KFM Weekly Investment Update: Friday, 30 April 2016

Local Market Summary:

• Moody’s downgraded PNG foreign and local currency issuer rating to B2 from B1 with a stable outlook. The key drivers for the downgrade were the strain on the adequacy of the FX reserve due to high balance of payments pressure and secondly the persistence of unfavourable domestic funding situation of the government which has increased refinance risks and affected debt affordability

The stable outlook is due to med-term growth prospects although the current decline in commodities and the impact on the fiscal budget could affect growth for the current year and 2017

• The Bank of Papua New Guinea (BPNG) has assured that while the country’s foreign exchange (forex) has gone down, it is still within comfortable levels. BPNG Governor Loi Bakani said the reserves had dropped from US$4bn (K12.6bn) in 2012 to US$1.7b (K5.4bn) due to the completion of the development phase of the PNG LNG project, the decline in the world commodity prices, and the temporary closure of the OK Tedi Mine last year

• Nambawan Super (NSL) recorded zero fraud-related activities in 2015 according to NSL Chief operating officer (COO) for member services, Charlie Gilichibi. Mr Gilichibi said members’ savings remain well protected after contributors accepted a decision to cease distribution of their hard copy statements in order to eliminate or reduce fraud activity

• In addition, Mr Gilichibi says NSL has no issues with the outstanding K2.1bn owed to them by the State because the Government has already commenced paying some amount of the outstanding amount owed to the funds. He added that at the moment they are having ongoing discussions with Government officials and there’s been an indication that the other outstanding payments are going to be made

• Interoil has entered into a US$400m (K1.2bn) secured capital expenditure facility to refinance and replace the existing US$300.0m (K937.0m) facility. Chief Financial Officer Mr Donald Spector said the new increased and extended credit facility emphasized the lenders’ confidence in their PNG assets and in Papua LNG

• Highlands Pacific stated that nickel production this year would be affected after temporary closure of Ramu Nickel processing plant. Operations were suspended pending an investigation into recent death of a worker and the duration of suspension remained unclear

• This week’s BPNG auctions in Central Banks Bills were offered for 28 days and 63days only, with an under subscription of K143.0m out of a total of K476.0m on offer. The weighted average yields for 28 days and 63 days were 1.1% and 2.40%, respectively. KFM expects short term rates to remain flat around current levels

• This week’s BPNG auctions in Treasury Bills were oversubscribed by K188.2m out of a total K185.2m on offer indicating strong appetite for the short term securities. The weighted average yield for 91 days was 2.77%, 182 days was 4.75% and 364 days was at 7.70%

• The KSi Index ended the week up by 2.7% to close at 3,954.93 points, supported largely by an increase in share price of Newcrest Mining Ltd (+6.1%) while the KSi Home Index remained unchanged to end at 9,112.94 points

International Market Summary:

• US Fed left their interest rate unchanged noting slow economic activity as Labour Department announced that annual GDP increased by 0.5% in March, its weakest growth since first quarter in 2014 mainly due to slow down in business activity. Almost all sectors of the economy saw a slowdown in Q1 except for housing

• The Fed held its rates unchanged, indicating that its fears about risks to the global economy have lessened since March and thus leaving open the possibility of a short-term rate rise in the months to come.

• Bank of Japan decision to not ease their monetary policy which saw the Yen surge 3.0% against the USD on Thursday affecting Japanese exporters and Asian stock markets (refer to graph)

• The European Central Bank sat on its hands after its March interest rate cuts, asset purchases and more generous commercial bank loans. The dovish tone from President Mario Draghi was aimed at limiting upside pressure on the euro, and he highlighted improvements in the eurozone recovery together with credit standards

• Australian inflation came in lower than expected at 1.3% compared to 1.7% at the end of December, far below the Reserve Bank of Australia’s (RBA) target range of 2.0% to 3.0%. The Australian Bureau of Statistics stated that the result was owed to a decline in fuel, food and clothing prices coming off a decline in the energy sector and poor wage growth. As a result the Aussie dollar is set to come under pressure as a rate cut looms.

• The IMF agreed to a $1.5bn loan for three years to assist Sri Lanka who is currently facing a crisis with its balance-of-payments due to high foreign outflows from govt securities and external debt repayments

• Oil price saw a steady increase over the week to close at $48.12 up 6.7%from $45.11 last week supported by seemingly dropping output and weaker dollar.

• PGK/USD was lower for the week ending at 0.3175, PGK/AUD remained unchanged at 0.4149 while AUD/USD was down 0.7% to close at 0.7652

Click the link below to view the full daily market report in PDF.

pdfKFM Weekly Investment Update: Friday, 30 April 2016

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