KFM Weekly Investment Update: Friday, 04 November 2016

Local Market Summary

• The National Government handed down a budget deficit of K12.9b for the 2017 National Budget this week. The total budget outlay of K12,965.4m against the revenue of K11,088.8m comprises of K9,182.2m in tax revenue, K1,045.3m in grants and K1,245.7m from other sources. The 2017 Budget’s key priorities include Tuition Free Education, Free Primary Health Care, Infrastructure projects, Agriculture and Small to Medium Enterprises with the highest priority given to funding for the National General Elections and the 2018 APEC Summit

• The 2017 Budget will be largely financed through several taxation measures which include alcohol, tobacco, fuel, departure tax, unprocessed log, increased tax components of employer provided housing benefits

• The National Government also announced that it will establish the board for PNG Sovereign Wealth Fund (PNGSWF) in 2017. Treasurer Patrick Pruaitch announced that an independent firm has been tasked to carry out an extensive search to identify and recommend qualified candidates for appointment as chairman and members of PNGSWF board. He said in the short term, the focus will be to create the framework for the Fund Investment which will include the creation of administrative secretariat to assist its operational and administrative functions

• The Foreign Exchange (FX) imbalance is improving as a result of Ok Tedi Mine production. This was revealed to the business community by Treasurer Patrick Pruaitch in a breakfast meeting held this week. He explained that the proceeds from FX of Credit Suisse second tranche loan at the end of the year will put the issue to rest. CEO of Bank South Pacific (BSP) Robing Fleming while affirming also stated that other factors that contributed to the improvement included a combination of commercial market activity, the intervention of BPNG and positive coffee and cocoa seasons

• According to Australia High Commissioner, Bruce Davis, Australian business investment in PNG stands at K45.0b. Davis said the two-way trade amounted to almost K14.0b last year with 60.0% of that trade going from PNG to Australia. He also mentioned that more than 5000 Australian companies run businesses in PNG

• BSP has funded loans with a total value of K160.0m for first home buyers, under the National Government First Home Ownership Scheme. The majority of loans funded are mostly in Port Moresby largely due to size of market and increased interest from housing developers. However, interest from potential home buyers also remains high across PNG, from young professionals to long- saving employees in both the public and private sectors

• InterOil Corporation (IOC) has been advised by Total E&P PNG Limited, operator of Petroleum Retention License 15 in the Gulf Province of PNG, that it has begun drilling the Antelope-7 appraisal well. The well is designed to provide structural control and reservoir definition on the field’s western flank. Further IOC holds a 36.5% interest in the well. Total E&P PNG has a 40.1% interest, Oil Search has 22.8%, and the remaining 0.5% is held by minority parties

• Qantas started its daily operations from Port Moresby to Brisbane which replaced Qantas’ previous, turboprop-operated service between Port Moresby and Cairns. It aimed to maximize customers’ connections to New Zealand,Pacific Islands, and North America. Qantas and Air Niugini will continue to codeshare on routes between Port Moresby and Australia

• This week’s BPNG auctions in Central Banks Bills were offered for 28 days and 63 days compared to the previous week’s auctions which offered 28, 63 and 91 days The amount on offer was K517.8m with an over-subscription of K979.4m. The weighted average yields were 1.17% and 2.36%

• This week’s BPNG auctions in Treasury Bills were offered for 182 days and 364 days with an under-subscription of K104.5m out of K164.3m on offer indicating weak appetite for the short term securities. Weighted average yields were 4.7% for 182 days and 7.7% for 364 days

• The KSi Index declined by 0.9% to close the week at 4,744.19 points while the KSi Home Index increased by 0.1% to end at 10,635.11 underpinned by an increase in Bank South Pacific Share price by 0.6% to end at K9.00

International Market Summary

• The US Fed left rates unchanged this week hinting again that rate should be raised soon. US Fed confirmed that key factors for considerations continue to strengthen but they still need more evidence of progress towards their objectives

• Growing uncertainty about the results of the US presidential election has begun to affect financial markets. US stocks slipped again with the S&P 500 down 1.8% for the week making its 8th straight losing session while the NASDAQ was down 2.5% for the week. Asian shares also seem to be affected by the US election concerns with the Nikkei down 3.1% for the week

• Japan’s Nikkei share average fell to a two week low on Wednesday as worries over the US presidential election prompted a recoil in global markets

• European shares fell in early deals on Wednesday, set for their eight day of straight losses, with sentiment hit by jitters ahead of the US presidential election next week

• Oil prices are set to remain under pressure until Saudi Arabia and the rest of OPEC prove they can show they will remove enough barrels from the market to accelerate the rebalancing process

• PGK/USD remained unchanged for the week to end at .3155, while PGK/AUD depreciated by 1.1% to end the week at .4114

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pdfKFM Weekly Investment Update: Friday, 04 November 2016

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