THE STAR, THURSDAY 6 AUGUST 2020
Pan Borneo Highway Sabah
Upgrading to 2-lane
dual carriageway
New alignment 2-lane
dual carriageway
New coastal road
single carriageway Tuaran
Existing road
Kota Kinabalu
Papar
Beaufort
Menumbok
Sipitang
Tenom
Sindumin
S A R A W A K
Changing route: The Pan Borneo Highway in Sabah is at the crossroads again. The evolving political situation in Sabah may have knock-on
effects on the execution of the highway project. > See page 2
Focus on firms
with Turkish ops
How will the fall in the Turkish lira affect them?
CORPORATE
By DANIEL KHOO
danielkhoo@thestar.com.my
PETALING JAYA: The overnight fall in the
Turkish lira has placed the focus on two
stocks that have their operations in the coun-
try – IHH Healthcare Bhd and Malaysia
Airports Holdings Bhd (MAHB).
The Turkish lira, which was already hover-
ing at its historical lows, has seen renewed
selling interest after it was reported that the
overnight borrowing cost of the Turkish cur-
rency in the offshore market had surged to
the highest level since March 2019.
There was a renewed fall in the Turkish lira
yesterday, with the currency weakening by
1.86% against the US dollar to 7.0259 as at
press time.
When contacted, an analyst from a local
research house said he does not expect any
impact on MAHB’s Turkish operations
because revenues there were transacted in
euros.
“They are not in the lira, so MAHB is not
affected,” he said.
The airport operator wholly owns the
Istanbul Sabiha Gökçen International Airport,
which contributed RM16.89mil to the group’s
bottom line which came in at a net loss of
RM20.38mil in the quarter ended March 31
2020, financial sheets showed.
MAHB’s shares rose three sen to RM5.01
yesterday.
Meanwhile, another analyst said that he
Phase 1:
Kudat Sindumin-Beaufort-Tamparuli-Tuaran-
Kudat-Ranau-Telupid-Sandakan (M32)
Lahad Datu ByPass-Tawau
Phase 2:
Tamparuli-Ranau
Existing road
Tamparuli
Ranau
Sandakan
Tambunan M32
Telupid
Keningau
S A B A H Lahad Datu
Kalabakan
Tawau
I N D O N E S I A
Source: KAF Equities graphics
ments, IHH’s Acibadem’s loans and borrow-
ings stood at RM2.19bil on March 31, 2020
from RM3.30bil a year ago.
IHH’s management was reported to have
said in May last year that it was looking to
further reduce its non-Turkish lira foreign
currency debt for Acibadem to mitigate the
overall effects of foreign currency fluctua-
“IHH’s Acibadem is tions on IHH.
“There are a lot of moving parts for IHH
one of the bright since it is a big group consisting of various
companies, but I don’t think this will impact
spots. I am not really the group,” the analyst said.
MIDF Research in its report at the end of
concerned at all and June noted that IHH’s Acibadem’s perfor-
mance in its first quarter had been strong
despite the pandemic and the weak lira.
the developments in “Acibadem’s revenue, after stripping off the
effects of the weak lira translation, had grown
the lira are just by 8% year-on-year (y-o-y) despite the -4.4%
y-o-y contraction in the number of inpatients
white noise.” admitted,” MIDF Research said.
It added that Acibadem’s revenue intensity
An analyst per patient also grew by 14.8% y-o-y due to
the more complex cases that were undertak-
en in the quarter, and also pricing adjust-
ments made during the quarter to account for
does not expect a material impact on IHH, as inflation.
most of the bad news from the Covid-19 pan- IHH’s shares declined by six sen yesterday
demic had been factored into the stock price. to RM5.24 at its close.
“I feel that IHH’s Acibadem is one of the On the lira, Bloomberg reported that the
bright spots for the IHH group. I am not really overnight forward-implied yield on the cur-
concerned at all and the developments in the rency had jumped by as much as 1,020 per-
lira are just white noise,” the analyst said. centage points to 1,050% on Tuesday.
He said that when compared to a year ago, The borrowing cost of the Turkish lira had
IHH’s Turkish lira debt had reduced by some surged after heavy interventions by its gov-
30% in its latest results.
According to its most recent financial state- > TURN TO PAGE 2
Indonesian
economy shrinks
for first time
since Asian crisis
JAKARTA: Indonesia’s economy contracted
for the first time since the aftermath of the
Asian Financial Crisis more than two decades
ago, as movement restrictions to contain the
coronavirus outbreak took a toll on South-
East Asia’s largest economy.
Gross domestic product (GDP) declined
5.32% in the second quarter (Q2) from a year
ago, data from the statistics bureau showed
yesterday, its deepest contraction since the
first three months of 1999. The median esti-
mate in a Bloomberg survey of economists
was for a 4.72% slump. GDP fell 4.19% com-
pared to the previous quarter, worse than the
3.65% drop expected.
“You know a blow is coming and you’ve
been bracing yourself for it, but when it
comes it’s still going to hurt -- a lot,” said
Wellian Wiranto, an economist at Oversea-
Chinese Banking Corp in Singapore. “While
we still see a recovery in the second half, the
path is made all the more uncertain by global
developments.”
Indonesia’s benchmark stock index closed
1% higher, rebounding from a 0.3% drop
after the data release. The yield on bench-
mark 10-year government bonds dropped
two basis points to 6.821%, while the rupiah
rose 0.5% against the US dollar.
Retail sales in the consumption-reliant
economy have taken a knock amid the pan-
demic, while manufacturing continues to
contract, as the latest purchasing managers
index showed. Indonesia’s exports, dominat-
ed by commodities such as coal and palm oil,
have shown some improvement in recent
months.
The government has lowered its growth
forecasts several times already and now sees
GDP in a range of -0.4% to 1% for the year.
The central bank has cut its own estimate to
0.9%-1.9% growth.
President Joko Widodo has said the econo-
my is showing signs of recovery, with house-
hold consumption, purchasing power and
money circulation in rural areas rebounding
recently. However, the country’s virus out-
break – the worst in South-East Asia – shows
no signs of abating and could weigh on that
outlook.
“Household consumption and investment
are the biggest sources of our GDP growth, so
we should put much more effort for these
components to perform better in the next
quarters,” Suhariyanto, head of the Indonesia
Statistics Agency, said in a briefing.
The sharp contraction in Indonesia’s econo-
my in Q2 is likely to have been the low-point.
Even so, declines in Q3 and Q4 cannot be
ruled out, as Covid-19 restrictions in some
form will need to remain in place until a rem-
edy is widely available. Whether Indonesia
can re-open substantially further and return
to positive growth by Q4 would hinge on fatal-
ities remaining relatively low.
In a separate briefing, Coordinating
Minister for Economic Affairs Airlangga
Hartarto noted recent improvement in the
PMI, car sales and retail sales as harbingers of
revival.
“We believe the economy has started show-
ing a reversal from its bottom in Q2,” he said.
Josua Pardede, an economist at Bank
Permata, said the data showed a rising risk of
recession and called on the government to
boost its fiscal support. The government has
disbursed only 141 trillion rupiah (US$9.7bil),
or 20% of the 695.2 trillion rupiah it has allo-
cated for stimulus.
“Steps to stimulate the economy through
accelerating the stimulus of government
spending is crucial, by continuing to encour-
age productivity, which has a multiplier effect
on public demand and consumption,” he said.
“Economic performance in the third quarter
of 2020 is expected to be a turning point.” —
Bloomberg
2 News
StarBiz Special
All eyes on Budget 2021
and 12th Malaysia Plan
State assembly dissolution puts focus on Pan-Borneo Highway
By ROYCE TAN
roycetan@thestar.com.my
PETALING JAYA: Construction counters
have been in hibernation mode at least since
June, with little or flattish movements in pric-
es since the slight rebound from the March 19
plunge.
The KL Construction Index has been fluctu-
ating between the 160-point and 170-point
mark since June.
While it had come off its low of 121.91
points on March 19, the index was still
nowhere close to its pre-Covid levels of above
200 points.
The market has been expecting the sector
to pick up in the second half this year, hop-
ing that the government would bank on
construction to anchor the nation’s econom-
ic recovery post-pandemic but there have
been no major catalysts yet to trigger any
meaningful movements.
Political instability has long been a bane to
the construction industry, hampering the exe-
cution of key infrastructure projects.
The sector has gone through three different
administrations in Putrajaya in just three
years from 2018 until now and no mega pro-
jects really kicked off throughout the period.
Just last week, Sabah shocked the nation
when the state assembly was dissolved amidst
a political crisis to pave way for fresh polls.
In the business world, the spotlight is now
on the Pan Borneo Highway project in the
state again.
KAF Equities Research said in a note recent-
ly that there could be renewed concerns over
the prospects for several major infrastructure
projects in Sabah.
“The evolving political situation may have
knock-on effects on the execution of Pan
Borneo Sabah, we believe.
“Prior to this, the project had already been
mired in delays with its progress as well as
award of tenders.
“One of the reasons in our view was the
change in project structure as part of the pre-
vious administration’s cost rationalisation
exercise, which resulted in the dismantling of
the project delivery partner (PDP) mecha-
nism,” it said, adding that lingering uncertain-
ties about the status of Pan Borneo Sabah,
which spans 1,236km, could persist until a
resolution to the state’s political impasse was
reached.
Affin Hwang Capital Research senior asso-
ciate director Loong Chee Wei agreed that the
political uncertainties in Sabah could delay
the implementation of the Pan Borneo
Highway in the state but he pointed out that
KLCCP Stapled Q2 net profit down 22%
By GANESHWARAN KANA
ganeshwaran@thestar.com.my
PETALING JAYA: KLCCP Stapled Group’s net
profit in the second quarter ended June 30 fell
by over 22% year-on-year (y-o-y) after the
performance of its hotel and retail segments
deteriorated sharply due to the movement
control order (MCO).
KLCCP Stapled, which comprises KLCC
Property Holdings Bhd and KLCC Real Estate
Investment Trust (KLCC REIT), told Bursa
Malaysia that its net profit was RM140.46mil
as compared to RM180.38mil a year earlier.
The retail segment’s pre-tax profit plunged
by 50% in the second quarter, largely due to
rental assistance to tenants in response to the
MCO and lower internal digital advertising
income.
For context, the retail segment is represent-
ed by Suria KLCC and the retail podium of
Menara 3 Petronas.
The hotel segment or the Mandarin Oriental
“There is a potential recovery in second half
2020 as the government is starting to revive
large-scale infrastructure projects, kicking
off with the Rapid Transit System Link
between Malaysia and Singapore.”
Loong Chee Wei
CONSTRUCTION
no listed construction companies were
awarded contracts for project in Sabah and
hence, there was no impact.
“But Gabungan AQRS Bhd and Suria Capital
Holdings Bhd are jointly bidding for some
packages. Their prospects to win contracts
could be adversely affected if the roll out of
contracts are delayed,” he told StarBiz.
As of June, the progress for Pan Borneo
Sabah had only reached 32% as compared
to its original completion target of Dec 12,
2021.
While not all is rosy when it comes to the
political situation on the Federal level, all eyes
are on the tabling of Budget 2021 in November
and the tabling of the 12th Malaysia Plan
(RMK-12), expected to be in January next year
as it will give a better view of the govern-
ment’s infrastructure direction in 2021.
CGS-CIMB Research infrastructure analyst
Sharizan Rosely said Budget 2021 and RMK-
12 would provide a more in depth under-
standing of the government’s plans for the
sector next year.
“I hope there will be more clarity on how
the government intends to revive infrastruc-
ture spending.
“At the end of the movement control order
(MCO) and the start of the recovery MCO,
investors and industry players have been on
a constant wait-and-see approach for some
policies from the ministries.
“After Penjana (National Economic
Recovery Plan) and after we’ve been manag-
ing the first few phases of MCOs, now it’s time
for the government to get back into action in
implementing economic policies and recov-
ery plans for sectors that were affected,” he
told StarBiz.
Kuala Lumpur recorded a loss of RM20.4mil
as operations were scaled down to comply
with the MCO.
Meanwhile, the group’s revenue for the
April-June 2020 period dropped by 23.88%
y-o-y to RM267.25mil as a result of the pan-
demic.
All segments of KLCCP Stapled, except for
management services, recorded a lower reve-
nue in the second quarter on a y-o-y basis.
For the second quarter, the group distribut-
ed 7.5 sen per stapled security, lower than the
8.8 sen distributed in the second quarter of
the previous financial year.
The earnings per share in the second quar-
ter was 7.78 sen.
Cumulatively, for the first half of financial
year 2020, KLCCP Stapled’s earnings fell by
about 12.9% y-o-y to RM317.34mil. In com-
parison, the group recorded a net profit of
RM364.33mil in first half 2019.
Revenue in the six-month period dropped
by 11.74% y-o-y to RM621.84mil.
Sharizan added that while politics has
affected the progress of some contracts, it
would still play a role in the rollout of con-
tracts in 2021.
On the sector’s 2020 earnings, he said it
would be a washout year for revenue and
profits due to weaker billings for the year and
also a slow restart in activities.
Loong said he maintained his “under-
weight” call on the sector, on the back of a
slow roll-out of government projects in 2020,
earnings risk for construction companies due
to disruption from the MCO and political
uncertainties.
“But there is a potential recovery in second
half 2020 as the government is starting to
revive large-scale infrastructure projects,
kicking off with the Rapid Transit System
Link between Malaysia and Singapore.
“The revival of more large-scale infrastruc-
ture projects such as Kuala Lumpur-Singapore
High-Speed Rail and the mass rapid transit
line 3 (MRT 3) will improve prospects for
order book replenishment of the listed con-
struction companies,” he said.
Meanwhile, RHB Research said in a report
that second half 2020 may offer fresh cata-
lysts and shed more light on potential earn-
ings visibility.
It maintained its “neutral” call on the sector
pending further developments, adding that it
appeared to be plausible for the MRT3 project
to stage a comeback.
The project was scrapped by former prime
minister Tun Dr Mahathir Mohamad in May
2018, shortly after Pakatan Harapan took
over the government.
Watch the video
thestartv.com
Total dividend payment in the first half was
15.8 sen, as compared to 17.6 sen in first half
2019.
Moving forward, the group expects the
performance of its office segment to remain
stable, backed by long-term tenancies.
While the re-opening of Suria KLCC has
recorded a positive sales turnover in June, the
group said it remained cautious, considering
the diminishing consumer spending power.
The retail and hotel segments are expected to
remain challenging for the rest of the year.
According to KLCC Property chief executive
officer Datuk Hashim Wahir, the group has
been extending rental assistance to its tenants
at Suria KLCC to ensure business continuity
and sustainability.
“The full re-opening of our businesses is
showing a positive trend towards recovery
and we will continue our focus to regain the
momentum to create long-term value for our
holders of stapled securities,” he said in a fil-
ing with Bursa Malaysia.
STARBIZ, THURSDAY 6 AUGUST 2020
Automotive to
drive UMW’s
earnings in
second half
KUALA LUMPUR: The automotive segment’s
sales by UMW Toyota Motor (UMWT) and
Perodua is expected to drive UMW Holdings
Bhd’s earnings in the second half of this year.
UMW said its automotive market share is
estimated at 52% in July, higher than 51.4%
recorded in 2019.
The group noted that UMWT sold 7,509
units in July, which was 70% more than 4,417
units in June. Toyota Vios continued to be its
best-selling model in July, contributing about
34% of total sales.
“The improved sales in July was mainly
due to the sales tax exemption announced by
the government on June 5 effective from June
15 to Dec 31, 2020,” UMW said.
It added that Perodua sales rose by 9.2% to
23,203 vehicles in July, from 21,250 units in
June.
“July marked Perodua’s highest monthly
sales for the year. Perodua is also increasing
