Fitch downgrades Malaysia outlook to “negative” from “stable ”

Quite many bad news if u read the Edge.

Malaysia bonds hit 3.97 % today .

10B RM bond matures tomorrow, with heavy FF outflow expected.

RM is getting hit. hard.

This post has been edited by SKY 1809: Jul 30 2013, 06:13 PM

Ringgit drops to three-year low
Malaysia's ringgit fell to a three-year low on concern global investors will repatriate funds after US$2.9 billion of sovereign debt matures tomorrow.

The local-currency bonds "may have a large proportion of foreign ownership" and capital outflows could cause the ringgit to underperform, Dariusz Kowalczyk, a Credit Agricole CIB strategist in Hong Kong, wrote in a research note today. The yield on the government's benchmark three-year notes ended yesterday at the highest level since November 2008, according to data compiled by Bloomberg.

"One of the factors that is behind the depreciation in the ringgit has been the large redemption of Malaysian government securities," said Khoon Goh, a senior strategist at Australia and New Zealand Banking Group Ltd in Singapore. "That has got the market somewhat concerned that we're going to see some large outflows from the bond market."

The ringgit declined 0.3 per cent to 3.2365 per dollar as of 10.03am in Kuala Lumpur, according to data compiled by Bloomberg. It earlier touched 3.2379, the weakest level since July 1, 2010. It has fallen for five straight days, the longest losing streak since December 2012, and depreciated 2.4 per cent this month and 5.5 per cent in 2013.

Global funds held 33 per cent of Malaysian sovereign notes in May, the highest proportion among Southeast Asia's biggest economies, according to central bank and Finance Ministry data. This renders the nation's securities vulnerable to a global sell-off, Arjun Shetty, a rate strategist in Singapore at Deutsche Bank AG, said last week.

The government will auction RM4.5 billion of 2020 securities today, according to data published on the central bank's website.

The ringgit also weakened amid concern about a possible deterioration of Malaysia's current-account balance, Goh said. The surplus fell to RM8.7 billion in the January-March period from RM22.9 billion in the preceding three months, official data show. The nation may record an US$800 million current-account deficit in the second quarter, the first shortfall since 1997, according to a July 26 note from Bank of America Merrill Lynch.

One-month implied volatility in the ringgit, a measure of expected moves in exchange rates used to price options, rose 16 basis points, or 0.16 percentage point, to 8.30 per cent.

Government bonds declined. The yield on the 3.48 per cent notes due March 2023 climbed four basis points to 3.97 per cent, the highest since the notes were issued in March, according to data compiled by Bloomberg.-- Bloomberg


KUALA LUMPUR (July 31): BNP Paribas is of the view that Malaysia faces a possible sovereign downgrade if its economic growth slows and the reforms stalled.

The research house also sees a weaker ringgit ahead due to fiscal strain.

“With revenues remaining stagnant at best, Malaysia’s debt-to-revenue ratio at 237% in 2012 is already well above the ‘A’ range medians of 137%.

“This puts the sovereign at risk of an outlook downgrade should growth falter or reforms stall,” said a country strategy report on Malaysia by PNB Paribas.

In the same report, it said the US dollar/ringgit will see more volatility as Malaysia’s current account surplus buffer gets eroded and investors hedge themselves through the currency.

“We currently have a forecast of 3.15 by end of this year and 3.30 by end 2014. We are revising these up to 3.25 and 3.35 respectively,” it said.

Below is the full report by PNB Paribas dated July 29, written by its analysts Yii Hui Wong and Mirza Baig:

“Our recent trip to Malaysia has cemented our bearish view on Malaysian rates and the currency.

Policymakers appear too sanguine on the growth and debt outlook and politics are still playing a role in key fiscal reform decisions.

The weakness in the fiscal outlook is not new. The government has been beating the drum on fiscal consolidation for years. Yet, the official government debt / GDP ratio has continued to climb, now just 1.5% short of the 55% of GDP ceiling.

In an environment of strong growth and robust capital inflows, this could be easily brushed aside as was the case for 2012 and much of this year.

However, growth is moderating, led by the drag from net exports and a loss in momentum from investment spending. With China slowing and Fed tapering expected to impact inflows negatively, this will amplify worries over debt sustainability.

Fiscal reforms remain distant…

We expect the trigger for a further sell-off in MGS to be the debt ceiling issue and the lack of fiscal reforms both on the revenue and expenditure side.

On the revenue side, the GST implementation is key to broadening the tax base. Petroleum-related revenues contributed 30% of RM207.2 billion of federal government revenues in 2012 with half of this came as dividends from Petronas.

