KFM Weekly Investment Update: Friday, 19 December 2014

Local Market Summary

• Prime Minister Hon Peter O’Neil announced this week that the people of Western Province will take up 33.0% ownership of OK Tedi Mine (OTML) and the balance of 67.0% would be owned by the people of PNG though the state. The National Executive Council approved the free transfer of equity in OTML following direct consultation with landowners, the Provincial Government and the National Government.

• South Korean company Daewoo has shown plans to expand into PNG to the PM O’Neil and Minister for Public Enterprise and State Investment Hon Ben Micah. Daewoo gave an overview of current projects that include power generation, modular housing construction and transportation infrastructure during a courtesy visit in Port Moresby.

• Managing director of the Independent Public Business Corporation (IPBC) Mr Wasantha Kumarasiri stressed in the opening of the newly completed Lae port that Improvement in port facilities in PNG was an effective way of increasing the economic activity in the country. The K734.0m Lae Tidal Basin project was jointly funded by the Asian development bank and the State through IPBC. Prime Minister Peter O’Neil further indicated that the next phase of the Lae Tidal Basin project would cost around K1.3b.

• ExxonMobil PNG’s Managing Director Mr Peter Graham expressed his great satisfaction that the PNG LNG project has achieved the milestone of 50 cargoes delivered. Mr Graham said that the project has doubled the expected cargoes in 2015.

• The tax review committee headed by Sir Nagora Bogan said corporate and personal income taxes are highly taxed as a result of PNG not having capital gains tax. The submission by the committee would seek further stakeholder views on the introduction of capital gains tax as a means to reduce corporate and personal income tax.

• Airlines PNG announced a change of ownership this week. Simon Wild had resigned as chairman of Airlines PNG’s board of directors. Mr Wild’s resignation comes with the company’s shareholders to shortly consider a series of resolutions that will have the effect of reducing Wild family’s shareholding in the company from its current 61.0% down to 5.0%, while seeing current significant shareholders the National Superannuation Fund and the MRDC group companies increase their holdings to a total of 81.0%.

• This month’s BPNG GIS auction was oversubscribed by K67.6m with a total of K81.0m bids successful. Rates were down from last month’s auction with 2017 bonds yielding 7.95% in the shorter term bonds while 2031 bonds yielding 13.74% in the longer end.

• This week’s BPNG auctions Treasure Bills were undersubscribed by K51.0m for 182 days with a weighted average yield of 4.6% and K66.7m for 364 days with a weighted average yield of 7.4%.

• The KSi index was down by 3.9% to 3,452.84 from 3,593.67 while KSi Home Index ended the week flat at 9,553.87.

International Market Summary

• US stocks extended their gains, boosted for a second session by reassurances from the Federal Reserve that it is in no rush to raise interest rates. The DJIA and the S&P500 closed the week higher 2.9% and 2.9% at 17,778.15 and 2,061.23 respectively.

• European stocks rallied sharply, as investors welcomed the message from the Federal Reserve that it will be patent in deciding when next to raise interest rates.

• Japanese stocks jumped, leading most of Asia higher as investors were encouraged to take on more risk after signals that the US remains patient in its approach to raising interest rates.

• In a surprise move this week, the Russian central bank raised interest rates by the most in 16 years, taking its benchmark to 17.0%. That failed to keep the Ruble from plummeting as low as 80.1 per dollar from about 34 in June as the price of oil, the country’s biggest export, dropped by almost half to below $60.0 a barrel. The currency surged 12.0% to 60.1 a dollar today as the government sold foreign currency and the central bank took steps to supported banks (refer to graph in the PDF attachment Below).

• US 10 year bond yields are higher at 2.2% (despite 2 year break evens now signaling deflation as they drop below zero) while Australian 10 year yield closed at 2.9%.

• Oil futures fell in a volatile day of trading, which saw the commodity swing by nearly $4 a barrel in either direction. Light crude closed the week 5.5% lower at US$54.7 per barrel while Brent closed US$59.6 down 3.6% for the week.

• Gold prices finished roughly flat and back under the US$1,200.0 mark, as a lift from the Fed’s dovish signals faded. Gold is lower 1.9% for the week at US$1,199.0 per ounce.

• To end the week, PNG/USD closed lower 0.3% at 0.3879 while PGK/AUD appreciated by 0.6% from 0.4740.

Click on the link below to view full report in PDF.

pdfKFM Weekly Investment Update: Friday, 19 December 2014

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