production at its assembly plants to meet the
strong demand,” UMW said in a statement.
Despite the disruptions to sales earlier this
year from the Covid-19 pandemic, UMW act-
ing president and group chief executive
officer Azmin Che Yusoff said both UMWT
and Perodua staged a strong recovery, espe-
cially from the sales registered in July.
“We are thankful to the government for
introducing economic stimulus packages and
implementing sales tax exemption to boost
the automotive industry. With these meas-
ures, we are confident of achieving our sales
targets for the year,” he added.
Catch up
with the auto world!
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at carsifu.my
to get the hottest
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on cars and more.
Boom in lending
driving weakness
> FROM PAGE 1
ernment in the currency late last week, drain-
ing the supply of the local currency.
It was reported that last week, Turkey’s
state-owned banks had flooded the market
with foreign exchange and had sold a sub-
stantial amount of US dollars there.
Meanwhile, the report also said that for-
eign investors have been barred from bor-
rowing from local banks so as to deter short
sellers from entering the market.
Since these group of people don’t have
access to central bank funding in Turkey and
may not have Turkish lira on hand, they
would have to borrow the currency in the
offshore market, where supply is limited and
this had driven up the rate.
At the end of last month, analysts at MUFG
Bank, Japan’s largest lender, were reported to
have said by FXStreet that it had expected the
Turkish lira to continue depreciating but did
not expect a repeat of the currency crisis in
2018.
The analysts were reported to have said
that the lira would continue to weaken until
at least the Turkish authorities were able to
establish credibility to stabilise inflation
levels.
It was in early May that the Turkish lira
fell to an all-time low of 7.269 against the US
dollar.
“Turkey’s current account position turning
to deficit with one of the largest negative real
yields is a recipe for currency depreciation,”
the analysts were quoted as saying in the
report.
The analysts said that a boom in lending in
Turkey was driving the lira’s weakness.
STARBIZ, THURSDAY 6 AUGUST 2020
Boustead
Plantations
appoints director
PETALING JAYA: Boustead Plantations
Bhd has appointed Datuk Ahmad Tajuddin
Sulaiman as independent non-executive
director with effect from yesterday.
In a filing with Bursa Malaysia, the plan-
tation group said Ahmad Tajuddin, 66, is a
seasoned professional with almost 45 years
of experience and a strong background in
the plantation sector.
“The group welcomes Ahmad Tajuddin to
the board and looks forward to benefiting
from his in-depth experience in the planta-
tion sector,” it said.
Tan Chong
distribution deal
not renewed
PETALING JAYA: Tan Chong Motor
Holdings Bhd’s distribution agreement for
the Nissan Sunny and X-Trail models in
Vietnam will not be renewed.
In its stock filing, the automotive distribu-
tor said its indirect wholly-owned TCIE
Vietnam Pte Ltd (TCIEV) had received letters
from Nissan Motor Co Ltd (NML) on the
non-renewal of the distribution agreement
for the Nissan completely knocked down
(CKD) models.
The distribution agreement dated Sept 20,
2012, was due to expire on Sept 19 this year.
“Notwithstanding the above, the technical
assistance agreement dated May 30, 2012
executed between TCIEV and NML for the
rendering of technical assistance to TCIEV
by NML for the assembly of the Nissan CKD
models will continue to remain in force,”
Tan Chong said.
Green Ocean
share placement
plan lapses
KUALA LUMPUR: Green Ocean Corp Bhd’s
proposed private placement of up to 10% of
its issued shares or 28.97 million new shares
at 18.5 sen each has lapsed.
In a statement to Bursa Malaysia, it said
the payment condition was not met and the
issue price for the initial tranche of place-
ment shares had lapsed.
On July 28, it fixed the issue price for the
initial tranche at 18.5 sen per placement
share. This would see the company raise up
to RM5.36mil.
As the placement exercise had lapsed, the
issue price would be re-determined and
re-fixed by board later date after all the reg-
ulatory approvals had been obtained.
As at March 31,2020, the company’s total
borrowings were about RM15.85mil.
MMAG disposes
of 30% equity
in MSCM
KUALA LUMPUR: MMAG Holdings Bhd is
disposing of its entire shareholding and war-
rants in associate company MSCM Holdings
Bhd for a total cash sum of RM18.84mil.
In a filing with Bursa Malaysia, the group
said it had entered into a share sale agree-
ment to dispose of 95.21 million shares or
about 30% stake in MSCM Holdings Bhd to
Hong Seng Assembly Sdn Bhd for
RM18.09mil. In the same filing, the group
said it had also entered into an agreement to
dispose of 75.17 million warrants in MSCM
to Landasan Simfoni Sdn Bhd for RM751,680.
Takeover offer
for Watta launched
CEO offers 50 sen per share
By GANESHWARAN KANA
ganeshwaran@thestar.com.my
PETALING JAYA: The single largest share-
holder and chief executive officer of Watta
Holding Bhd has launched a conditional man-
datory takeover offer for the company at 50
sen per offer share.
Datuk Lee Foo San, who is also the deputy
chairman, triggered the mandatory takeover
offer threshold of 33% after raising his stake
in the little-known company to 45.59% yester-
day.
Via direct business transactions, Lee
acquired an additional 11.14 million shares,
or a 13.19% stake, on top of his existing share-
holding of 32.8%.
The offer price of 50 sen is at a 1.01% pre-
mium compared to the 49.5 sen closing price
on Aug 4.
It also represents a 8.2% premium to the
five-day volume-weighted average market
price of Watta shares.
The offer to acquire shares will be fully
settled in cash.
AmInvestment Bank, which acted on behalf
of Lee, said that he intends to maintain the
listing status of Watta.
Karex share price rallies on glove mania
By THOMAS HUONG
huong@thestar.com.my
PETALING JAYA: The recent surge in con-
dom maker Karex Bhd’s share price has put
the company under the spotlight.
Since closing at 57.5 sen on July 30, Karex’s
share price has surged 102% over the last
three days to close at RM1.16 on Wednesday.
Its share price also hit an intraday high of
RM1.23, and some 106.6 million shares were
traded.
Karex is the largest condom producer by
volume in the world, and it also produces
personal lubricants and medical products
WCT to focus on maintaining July-end palm oil
healthy financial, cash flow position stocks expected
KUALA LUMPUR: WCT Holdings Bhd
to hit 3-year low
aims to focus on maintaining a healthy
financial and cash flow position, as well as
continue to drive its core business activi-
ties in the 2020 financial year (FY20) to
mitigate the impact of its declining reve-
nue.
In FY19, group revenue dipped to
RM1.84bil from RM2.30bil in the preced-
ing year.
WCT recorded a net loss of RM27.3mil in
FY19 compared with a net profit of
RM106.00mil in FY18 (restated).
Group managing director Datuk Lee
Tuck Fook said the group’s engineering
and construction division will continue to
focus on project execution and it would
continue to be supported by an outstand-
ing order book of over RM5bil.
The division recently secured a building
construction job worth RM1.2bil for the
superstructure works for Phase 2 of
Pavilion Damansara Heights in March
2020.
Meanwhile, the property development
division will continue its efforts to reduce
CORPORATE
The investment bank also confirmed that
Lee as the offeror has sufficient financial
resources to purchase the remaining shares
not owned by him.
“All valid acceptances of the offer by the
holders shall be irrevocable,” stated
AmInvestment Bank.
It also added that “the offer will remain
open for acceptances until 5pm for a period
of not less than 21 days from the posting date
(Aug 5), or such other later date as the offeror
may decide”.
It is worth noting that two individuals
namely Lee Fook Sin and Teoh Chee Kheong
are persons acting in concert with Lee.
“As at Aug 5, Lee Fook Sin holds 112,000
Watta shares representing approximately
0.13% equity interest in Watta while Teoh
Chee Kheong holds 200 Watta shares repre-
senting a negligible equity interest in Watta,”
said AmInvestment Bank.
It pointed out that Lee may only withdraw
the offer with the prior written consent of the
Securities Commission Malaysia.
Lee was appointed to the board of Watta on
namely probe covers and Foley balloon cath-
eters. A bank-backed research analyst con-
tacted by StarBiz said the sudden share price
surge is likely related to the current mania for
stocks of glove and healthcare products’ mak-
ers. “There is probably market speculation
that Karex might go into glove manufactur-
ing,” said the analyst.
Karex CEO Goh Miah Kiat could not be
reached for comments.
For its third quarter ended 30 March, 2020,
Karex posted a RM1.13 million loss, com-
pared with a RM165,000 net profit a year ago.
Revenue was 16.5% year-on-year higher at
RM99.15 million.
unsold properties, drive future sales as
well as divest undeveloped land to
improve operating cash flow.
“For our retail malls, we will continue to
extend support to our tenants to ride
through this challenging period.
“We will also introduce new promotions
and activities to drive higher customer
footfall and increase consumer spending,
while observing preventive guidelines
issued by the local authorities.
“ This is to safeguard the safety and
wellbeing of our tenants, shoppers and
employees,” he said in a statement
released after the company’s annual gen-
eral meeting yesterday.
Lee said WCT’s performance in the cur-
rent financial year had been affected by
the impact of the Covid-19 pandemic.
“The extent of the impact of the Covid-
19 on the group’s financial results would
depend on various factors, including the
speed of economic recovery, both domesti-
cally and internationally, as well as when
the pandemic can be effectively con-
tained,” he added. — Bernama
News 3
May 21, 1998 and has over 20 years of experi-
ence in the telecommunication and travel
related businesses.
The stock was temporarily suspended from
4.47pm to facilitate the announcement of the
mandatory takeover offer. Trading of the
shares will resume today as usual.
Watta, according to its website, is principal-
ly involved in the servicing and repair of
mobile telecommunication equipment prod-
ucts and property investment.
Its subsidiaries Mobile Technic Sdn Bhd
and SEMS Services Sdn Bhd offer service and
maintenance of mobile telecommunication
devices.
In the past, its subsidiary Watta Battery
Industries Sdn Bhd (which owns four indus-
trial properties in Balakong, Selangor), had
been involved in manufacturing, distribution
and trading of automotive batteries.
Having ceased the operations in automo-
tive batteries in 2018, the industrial proper-
ties have been converted into investment
properties.
In the first quarter ended March 31, 2020,
Watta made a net profit of RM4,000 as com-
pared to a net loss of RM448,00 a year earlier.
The revenue in the January to March peri-
od was RM3mil.
For its nine months ended 30 March, Karex
posted a RM1.2 million loss, compared with a
RM3.54 million net profit a year ago, while
revenue climbed 4.5% to RM304 million.
In a filing with Bursa, the company said
profitability during the third quarter was
pressured due to the movement control order
(MCO), which restricted its facilities from
operating at full capacity. Karex noted that
for the nine months under review, revenue
remained resilient although profits came
under pressure due to a less favourable sales
mix as well as social compliance payments
and idle operational cost incurred during the
MCO.
KUALA LUMPUR: Malaysia’s palm oil
inventories at end-July likely plunged
11.94% from June to three-year lows, as
production slumped due to a worsening
labour shortage amid the coronavirus out-
break.
July stockpiles in the world’s second-larg-
est producer were estimated at 1.67 million
tonnes, its lowest since June 2017, accord-
ing to the median estimate of 11 planters,
traders and analysts polled by Reuters.
Although Malaysia is entering its season
for peak production, industry observers
cited worker shortages and heavy rains in
estimating that production would drop 5%
from the previous month to 1.79 million
tonnes, the second time this year after a
marginal decrease in May.
“The labour shortage and recent rain
storms in East Malaysia have diminished
the harvesting of fresh fruit bunches,” said
Marcello Cultrera, institutional sales man-
ager and broker at Phillip Futures in Kuala
Lumpur. — Reuters
4 Insight
By MIKE DOLAN
IT was the big idea at mid-year but already
there’s some trepidation that a Transatlantic
switch from US to European equities may
have jumped the gun.
Half way through one of the most tumul-
tuous years for the global economy and
markets many investors felt a blanket world-
wide recovery trade should be replaced
with more regional discrimination and sev-
eral funds recommended a switch to
European equities from pricier Wall Street
stocks.
Assumptions behind the switch included
a faster rebound in Europe’s economy due
to more successful virus controls, avoidance
of the dollar ahead of November’s US elec-
tion and a perception that the European
Union’s post-pandemic Recovery Fund of
fiscal transfers and joint debt sales would
reduce eurozone break-up risks.
That’s certainly played out on the foreign
exchange markets, where the rising euro
gained another 6% against the US dollar in
July to reach its highest in two years.
Data also shows some signs of US inves-
tors stepping back into European equity
exchange-traded funds while Bank of
America’s July survey of global fund manag-
ers showed allocations to euro equities had
increased 9 percentage points to a net 16%
overweight position.
But the currency move has so far flat-
tered the stock performance and, as ana-
lysts at Societe Generale point out, Europe,
Britain and Japan all posted negative equi-
ty returns in July in local currency terms,
with France’s CAC 40 and Britain’s FTSE
100 even back in bear market territory for
2020 as a whole.
What’s more, as the second-quarter earn-
ings season unfolds, the underlying equity
rationale for exiting US stocks has also faded
– with an impressive showing for Wall
Street’s tech titans and mega stocks as well
as small cap firms.
S&P 500 earnings growth is now forecast
to decline by “just” 18% in 2020, shocking on
its own but an improvement of almost a fifth
from where it was as the end of June. And
although Europe is also seeing positive sur-
prises, they have not yet lifted the 2020 view
with earnings still on course to fall 33% this
year.
The relative outperformance for
Weak US dollar no boon for emerging markets this time
By TOM ARNOLD, KARIN STROHECKER
and RODRIGO CAMPOS
TYPICALLY a boon for emerging markets
(EM), this year’s plunge in the US dollar may
fail to boost the developing world’s pros-
pects as the raging pandemic hits economic
activity, increases poverty and exposes weak
policymaking.
The greenback plummeted by its most in
a decade in July and US Treasury yields fell
to record or multi-year lows, pressured by a
soaring Covid-19 caseload and Federal
Reserve pledges to keep monetary policy
loose.
Such a backdrop would normally help
emerging markets suck in foreign invest-
ment with the lure of higher bond yields and
faster economic growth, but this time looks
different.
Even leaving aside idiosyncratic stories
such as Turkey, where a plunging lira is
increasing the risk of a financial crisis, there
are signs the developing world may not be
able to capitalise on dollar weakness the
way it has in the past.
MSCI’s emerging equity index has
bounced 40% from its March trough but it is
heavily weighted towards China and East
Asia, where the economic recovery appears
strongest. Returns on emerging debt since
end-March trail those on debt issued by
Germany and the United States. Luis Costa,
emerging markets strategist at Citi, said that
although the environment appeared posi-
tive for riskier assets, investors should not
be complacent.
“There will be bumps in the road
because we know there are so many other
underlying stories, especially when it
comes to emerging markets and these sto-
Not so fast on that
Transatlantic switch
Positive outlook: A pedestrian walks past a panel showing the HSBC lion at its head-
quarters in Hong Kong. HSBC, for one, is convinced the US dollar will rebound and its FX
team on Tuesday retained their standing US$1.10 euro/dollar forecast. — Reuters
European earnings is now all loaded into
next year as the US picture for 2020
improves rapidly despite the persistence
of the pandemic stateside and the looming
presidential election.
Eye popping
UBS Global Wealth Management’s chief
investment officer Mark Haefele described