Instead of a fixed amount of RM30 billion as dividends, Petronas has repeatedly stated that it would be moving gradually to a 30% (of profits) dividend distribution which implies approximately RM12-15bn (or 6%-8% of revenue) reduction eventually.

A simple back-of-the-envelope calculation implies that the GST rate will have to be a minimum of 5-6% rather than the original 4% if rolled out together with other comprehensive tax reform measures.

We remain sceptical that these can be carried out especially as the budget is likely to be passed in October, before the UMNO general assembly elections for party leadership.

Even then, it is assumed in our projections that the GST will be implemented immediately and effectively whereas the reality is that GST would have a lead-in period of around 12-18 months.

With revenues remaining stagnant at best, Malaysia’s debt-to-revenue ratio at 237% in 2012 is already well above the ‘A’ range medians of 137%.

This puts the sovereign at risk of an outlook downgrade should growth falter or reforms stall.

On the expenditure side, subsidies take up about 19% of total expenditure with around 10-12% as fuel subsidies. Plans to cut subsidies on the widely used RON 95 grade of petrol have been shelved since December 2010.

Interest payments also take up about 11% of total expenditures, so a back-up in yields would put additional strains.

And given the UMNO elections, it seems unlikely that the government would cut food and fuel subsidies any time this year. Instead, development spending may be cut to plug the gap, though this may hurt growth.

… and support for ringgit is fading

Compounding the issues in fiscal sustainability is the structural decline of the current account surplus – largely driven by the deteriorating trade balance.

Our economists have pencilled in a current account surplus of 4% of GDP for this year and 2% for 2014 with risks on the downside.

Commodity exports make up around 30% of the export basket and the price impact on export growth has been the driver of the decline.

In the electronics sector which makes up another 30% of exports, a turnaround is unlikely to materialize in the near-term as demand for the traditional PC hardware that Malaysia produces remains muted.

With net FDI flows remaining negative, portfolio inflows waning, and locals continuing to buy USD, the support for MYR and local currency bonds is diminishing.

Bear steepening in MGS

While MGS net supply for the rest of the year is a manageable MYR8.8 billion and the next big redemption month is only in October (with MYR6bn worth of redemptions), foreign holdings are around 47% of MGS.

We believe that much of these holdings are underwater, exacerbated by currency losses.

Through 2011/12, USDMYR was trading below 3.20. 3Y and 5Y MGS yields were also trading below 3.47% and 3.66% respectively.

The pain threshold for some investors could already have been breached given where the currency and bonds are now trading.

As regards local support, we understand that local investors have been mostly buying GIIs, quasi-sovereign debt or corporate paper as these provide higher yields.

For example, insurer holdings of MGS paper has remained relatively stable around 8-9% of outstanding stock while banks have maintained it around 13-14%.

Otherwise, some of them have been looking to diversify to invest in other markets, primarily in Korea and Thailand.

Even the national pension fund, EPF, already hold 30.8% of outstanding MGS. They have their own mandates to fulfil and we do not expect them to be a large support for MGS in the event of a sell-off. BNM currently holds only 0.5% of outstanding stock of MGS and technically can buy up to 10% of any issue in their normal monetary operations.

However, should they step in, we think that it would only serve to shake confidence than bolster it.

We recommend shortening duration in bonds and establishing 3s10s steepeners in swaps at 82bps. The 3Y10Y spreads in bonds and swaps are currently 47bps and 92bps respectively.

We are targeting 100bps in bond spreads and 130 bps in swap spreads. Bonds could underperform swaps as the proliferation of range accrual products onshore could weigh on steepening momentum (refer Chart 8). Carry is slightly positive at 1bp per month on these trades.

There are two domestic risks to the steepening view. First, if the administration surprisingly delivers fiscal reforms, then it would likely convince ratings agencies to delay a sovereign downgrade.

It would come as a sharp surprise to the market too, which has adopted a resigned and bearish attitude towards Malaysian fixed income. As such, the Malaysia budget announcement in October 2013 presents an unusually high event risk for the market.

The second risk is if BNM were to hike rates. Clearly the growth outlook does not support tightening, though if MYR depreciation takes on IDR or INR type proportions, BNM would be in a bind.

On the currency, we think USD/MYR will see more volatility as the current account surplus buffer gets eroded and investors hedge themselves through the currency.

We currently have a forecast of 3.15 by end of this year and 3.30 by end 2014. We are revising these up to 3.25 and 3.35 respectively.”

This post has been edited by SKY 1809: Jul 30 2013, 06:15 PM

U tend to gain on maturity but it takes 8 to 15 years to mature for long term bonds .

Long term bond is out of favour in current trend unless with very attractive yields , short term ones like 3 years maybe

It is more risky to speculate on bond yields, experts say.....

