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KFM Weekly Investment Update: Friday, 16 January 2015

Local Market Summary

• The Department of National Planning and Monitoring forecasted the government’s revenue to rise by K9.7b in 2030, given that the Gulf LNG project (Elk-Antelope) kicks off before then. The department expressed confidence in the two major LNG projects returning by 2030 K5.1b in additional tax revenue.

• Minister for Fisheries and Marine Resources Hon Mao Zeming issued a challenge to the National Fisheries Authority (NFA) in 2015 to reach higher standards in the sustainable development of fisheries in PNG. An important development in 2014 was the reduction of the archipelagic water from 9,000 days to 5,500 days, a measure implemented to protect against overfishing of PNG tuna.

• Prices in the telecommunications industry are set to reduce substantially after an overhaul according to PNG Data Co chairman Mr Reuben Kautu. This follows the announcement that the government has partnered with Interchange Ltd to build a data cable from PNG to Vanuatu valued at K182.2m. The cable will provide a new international connection from PNG to international internet hubs in Sydney and the US.

• A research undertaken by the National Research Institute (NRI) says 81.0% of the country’s total revenue will come from taxes. Senior research fellow, Dr Osborne Sandia when presenting an analysis of the national budget at NRI office. This represented a further increase of 15.3% from last year.

• Total and InterOil are still deciding on how to develop the LNG project in Gulf province, both companies are planning to start marketing gas from the Elk and Antelope fields. In a presentation this week, InterOil said Total aimed to begin negotiating heads of agreements for LNG supplies in the second half of this year and finalise sales and purchase agreements by 2018.

• The demand for LNG is forecasted by InterOil to double to more than 400 metric tonnes per annum in the next 20 years. InterOil expressed the significance of this scenario as Asia would account for 70.0% of the total global demand for LNG. This is of interest to PNG being the newest LNG producer in the world, having its first LNG exported to Japan in May 2014.

• Kina Asset Management announced the Net Tangible Asset was K1.02 as of 31/12/14.

• A downstream processing project undertaken by Vunakokor Farmers Cooperative Society in East New Britain is 90.0% complete and set to begin production.

• This week’s BPNG auctions Treasury Bills were undersubscribed by K14.5m for 182 days with a weighted average yield of 4.7% and undersubscribed by K93.8m for 364 days with a weighted average yield of 7.4%.

• The KSi index was up by 0.1% to 3,454.49 from 3,449.42 while KSi Home Index was down for the week losing 0.9% at 9,463.47 from 9,549.94.

International Market Summary

• US market declines as banks and retailers such as Best Buy and Apple slid after disappointing corporate earnings to end 2014. The level of uncertainty has increased as Swiss franc has been set free from the minimum exchange rate. The negative market news resulted in the S&P500 falling by 2.5% to 1,992. 7 and the DJIA losing 2.3% to close at 17,320.7 for the week.

• The Swiss National Bank (SNB) decided to abandon CHF’s cap against the Euro of CHF1.2 causing it to climb 1.7% against the $US to US¢0.85. SNB President Mr Thomas Jordan said the decision was made to protect the interest of the Swiss economy before the purchase of government bonds by the European Central Bank (ECB). The Swiss Market Index (SMI) fell by 8.7% to 8,400.6. The DAX rose by 4.0% to 10,032.61.

• The ASX200 had worst weekly fall in 18 months amidst rapid sell-offs in the big banks spurred by the unleashed the Swiss franc closing the week 3.0% down at 5,299.2.

• Japanese stocks had the lowest close in 11 weeks after the SNB’s decision to uncap the franc from the euro, with Nikkei losing 2.4% to end the week at 16,791.4.

• Organization of Petroleum Exporting Countries (OPEC) reduced its demand forecast for oil by 0.1m to 28.8m barrels a day. The decline in OPEC’s demand forecast resulted in Brent losing 2.9% to US$48.7 and the WTI falling by 3.5% to US$46.7.

• In light of the shock decision by the SNB to release the Swiss CHF, gold rallied for its largest gain in 4 months to end the week at 1,259.3 up by 3.6% gaining as a safe-haven buy. Gold has risen 6.8% YTD as signs of deflation and cooling global economic growth spur speculation that the US Federal Reserve will be slow to raise US interest rates.

• To close the week PNG/USD was flat at 0.3844 while PGK/AUD depreciated by 0.3% to 0.4669.

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pdfKFM Weekly Investment Update: Friday, 16 January 2015

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