US second-quarter earnings beats as “eye
popping”, saying that overall they are
exceeding expectations by a whopping
18.6%, with sales ahead by 2.7% and esti-
mates for the third quarter up by 2.5% in
Taking a hit: The greenback plummeted by its most in a decade in July and US Treasury
yields fell to record or multi-year lows, pressured by a soaring Covid-19 caseload and
Federal Reserve pledges to keep monetary policy loose. — Bloomberg
ries are actually negative.”
Those doubts show up in investment
flows. Since April, emerging market
hard-currency bond fund inflows have
lagged those into “junk-rated” US and
European company debt, which is benefit-
ing from government bond-buying sup-
port.
Debt denominated in emerging market
currencies has fared even worse.
Contrast that with the first quarter of 2018
just over a month.
“This is very unusual. Typically, estimates
fall by more than 3% for the upcoming quar-
ter,” he said, adding that this argued for a
broad rebalancing of exposure beyond the
tech leaders.
And so, on one level, the relative
Transatlantic picture may be easily under-
stood in the light of second-quarter gross
domestic product numbers that showed the
US economy contracted almost 4 points less
than the 12% eurozone slump.
But US equity expectations for this year as
a whole are now improving independently
of Europe and causing some to rethink any
when the US dollar slipped 2.5%, less than
the around 3.0% decline so far this year, and
emerging market funds absorbed US$118bil.
Investors no longer feel compensated for
the risks.
South Africa is the latest developing
nation to lose its investment grade credit
rating, while interest rates across emerging
markets have fallen – by an average of 64
basis points (bps) this year.
US high-yield corporate bonds offer inves-
STARBIZ, THURSDAY 6 AUGUST 2020
decision to switch away from Wall Street
just yet.
Steven Bell, chief economist at asset man-
ager BMO GAM, said the weeks ahead may
well be tricky for the US economy and the
dollar but “we still prefer the US despite all
of the economic reservations”.
Pricewise at least, the burden of proof lies
with Europe. Even in dollar terms, the S&P
500 has outperformed the euro STOXX50
and FTSE 100 by about 12% and 24% respec-
tively so far this year – while the high-flying
tech leaders of New York’s FANG+TM index
are more than 55% ahead.
That leaves a lot of onus on the exchange
rate to generate the relative returns by the
end of the year. It’s hard to see a mass return
to the dollar this side of November’s poll but
not all are convinced its fortunes will nose-
dive continuously – not least with inevitable
grumbling from European exporters and
policymakers likely to greet further euro
gains.
HSBC, for one, is convinced the US dollar
will rebound and its FX team on Tuesday
retained their standing US$1.10 euro/dol-
lar forecast, arguing that global uncertain-
ty remained too great, European fiscal
affairs were too fragile and the likelihood
of a post-election return to dollar assets
was significant.
What’s more, Bank of America frets that
European credit guarantee schemes – which
have been successful in collapsing insolven-
cy rates this year across the continent
despite the pandemic shock – will start to
expire in “fiscal cliffs” at the end of 2020 and
unnerve credit markets then.
And so a Transatlantic switch for 2021
may still be warranted, but it will be a
bumpy ride at best. — Reuters
Mike Dolan is editor-at-large for finance and
markets at Reuters News. Any views
expressed here are his own.
tors a pick up of almost 100 bps over emerg-
ing sovereign dollar debt , while local cur-
rency emerging debt yields are around 4.4%,
down from 6% in early-2018.
Meanwhile, Societe Generale strategist
Jason Daw has warned clients that August,
when liquidity is typically thin, could be a
“dangerous” time.
Turkey’s 2018 lira meltdown, China’s 2015
yuan devaluation and Russia’s 1998 default
were all August events.
The dollar’s decline boosted the euro 5%
in July, the pound 6% and the Australian
dollar 3.6%. Emerging currencies strength-
ened just 1.4%.
That weakness raises concerns about bor-
rowers’ ability to repay external debt, with
Moody’s reckoning 13.7% of junk-rated EM
corporate bonds may default in the year to
March 2021. In the sovereign space,
Argentina, Lebanon and Ecuador have
already defaulted.
As the coronavirus spreads rapidly across
India, South Africa, and Latin America,
Oxfam has warned that without room to
cushion the economic blow with extra
spending, as wealthier nations have done,
some countries may see poverty rise to lev-
els last seen three decades ago.
Rising debt and stagnating reform had
already left emerging markets ill prepared
for the pandemic with Manik Narain, head
of EM strategy at UBS, noting their growth
premium over the developed world, a key
performance driver, went into reverse in
the Jan-March quarter.
“If you leave China aside, you are left with
an emerging market complex stuck with a
much lower pace of fiscal stimulus than the
developed world has seen this year,” Narain
added. — Reuters
STARBIZ, THURSDAY 6 AUGUST 2020
Hartalega outlook
expected to remain bright
Analysts say glove maker still has room to raise prices
ANALYSIS - GLOVES
PETALING JAYA: Earnings prospects for
Hartalega Holdings Bhd remain bright as
the glove maker still has room to increase
its average selling prices (ASPs), according
to analysts.
CGS-CIMB noted Hartalega’s ASPs are
currently still some 30% below market.
The brokerage said Hartalega is expect-
ing a 30% quarter-on-quarter (q-o-q)
increase in ASPs for the second quarter of
its financial year ending March 31, 2021
(FY21) and at least another 30% q-o-q in the
third quarter.
“In the first quarter of FY21, Hartalega
only raised ASPs by 6.8% q-o-q as it was
unable to increase prices aggressively.
“This is given its high customer concen-
tration, which we believe led to the compa-
ny requiring a longer lead time to pass on
ASP hikes,” said CGS-CIMB, adding that
Hartalega’s top five customers make up
about 50% of total sales.
The research house noted that Hartalega
is not expecting any further ASP increases
beyond the third quarter of FY21, unless
market ASPs rise beyond current levels and
Hartalega ASPs are at sharp discounts to
market pricing.
AmInvestment Bank concurred, raising
its ASP assumptions by 5.3% in FY21 to
US$34, 9% to US$30 for FY22 and 3.3% to
BPO market in Malaysia set to surpass US$1.4bil
By ZUNAIRA SAIEED
zunaira@thestar.com.my
KUALA LUMPUR: As Malaysia invests more
in digital investments, the country is poised to
be a prime location going forward for global
and regional businesses to leverage on the
business processing outsourcing (BPO) indus-
try due to its strategic location and quality
infrastructure.
According to AT Kerney’s Global Services
Location Index, Malaysia was ranked third as
one of the world’s leading digital innovation
and outsourcing hubs last year because of its
strategic location and investments in infra-
structure.
As BPO services start to pick up in the coun-
try, Everise Holdings chief executive officer
Sudhir Agarwal said the Malaysian govern-
ment has played a “very active” role in sup-
porting the outsourcing industry and digital
initiatives.
Having said that, the BPO market in
Malaysia is likely to surpass US$1.4bil by
2021, according to IDC.
Singapore-based Everise Holdings Pte Ltd
(Everise) leverages on artifical intelligence
(AI) technology to provide omni-channel cus-
tomer service solutions.
In 2018, Everise set up its digital experience
hub in Malaysia.
The company now delivers AI-powered
Pasdec has until Friday to submit annual report or be suspended
PETALING JAYA: Pasdec Holdings Bhd has
until Friday to submit its outstanding annual
report for the financial year ended Dec 31,
2019 after it failed to do so despite an earlier
extension.
Bursa Malaysia Securities said it had on
June 19 extended the deadline until July 31
for Pasdec to submit the annual report that
included the annual audited financial state-
“In the first quarter of FY21, Hartalega only
raised ASPs by 6.8% quarter-on-quarter as it
was unable to increase prices aggressively.”
CGS-CIMB
US$27 for FY23.
As such, AmInvestment Bank’s earnings
forecasts for Hartalega are now higher by
10.6% for FY21, 31.9% for FY22 and 18.4%
for FY23.
In addition, Hartalega also expects ASPs
to soar as the group takes in more spot
orders.
The glove maker said an estimated 5% to
7% of its total capacity have been allocated
for spot orders, which have now been
taken up until March 2021.
Spot prices are priced at an estimated
US$70 per 1,000 pieces.
“The group expects demand to continue
to outstrip supply for the next few years
with a structural step-up in demand where
glove demand is expected to grow 12% to
15% per annum.
“Following the next expansion phase of
Next Generation Integrated Glove
Manufacturing Complex (NGC) 2.0,
customer experiences for its global clients
from Malaysia.
Despite the Covid-19 pandemic, Globee, a
joint venture between Everise and UBASE, a
leading BPO Korean company, recorded 250%
revenue growth year-on-year as of May, driv-
en mainly by their work-at-home solutions in
the pandemic.
“Our strong performance enabled us to
capitalise on business opportunities once the
Covid-19 pandemic hit, allowing us to retain
business continuity in spite of restrictions,
and to secure significant new business clients
who required a resilient, multilingual cus-
tomer support solution,” said Sudhir.
He added that Everise has invested “mil-
lions of dollars” in developing talent, tolls,
and infrastructure along with security prac-
tices to enable staff to work at home.
“We have strong partnerships with officials
on the ground which help with mobility and
our work at home infrastructures, a best-of-
breeds tech stack.
“Through Globee, Everise is also capitalis-
ing on Malaysia’s diverse roots, which ena-
bled businesses to power customer experi-
ences in multiple languages from a single
hub,” Sudhir explained.
During the current pandemic, Sudhir said
there has been a surge in demand for its ser-
vices from food and delivery, fintech and
consumer technology industries, which have
ments together with the auditors’ and direc-
tors’ reports.
However, the Pahang-based property
developer failed to submit its 2019 annual
report to Bursa Securities for public release
within the approved timeline.
Bursa Securities said if a listed issuer fails
to issue the outstanding financial statements
within five market days after the expiry of the
Hartalega expects an additional capacity of
3.4 billion pieces of gloves in FY22 and
another 4.7 billion pieces in FY23,” said
AmInvestment Bank.
On Tuesday, Hartalega announced that it
registered a 133% year-on-year increase in
net profit to RM219.72mil for the first quar-
ter ended June 30, 2020, on the back of a
revenue of RM920.09mil.
The earnings growth was mainly attrib-
uted to higher glove sales, rise in ASPs as
well as lower raw material and upkeep
costs.
Hartalega’s share price fell 2.73% or 56
sen to RM19.94 at Tuesday’s close.
Yesterday, Hartelega closed 0.7% or 14
sen lower at RM19.80, traded on a volume
of 12.19 million shares.
An analyst said that Hartalega’s share
price downtrend of 2% to 3% was normal
and not a cause for concern, as some prof-
it-taking activities had occurred.
kept its financial goals on track as Malaysians
turned to activities at home.
However, their confidentiality agreements
inhibit disclosure of their customers.
For this year, Globee is projecting 200%
year-on-year growth by building on its strong
work-at-home performance, as well as con-
tinuing to focus on delivering great multilin-
gual customer experiences for high-growth
technology, gaming and smart home compa-
nies.
Meanwhile, Everise global revenue is
expected to reach US$275mil this year.
Moving forward, Everise will continue to
invest in technology to supply greater cus-
tomer experiences for its partners by ena-
bling a highly secure and scalable remote
work environment.
“We will continue to expand on our prod-
ucts and invest in proprietary AI products,
analytics, robotic process automation and a
comprehensive line of Smart Home, Internet
of Things (IoT) and software product-focused
solutions,” Sudhir pointed out.
As of June, both Globee and Everise employ
around 650 employees in Malaysia.
Globee expects to grow its headcount by
59% between 2019 and 2020, having 740
employees by year-end.
“We continue to see exponential growth
even through the pandemic and expect no
less as we continue to grow,” Sudhir said.
relevant timeframes it shall suspend the trad-
ing in the securities of such listed issuer.
The suspension shall be effected on the
next market day after the suspension dead-
line.
“In view of the above and in the event that
Pasdec is unable to submit the outstanding
AR 2019 on or before (Friday) Aug 7,2020, the
trading in the above company’s securities will
News 5
EXCHANGE RATE
Bank Negara’s best available quotations by commer-
cial banks of Kuala Lumpur at 5pm on Aug 5, 2020
UNITS OF FOREIGN CURRENCY PER UNIT OF MALAYSIAN RINGGIT
Buying OD Selling OD
US dollar 0.2381 0.2384
Sterling: 0.1817 0.1820
Singapore dollar: 0.3262 0.3267
Yen 100: 25.1595 25.1967
Euro: 0.2011 0.2014
Chinese Renminbi: 1.6528 1.6554
Ringgit Malaysia per foreign currency
OPENING RATES BY MAYBANK ON AUG 5, 2020
SELLING BUYING BUYING
TT/OD TT OD
1 US Dollar .......................... 4.2755 4.1505 4.1405
1 Australian Dollar ............. 3.0830 2.9620 2.9460
1 Brunei Dollar ................... 3.1140 3.0240 3.0160
1 Canadian Dollar............... 3.2120 3.1260 3.1140
1 Euro................................... 5.0560 4.8930 4.8730
1 New Zealand Dollar ........ 2.8500 2.7470 2.7310
1 Singapore Dollar ............. 3.1140 3.0240 3.0160
1 Sterling Pound................. 5.6020 5.4250 5.4050
1 Swiss Franc ...................... 4.6680 4.5620 4.5470
100 UAE Dirham .............117.7900 111.7000111.5000
100 Bangladesh Taka......... 5.1370 4.8100 4.6100
100 Danish Krone.............69.5700 64.0300 63.8300
100 Hongkong Dollar.......55.7600 53.0000 52.8000
100 Indian Rupee ............... 5.7900 5.4400 5.2400
100 Indonesian Rupiah...... 0.0304 0.0273 0.0223
100 Japanese Yen ............... 4.0500 3.9250 3.9150
100 Norwegian Krone......48.2600 44.4100 44.2100
100 Pakistan Rupee ...........2.6000 2.4200 2.2200
100 Philippine Peso............ 8.8400 8.3300 8.1300
100 Qatar Riyal ...............118.1200 112.1400111.9400
100 Saudi Riyal ...............115.2900 109.4500109.2500
100 South Africa Rand .....25.5500 23.0800 22.8800
100 Sri Lanka Rupee .......... 2.3700 2.1800 1.9800
100 Swedish Krona ..........50.5700 46.0700 45.8700
100 Thai Baht....................14.3900 12.7700 12.3700
Mah Sing
likely to see
earnings upside
from plastics
PETALING JAYA: Mah Sing Group Bhd’s
plastic manufacturing division is set to see
potential earnings upside from next year,
underpinned by the group’s move to diver-
sify into healthcare products.
RHB Investment Research in a report
yesterday said the market should start val-
uing Mah Sing’s plastics business.
The plastics division, which has been
largely ignored, will likely grow bigger over
the medium term, it said.
“This division may venture into health-
care products.
While management has yet to indicate
the potential increase in the segment’s
earnings, given the new growth driver, we
now value it at 13-times in our sum-of-parts
calculation.”
Having recently hosted a virtual meeting
Mah Sing’s management, RHB said it is
upbeat on the group’s plan to venture into
healthcare products via its plastic manu-
facturing division.
“About RM100mil to RM150mil will be
allocated for the new investment, potential-
ly via an acquisition of a small player.
This will be entirely funded by internal
funds. Management expects a payback
period of one-to-one-and-a-half years ideal-
ly.“Although healthcare appears to be an
entirely new business for Mah Sing, man-
agement indicated that the division can
leverage on its long experience in the man-
ufacturing sector, as well as the company’s
existing workforce.
As such, the start-up preparation process
should not be too challenging and time-con-
suming.” While Mah Sing’s management
has not indicated the timing of the official
start of the new business, RHB thinks
potential earnings contributions can be
seen from next year, should the investment
materialise.
be suspended with effect from 9am, Monday,
Aug 10 until further notice.
“If a listed issuer fails to issue the outstand-
ing financial statements within six months
from the expiry of the relevant timeframes, in
addition to any enforcement action that Bursa
Securities may take, de-listing procedures
shall be commenced against such listed issu-
er, ” it said in a filing with the stock exchange.
6 News STARBIZ, TH3.6IAY 6 A3M36T 2020

