Eye on debt burden and US-North Korea tension

This article first appeared in The Edge Malaysia Weekly, on May 28, 2018 - June 03, 2018.
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Developments on the home front will likely continue to dominate investor interest this holiday-shortened week — markets are closed on Tuesday for Wesak — with further news flow expected on investigations into scandal-ridden 1Malaysia Development Bhd (1MDB), among others.

Finance Minister Lim Guan Eng, who recently confirmed that Malaysia’s debt was higher than expected at RM1.087 trillion as at end-2017, said last Friday that the country would honour all payments on debt raised by 1MDB even though the new government is unhappy about money having gone missing from the fund.

The government had guaranteed RM38 billion of 1MDB’s debt as at end-2017, and there is much interest in how it plans to tackle this. The ringgit, which has been on a downward trend against the US dollar along with other emerging market currencies, will also be watched to see if falls back to the RM4 level.

Before the May 9 general election, the ringgit was the second-best performing currency this year after the Colombian peso, but since then, it has declined by 0.8%. The ringgit was last traded at RM3.9813 against the greenback.

Investors will also be watching closely geopolitical and trade developments after US president Donald Trump last Tuesday unexpectedly called off what was to be a historic US-North Korea summit on June 12 in Singapore. Trump deemed the summit inappropriate, given North Korea’s “tremendous anger and open hostility”.

“The timing was especially cruel, coming just after North Korea dismantled its underground nuclear facilities,” UOB Global Economics and Markets Research said in a May 25 note.

China urged the two countries last Friday to be patient and to be prepared to meet each other halfway. Foreign ministry spokesman Lu Kang noted that both Trump and North Korea had still left the door open to holding talks.

At home, Bank Negara Malaysia is expected to release its detailed disclosure of the international reserves as at end-April.

And on the corporate front, there will be a slew of 1Q earnings releases this week as public-listed companies rush to meet the May 30 deadline for reporting. Malayan Banking Bhd (Maybank) will release its first-quarter financial results on Monday, while CIMB Group Holdings Bhd will do so on Wednesday. AMMB Holdings and DRB-Hicom Bhd are expected to release their full-year results this week.

Meanwhile, Sime Darby Plantations Bhd and Thriven Global Bhd’s 1Q earnings will be out on Thursday.

Companies scheduled to have annual general meetings this week include IHH Healthcare Bhd (May 28), Puncak Niaga Holdings Bhd, Destini Bhd, Magnum Bhd and Bumi Armada Bhd (May 30).

In the stock market, Maybank will be watched after its shares fell sharply last Thursday on large volume, likely because of concerns over its exposure to Singapore-listed water treatment company Hyflux Ltd, which sought court protection on May 22 to reorganise its business and address its debt pile.

Maybank closed 42 sen, or 3.9%, lower to RM10.26 last Thursday, with 84.9 million shares traded, more than double the previous day. The following day, the stock closed flat.

Maybank’s Singapore branch had provided an 18-year S$720 million financing facility to Hyflux’s Tuaspring project in 2013. Moody’s Investors Service, however, said in a statement last Friday that the potential losses to Maybank should be limited as it believes the bank’s exposure has decreased since 2013 because of loan amortisation.

The ratings agency assumes that most or all of Maybank’s exposure is secured by the Tuaspring project or related cash- flow receivables, or both.

Apart from Malaysia, markets in Singapore, Indonesia and Thailand will also close Tuesday for Wesak Day.

Meanwhile, markets in the US and the UK will be closed on Monday for Memorial Day and the Spring Bank Holiday, respectively.

The US will release on May 30 its second estimate for first-quarter gross domestic product growth. The first estimate, in late April, saw GDP grow at an annual rate of 2.3%. The country will also announce the unemployment rate for May on June 1.

Several Federal Reserve officials are expected to speak in public forums, including Atlanta Fed President Raphael Bostic (May 31) and governor Lael Brainard (June 1). The Fed is also scheduled to release its latest Beige Book report — a qualitative review of economic conditions — on May 30 .

Apart from that, the US Fed is expected to hold an open board meeting, also on May 30, to discuss changes to the Volcker Rule, which prohibits banks from making their own risky bets using customers’ deposits.

Meanwhile, China will release manufacturing and non-manufacturing PMI data for May on Thursday, while other important releases on the same day include India’s 1Q GDP. On Friday, South Korea will provide its first-quarter GDP forecast.

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