KFM Weekly Investment Update: Friday, 18 December 2015

Local Summary Market :

• Finance Minister Hon James Marape stated that the 2015 fiscal year has been a challenging one with a deficit budget and revenue falling short of projections. He said that Government securities issued for financing purposes were not always well supported in the domestic market and these factors combined to put pressure on the planned 2015 expenditures. As a result, expenditures had been closely managed in line with identified priorities and the Government to date had spent K8.8b compared to the K11.3b revised appropriation

• Japan and PNG signed an agreement this week to set the wheels in motion for the K692.0m Nadzab International Airport development to start next year. Japan International Cooperation Agency chief representative Mr Shigeru Nugiyama and National Airports Corporation Acting MD Mr Joseph Tupiri signed the project memorandum “with a view to providing the basis for supervision and monitoring of the project and thereby facilitating its successful implementation and ensuring its effectiveness and sustainability”

• Air Niugini has paid a K20.0m dividend to Kumul Consolidated Holdings. Chairman of the board Sir Frederick Reiher thanked the Government for its support for the airline and said the impact of the end of the first LNG project construction phase from which the airline had benefited had been a real challenge

• A biomass electricity project in Markham Valley, Morobe, will commence in 2016 after the Power Purchase Agreement was signed by developers, New Guinea Petroleum (NGP) and Aligned Energy with PNG Power this week. The project will use gas as its primary source of energy will use wood chips to produce electricity for Lae and Markham at levels of two megawatts with a long term goal to increase to 65 megawatts by 2030

• Nautilus Minerals announced that its joint partner in the Solwara 1 Project in PNG, Eda Kopa (Solwara), has elected not to exercise its option to take up to a further 15% interest in the project. Eda Kopa, the State Nominee, which maintains a 15% interest in the Project, and Nautilus Minerals continue to work together to complete the seafloor production system to be used at the Project site when mining is planned to commence in Q1 2018. Nautilus Minerals also signed an agreement with Chinese smelting company Tongling Nonferrous Metals Group for ores extracted from the Solwara 1 deposit in PNG

• This month’s auctions in Government Inscribed Stock were undersubscribed by K82.10m out of K160.0m offered. The weighted average yields were at 9.9% for 2018 series, 11.3% for 2020 series, 11.2% for 2022 series and 12.0% for 2023 series. KFM expects long term rates to see a flat to marginal increase in the next six months

• This week’s BPNG auctions in Central Banks Bills were only offered for 28 days with an oversubscription of K507.0m out of total of K250.0m on offer. The weighted average yield remained flat at 1.34%

• This week’s BPNG auctions in Treasury Bills were undersubscribed by K61.4m out of total K290.0m on offer indicating reduced appetite for short term securities. The weighted average yield for 28 days was 1.4%, 63 days was 2.5%, 91 days was 2.6%, 182 days was 4.6% and 364 days was at 7.6%

• Kina Asset Management Limited announced K1.09per share for their Net Tangible Asset as at 30/11/15

• The KSi Index closed the week unchanged to end at 3,491.86 points while the KSi Home Index was down by 0.1%, underpinned by drop in City Pharmacy’s share price down by 1.5%, to end at 9,602.67 points

International Market Summary:

• The US Fed hiked interest rates this week by 0.25% quoting considerable improvement in the US labour market and confidence in inflation rising to meet the Fed’s 2.0% objective. The move is likely to cause ripples around the world affecting global markets at different levels (refer to graph)

• After the BoJ offered markets a surprise move to buy more ETFs and extend the duration of the bonds it buys, the Nikkei 225 became the worst performer in Asia on Friday. The benchmark average just closed the session with a 1.9% fall, with every sector down and energy stocks losing 3.0%

• In the space of just a few months Chinese home prices have gone from deflation to stabilisation to outright gains, according to China’s NBS

• RBA Governor Stevens said that the inflation outlook means policy makers have room to cut interest rates again if needed to help the economy. RBA has set interest rate at record-low 2.0% for 8 months. Mr Stevens further told Financial Review that weaker dollar is helping output for more interest rate cut

• While junk bonds linger as a concern, economic conditions finally point to a much anticipated lift-off in rates which data shows that momentum is holding up with consistent hiring. Inflation remains below the Federal Reserve’s 2.0% goal but as officials from China to the Euro area try to stoke domestic demand international risks loom less ominously in the outlook

• Oil traded below US$34.8 a barrel and headed for a third weekly decline amid a worsening US supply glut. Oil is trading
near levels last seen during the global financial crisis on signs the surplus will be exacerbated; stocks beaten down by commodities as week ends

• PGK/USD ended the week lower by 0.1% at 0.3345 reflecting the continued shortfall in liquidity while PGK/AUD closed higher by 0.5% to 0.4683 and the AUD/USD ended lower by 0.7% at 0.7142

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pdfKFM Weekly Investment Update: Friday, 18 December 2015

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