Supportline
Jewellers hit limit up
By FONG MIN YUAN

Kronologi Asia
AUG 5 70.5 sen

as gold prices surge

0.88
21-day

RM
0.60

0.32

)oh Vong, Tomei jump more than 30% to multi-year highs

By INTAN FARHANA ZAINUL
intanzainul@thestar.com.my
PETALING JAYA: Shares in Poh Kong
Holdings Bhd and Tomei Consolidated Bhd hit
limit up after jumping more than 30%, as gold
prices hit a fresh record high of US$2,000 per
ounce.
With the yellow metal prices on a surge,
Poh Kong’s shares rose 30 sen, or 38.5%, to
close at RM1.08 yesterday, while Tomei shares
also gained 30 sen, or 34.1%, to end at RM1.18.
Both counters are now trading at their mul-
ti-year highs, having more than doubled with-
in a span of two weeks.
Fund managers and market observers
reckoned that gold prices could go higher
from the current levels should the fear of
coronavirus (Covid-19) continue to loom over
the market, government bond yields remain
low and inflationary pressure creep up.
Year to date, the bullion has risen more
than 32%, making it one of the best-perform-
ing assets.
However, the surge in the gold price, often
regarded as a safe-haven asset in times of
stress, is usually not a good sign on investors
“The gold price will continue with its upward
trend should the US dollar remains under
pressure.”
Datuk Ng Yih Pyng
COMMODITIES
He expected the company to enjoy higher
margins this year, thanks to improved gold
prices.
“We see higher sales after the movement
control order mainly due to improved gold
prices and festive seasons but it is hard to
predict the overall 2020 sales for the group
due to the uncertainties ahead,” he said.
It is noteworthy that gold does not offer
dividends or interest payments to investors in
comparison to other safe-haven assets such as
financial markets become volatile, investors
will flock to gold to protect capital,” said MIDF
head of research Imran Yassin Md Yusof.
He pointed out that in the current situation
where inflation is extremely low and stock
markets are moving higher, investors are
becoming more risk-averse due to high
stock-market valuations.
“There is also the possibility that investors
are projecting inflation to pick up with all the
stimulus,” he said.
Imran expected that gold could rise higher
should bond yield remains depressed.
“Of course the low interest-rate environ-
VOL(MIL)
65
35
5
F M A M J J A
V.(1(L(MI Asia Fhd extended its gains for
a fourth day on 0ednesday to suggest that
the stock’s breakout movement could see
further continuation.
(n Tuesday, the stock had risen above the
uppermost 200-day simple moving average
(65A) to trade above all the key 65As.
The rapid advance on high buying interest
returned the stock to February levels of trad-
ing.
0hile there were signs of slowing yester-
day, the uptrend has been established. As
such, the rally is expected to continue after
the stock takes a quick breather and the tech-
nical indicators neutralise from overbought
conditions.
The stock is seeing resistance at 73.5 sen
and 80.5 sen. 6upport is seen at 68 sen and
61 sen.
Datasonic
AUG 5 RM1.50
1.55

sentiment.
According to Tomei managing director
Datuk Ng Yih Pyng, the gold rally will contin-
ue as investors are still grappling with the
RM
government bonds. ment will increase the liquidity and the 1.05
But the aggressive monetary easing by cen- depressed bond yield will make gold more 21-day
tral banks, especially the US Federal Reserve’s attractive, ensuring a further rise in gold pric- 0.55
massive bond-buying programmes and slash- es,” he said.

uncertainties from the Covid-19 pandemic.
“The gold price will continue with its
upward trend should the US dollar remains
under pressure,” he told StarBiz.
“People look into gold as a hedging tool
against inflation and also an alternative
investment as it is more liquid than investing
in properties,” he added.
Touching on the sales of jewellery at Tomei
shops, Ng said there has been a surge in sales,
partly contributed by the Hari Raya Aidil
Adha festivity.
ing of interest rates, have resulted in lower
bond yields.
For instance, the benchmark 10-year US
government bond yields is presently at
around 0.52%.
“There are many reasons for investors to
invest in gold and it is seen as a safe-haven
asset. Under normal circumstance, it could be
used as a hedge against inflation when
returns in other asset classes cannot compen-
sate for the inflation.
“It is also a safe-haven asset meaning when
VOL(MIL)
He reckoned that while gold is a non-yield- 110
ing asset, it could be used as a hedge against 60
inflation and market volatility. 10
Other gold-related products including F M A M J J A
TradePlus Syariah Gold Tracker, which is the
country’s first syariah-compliant commodity IATA6(1IG Mroup Fhd rose higher for a
exchange-traded fund (ETF), has rallied more second day yesterday to trade above the key
than 32%. 65As.
According to Financial Times, quoting the However, the stock remains caught within a
World Gold Council, investors stashed a net range-bound channel, whose upper limit is
US$7.4bil of cash into gold-backed ETFs last set by the resistance of .51.55.
month. As the stock maintains its growth momen-
tum, it could be attempting another challenge
of the hurdle.
The technical indicators remains healthy

Favourable earnings seen for Frontken
PETALING JAYA: Frontken Corp Bhd is
expected to continue registering favourable
earnings over the near term on the back of
favourable growth of its semiconductor seg-
ment and gradual recovery of the oil and gas
(O&G) segment post-2020.
Maybank Investment Bank Research
(Maybank IB) in a report said it its maintain-
ing its 2020 to 2022 net profit forecasts for
now, adding that it had also raised its target
price for Frontken by RM1.30 to RM3.60.
conductors and oil and gas markets in Taiwan,
Singapore and Malaysia.
The company’s second quarter 2020 (ended
June 30) net profit grew 23% year-on-year
and 20% quarter-on-quarter to RM20.3mil,
taking its first half 2020 earnings to RM37.3mil.
Maybank IB said Frontken’s earnings came
in within expectations, as the research house
was anticipating a seasonally stronger second
half.
“Second quarter bottom line growth was
Philippines entities. First half’s revenue split
was 87% and 13% for the semiconductor and
O&G segments respectively.”
Meanwhile, Hong Leong Investment Bank
(HLIB) said Frontken’s second-quarter core
net profit was within expectation, adding that
“the best is yet to come.”
“The second half is a seasonally stronger
half for Frontken. One-off adjustments
include foreign exchange gains (RM51,000)
and allowance for impairment losses on
and growing below overbought levels. The
daily moving average convergence/diver-
gence (5AGI) line is sitting on the signal line,
pending a move higher which would signal
bullish momentum.
3pon surpassing .51.55, the stock could
aim for a higher target of .51.67. 6upport is
pegged to .51.34 and .51.21.
Elsoft Research
A3M 5 79 sen
0.87 21-day
.5

“This is primarily based on its resilient earn-
ings and work orders from its key semiconduc-
tor customers (Taiwan), while its mid to long-
term outlook is underpinned by increasing
largely driven by the semiconductor segment, receivables (RM64,000). 0.63
namely from its key Taiwanese customer, as On a quarter-on-quarter basis, Frontken’s
well as improved operational efficiencies turnover inched up 3%, thanks to Taiwan’s 0.39
across the group. growth, despite the Covid-19 lockdowns. HLIB
2(L(5IL)

high-value work orders for equipment that “Second quarter earnings, however, was noted that this was more than sufficient to 30
produces newer chips with smaller nodes.” partly mitigated by the slowdown of the glob- negate the weaknesses in Singapore (-7%), 15
Frontken specialises in engineering and al O&G sector, which has led to lower earn- Malaysia (-17%), the Philippines (-15%) and 0
precision cleaning services, mostly for semi- ings of its Malaysian, Singaporean and Indonesia (-12%). F 5 A 5 U U A

EL6(FT .esearch Fhd gapped up on bullish

momentum yesterday to break free of the

F&N earnings to recover gradually as demand grows uppermost 200-day 65A.