This post has been edited by SKY 1809: Jul 30 2013, 06:41 PM

Ringgit drops to three-year low
Malaysia's ringgit fell to a three-year low on concern global investors will repatriate funds after US$2.9 billion of sovereign debt matures tomorrow.

The Edge

Rounded up after converting to rm

Petronas also delays its 18B project in Johor .......do not know any links to Bond yields

Local Funds may realise the unrealistic supports for the markets may have a big cost.....

Correction is good. Even the latest Android 4.3 has a TRIM built in.

Time to trim more on the Index.

Spore $ is going the rm 3 way...

Maybe good to shop SReits with higher yields, with currency gain later

This post has been edited by SKY 1809: Jul 31 2013, 10:53 AM

900 units of 800K Condo in Sentul sold out.

Buyers only given 1minute to think whether to buy or not.......

If not they would be trimmed and trashed ......in the quene


I mean some camped overnight.........and trimmed after 1minute time bar......

This post has been edited by SKY 1809: Jul 31 2013, 11:09 AM

Kenanga Investment Bank Bhd

IGB REIT: Weaker margins at key assets

• 1H13 net profit was within our and consensus estimates; higher revenues were diluted by weaker NPI margins

• Declared 3.43 sen DPU, implying 100% payout of 1H13 distributable income

• Gardens Mall to remain revenue growth driver; still see limited asset acquisition opportunities

• Maintain HOLD with RM1.40 TP

Highlights

1H13 earnings within expectations. 2Q13 net profit of RM51m was 3% higher q-o-q driven by higher revenue (+6%), but the impact was partly offset by higher operating expenses (+13%). The REIT’s revenue growth (higher percentage rent) was driven by rental income from Gardens Mall which grew 15% q-o-q to RM34m, while Mid Valley contribution only inched up 2% to RM73m due to its higher revenue and rental base. 1H13 net profit is c.50% of our and market forecasts.

Weaker margins capped Mid Valley NPI. Net property income (NPI) margin slid 2.3ppt to 65.9% from 68.2% in 2Q13 as a result of higher expenses at both Mid Valley Megamall and Gardens Mall (NPI margin decline of 1.8ppt each q-o-q). Utilities and other operating expenses (upgrade expenses and property management reimbursements) drove up costs.

Our View

Under-rented Gardens Mall. Gardens Mall will be the key earnings growth driver for IGB REIT due to its lower rental base than Mid Valley Megamall and 53% of its NLA expiring in 2013. Its current rental rates are estimated to be below RM10psf, a large discount to average rents at Pavilion KL (RM19psf) and Suria KLCC (RM22-25psf), despite its prime location. However, cash flow will remain stable, supported by Mid Valley Megamall contribution.

Recommendation

Maintain HOLD. IGB REIT lacks near-term catalysts because it does not have an attractive retail asset pipeline from its sponsor IGB Corp (comprises offices and hotel properties). In spite of low gearing of 25%, third party acquisitions would be challenging because of excessive valuations. The planned construction of Southkey Megamall in Johor is also expected to be a long-term play. Our price target is currently under review with potential downward bias.

Tower Reit collapsed with zero buy rate .

Hot stock like Green Tone only has 40% buy rate.....

Buyers , where are u

This post has been edited by SKY 1809: Jul 31 2013, 02:58 PM

Ultraman is ready strong, flying to the moon this year

Indonesia Inflation is above 8 %.

Do not the impact of inflation if our oil subsidy gone , and add with GST.......

Do not be greedy lah

bought at 30sen , sell at rm 3............

I lost count on your returns

This post has been edited by SKY 1809: Aug 2 2013, 11:11 AM

Technically, KLCI's short term outlook remains choppy but the uptrend
from YTD low at 1597 is still relatively unscathed, given that the index
continues to trade above the uptrend line near 1760.

. A positive close today will improve the technical readings and spur KLCI
to retest the 1800 zones again post Hari Raya. Conversely, a decisive
breakdown of key 1760 support will signal a new bearish trend is underway,
potentially to retest the runaway gap at 1712-1743 (6 May).

Markets might be affected by Post Budget events.

BTW, Malaysia may suffer the first current deficit in Q2 ( since Year 1997 )

News may be out very soon.

Sori, no intention to scare u but yr stock 0078 , PE is kinda reaching 100X.....

If u think can go up to 200x, then can hold a bit longer lah.....

This post has been edited by SKY 1809: Aug 2 2013, 11:21 AM

Debts esp personal debts surpass that of Year 1997.

One thing, we could be in a Denial State of the stock market phrase , that is almost the end stage of a bull cycle.

Unsafe to ask people to " chase after " 0078.......

Maybe going into OIl and Gas

Just joking.

I missed Daya at 25sen