KFM Weekly Investment Update: Friday, 02 September 2016

Local Market Summary

• The National Government released a Supplementary Budget on Thursday August 25th to address a shortfall in revenue driven primarily by sustained low oil prices. Due to the ongoing weakness in the oil price combined with revenue shortfalls as a result of delayed tax revenues from recently commissioned projects such as Ramu Nickel and PNG LNG the government has taken pre-emptive action through the supplementary budget

• Treasurer Patrick Pruaitch told Parliament that the plan was to restore the K2.1bn deficit budget through the cutting of expenditure by K928.0m, from K14.7bn in the original budget to K13.8bn, and generating of additional revenue of K958.0m through Government-owned enterprises. The annual revenue forecast last November of K12.6bn has now been revised to K10.7bn – a shortfall of around K1.9bn, with total Real GDP revised down to 2.2%, from 4.3%, with growth restrained by the decline in global commodity prices and the effects of the El Nino weather phenomenon, while inflation is expected to reach 6.6%, an increase of 0.9% from 5.7%, underpinned by imported inflation and an increase in fuel and transport costs coming on the back of the recent resurgence in oil prices (refer diagram in the pdf attachement below)

• Kina Securities Ltd (KSL) reported a net profit after tax of K20.5m for the first half of the year. The results confirm the benefits of Kina’s K349.0m acquisition of Maybank PNG last year, which effectively doubled the size of the Kina business. KSL has also declared an interim dividend of A$0.04 per share which follows a dividend of A$0.03 per share paid for the full year December 2015. KSL CEO Syd Yates said the results were pleasing and demonstrated that the merger was delivering excellent returns for shareholders. Mr Yates further added that despite the slowdown in the PNG economy, KSL continues to enjoy solid growth in lending, and has great potential to grow further in the coming years by providing innovative products and quality service to its customers

• PNG Chamber of Mine and Petroleum said the lodgement of a special mining lease (SML) application by the Wafi-Golpu Join Venture (WGJV) confirms that the country has the potential to develop a new phase of major mining projects. WGJV executive project director Bryan Bailie said the SML application represented a milestone in progressing the project as the WGJV invested significant effort and resources to progress the project exploration programme and technical studies

• Nambawan Super Ltd (NSL) has recorded a net profit of K193.0m in its half-year update to members. Chairman Anthony Smare said NSL has recorded a half-year gross revenue of K272.0m and a net profit of K193.0m after tax for the six months to June 2016. He added that the 2016 half-year result compares favourably to 2015’s full-year net profit after-tax result of K280.0m before revaluation of properties and unlisted quantities have been taken into account, thus increasing the members funds by 6.0% from K5.2bn to K5.5bn as at June 30, 2016

• NSL CEO Mr Tunstall stated that end-of-year forecasts based on recorded profits and generated revenue are uncertain as NSL has not valued their properties and investments, and that there’s likely to be a downturn in the valuations of those particular investments mainly because property rentals have decreased a little in recent times, hence it may have an impact on the end year results

• This week’s BPNG auctions in Central Banks Bills were offered for 28 days and 63 days with an oversubscription of K564.0m out of a total of K543.5m on offer. The weighted average yields were 1.14% and 2.37%, respectively

• Auctions in Treasury Bills were offered for 182 days and 364 days with an undersubscription of K110.7m out of K179.9m on offer indicating weak appetite for the short term securities. Weighted average yield was 4.72% for 182 days and 7.71% for 364 days from this week’s auctions

• The KSi Index ended the week slightly up by 0.1% to close at 4,803.11 points. The KSi Home Index was also up by 0.9% reflecting an increased in banking stock Bank of South Pacific (BSP) up 1.2% to K8.75, ending at 10,297.95 points

International Market Summary

• US stocks finished mostly higher on Thursday, recovering from earlier losses, as investors braced for the much-anticipated August jobs report on Friday, which could set the stage for a near-term interest-rate increase by the Federal Reserve. The S&P 500 index lost 0.1 points, or less than 0.1%, to close at 2,170.9

• European stocks are a tad firmer following a subdued Asian session, while forex moves are muted, as investors await the highly anticipated US jobs data for clues to the trajectory of Federal Reserve policy. The pan-European Stoxx 600 index is up 0.2% as energy groups welcome Brent crude holding at $45.46 a barrel, halting a four-day, 9.0% slide for the oil benchmark which came amid oversupply fears

• Asian shares were down early, as traders await results of the latest US jobs report, the strength of which could help determine the timing of the next interest rate hike

• Investor fears of an imminent US rate rise and falling commodity prices combined to trigger a reaction on the local market, which dropped 2.6% over the week. The S&P/ASX 200 index lost 0.8% on Friday to close at 5372.8. While miners were one of the few bright spots in the market on the day, the market’s losses over the week were led by the materials and energy sectors after iron ore dropped 3.0% and Brent crude oil plunged 8.6%

• Crude prices were pushed higher by bargain-hunters, but prolonged oversupply and a stronger greenback are setting the global oil market up for the worst week since January

Click the link below to view the full daily market report in PDF.

pdfKFM Weekly Investment Update: Friday, 02 September 2016

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