PETALING JAYA: Fraser & Neave Holdings
Bhd (F&N) earnings should gradually recover
going forward as demand for its products
grows after the relaxation of the lockdown.
Its share price rose to a high of RM31.90, up
RM1.38 a share minutes after trading began
yesterday. It closed the day at RM31.50, add-
ing 98 sen.
MIDF Research said in a report it expected
sales to pick up over time and recovery is
seen in Malaysia, Thailand and some export
markets since June.
It believed the soft drink manufacturing
company may record better than sequential
performance in the fourth quarter of this year.
“With a net cash of RM166.3mil as of end-
June, we believe F&N will be able to capitalise
on opportunities that may arise,’’ MIDF said.
It maintains its financial year 2020 (FY20)
forecast for now but adjusted its target price
to RM32.92 from RM31.59 per share.
Its target price is now based on earnings
per share of (EPS) of 126.6 sen pegged to
unchanged price-earnings ratio of 26 times,
which is its five-year historical average.
However, the possible risks included new
movement restrictions which may disrupt
supply chain and distort raw material prices,
it added.
Despite that, the research house believed
that F&N would be able to withstand the chal-
lenges due to its strong branding, agility in
addressing new market norms, cost manage-
ment and a strong balance sheet.
CGS CIMB, meanwhile, raised its FY20-FY22
EPS by 2.9% to 9.4% to account for higher
sales from Thailand. It reiterated a “hold’’ call
on the stock with a higher target price of
RM31.60 a share.
It said the key upside/downside risk is high-
er-than-expected rise/drop in raw material
prices.
F&N reported a 18.35% drop in net profit
for its third quarter ending June 2020 to
RM93.85mil from RM114.94mil a year ago.
This was led by lower sales with the Covid-19
pandemic and lockdowns that affected con-
sumer demand.
The performance ended the stock’s side-
ways movement phase and signalled a
resumption of the recovery phase.
The share price faces resistance nearby at
80.5 sen, which could but a temporary cap on
the rally as the 14-day relative strength index
has entered overbought territory. The 5AGI
has perked up however to signal further
growth in the uptrend.
The advance is expected to continued fol-
lowing a brief pause for the indicator to neu-
tralise.
A higher price target is seen at 88.5 sen.
6upport levels are found at 69 sen and 63 sen.
The comments above do not represent a
recommendation to buy or sell.
STARBIZ, THURSDAY 6 AUGUST 2020
Philippines July
CPI rises but
door open to
further easing
MANILA: Philippine inflation accelerated for
a second straight month in July as the easing
of coronavirus lockdowns revived consumer
demand, but price pressures remained sub-
dued, giving the central bank room for fur-
ther monetary policy easing if needed.
July’s consumer price index rose 2.7% from
a year earlier , the fastest in six months, driv-
en by increases in transport, utility, alcoholic
beverages and tobacco prices, the Philippine
Statistics Authority said.
It was near the upper end of the central
bank’s 2.2% to 3.0% forecast range, and faster
than the median 2.5% estimate in a Reuters’
poll, which matched June’s rate.
Core inflation, excluding volatile food and
fuel prices, was 3.3%, versus 3.0% in June.
Tame inflation has allowed the central
bank to cut interest rates by a total of 175
basis points this year to a record-low of 2.25%
to help support a battered economy. But a
return to lockdown in and around Manila
amid a spike in Covid-19 cases has dashed
hopes for a swifter recovery.
Bangko Sentral ng Pilipinas (BSP) will con-
sider inflation and second-quarter GDP data
at its Aug 20 policy meeting.
“The BSP remains ready to deploy all avail-
able measures in its toolkit in fulfilment of its
policy mandate as it continues to assess the
impact of the global health crisis on the
domestic economy,” central bank governor
Benjamin Diokno told reporters
Data on Thursday is likely to show a 9.0%
GDP contraction in April-June, a Reuters poll
showed, after a downwardly revised 0.7%
drop in the first quarter from -0.2%.
Second-quarter farm output, which usually
accounts for less than 10% of economic out-
put, grew at an annual pace of 0.5%, while
trade data for June showed slower contrac-
tions in export and imports. “Any bigger con-
traction in Q2 GDP data may lead to further
monetary easing measures especially by way
of a cut in banks’ RRR (reserve requirement
ratio),” said Michael Ricafort, economist at
Rizal Commercial Banking Corp. — Reuters
Japan short of rescue plans for regional lenders hit by pandemic
KYOTO: The coronavirus pandemic is deep-
ening the pain for Japan’s regional lenders,
heightening concerns that a potential wave of
business closures will test policymakers’ abil-
ity to avert a damaging banking sector crisis.
Many central government and bank offi-
cials see the risk of a crisis emerging in the
next few months, when more struggling firms
could go under and hit regional banks already
weakened by a shrinking domestic economy
and years of ultra low interest rates.
Yet officials still have few plans besides
prodding the ailing lenders to recapitalise or
consolidate - and little clue on how to do this
in an orderly fashion, say five government
and banking sources with direct knowledge
of the matter.
“Banks are aggressively lending now
because the government is asking them to,
but that could change once it becomes clearer
some companies cannot survive,” one of the
people said.
“The key test will come in autumn, when
liquidity problems turn into solvency prob-
lems.”
With Tokyo still encouraging regional
banks to pump money to needy borrowers,
efforts to mitigate a subsequent build-up of
bad loans will take a back seat, another
source said.
“In the end, there’s no other option besides
prodding the weaker banks to consolidate,
restructure themselves or seek government
capital,” the second person said.
The sources - policymakers with direct
knowledge of the banking industry and the
Japan mulls extending
employment subsidy
Plan aims to keep furloughed workers on the payroll
JAPAN
TOKYO: Japan is considering extending a
special employment subsidy to help firms hit
by the coronavirus pandemic that would
keep furloughed workers on the payroll, but
no decision has been made yet, a labour min-
istry official told Reuters on Wednesday.
The comments come after the Nikkei busi-
ness daily reported the ministry was working
to extend the subsidy, citing an unnamed
ruling party official.
The news underscores concerns among
policymakers that the expiration of the subsi-
dy could trigger a spike in job losses as many
Honda expects sales in Asia to grow 8%
TOKYO: Japan’s Honda Motor Co on
Wednesday forecast a 68% decrease in annu-
al operating profit to a 10-year low with glob-
al demand for cars expected to slide because
of the coronavirus pandemic.
The country’s No. 3 automaker expects
profit to sink to 200 billion yen (US$1.89bil) in
the year to end-March 2021, its weakest since
the 2010/11 year and undershooting analyst
estimates. Honda is bracing for a 6% decrease
in annual vehicle sales after a 40% plunge in
the June quarter, which resulted in a 113.7
billion yen operating loss. Global automakers
are taking a big hit from the coronavirus out-
break, which shuttered vehicle factories this
discussions on dealing with its troubles -
declined to be named due to the sensitivity of
the matter.
A wall of money printed by the central
bank has kept a lid on bankruptcies and job
losses, even as Japan’s recession deepens.
But the prolonged battle with Covid-19 is
straining even the strongest regional banks in
places like Osaka and Kyoto.
Regional economies are more vulnerable to
shocks than big cities because of their over-re-
liance on sectors such as tourism, and fewer
jobs as more firms move out of ageing, dwin-
dling local markets.
After Japan closed its borders to contain the
pandemic, Osaka-based hotel chain White
Bear Family went under with 27.8 billion yen
(US$262mil) in liabilities - the biggest virus-re-
lated bankruptcy so far in Japan.
That left regional lender Kansai Mirai
Financial Group with 800 million yen in unre-
coverable loans. The group expects credit
costs to nearly triple to 12.5 billion yen this
year.
Osaka saw 147 companies go under in June,
exceeding Tokyo as the hardest hit centre in
Japan, according to think tank Tokyo Shoko
Research.
“The damage from the pandemic (on the
region’s economy) will probably last for about
two years,” Kansai Mirai President Tetsuya
Kan told Reuters.
Already under the wings of nationwide
lender Resona Group, Kansai Mirai can sur-
vive by cutting costs, consolidating branches
and earning more advisory fees, Kan said.
firms struggle to make ends meet amid diffi-
cult financing conditions.
“It has not been decided yet, but we are
considering it,” the labour ministry official
told Reuters on condition of anonymity
because he was not authorised to speak to
the media.
“Lawmakers have floated an extension to
the year-end during a meeting with us yester-
day.” The special measure was designed to
increase a subsidy, given to companies who
keep furloughed employees on their payroll,
for the six months through to the end of
September. The daily payment was raised to
up to 15,000 yen (US$141.80) per employee
from up to 8,330 yen previously.
Some 2.36 million people were furloughed
as of June, up 0.9 million from a year earlier,
government data showed, prompting law-
year and has kept customers out of car deal-
erships. The maker of the CR-V SUV crossover
and the Fit compact hatchback expects to sell
4.5 million vehicles this year, versus 4.79 mil-
lion last year.
It predicts a 16% sales slide in North
America, a key market where the United
States is struggling to control a surge in virus
infections. “If the current situation continues
as is, we think the situation will not get worse
(than we saw earlier this year), but it will take
time for demand to recover to pre-pandemic
levels,” executive vice-president Seiji Kuraishi
told a livestreamed briefing.
Despite weaker sales in North America,
Bank of Kyoto faces a similar plight. It set
aside five billion yen to guard against bad
loans in the year to March, 10 times the aver-
age in the past five years, as soft global
demand and plunging overseas visitor num-
bers hit borrowers.
Regional banks were already reeling from
lending margins that have sunk to a meagre
0.2%.
While their average capital-to-asset ratio, at
9.52%, is more than double the minimum
required 4%, over 70% of regional banks suf-
fered falling profits or chalked up losses in the
year ending March.
Even before Covid-19 erupted, their com-
bined bad loans were worth 3.7 trillion yen,
nearly four times combined profits from core
operations.
“At present, Japan’s financial system is sta-
ble” with regional banks having sufficiant
capital buffers, the country’s banking regula-
tor Financial Services Agency (FSA) said.
“But we will closely monitor the situation
as (Covid-19) could potentially affect various
factors such as their credit costs and securi-
ties holdings,” the agency told Reuters in
response to a request for comment.
Worst to come
Analysts warn the worst is yet to come.
Responding to requests by regulators to
boost lending to virus-hit firms, regional
banks increased loans by 4.7% in June from a
year earlier to a record 262 trillion yen.
While a bulk of the emergency lending is
Foreign News 7
makers to urge an extension of the special
measure.
The government has set aside about 1.6
trillion yen for the special subsidy, and as of
the end of July, had already provided 585.1
billion yen of that to companies.
The government will make the necessary
arrangements to deal with an increase in the
fiscal burden stemming from an extension,
the business daily said.
Japan’s job market has been cooling as the
spread of the coronavirus forced businesses
to close and people to stay home.
Although the restrictions were lifted late in
May, policymakers have had to balance con-
taining the virus with the need to resume
economic activity as the world’s third-largest
economy faces its deepest recession in dec-
ades. — Reuters
Honda expects annual sales in Asia to increase
8%. China, one of Honda’s biggest markets,
has become a rare bright spot for many global
automakers, as demand in the world’s biggest
car market has been recovering faster than in
other countries.
Honda sank into the red for the second
straight quarter and posted its worst operat-
ing loss since the March 2009 quarter. Despite
its dire outlook, Honda is weathering the
coronavirus pandemic better than rivals
Nissan Motor Co , Mitsubishi Motor Corp and
Mazda Motor Corp , which last week forecast
record operating losses for the year. —
Reuters
guaranteed by the government, other loans
could sour if the prolonged pandemic hits
firms on life support, analysts say.
The fear among policymakers is a negative
loop where rising bankruptcies weaken
regional banks’ ability to lend, forcing more
firms under.
The government is preparing safety nets.
It extended by four years a deadline for
lenders to apply for a bail-out and expanded
to 15 trillion yen from 12 trillion yen a pool of
funds to inject capital into ailing banks.
But there is no guarantee lenders will will-
ingly seek help.
Years of efforts by policymakers to consoli-
date Japan’s crowded regional banking indus-
try failed as many executives are wary of
stepping down or opening room for govern-
ment intervention.
Bank of Kyoto president Nobuhiro Doi told
Reuters the prospect of merging was “not
something we’re thinking about”, saying such
a move “won’t have much of a positive effect
on profits.”
Doi also ruled out the possibility of seeking
government help.
“The government says it will make it easier
for banks to seek help by not asking execu-
tives to take responsibility. But I wonder
whether it will really work out that way,” he
said.
There is also no consensus on how deeply
the Bank of Japan should be involved in bank
rescue plans, which could complicate Tokyo’s
efforts to avoid a full-blown financial crisis.
— Reuters
8 Foreign News
Fragmentation of financial regulation hindering Covid response
HONG KONG: Banks’ obligations to keep cash
“ring-fenced” within countries could reduce
lending to Asian economies grappling with
the fallout from the new coronavirus out-
break, a financial industry group said in a
report.
The need to run separate and different sys-
tems in different jurisdictions is a long-stand-
ing complaint of banks and asset managers,
particularly in Asia where many operate in
several markets.
This fragmentation has been thrown into
Singapore looks to
widen range of visitors
Move is meant to boost hard-hit tourism sector
SINGAPORE
SINGAPORE: Singapore is seeking to open
the door to a wider range of business and lei-
sure visitors to boost its hard-hit tourism sec-
tor, with the return of mass travel still a long
way off amid the pandemic, according to the
head of the country’s tourism agency.
The industry expected more job losses in
the coming months once existing government
support for rent, taxes and salaries starts
tapering off, Keith Tan, chief executive officer
of the Singapore Tourism Board said in an
interview with Bloomberg Television. Job
losses so far in the sector have been in the
“very low thousands,” he said.
“Whether it is a broader range of business
visitors or, for example, small groups of tight-
ly controlled leisure visitors, all these are
being considered and are on the table,” said
Tan. He added the tourism board is discussing
with the government to expand green lane
arrangements, now in place with Malaysia
and China, to a broader range of visitors.
Singapore’s travel-related sectors, which
contribute about 4% of its gross domestic
product, is grappling with what could be the
city-state’s worst recession wrought by the
coronavirus pandemic. Retail sales plunged
by more than 50% in May from a year earlier,
with outlets trying to woo tourists in areas
like the Orchard Road shopping strip particu-
larly hard-hit.
The country’s borders remain largely shut
to external arrivals. Visits in June reached
2,200, down from 1.6 million in the same
month last year. The green lane travel
arrangements currently only allow for busi-
China plans to pursue economic self-reliance
BEIJING: China is looking to reduce its reli-
ance on overseas markets and technology for
its economic development, government
advisers say, as US hostility and a global pan-
demic increase external risks that could ham-
per longer-term progress.
The country’s leaders have proposed a
so-called “dual circulation” model of growth
to steer the economy, the sources said, which
would prioritise “internal circulation” to
boost domestic demand and be supplement-
ed by “external circulation”. No details have
been given on the strategy.
Policy insiders and government advisers
said the emphasis signalled a strategic shift to
local demand and technological development
although domestic supply chains would be
built partly with the help of foreign invest-
ment.
“The Chinese leadership raised the ‘inter-
nal circulation’ concept as the situation has
