KFM Weekly Investment Update: Friday, 22 May 2020 - Kina Bank

KFM Weekly Investment Update: Friday, 22 May 2020

Local Market Summary:
• According to Prime Minister (PM) Hon. James Marape, the Government had secured a K1.0bn (US$300.0m) from the Australian Government to assist the 2020 Budget. This funding was the first concessional loan Australia offered to PNG on favourable terms to be the cheapest possible rate compared to the more expensive sovereign bond negotiated by the former government with more than 8.0% interest. This reflects the confidence Australia had in the extensive and comprehensive reform program undertaken by the current government to focus on budget repair through more prudent macroeconomic management, significant reforms to improve revenues, strategically target expenditure towards growing the economy and removing the trade barriers by exporting to overseas markets.
• The 2020 National Budget was tabled in Parliament this week by Treasury Minister Hon. Ian Ling-Stuckey noting that the budgeted expenditure for 2020 is at K18.7bn (20.3% of GDP) of which a K4.6bn deficit and K14.1bn revenue. The 2020 budget allocations are as follows; Provinces K3.6bn, Health K1.8bn, Law & Justice K1.4bn, Education K1.2bn, Economic K735.0m and Transport K275.0m.
• Moreover, the Government announced several revenue collection policy guidelines as part of the 2020 Budget Strategy. The policies include enhancing land lease rental payments (more than K80.0m), increasing excise on social drinks, raising alcohol and cigarette tax by 10.0% and restart indexation, increasing progressive duty rate on unprocessed log (K48.8m), reducing levy on imported vehicles and tightening the thin capitalization rule. The government will also review all banking licensing fees and additional profit tax on banks, review telecommunication licenses and universal access levy regime, passing legislation for revised Income Tax Act and introduce the SME tax regime.
• According to Minister for State Enterprises Hon. Sasindran Muthuvel, PNG Power Limited (PPL) owes a huge amount to its diesel supplier Puma Energy which is resulting in numerous power outages. He said Puma had actually stopped supplying diesel however this was resolved on Monday this week and the supply would continue until the end of this month and next month would be a challenge again. He also said the two projects that would boost power generation in Port Moresby were set to be commissioned which they were assured by Petroleum Minister Hon. Kerenga Kua that the licence for the gas pipeline would be issued and NiuPower power generation could start. The 54megawatt of power from NiuPower and the 35 to 45megawatt from Dirio would be sufficient for the entire National Capital District.
• The State officially launched that it will participate in the Dubai Exposition (Expo) 2020. The Expo will last for 6 months, between October 20, 2020, and April 10, 2021. Minister for Foreign Affairs and International Trade Hon. Patrick Pruaitch said the Expo will focus on development aspects and allows for countries to share knowledge, ideas and opportunities in trade and investment, culture, science and technology and mobility.
• A digital platform called YuTru will be launched next year. This platform is aimed to improve financial inclusion and is anticipated to deliver a fast, secure and simple form of identification compatible with most banks. Scheme Coordinator Mr Isikeli Taureka said they were currently in the building process and that the platform would also encourage more people to participate in the digital economy.
• According to South Pacific Brewery Limited (SP) corporate affairs manager Mr John Nilkare, the company was unhappy with the 2020 National Budget as the government’s revenue collection of increasing tax on social drinks would affect the company’s revenue and it could lose business. The Company (SP) has put a submission asking the Government for a freeze because the 2018 excise collection caused affordability issues which resulted in PNG Customs collecting K36.0m less.
• This week’s BPNG auction in Central Bank Bills were under-subscribed by K14.0m from the K257.0m offered, signifying a decrease in appetite for shorter-dated securities. The weighted average yield for 28 and 91 days remained unchanged at 1.39% and 2.51% respectively from last week’s auction. There were nil offers for 63 and 182 days.
• This week’s BPNG auction in Treasury Bills were also over-subscribed by K13.16m from the K287.06m offered, signifying an increase in appetite for longer-dated securities. The weighted average yield for 182 days remained unchanged at 4.70%, while 273 days decreased by 0.01% to 6.04% and 364 rose by 0.01% 7.03% from last week’s auction. There were no offers for 63 and 91 days.
• The Kina Securities Index closed down by 1.0% while the KSi Home Index climbed by 1.0% to end the week at 6,937.46 points and 12,994.39 points respectively.
International Market Summary:
• US stocks closed higher after President Donald Trump said he was very close to a trade pact with China even as he warned that Beijing wanted a deal more than he did. All major indices ended higher with DJIA up 1.0% at 28,164.00 points, S&P 500 climbed 1.40% to 3.153.63 points while NASDAQ rose by 2.20% to 8,705.18 points.
• European stocks rose as telecom stocks rose after a report that Deutsche Telekom is examining a possible merger with France’s Orange, while hopes for an end to the U.S.-China trade dispute also helped the mood.
• Asia stocks closed mixed as investors awaited further details on US-China trade discussions. The Nikkei closed up by 0.8% to 23,293.91 points while the Hang Seng and Shanghai ended lower by 0.9% and 0.5% to end at 26,370.12 and 2,870.72 points respectively.
• Oil prices rose as signs of rising manufacturing activity in China pointed to increasing fuel demand, and hints that OPEC may deepen output cuts at its meeting next week indicated supply may tighten next year.

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