KFM Weekly Investment Update: Friday, 01 April 2016

Local Market Summary

• Bank of Papua New Guinea (BPNG) stated in their Monetary Policy Statement that PNG was unable to sustain the pace of economic growth over the last 3 years. The decline due to lower export receipts, following the adverse effect of El Nino on agriculture and mining activities, as well as imbalance of supply and demand for foreign currency in the market

• BPNG further stated that it assisted in meeting some of the import demand by selling foreign exchange for its reserve holdings. Accordingly, Foreign Reserves declined from US$2.3bn in 2014 to US$1.9bn at the end of 2015

• The Asian Development Bank (ADB) has downgraded its PNG Economic Growth forecasts to 4.3% in 2016 and 2.4% for 2017. The Asian Development Outlook 2016 has PNG and other commodity driven economies earmarked for subdued growth following the collapse and decline in global commodity prices

• The Report also highlighted an increase in inflationary pressures; with inflation projected at 6.0% in 2016 off the back of currency depreciation, and increased government spending aimed at supporting consumer activity. Inflation is also said to “accelerate” over the near-medium term as an anticipated oil price rebound is passed onto consumers

• The ADB alluded to the possibility of further fiscal duress facing the State with an estimated U$3.0bn in domestic debt obligations in 2016, representing 93.1% of the State’s projected annual receipts (ADB forecast: U$4.1b). Further, the report stipulated that cash management will be immanent upon the encroachment of maturities of short-dated government paper (which currently constitute c. 48.1% of domestic debt)

• Credit Corporation Limited (CCP: POMSoX) announced a Net Profit after Tax of K63.1m for FY15. CCP Chairman Sir Wilson Kamit said that the Company had experienced a decline in core operating profits (down 8.0%) as a result of the constrained trading environment however, valuation gains in key investments succoured a turn of fortunes

• Comrade Trustee Services Limited Chief Executive Officer (CEO) Mr Richard Sinamoi said that the Fund (Defence Force Retirement Benefit Fund) anticipates slower growth and tighter liquidity requirements this year however, it remains well poised to weather the forthcoming challenges. He said that the Fund’s focus in 2016 will be to ensure it has sufficient liquidity to meets its member obligations, and as such performance may be bridled

• CEO of Melanesian Trustee Services Limited Mr Kennedy Wemin said that the Pacific Balanced Fund (PBF) had performed exceptionally well in spite of the observed slowdown in the economy, with Net Asset growth of c.13.0% to K555.0m in 2014 (2013:K493.0m). In light of the positive performance he said unit holders of the PBF will receive K5.0m in distributions for the years 2013 and 2014

• The following Key Disclosure Statements were released during the week:

• CCP Finance Ltd recorded a Net Income after Tax of K7.5m, down c.30.0% from the previous corresponding period (PCP). CCP Net Assets increased by 2.0% to c.K106.0m

• Kina Bank Ltd (KBL) posted a profit of K27.2m also down c.30.0% from the PCP. KBL’s Net Assets increased by 12.0% to K250.0m

• Kina Finance Limited (KFL) announced a Net Income of K6.4m down c.21.0% from the PCP. KFL Net Assets increased by 10.0% to K69.8m

• PNG Home Finance Ltd generated a Net Income of K0.52m down 56% from the PCP. Net Assets increased by 8.0% to K4.9m

• This week’s BPNG auctions in Central Banks Bills were only offered for 28 days with an oversubscription of K447.0m out of a total of K296.0m on offer. The weighted average yield was 1.14%. Auctions in Treasury Bills were oversubscribed by K412.3m out of K368.1m on offer. Weighted average yields were 2.8% for 91 days, 4.8% for 182 days and 7.7% for 364 days

• The KSi Index ended the week down by 0.1% to close at 9,087.27 points, underpinned by a fall in share price of Oil Search (-2.0%) and Kina Securities(-12.5%) while the KSi Home Index was down by 0.8% to close at 4,000.89 points, underpinned by a fall in share price of Credit Corporation (-1.8%)

International Market Summary

• US equities rose following the Federal Reserve’s decision to leave rates on hold. The announcement having a slightly positive impact on equities as expectations of future rate hikes waned

• Asian Equities declined despite the positive economic data out of China as the Nikkei fell upon the release of a disappointing report indicating poor manufacturing business sentiment

• Oil prices retreated for the week as continued concerns of oversupply and a strengthening dollar weighed on market sentiment ahead of an oil producers meeting in Doha to discuss a possible production freeze. Whilst there is speculation on the imposition of an output freeze there remains expectation of further resistance to a rebound as a supply overhang persists

• PGK/USD was down by 0.9% for the week ending at 0.3235 while PGK/AUD declined 2.4% to close at 0.4204 as the AUD strengthened against the USD following the Fed’s decision to maintain rates, employing a cautious approach to monetary policy

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pdfKFM Weekly Investment Update: Friday, 01 April 2016

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