become grim, although complete (reliance
on) ‘internal circulation’ is unlikely,” said a
policy insider, declining to be named due to
the sensitivity of the matter.
sharp relief by the Covid-19 pandemic as it
could limit banks ability to lend to companies
in countries hard hit by the virus, said the
Asia Securities and Financial Markets
Association, which represents some of the
world’s largest banks and asset managers.
Global economic losses caused by the coro-
navirus pandemic are expected to run to tril-
lions of dollars.
“Before the pandemic, there was an arms
race between jurisdictions to ringfence capi-
tal in their markets,” said Matthew Chan, an
Low demand: A row of empty seats are seen onboard an SIA flight to Singapore from
Jakarta International Airport. Singapore’s travel-related sectors are grappling with what
could be the city-state’s worst recession wrought by the coronavirus pandemic. — AFP
ness and official travel, subject to testing.
The government has launched a domestic
travel campaign to support the industry,
though local demand wouldn’t fill the hole
left by the absence of international visitors,
Tan said. These travellers contributed to
almost S$28bil (US$20.4bil) in tourism
receipts last year.
“It will be a long while more before mass
travel can resume and that ultimately stems
China had already been trying to rebalance
its economy towards consumption-led growth
from exports and investment. Last year, total
exports and imports accounted for 32% of
gross domestic product (GDP), down from a
peak of 64% in 2006, according to govern-
ment data.
“We will rely more on domestic demand as
foreign trade will decline, and the United
States is imposing a tech blockade,” said a
second policy insider.
The “dual circulation” strategy could
become a key priority in the government’s
14th five-year plan (2021-2025), which is
expected to be discussed and endorsed by top
leaders at a key Communist Party conclave in
October, policy sources said.
The plan is likely to be unveiled during the
annual parliament session in early 2021, they
said.
The current five-year-plan, which ends this
year, focuses on moving away from tradition-
al and polluting industries, boosting techno-
logical innovation, and building a moderately
prosperous society.
author of the report, which cites regulation in
India and Singapore as examples.
Regulators typically imposed these rules
after the global financial crisis requiring
banks to keep certain levels of funds within
markets so failing institutions could be more
easily managed, but the report says this has
consequences.
“As governments reduce economic support
there will be a requirement for banks to lend,
but if international firms can’t deploy capital
across borders because they must hold it in
from consumer confidence,” said the tourism
chief, who added a vaccine or effective thera-
pies are needed to combat the “fear and anx-
iety” many people have, even about stepping
onto an airplane.
Worldwide, the industry is expected to lose
US$3.3 trillion if the collapse of global leisure
travel persists until March, according to the
United Nations Conference on Trade and
Development last month. — Bloomberg
While a complete decoupling between the
world’s two largest economies is unlikely, the
recalibration would deepen an inward-fo-
cused shift that followed the 2008-09 global
financial crisis, which exposed the vulnerabil-
ity of its export-led model.
Chinese firms have started to feel the pinch
from US curbs on trade and technology as the
Trump administration confronts Beijing over
a range of issues from its handling of the new
coronavirus pandemic to the new security
law in Hong Kong.
Higher US tariffs have hurt Chinese exports,
with shipments to the United States falling
11.1% in the first half of 2020 from a year
earlier, while Washington has targeted
Chinese tech giants such as Huawei and now
the popular video app TikTok owned by
ByteDance.
“It’s impossible to completely decouple,
but the near-term impact from a partial
decoupling is unavoidable,” said Xu
Hongcai, deputy director of economic poli-
cy commission at China Association of
Policy Science. — Reuters
STARBIZ, THURSDAY 6 AUGUST 2020
one market, you might see more fragility in the
international economic system,” said Chan.
The report said regulators’ responses to the
crisis had also caused some fragmentation as
they adopted different rules – for example
about short selling and handling of documents
– making life difficult for bankers working
remotely and sometimes across borders.
However, it welcomed the decision by
standard setting bodies to collectively delay
implementation of some other major global
regulatory initiatives. — Reuters
India’s services
activity
shrinks for fifth
straight month
BENGALURU: India’s dominant services
industry, a key driver of economic growth,
shrank for a fifth straight month in July as
restraining measures to stop the spread of the
coronavirus hurt business activity and led to
record job cuts, a survey showed.
India has recorded the third highest num-
ber of coronavirus cases globally, behind
only the United States and Brazil, with over
1.8 million confirmed infections and more
than 38,000 deaths, according to a Reuters
tally.
That has forced state and central govern-
ments to impose strict lockdown measures
to curb the spread of the virus, keeping
people at home and businesses closed, sti-
fling demand and cementing fears of a deep
recession.
The Nikkei/IHS Services Purchasing
Managers’ Index (PMI) increased to 34.2 in
July from 33.7 in June, however, it was still
well below the 50-mark separating growth
from contraction.
July was the fifth straight month the index
was sub-50, the longest such stretch since a
10-month run to April 2014.
“The coronavirus pandemic and subse-
quent introduction of lockdown measures
continued to weigh heavily on the Indian
service sector in July.
“Business activity and new orders
dropped again, with the rates of decline
remaining rapid overall,” Lewis Cooper, an
economist at IHS Markit, said in a state-
ment.
“Panellists frequently reported temporary
company closures and weak demand as a
result of the pandemic.”
Although slightly improved from June,
sub-indexes tracking domestic and foreign
demand remained firmly in contraction terri-
tory even though firms cut prices despite an
uptick in input costs.
Meanwhile, firms remained pessimistic
about the next 12 months and cut jobs at the
fastest pace on record.
“With such a prolonged and significant
downturn, any substantial recovery will take
many months, if not years,” IHS Markit’s
Cooper added. —Reuters
BoT leaves policy
rate unchanged
BANGKOK: Thailand’s central bank left its
key interest rate unchanged at a record low
for a second straight meeting yesterday, as
widely expected, on signs of improvement in
the economy after the easing of measures to
contain the coronavirus outbreak.
The Bank of Thailand’s (BoT) Monetary
Policy Committee voted unanimously to keep
the one-day repurchase rate steady at a
record low of 0.50%, after having cut it three
times this year to help mitigate the impact of
the pandemic on tourism and domestic con-
sumption.
In a Reuters poll, 16 of 18 economists had
predicted no policy change while the rest
forecast a quarter-point cut. — Reuters
STARBIZ, THURSDAY 6 AUGUST 2020
India has biggest disconnect between stock rally, economic gloom
MUMBAI: Of all the countries in
the world, the disconnect between
rallying global stocks and deterio-
rating data is probably the most
pronounced in India.
The nation’s shares have logged
the one of the best rebounds from
the March lows globally while bat-
tling some of the world’s worst eco-
nomic data.
The surge has pushed up valua-
tions to a record as investors look
past the grim reality and the world’s
third-highest tally in coronavirus
cases.
The conundrum doesn’t bode
well for Asia’s third-largest econo-
my that’s set for its first contraction
in more than four decades. Further
RBA ends 3-month hiatus
It is offering to buy US$359mil of bonds to lower yields
SYDNEY: Australia’s central bank is
returning to the government bond
market after a three-month hiatus
as it aims to re-anchor yields on the
three-year security that it targets
through its purchasing programme.
The Reserve Bank of Australia
(RBA) offered to purchase as much
as A$500mil (US$359mil) of federal
government securities maturing in
April 2023 yesterday, under its pro-
gramme to lower yields.
Governor Philip Lowe announced
the resumption of bond buying in
Tuesday’s policy statement, when
the board kept its interest rate and
yield target unchanged at 0.25%.
Three-year yields have been “a
little higher than 25 basis points
over recent weeks,” he said, adding
that “further purchases will be
undertaken as necessary.”
The limited size of yesterday’s
offer reflects market movements
following Lowe’s announcement
Tuesday, which saw three-year gov-
ernment bond yields drop to lows
0.252%, from 0.268% at Monday’s
close.
However, the decision seemingly
disappointed markets, with the
three-year yield jumping to 0.259%
Iron ore may overtake coking coal in the commodity world
SYDNEY: In case there isn’t already
enough evidence that 2020 is shap-
ing up as a very odd year in com-
modity markets, it’s possible that
the price of iron ore may soon
exceed that of coking coal.
The price of a tonne of iron ore
and coking coal, on a cost and
freight delivered basis to China,
reached near parity on Tuesday,
according to data from S&P Global
Platts.
Benchmark 62% iron ore was
assessed by Platts at US$118 a
tonne, up US$1.65 from the previ-
ous close, while coking coal was
pegged at US$118.50, unchanged
from the prior close.
This meant the parity in prices
between the two main ingredients
needed to make steel was 99.6%,
compared to iron ore being on
average 57% of the coking coal
price for the past 10 years, accord-
ing to Platts.
Since the establishment of a via-
ble spot market for iron ore
around 2008 and the setting up of
coking coal futures on the
Singapore Exchange in 2014, the
price of 62% iron ore has never
risen above that of coking coal.
The surge to near parity this
negative surprises from macro data
or virus cases can unravel a rally
that’s added US$605bil in market
value from the depths of the swoon
to outstrip the government’s stimu-
lus package.
“Any market activity without sup-
porting fundamentals will not sus-
tain,” said C J George, chief execu-
tive officer at Geojit Financial
Services Ltd, a brokerage backed by
BNP Paribas SA. “We are yet to see
the fundamentals improving in the
country.”
Here’s a look at the contrast
between India’s US$1.9 trillion stock
market and the real economy.
Just months into the new fiscal
year, the fiscal deficit is close to
Watching closely: The Reserve Bank of Australia building in Sydney. It
aims to re-anchor yields on the three-year security that it targets through
its purchasing programme. — Bloomberg
at 11:17am in Sydney. The Australian
dollar advanced 0.2% to 71.74 US
cents as of 11:25am in Sydney, ris-
ing for a second day.
Christopher Kent, assistant gov-
ernor who oversees financial mar-
kets at the central bank, gently
signaled during a question-and-an-
swer session after a speech last
week that the RBA may re-enter
year is a reflection of the emerg-
ing dynamic in global commodity
markets, namely that commodi-
ties with the most exposure to
China’s apparent V-shaped recov-
ery from the novel coronavirus
are significantly outperforming
those without.
China imports the bulk of the
iron ore needed to feed its massive
steel industry, with locally mined
product generally being of inferior
quality and relatively uncompeti-
tive against the huge low-cost
mines of Australia and Brazil, the
world’s top two exporters.
China’s iron ore imports were
546.91 million tonnes in the first
half of 2020, up 9.6% from the
same period in 2020, according to
official data.
It’s likely that they remained
strong in July, with Refinitiv ves-
sel-tracking and port data estimat-
ing imports of 101.6 million tonnes,
although this figure may not exact-
ly align with official data, given
differences in when cargoes are
assessed as having cleared cus-
toms.
The strength in iron ore imports
has been matched by China’s steel
output, which hit a record high on
touching its annual target, depleting
Prime Minister Narendra Modi’s
government firepower to add to the
21 trillion rupee (US$280bil) stimu-
lus announced in May.
Adding salt to injury is India’s bad
loan ratio, which is expected to
swell to the highest level in more
than two decades in 2021, following
the world’s strictest lockdown
measures, the central bank said last
month.
In fact, the outlook for Indian
businesses is the worst in the world,
IHS Markit said last month. The
data provider’s survey on senti-
ment turned negative in June for
the first time in more than a decade,
and many respondents were uncer-
the secondary market.
“We notice it’s been rising a little
bit of late but it does move around
from day to day, week to week,” he
said of the three-year yield. “That’s
something we’re watching closely
and we said, if we need to, if it was
to move too far away from 25, then
we would stand ready to buy more.”
The RBA last purchased bonds on
a daily basis in June of 3.05 million
tonnes per day, for a month total of
91.58 million tonnes, up 4.5% from
the year earlier month.
For the first half, China’s steel
output rose 1.4% to 499 million
tonnes.
That amount of steel would
require about 384 million tonnes of
coking coal to produce, working on
the industry standard of 770kg of
coking coal per tonne of steel.
However, China’s coking coal
imports for the first half were only
38.1 million tonnes, according to
Platts.
This means that imports meet
roughly about 10% of China’s cok-
ing coal needs, with domestic out-
put providing the rest.
In contrast, imports meet around
70% of China’s iron ore demand,
and in turn China buys more than
two-thirds of global seaborne iron
ore volumes.
What this means is that global
iron ore is far more exposed to
China than is coking coal.
The dynamic at work is that iron
ore is benefiting from its exposure
to China, with the spot price on
Tuesday’s close up 48% from the
low so far this year of US$79.60 a
tain about how activity would
develop over the coming year.
A separate analysis done by
Bloomberg shows that while corpo-
rate executives in most sectors
expect operations to recover to
pre-Covid 19 levels by the end of
year, estimates from analysts and
the performance of some economic
indicators still paint a gloomy pic-
ture.
That raises the stakes for the
rapid improvement in business
activity that has been priced in,
especially with the virus still run-
ning riot. The country has one of
the world’s fastest growing epidem-
ics, adding about 50,000 cases every
day.
May 6, and had acquired A$51.35bil
(US$36.8bil) in face value of securi-
ties of various maturities issued by
federal, state and territory govern-
ments since March 20, when it
began purchasing notes following
an emergency meeting in order to
hold down borrowing costs across
the economy.
The RBA halted bond buying in
May as yields stabilised across the
curve and money-market stresses
eased. The calm in fixed-income
markets allowed federal and state
governments to borrow at an
unprecedented pace to fund record
spending aimed at countering the
economic impact of the pandemic.
The federal government raised
A$85.6bil last quarter, more than
twice as much as the previous
record for sales set in the first three
months of 2017.
Australia’s currency has surged
over the past four months as the
RBA’s success in stabilising markets
spurred foreign demand for record
debt sales. Lowe said the yield tar-
get “will remain in place until pro-
gress is being made toward the
goals for full employment and
inflation.” — Bloomberg
tonne on March 23.
Coking coal has moved the other
way, with Singapore futures ,
which are based on the free-on-
board Australia price, falling 32%
from their year-to-date peak of
US$161.99 a tonne to Tuesday’s
close of US$110.50.
Coking coal is more exposed to
the rest of the world’s steel indus-
try, and here the news has been far
worse than China’s recovery story,
with other major steel producers
such as Japan and South Korea bat-
tling to restart their economies
amid the ongoing coronavirus
pandemic.
World steel output dropped to
148.3 million tonnes in June, down
7% from the same month in 2019,
while production in the first half
was 873.1 million tonnes, down 6%
year-on-year.
While it’s possible that a recov-
ery in steel output ex-China will
drive up demand and prices for
coking coal, it’s also the case that
this would also boost demand for
seaborne iron ore.
This means it may be some time
before coking coal re-asserts its
traditional dominance over iron
ore. — Reuters
Foreign News 9
Economic activity remains in a
limbo even after the gradual lifting
of curbs on businesses and move-
ment of people. While most of the
large Asian economies, except
China, are set to contract this year,
India is set to shrink the most in
that group, data compiled by
Bloomberg show.
Exports and business activity
did improve in June, signaling the
