearish momentum, while slow stochastic is showing tentative signs of a pick-up.  Equity flows remains supportive of the PHP with a net USD27.66mn bought by foreign funds yesterday. The 1-month NDF is little changed this morning at around 44.17 with both intraday MACD and slow stochastics on the rise.

      USD/THB – Range-Bound.  The USD/THB is in consolidative trades after swinging back higher yesterday on the back of net portfolio outflows. Foreign funds sold a net THB6.52bn in debt yesterday, which offset the gains of a net THB2.44bn in equities. Pair is inching lower this morning, helped by sentiments over yesterday’s PBCO’s RRR cut but could be temporary as intraday momentum indicators are showing a bias to the upside. Look for the pair to stay in range-bound trades within 32.500-32.720 today.

Rates

Malaysia

      Local government bond market ended the day 1-8bps lower on the back of continued buying from foreign names. The belly of the curve was most actively traded as the 10y MGS 7/24 ended 8bps lower at 3.76%. We continue to see a flattening of the MGS curve as onshore players scramble to cover short positions amidst thin inventory.

      IRS traded lower probably due to lower government bond yield, and some market players might think KLIBOR can go lower from existing high. Onshore players are still better payers and we prefer 3 to 5-year tenors. 2y IRS was given at 3.73%, 4y IRS was sold down at 3.79% and 5y IRS at 3.815% and 3.81%. 3M KLIBOR stay unchanged at 3.85%.

      The PDS market saw few trades done in spite of the increased activity in the MGS market. Market was biddish on AAA and GG papers but bid-ask was mostly side at 10bps. Dana 2029s traded 2bps lower than MTM at 4.60% while Dana 7/2024s was given at 4.37%. We saw PTPTN 24s being traded at 4.40%. With GG’s current spreads of 61bps over benchmark govvies there may be some room for spread compression at the 10y point. Some shorter dated papers e.g. Dana 15 were picked up by a single buyer at 3.63% possibly to hold to maturity.

Singapore

      SGS yields opened up higher in the morning with longer end yields rising as much as 12bps while SGD IRS opened about 7bps pretty much tracking the weak performance of overnight UST, but later the day SGS recovered some of the losses to end the day 3-6bps higher. The curve traded steeper as market players may be closing out flattening positions and turning a bit defensive ahead of the release of the US nonfarm payrolls data this Friday.

      Asian credit traded mostly weaker due to the treasury move. Indon and Philips sovereigns are lower in cash. New issuance like Tower Bersama (issued at par) is now trading at around 99.375/99.625. We see heavy primary deals in the Asian credit space. Export Import Bank of India (rated Baa3) opened its book this morning for a 5.5-year USD paper at guidance of T+175. Given its existing 2019 and 2023 maturity, we think the fair value for the paper should probably be around T+160bps. Book was seen last to have more than USD1b orders. Tencent also proposed a new issuance for 5 years and 10 years at T5+185bps and T10 + 235bps respectively. Tencent is pretty much trading at the widest among other Chinese Internet names, but there should be trading value if final pricing are not tighter than T5+165bps and T10+205bps. Also, we have National Bank of Abu Dhabi issuing 5 years USD at IPG of MS+90bps.

Indonesia

      Bond prices corrected after more than 3 weeks incline. Some selling by foreign was seen during the day on the belly and long end tenors. Can we blame recent oil price hike for the decline of bond prices? We see it’s too early to use oil price hike as an excuse. Hence, inclining oil price may result in Indonesia government increasing gasoline price and may increase inflation. This concern may start affecting bond prices as soon as oil price continue its incline. There were very minimum market sentiments ahead of domestic GDP release as well as US NFP and unemployment data release. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 6.777%, 6.913%, 7.038% and 7.203% while 2y yield shifts up to 6.599%. Heavy volume at secondary market remains to be traded at government segments amounting Rp19,567 bn with FR0071 (15y benchmark series) as the most tradable bond. FR0071 total trading volume amounting Rp5,967 bn with 107x transaction frequency and closed at 117.358 yielding 7.038%.

      Corporate bond trading traded moderate amounting Rp552 bn. BEXI02DCN1 (Shelf registration II Indonesia Eximbank Phase I Year 2014; D serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp80 bn yielding 9.295%.

AmWatch - Hong Leong Bank : Shielded from asset quality uncertainty BUY, 5 Feb 2015

STOCK FOCUS OF THE DAY

Hong Leong Bank : Shielded from asset quality uncertainty          BUY

We maintain BUY on Hong Leong Bank Bhd (HLBB) with an unchanged fair value of RM17.00/share. This is based on an ROE of 14.1% for FY15F and a fair P/BV of 1.9x. From our recent company visit, we expect HLBB’s asset quality to remain excellent, given that it has been relatively cautious in selected commodity and real estate segments. We also expect good recoveries, which should lead to low credit costs overall in the short term.

Otherwise, we have revisited our rights issue assumption in view of greater uncertainty in the macro environment. We now expect minimum comfortable level of fully-loaded CET1 ratio to be likely higher at 10.5%, instead of our earlier estimated 10.0%. This is due mainly to the higher-than-expected counter-cyclical buffer being proposed by regional countries, ranging from 2.0% to 2.5%. This is higher than market expectations of 1.0% to 1.5%. Thus, all in, we now estimate HLBB’s potential rights issue to be RM3.1bil, which is higher than our last assumption of RM1.6bil three months ago; this is closer our original forecast in early 2014, when we projected a rights issue of RM3bil.

This means a potential rights issue of 269mil new shares, on a 1-for-7 share basis, if assuming the rights is priced at a 20% discount to current market price, or about RM11.20/share. Under this scenario, ROE is likely to be diluted downwards by only 1ppt to 13.1%, from our current estimate of 14.1% for FY15F. This takes our fair P/BV for the stock to 1.7x, from 1.9x, leading to fully diluted fair value of RM15.00/share. Notwithstanding this, we still think there is the excellent hidden capital buffer of RM1.1bil in its treasury shares, which may reduce its rights issue requirement eventually. HLBB offers one of the safest exposure to the banking sector given its excellent asset quality.

Others :

Eco World Development :  To co-develop Bukit Bintang City Centre          BUY

Tan Chong Motor : Still bumpy ride, but valuations reaching bottom        HOLD

QUICK TAKES

Genting Malaysia : To sell Wisma Genting?           HOLD

Plantation Sector : Indonesia proposes to raise biodiesel subsidy              NEUTRAL

NEWS HIGHLIGHTS

Dialog Group : Vopak Pengerang oil tank farm to start ops soon

YTL Power International : RAM Ratings reaffirms YTL Power’s stable rating for RM5b debt notes

Malaysia Airports Holdings : Finally issues CPC for klia2 terminal building

Petronas Chemicals Group : Successor for top job at Petronas to be announced soon

Press Metal : Sees up to 15% higher aluminium production by year-end

Sunway : Gets nod for construction unit listing

DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.