KFM Weekly Investment Update: Friday, 07 August 2015

Local Market Summary:

•The Government’s revenue has been cut by K2.5b on its 2015 forecast, as was announced this week. Treasury Minister Hon Patrick Pruaitch said that the fall in global commodities prices since late 2014 has had a material impact – resulting in the fiscal deterioration in the first half of 2015. Additionally, he stated that there were “some constraints on domestic financial markets that are impacting on the ability of the Government to fund its priorities”. He reassured the nation that the “debt-GDP ratio will not higher than the stipulated level under the Financial Responsibility Act”

•Trade, Commerce and Industry Minister Hon Richard Maru stated that the passing of three important legislations in the Parliament last Friday will enable more citizens to participate in the country’s capital market. Hon Minister Maru further added that there were outdated provisions in the Securities Act of 1997 that needed to be up-dated to be in touch with modern trends. Prime Minister Hon Peter O’Neill earlier had announced the introduction of the legislation aimed to open the Port Moresby Stock Exchange to greater competition. “Reforms to legislation will enhance the financial sector in PNG by making it more competitive in the global market”

•Oil Search (OSH) announced that Total E&P PNG (Total) has become operator of the PRL 15 Joint Venture, including the Papua LNG Project, effective from 01/08/15. This follows the unanimous vote by all joint venture participants at the end of February this year to appoint Total as operator of the PRL 15 Joint Venture

•Ok Tedi Mining (OTML) announced that its operations may be suspended due to prevailing weather patterns. A former senior PNG agriculture business executive, Bob Hansen, said that the loss of mining income could amount to as much as K2.8b a year depending on the severity of and duration of the weather conditions. OTML also announced reduction in its permanent workforce, with the ‘expatriate’ workforce to be reduced by 30.0% and ‘local’ by 15.0%

•Government (DoT) BPNG Treasury bills auction was for K200.0m of which K95.0m was maturing. 91 days term issued along with the 182 and 364 days bonds. WAR results were 2.50% , 4.63% and 7.42%, respectively

•Kina Securities index ended the week marginally lower by 0.5% at 3,460.9, while the Home Index closed flat from previous week at 9,711.1

International Market Summary:

•US stocks slumped in a selloff led by shares of media companies, which have reported a flurry of disappointing earnings amid concerns about the shift away from traditional television. However, US payrolls ‘could free up’ BoE hawkishness. The DJIA was down by 1.5% for the week at 17,419.8 as was the S&P500 which closed 1.0% lower at 2,083.6 points

•Most Asian shares slipped on Friday, on track for a third consecutive weekly loss, and the dollar rose as caution mounted ahead of US jobs data that could spur the Federal Reserve to raise interest rates in September. The Bank of Japan has stood pat in its latest monetary policy statement, maintaining the level of its bond-buying programme and its verdict on the Japanese economy. Japan’s Nikkei stock index was, erasing earlier losses from investors taking profits after the Bank of Japan kept its stimulus program unchanged. It closed 0.7% higher for the week at 20,724.5 points

•US crude futures edged up after dropping to multi-month lows overnight after a large drop in US crude inventories failed to boost prices. Light Crude was down 4.4% for the week at US$45.0. Brent was also down 4.5% for the week at US$49.9

•Europe stocks slip as forex and fixed income meander. The Euro has slipped 0.1% to US$1.0912 after data showed German industrial production unexpectedly shrank 1.4% in June. Sterling has steadied following its retreat in the previous session on a less-hawkish-than-forecast economic assessment from the Bank of England, trading little changed at $1.5510.

•For the last 2 weeks, gold has been trapped in a narrow band between US$1,109.0 an ounce on the top side, and US$1,077.0 at the bottom. Its future is bleak. Emerging -markets demand has been previously cited as a possible source of support for gold. However in actuality, China demand has slowed. Jewellery consumption in Q2 dropped 23.2% y/y. The trading volume in Shanghai Gold Exchange has been sluggish as most Chinese retail investors’ attention is on the volatile stock market of late

•ASX200 finished nearly 4.0% down for the week after suffering their worst day in over 3 years on Friday, led by a rapid sell-off in the banking sector (see graph)

•PGK/USD a ended the week flat at 0.3605 and PGK/AUD lower by 0.9% to 0.4890

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pdfKFM Weekly Investment Update: Friday, 07 August 2015