worst may have passed, though
the pace of the recovery has been
slow. The latest manufacturing
purchasing managers’ index
showed activity remained in con-
traction territory in July and was
worse than June, according to IHS
Markit. — Bloomberg
Australia’s
Telstra to sell
Melbourne
data centre
SYDNEY: Australia’s largest tele-
com company Telstra Corp has said
it will sell its Clayton data centre
facility in Melbourne to property
firm Centuria Industrial REIT for
A$416.7mil (US$298.4mil).
The facility, to be sold by the end
of August, has 10 buildings includ-
ing Telstra’s latest 6.1 megawatt
data centre.
Chief executive Andrew Penn
said the company had now sold
more than A$1.5bil worth of assets
as part of a strategy announced in
2018 to strengthen its balance sheet.
“The company
has now sold
more than
A$1.5bil worth
of assets.”
Andrew Penn
However, the telecom firm will
retain ownership of all IT and tele-
com equipment at Clayton and be
responsible for building upgrades,
repairs and future capex require-
ments as part of a triple-net lease-
back arrangement with New South
Wales-based Centuria.
Shares of Centuria went into a
trading halt yesterday as the com-
pany is expected to announce a
capital raise to finance the purchase
of the data centre.
The lease is for an initial 30-year
period with two 10-year options for
extensions, Melbourne-based
Telstra said.
Telstra is set to report its full-year
results on Aug 13.
Telstra builds and operates tele-
communications networks and
markets voice, mobile, internet
access, pay television and other
products and services.
It is a member of the S&P/ASX 20
and Australia’s largest telecommu-
nications company by market
share.
It has a long history in Australia,
originating together with Australia
Post as the Postmaster-General’s
Department upon federation in
1901. Telstra has transitioned from
a state-owned enterprise to a fully
privatised company. — Reuters
10 Foreign News
SYDNEY: Virgin Australia Holdings Ltd plans
to cut a third of its workforce as part of an
overhaul to focus on being a domestic and
short-haul international Boeing Co 737 opera-
tor under prospective new owner Bain
Capital.
Virgin chief executive Paul Scurrah said
yesterday the airline was renegotiating costs
with lessors and suppliers, as it targets the
value-for-money market for business and lei-
sure travellers.
“We have the opportunity to reset some of
the onerous costs we had on us, which gives
us the opportunity to immediately lower that
cost base without bringing the product down-
market,” Scurrah said, referring to the air-
line’s current status in voluntary administra-
tion.
Virgin’s board selected Bain as the winning
bidder in late June of an auction that followed
the airline’s entry into voluntary administra-
tion in April.
Creditors, who are owed nearly A$7bil
(US$5bil), are due to vote on the sale on Sept
4.
Support from employee creditors and the
administrator’s deciding vote in the event of a
deadlock are expected to overcome some
objections from bondholders.
The coronavirus pandemic was the final
straw for Australia’s second-biggest airline,
which had been unprofitable for seven con-
secutive years.
The airline expects a three-year recovery
to return domestic and short-haul interna-
tional demand to last year’s levels.
Larger rival Qantas Airways Ltd has also
announced plans to cut at least 20% of its
workforce due to the decline in demand
caused by the pandemic and associated trav-
el restrictions.
Scurrah said under Bain’s ownership,
Virgin would have a strong balance sheet
worthy of an investment-grade rating, which
it had lacked before entering administration.
The 3,000 jobs would go as the carrier
offloads its fleets of Boeing 777s, Airbus SE
A330s and ATR turboprops, as well as low-
cost brand Tigerair Australia and its A320s.
Virgin will look to re-launch long-haul
United States equities won’t revisit March lows
BANGALORE: United States equities will not
revisit the lows hit in March 2020, but the
next big correction in stock markets could be
triggered by corporate defaults, Mohamed
El-Erian, chief economic adviser at Allianz SE,
said.
“I do not expect US equities to revisit the
March lows,” El-Erian told the Reuters Global
Markets Forum chat room.
“I suspect the next big correction will likely
be one triggered by corporate defaults and
other capital impairment events that central
banks cannot shield against,” he said.
The S&P 500 index bottomed at an intraday
trough of 2,191.86 on March 23 after tumbling
from February’s all-time high, as the spread of
the coronavirus shut down economies around
the world. It has rallied back to within 3% of
the record.
El-Erian said he expected the lowest tiers of
the capital structure to be most at risk, includ-
ing “CCC-rated high yield corporate bonds
and the like, as well as their equities, also
The little luxuries people can’t live without – even in a global pandemic
SYDNEY: Before the pandemic, Levi Fedley
would bike to one of Melbourne’s famous lan-
eway cafes, sit down with the perfect cup of
coffee and watch the world go by.
Now, with Australia’s second biggest city
back in lockdown, takeaway is the only option.
It’s now a hurried matter of picking it up with-
out touching anyone or anything, and a speedy
return home. But his daily long black – an
espresso topped up with hot water – is even
more essential.
“It’s a ritual,” the 30-year-old marketing
professional said by phone. “It’s a very mini-
mal and justifiable luxury.”
Around the world, people are grasping onto
their sacrosanct daily pleasures, moments of
near normality in an otherwise upended
world. Although cafes in commuter areas and
city centers are suffering while workers stay
home, consumers are finding their fix in local
Virgin Australia
to cut workforce
Focusing on short haul under Bain
Downsizing: Virgin Australia aircraft at Sydney Airport. About 3,000 jobs are set to go as
the carrier offloads its fleets of Boeing 777s, Airbus SE A330s and ATR turboprops, as well
as low-cost brand Tigerair Australia and its A320s. — Bloomberg
international flights to Los Angeles and
Tokyo when demand returns and will keep
some of the partnerships and joint ventures
it had with foreign carriers before it entered
administration, Scurrah said.
The Bain deal needs the approval of at
least 50% of creditors by both value and
number.
Employees rank as the largest creditors by
number at around 9,000, followed by around
“I have gotten more defensive in my posi-
tioning and, as it turns out, prematurely.”
Mohamed El-Erian
some emerging markets.”
Asked about his positioning ahead of the US
presidential election on Nov 3, El-Erian said
he had become defensive ahead of the rally
from the March lows.
“I have gotten more defensive in my posi-
tioning and, as it turns out, prematurely,” he
said.
The one-time PIMCO chief executive said
the entire US yield curve could sink below 1%
in nominal terms, if “the US is unable to re-in-
itiate a country-wide process of healthy
neighbourhoods.
In London, there were plenty of customers
Saturday enjoying an afternoon drink in the
garden of The Gatehouse in Highgate. Pubs in
the UK reopened in early July after being
closed for three months. Rich Tasker, sipping
an IPA, said he’d had his first pint a few weeks
earlier at a countryside pub. A guest ale
named Normality caught his eye.
“It was quite satisfying to ask for ‘a pint of
Normality please,’” he said. “And sip a nice,
cold drink in the sunshine with a Sunday roast
after four months of lockdown. It felt great.”
Cutting out fancy, artisinal coffees to save
money has been a cliché of budgeting advice
for a decade.
Drop the daily cup, the advice goes, you
won’t miss it and over the course of the year
just watch your bank balance tick up.
The savings would be relatively minimal,
6,000 bondholders.
Unsecured bondholders have said they
will propose an alternative debt-to-equity
swap, but administrator Vaughan
Strawbridge of Deloitte told reporters that
option will not be put to a vote at the meeting
because of the structure of the agreements
with Bain.
Bain said it was backing Scurrah to remain
in his role in the future. — Reuters
re-openings during this period of living with
Covid-19.”
US corporate junk bonds have broadly
provided holders with negative returns this
year, despite a wave of central bank liquidi-
ty, which has supported corporate invest-
ment grade bond prices, lifting them from
their March lows. El-Erian said it was unlike-
ly the Federal Reserve would take policy
rates into negative territory. “Having said
that, I did not expect them to be buying high
yield bonds.” — Reuters
but what this advice also misses is just how
much people around the world value their
daily pleasures. “It is keeping people sane,”
said Fedley, the Melbourne coffee drinker. “I
think there are far more things to cut back on
before you start questioning coffee habits.”
After an initial devastating hit, customers
are also returning to the big chains. United
States giants Starbucks Corp and McDonald’s
Corp both said last week that same-store sales
turned positive in July.
“What customers are looking for right now
are experiences that are safe, familiar and
convenient,” Starbucks chief executive officer
Kevin Johnson told Bloomberg TV. “That’s
what’s going to drive this recovery,” he said,
predicting that US sales would be back to
pre-Covid levels by March.
What’s more, while transactions are down,
average amount spent per visit is actually
STARBIZ, THURSDAY 6 AUGUST 2020
NZ has lower
jobless rate
WELLINGTON: New Zealand’s unemploy-
ment rate unexpectedly fell in the second
quarter, but the data masked weakness in the
labour market as fewer people looked for
work and the number of hours worked
plunged amid tight coronavirus restrictions.
The headline jobless rate fell to 4.0% from
4.2% in the last quarter, defying the expecta-
tions of economists polled by Reuters for an
unemployment rate of 5.8%.
With the country in Covid-19 lockdown
when the quarter began, fewer people who
did not have a job were actively seeking
work, Statistics New Zealand said in a state-
ment.
But the underutilisation rate, a measure of
those who want to work but cant, rose from
10.4% to 12.0% – the largest quarterly rise
since 2004. The hours worked were down by
over 10% – another record.
“Today’s data massively understate the
weakness that was prevailing in the labour
market in Q2, due to measurement issues,”
ANZ Senior Economist Liz Kendall said in a
note.
Kendall said she expects the Reserve Bank
of New Zealand (RBNZ) to add more stimulus
through its quantitative easing programme
when it decides on monetary policy next
week.
Employment dropped a much small-
er-than-expected 0.4% quarter-on-quarter
compared with a forecast 2.0% drop.
The Treasury had forecast unemployment
rate to hit 8.3% in June. New Zealand’s jobless
rate is far below 7.4% in Australia and 11.1%
in the US.
New Zealand’s early response to the pan-
demic has allowed the economy to return to
pre-pandemic normalcy. But the government
has warned of a second wave of infections.
— Reuters
Allianz Q2 net
profit declines
FRANKFURT: German insurer has posted a
29% fall in net profit in the second quarter
from a year earlier and shied away from updat-
ing its full-year profit guidance as the coronavi-
rus pandemic slows business and clouds the
outlook.
Allianz is one of many European insurers
warning about the outlook as clients claim for
business interruption and cancelled events,
while demand for car and travel insurance has
fallen.
Net profit attributable to shareholders of
€1.53bil (US$1.81bil) in the three months
through June compares with €2.14bil a year
earlier. It was higher than a €1.48bil consensus
forecast. “Due to the continuing uncertainties
we currently do not give an updated operating
profit outlook for 2020,” the company said.
Earlier, the German insurer abandoned its
2020 profit target of between €11.5bil and
€12.5bil, blaming economic uncertainty result-
ing from the pandemic, and said it expects to
post the first annual decline in profit in nearly
a decade. — Reuters
increasing, Johnson said.
At-home brewing saves money – an A$60
(US$43) bag from bespoke coffee roaster St Ali
works out at roughly A$0.42 per shot, com-
pared with the A$5 you’d pay inside. It can’t
replicate the experience.
In San Diego, California, a burrito is the
perfect end to a long day of surfing or swim-
ming. Roberto’s Taco Shop serves its popular
California burrito – filled with french fries,
carne asada, sour cream and cheddar cheese
– at a number of locations along the coast.
Thanks to loyal customers, business has
remained steady throughout the pandemic,
and the restaurant didn’t have to lay off work-
ers, said co-owner Reynaldo Robledo, the son
of the restaurant’s founder.
Those customers include Grace Furnari,
who has been twice already since she moved
back to the area in July. — Bloomberg
STARBIZ, THURSDAY 6 AUGUST 2020
Bank of England seen signaling more stimulus to come
LONDON: Bank of England (BoE) officials
could signal today that the case for more
monetary stimulus is growing as a nascent
rebound from the pandemic-induced reces-
sion risks fading.
While all analysts surveyed expect interest
rates and the bond-buying target to be kept on
hold for now, Bank of America Global
Research, Goldman Sachs Group Inc and
Bloomberg Economics are among those pre-
dicting governor Andrew Bailey will need to
act again after the summer.
The central bank will provide an update on
its growth and inflation projections, with BoE
officials having to grapple with the fact that
coronavirus cases are on the rise again in
some parts of the nation. That’s casting a
shadow over the government’s moves to reo-
pen the economy, and sparking increasing
concern over plans to end support programs
for companies and workers.
“The focus will be on the central bank’s
projections where we expect the recovery to
look less ‘V-shaped’ than in May,” said Dan
Hanson of Bloomberg Economics
With borrowing costs so close to zero,
investors are on the lookout for an update on
LONDON: Britain’s banks took a gloomier
view than almost all their European peers in
their second quarter earnings, as coronavirus
fears, Brexit and low interest rates caused
them to bake tougher “worst-case” scenarios
into their risk models.
Investors had expected a torrid set of half-
year results, but Barclays, Standard Chartered,
Lloyds , NatWest Group and HSBC fell short of
these low expectations.
Provisions for potential loan losses across
the five banks topped US$22bil, blowing past
analyst forecasts and increasing selling pres-
sure on shares already hammered by the
pandemic this year.
By contrast, France’s BNP Paribas and
Credit Suisse beat analyst forecasts, benefit-
ing from bumper trading volumes as well as
relatively modest provisions.
HSBC and Lloyds were punished for poor
results, with shares in both banks plumbing
their lowest levels in 11 and eight years,
respectively.
All five UK banks have under-performed,
falling by between 42% and 55% this year
compared to a 36% fall in the European bank-
ing index.
“The UK banks are facing a more signifi-
cant economic drop than most Europeans, as
the UK has faced a bigger shock from the
Covid-19 pandemic, and that has fed through
into provision levels,” said Patrick Hunt, part-
ner at consultancy Oliver Wyman.
The British economy is forecast to shrink
11.5% this year, while the euro area contracts
9.1%, according to OECD forecasts in June.
Other factors weighing on UK banks
include a relatively higher exposure to
unsecured consumer lending, a larger drop
in central bank rates and the potential for a
“no deal” exit from Brexit transition
arrangements at the end of 2020, analysts
said.
The rollout of further lockdowns across
the north of England in response to a rise in
infections also threatens to derail the coun-
try’s nascent economic recovery and dam-
age bank balance sheets further.
NatWest and Lloyds gave guidance that
loan-loss provisions should be lower in the
Investors launch climate plan to get to zero emissions
LONDON: An investor group managing
more than US$16 trillion on Wednesday
launched the world’s first step-by-step plan
to help pension funds and others align their
portfolios with the Paris Agreement on cli-
mate change.
Many investors have pledged high-level
support to the goals of the 2015 Paris deal,
but the “Net Zero Investment Framework” is
the first to lay out the steps they need to take
to ensure the commitment is backed up by
the necessary action.
Specific targets could include increasing
the percentage of assets invested in low-car-
bon passive indexes and ensuring the lead-
ers of investee companies link pay to cli-
“The focus will be on the central bank’s
projections where we expect the recovery to
look less ‘V-shaped’ than in May.”
Dan Hanson
the BoE’s review of the viability of negative
rates, although officials may fall short of pro-
viding a definitive answer.
With government support for the labour
market already being wound down and due
to expire in October, the outlook for unem-
ployment is emerging as a particular worry
for the nine-member Monetary Policy
Committee.
The central bank’s updated economic pro-
