KFM Weekly Investment Update: Friday, 04 September 2015

Local Market Summary

• PM Hon Peter O’Neill assured residents of Port Moresby that there is no shortage in fuel supply, when addressing Puma Energy’s inability to supply its customers with fuel (due to lack of liquidity in foreign exchange market). PM O’Neill said other suppliers such as Mobil have the capacity to supply fuel and fill the gap left by Puma

• PNG’s foreign exchange (FX) reserves are believed to remain c.US$2.0bn (K6.0bn), sufficient to cover just few months of total imports according to BPNG Governor Mr Loi Bakani. Addressing the PNG Advantage Investment Summit in Brisbane he added that despite sufficient FX reserves the imbalance between the supply and demand for FX remains with reduced foreign currency inflows and depreciation in the exchange rate

• The establishment of the internet exchange point (IXP) will greatly reduce internet rates Telikom announced. During a launching of an IXP by Telikom this week, Telikom Core IP Services Manager Mr Arua Taravatu outlined IXP as a physical infrastructure that allowed domestic internet traffic to be switched locally as opposed to traversing an IP transit provider. The benefits included reduced costs and improved quality of service

• Mineral Resource Development Company (MRDC) signed a deal with Hilton Worldwide to bring the Hilton Hotel to PNG. MRDC MD Mr Augustine Mano said the partnership was set to redefine the standard of accommodation for the business and tourism sectors. The agreement will see the construction of a 5-star 212 premium room hotel in Port Moresby

• Oil Search says it may reduce investments that are non-core to the company following results of its recent strategic update and business optimisation studies. MD Mr Peter Botten said in a statement that work was carried out over the last 3 months in response to the sharp fall in global oil and gas prices which declined over 60.0% over the past 12 months. Mr Botten added regrettably that there will be a number of redundancies in OSH across all our offices and operations

• Kina Asset Management Limited reported an investment gain of K2.3m, a return of 4.8%, exceeding its first quarter investment gain of K1.3m (2.8%). Its chairman Sir Rabbie Namaliu pinned its improved performance to consistent returns from domestic equities in particular BSP, performance of ASX listed stocks and gains in global funds. The company closed the half year at a share price of K1.00 and a net tangible asset of K1.08

• Kina Securities Limited reported a net profit after tax of K4.6m for the first half of this year. The company announced that this result exceeded internal expectations and that KSL was capable of achieving profit forecasts going forward after its successful dual listing on the ASX and the POMSoX. KSL added that these results excluded contributions from Maybank as the acquisition is yet to be completed. However, before tax and costs associated with the Maybank acquisition, profit was K8.0m for the six months to June 30, compared to K12.3m in prior corresponding period

• This week’s BPNG auctions in Treasury Bills were oversubscribed by K80.8m out of the K150.0m on offer. Weighted average yields were 4.6% for 182 days and 7.4% for 364 days from this week’s auctions

• Both KSi Index ended the week down by 1.0% to close at 3,422.8 points while the KSi Home Index ended the week lower by 0.9% to close 9,555.1 for the week

International Market Summary

• US stocks jumped, by the end of the week, in the latest volatile session as investors weighed the impact of a stumbling Chinese economy and global market turmoil on the Federal Reserve’s impending decision about when to raise interest rates. The DJIA closed 1.6% lower to 16,374.8, while the S&P 500 eased 1.9%, to 1,951.1

• Stocks and commodity prices are falling, while investors are attracted to ‘haven’ government bonds amid heightened nervousness ahead of a US jobs report that could determine whether US interest rates rise this month

• European shares rose sharply on to end the week, extending earlier gains as the ECB delivered a dovish message from its first meeting after weeks of market turmoil. Shares rallied as the euro fell after ECB President Mario Draghi cut inflation forecasts and said the bank was willing to adjust or extend its bond-buying programme of quantitative easing if necessary, despite German factory orders registering the biggest fall since January

• Asian shares extended losses as caution over a US jobs report overshadowed signals from the ECB that it is willing to take further steps to shore up the EU economy. Japan’s Nikkei fell 7.0% for the week to close 17,792.2. China pessimism is overdone, says Fitch

• The ASX recorded its worst week in 3 months after disappointing data from at home and abroad sparked fresh concerns over China’s effect on the domestic economy. The benchmark S&P/ASX 200 index but finished 4.2% lower for the week at 5,040.6 while the All Ordinaries also closed 4.0% lower for the week to 5,060.8

• Oil prices surged from losses to gains twice, the latest in a series of roller-coaster sessions for crude. Light crude closed the week 2.0% higher at US$46.1 per barrel while Brent Crude closed 0.1% lower at US$50.0

• PGK/USD remained unchanged for the week at 0.3565, while PGK/AUD appreciated by 2.4% to close at 0.5110 for the week

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