jections will give more indication of the BoE’s
view of the shape of the recovery – a matter
that has divided some policy makers in recent
weeks.
British banks
brace for losses
US$22bil hit as outlook darkens
Downtrend: A HSBC Holdings Plc bank branch in London. Shares in the bank have plunged
to their lowest levels in 11 years. — Bloomberg
second half of the year, raising hopes the
country’s banks may have “kitchen sinked”
provisioning and got ahead of European
rivals.
But they also warned the outlook could
deteriorate further and drastically down-
graded their worst case forecasts for the
economy, predicting GDP drops of as much
as 17% in 2020.
The heftier provisioning among British
mate-related targets.
“Countries, cities and companies around
the globe are committing to achieve the goal
of net zero emissions and investors need to
show similar leadership,” said Institutional
Investors Group on Climate Change (IIGCC)
chief executive Stephanie Pfeifer
“The willingness is there, but until now
the investment sector has lacked a frame-
work enabling it to deliver on this ambi-
tion.”
Since the Paris deal was struck in 2015,
investors have launched a number of initia-
tives to help them better manage climate-re-
lated risks.
While many were useful, IIGCC said its
All economists also predicted officials will
leave their asset-purchase target at £745bil
(US$973bil). Policy makers will consider the
pace of purchases, which was slowed when
the plan was expanded in June.
The pause in action may prove temporary,
with BofA expecting another package of
measures in November, including a rate-cut
to 0% and another £100bil of asset purchases.
Chief economist Andy Haldane – who voted
against the last round of quantitative easing
in June – is optimistic about a quick recovery,
while Silvana Tenreyro says the bounceback
will probably be limited.
banks relative to their European rivals was
largely because the former incorporated
gloomier worst-case forecasts into their
economic models.
Lloyds, for example, said Britain’s GDP
could tumble 17.2% in a worst scenario
compared with a 7.8% fall previously mod-
elled as the extreme downside case when
the bank reported results in April. —
Reuters
framework was the first to give investors
practical guidance on how to both decar-
bonise portfolios and boost investments in
solutions to climate change.
Developed with input from 70 global
investors, including bond giant PIMCO and
Dutch pension investor APG, the plan sets
concrete targets at the portfolio and asset
class level and also addresses asset alloca-
tion, engagement and lobbying.
The first phase of the framework, which
will now go out to consultation, covers listed
equities, credit, sovereign debt, real estate
and strategic asset allocation. A later phase
will look at addressing private equity and
infrastructure. — Reuters
Foreign News 11
During the height of the pandemic, a lack of
official data prompted the BoE to present a
“plausible illustrative economic scenario”
rather than harder forecasts. That scenario
has so far proved to be somewhat more pessi-
mistic than incoming data suggest. Returning
to more formal projections is a move that is
“long overdue,” according to Heteronomics
chief economist Philip Rush.
Policy makers are still seen as generally
aligned on their commitment to respond with
more stimulus if needed, and may increasingly
see the outlook for the labour market as more
important, with even Haldane highlighting that
as a major risk.
Chancellor of the Exchequer Rishi Sunak has
spent more than £40bil helping more than 12
million workers since the crisis began – an
intervention that has helped keep the unem-
ployment rate low.
Support is due to be tapered from this
month, and economists are warning a “prema-
ture” withdrawal of government aid means
more than three million will be out of work
before the end of 2020. That would be the worst
since the de-industrialisation of Britain under
Margaret Thatcher in the 1980s. — Bloomberg
Kuwait’s
US$112bil fund
has cash to spend
after revamp
DUBAI: Kuwait’s US$112bil pension fund
plans to boost investments in private equity
and infrastructure following an overhaul that
left it sitting on too much cash.
A new management team was brought in
during 2017 to transform the state-owned
institution after a corruption scandal involv-
ing a previous manager. The fund has since
exited more than US$20bil in questionable
deals in a “major clean-up” of its portfolio,
according to Raed Al-Nisf, deputy general
manager for investments and operations.
“It’s no longer a one-man show, and will
never be again,” he said in an interview. “In
the past, it was a sleeping giant, and no one
wanted to wake it.”
The revamp is paying off. The Public
Institution for Social Security, also known as
PIFSS, had a record investment profit of
US$7.3bil in the three months through June,
an almost fourfold increase from a year earli-
er.
The fund aims to have 12% to 17% of its
portfolio in real estate, followed by private
equity at between 8% and 13%, and infra-
structure at 3% to 10%, he said, without
detailing current holdings.
“This is a moving target, but it’s a range
we’re normally in,” Al-Nisf said. “We’re long-
term investors by definition, we don’t have a
need for cash on a yearly basis.”
Cash accounts for about 11.5% of its invest-
ments, which the fund aims to cut to 4% over
the next seven months, he said. At one stage
the fund had a “catastrophic” 41% of cash
available for investments, Al-Nisf said, instead
of being deployed into asset classes that could
make higher returns.
PIFSS hired Cambridge Associates LLC in
2016 to advise it on an asset-allocation strate-
gy, and when completed in March 2021, the
fund will start with US-based consultancy
Mercer LLC.
Since 2017, the fund has implemented poli-
cies to improve disclosure, avoid conflicts of
interest and introduced whistle-blowing pro-
cesses.
It decentralised investment decision-mak-
ing to a four-member committee. Employee
numbers in the investment division were
increased to over 100 in its investment divi-
sion – more than that of the two biggest asset
managers in the oil-rich country combined –
while the unit was split into eight depart-
ments from three.
Former finance minister Anas Al-Saleh trig-
gered the restructuring process, and two years
later his successor, Nayef Al-Hajraf, placed
Meshaal Al-Othman at the helm, appointing
him director general after two years as chief
investment officer. — Bloomberg
12 Foreign News
Dirty oil’s demand
boost set to wane
This comes as Opec+ eases production cuts
An unexpected demand boost for dirty fuel
oil is poised to ease with the return of some
Opec+ crude supply from this month.
Cuts by the producer alliance combined
with sanctions on Venezuela and Iran, hit-
ting supplies of heavier crude and forcing
processors from the US to India to boost
buying of high-sulfur fuel oil to use as an
alternative feedstock in their refineries.
Typically a by-product of crude refining,
increased demand upended trade flows and
drove the market into a deep deficit, but sup-
ply is expected to become more abundant as
refiners switch back to crude with Opec+
opening the taps.
While a large chunk of the fuel was previ-
ously used to power ships, consumption has
waned after new regulations were imple-
mented this year mandating vessels use
cleaner burning fuels unless they are fitted
with expensive pollution kits.
The recent demand surge also coincided
with a seasonal boost from the Middle East,
which imports fuel oil for use in electricity
generation during the hotter summer
months.
Cargo airline cashing in on junk bond boom
ESTERO (FLORIDA): At a little known cargo
airline that handles shipments for United
Parcel Service Inc and Amazon.com Inc, busi-
ness is booming.
With passenger carriers forced to cut most
of their freight capacity during the pandemic,
seven-year-old Western Global Airlines LLC
has picked up new orders amid a surge in
online shopping.
Now, it’s benefiting from another big tail-
wind: the credit rally sparked by the Federal
Reserve’s unprecedented backstop.
The Estero, Florida-based carrier is bor-
rowing hundreds of millions of dollars from
the junk-bond market to fund a stock pro-
gram that will give it a sizable tax break, hand
the founders a large payout and potentially
keep its workforce union-free.
Companies have been issuing debt at a
record pace since the Fed announced a series
of measures in March to keep the economy
going.
While that has provided much-needed
liquidity to struggling businesses, the rally
has been so broad-based that it has also
allowed less-impacted companies to sell debt
to fund payouts to shareholders.
Western Global is looking to raise US$410mil
through its first ever junk bond offering as
part of a plan to sell a minority stake to
employees. The deal will see founder Jim Neff
and other existing shareholders sell as much
as 49% of the company to the employee stock
ownership plan.
Investors raise concerns about migrant workers’ rights
DUBAI: A group of investors is raising con-
cerns about the treatment of migrant workers
in the Gulf, warning that labour practices risk
leading to abuses such as modern slavery.
The group, led by fund manager CCLA, says
it represents 38 investors with over US$3 tril-
lion in managed assets and wants companies
to disclose how they protect migrant workers.
Such workers, many of them from Asia,
provide the backbone of Gulf economies,
working in sectors such as construction, hos-
pitality and oil and gas.
The group of investors has written to over
50 international companies operating in the
region.
It does not imply any wrongdoing by the
Saudi Arabia has been forced to tap alter-
native markets for its power-station fuel due
to intensifying competition, while Indian
high-sulfur fuel oil purchases more than tri-
pled through January to July from a year
earlier.
Shipments typically bound for Singapore
from Europe and Russia have been diverted
to the US for refinery feedstock, said Serena
Huang, a senior analyst with Vortexa Ltd.
Refiners in Thailand and South Korea
have also purchased more fuel oil in recent
months to use as an alternative feedstock,
according to traders familiar with the mat-
ter. The timing of their imports was in-line
with sharp cuts to supplies from nations
such as Saudi Arabia and Iraq, two produc-
ers that tend to export sulfurous and
high-density crude.
High-sulfur fuel oil prices in Singapore
flipped into backwardation in early July for
the first time since February, according to
Bloomberg Fair Value data, signalling tighter
supply. The market tightened to a deficit of
more than 500,000 barrels a day last month,
more than the five-year average, according
“We believe that our employees are the best
strategic partners and view the ESOP as a
win-win for both the employees and the
company.”
Western Global
“We believe that our employees are the
best strategic partners and view the ESOP as a
win-win for both the employees and the com-
pany,” a representative said in response to
requests for comment. As essential transpor-
tation, the airline also experienced substan-
tially higher operating costs in the Covid-19
environment, the company representative
said.
Under the plan, the airline will lend pro-
ceeds from the bond offering to a newly set-
up ESOP, which will use the funds to purchase
the stake.
The plan will use annual contributions it
receives from the company to repay the debt
over time.
Western Global expects to realize signifi-
cant tax benefits from the arrangement as it
will be able to deduct interest on the debt and
companies it has written to but said some
may be unaware of the risks.
The group is concerned recruitment prac-
tices can require low-paid migrant workers to
pay large fees to agents and middlemen to
obtain employment in the Gulf, it said in a
statement.
Those workers often need to take out loans
or sign over assets to pay those fees, which
may lead them to being in “debt bondage”
and at high risk of forced labour and modern
slavery, it said.
“As investors, we have a moral duty to
ensure that we are not profiting from modern
slavery in any shape or form,” CCLA’s chief
executive Peter Hugh Smith said.
to JBC Energy. The shortage is expected to
ease to a “more normal” 100,000 barrels a
day by the end of the year, said JBC, while
Wood Mackenzie Ltd. also sees supply tight-
ness moderating.
Refiners can use fuel oil as a feedstock for
secondary units at a plant to produce fuels
such as diesel and other higher-end prod-
ucts. Complex refiners such as India’s
Reliance Industries Ltd, PetroChina Co and
SinOpec, which have the secondary units to
upgrade fuel oil, would benefit the most
because they have the flexibility to use the
alternative feedstock when heavy crude isn’t
available, said Sushant Gupta, research
director of Asia-Pacific refining at Wood
Mackenzie.
That compares with simple refiners in
Europe that had to shut down or cut run
rates after crude became too expensive,
according to JBC. However, as Opec+ rolls
back historic curbs and return more supplies
to the market, refiners tailored to process
heavy-sour crudes will revert to the more
familiar feedstock, reducing their purchases
of fuel oil.— Bloomberg
contributions made to the plan, according to
people with knowledge of the company’s
presentation to investors.
The deal is also expected to dissuade work-
ers from unionizing, preserving one of
Western Global’s key advantages versus com-
petitors, the people said, asking not to be
named when discussing confidential infor-
mation.
The company began sounding out potential
investors for the five-year bonds last week at
a yield in the 8.25% to 8.5% range, some of the
people said.
In a sign of tepid demand from potential
investors, the range was revised on Tuesday
to 8.75% to 9%.
Western Global also shifted US$10mil to a
separate revolver, reducing the offering’s
original US$420mil size. — Bloomberg
The group also raised concerns about
employers withholding migrant workers’
passports and the impact the economic fall-
out of the COVID-19 pandemic has had on
migrant workers.
Shell, Spanish construction firm Acciona,
French construction firm Vinci, Hyatt and
Wyndham Hotels told Reuters they were
committed to protecting human rights and
had policies designed to safeguard workers.
Shell, Acciona and Vinci said those policies
did not allow charging recruitment fees to
workers and that they review worker wel-
fare.
Wyndham said it was not aware of any
malpractice in any of its hotels. — Reuters
STARBIZ, THURSDAY 6 AUGUST 2020
Commerzbank
expects net
loss for 2020
FRANKFURT: Commerzbank is set to post
a loss for 2020, as a big writedown on loans
to collapsed firm Wirecard adds to the
problems facing Germany’s second-biggest
lender, including the fallout from the Covid-
19 crisis and a leadership vacuum.
The grimmer outlook for the year follows
a 21% decline in net profit in the second
quarter. Net profit in the April-June period
of 220 million euros (US$259.97mil) com-
pares with net profit of 279 million euros a
year earlier.
“The effects of the coronavirus pandemic
and the ongoing difficult economic condi-
tions have persisted in the year to date and
continued to have a significant impact on
our earnings performance in the first half
of 2020,” the bank said.
The 150-year-old bank, which is still par-
tially owned by the state after a bailout
during the last financial crisis, said provi-
sions for credit losses in the quarter were
469 million euros, compared with 178 mil-
lion euros a year ago.— Reuters
Wynn Resorts
posts wider loss
on pandemic hit
BENGALURU: Wynn Resorts Ltd posted a
wider-than-expected loss for the second
quarter, as the Covid-19 pandemic kept cus-
tomers away from gaming tables and hurt
the US casino operator’s gambling revenue.
Hopes for a near-term recovery in Macau,
the world’s biggest gambling hub, have
dulled as a resurgence in coronavirus cases
muddies the outlook for when China will
reinstate travel visas.
A significant amount of the operator’s
gaming revenues in Macau and Las Vegas
come from customers from mainland
China. Wynn’s Macau operations accounted
for nearly 70% of its revenue in 2019.—
Reuters
Exxon to cut
retirement
plan cost
HOUSTON: Exxon Mobil Corp told employ-
ees it would begin suspending the employer
match to retirement savings plans begin-
ning in early October, said sources who
received a message from the company on
Tuesday.
“Given the current business environ-
ment, the corporation is taking steps to
reduce costs,” according to a copy of the
message seen by Reuters. “The company
intends to suspend the company match con-
tribution to the US Exxon Mobil Savings
Plan for all employees covered by the
Savings Plan, effective around Oct 1, 2020.”
— Reuters
Kuwaiti lessor
halves Boeing
737 MAX order
DUBAI: Kuwaiti aircraft leasing company
Alafco has halved its order for 40 Boeing
737 jets after reaching an agreement to end
its legal claim over a cancelled order for the
planes, it said.
Alafco was suing the US planemaker for
US$336mil over accusations Boeing wrong-
ly refused to return advance payments on a
cancelled order for 40 of the grounded 737
MAX planes.— Reuters