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KFM Weekly Investment Update: Thursday, 02 April 2015

Local Market Summary

• In the 2015 Q1 BPNG Monetary Policy Statement it was highlighted that the year 2014 was a milestone, with the commencement of production and export of Liquefied Natural Gas (LNG). It was also the fourteenth consecutive year of economic growth.

• 2014 was also the second year of expansionary fiscal policy, entailing another budget deficit that was financed from domestic sources. Continued high economic growth and increased Government spending contributed to high import demand and the depreciation of the Kina exchange rate.

• BPNG maintained the neutral stance of Monetary Policy throughout the year. For 2015, economic growth will reflect a full year of LNG production and export. However, lower net inflows than earlier envisaged are expected from LNG exports. This may be compounded by the lower prices of other export commodities.

• The 2014 inflation was 6.6% was mainly due to high economic growth and the depreciation in the kina exchange rate. In 2015, BPNG projects the annual headline inflation to be c.6.0%.

• The overall balance of payments is projected to be in surplus of K1.2b by the end of 2015, with a surplus in the current account more than offsetting a deficit in the capital and financial account. Further, the current level of FX reserves is estimated at US$3.3b (K8.7b), sufficient for c.x8 months of total cover.

• BPNG stressed that the Government should revisit the 2015 Budget. The FX rate trading band, which was introduced in June 2014, resulted in alignment of the market rates with the official exchange rate (FX rate depreciated by 9.3% since June).

• It is estimated that the 2014 real GDP has grown more than previously expected, primarily due to the early start of production and export of LNG. Real GDP is projected to grow by around 9.0% in 2015 (over 15% nominal), driven mainly by expected increased production of LNG, nickel and cobalt. The non-mineral sector is also expected to grow, supported by the Government’s continued investments in the priority areas of education, health, agriculture and physical infrastructure.

• Exxon Mobil, executed an agreement for the sale of electricity to PNG Power. Under the agreement PNG LNG will supply up to 25 megawatts of electricity to PNG Power, which in turn will build the necessary infrastructure to the LNG plant in order for supply to start.

• Tolukuma gold mine, in Central province, is in planning stages to cease operation this month. Parent company Petromin said it was in close consultation with regulators, stakeholders and local landowners. Thomas Abe said the closure of the mine was attributed to the mine not being able to produce enough gold each month to cover costs.

• PNG focused mining and exploration company Highlands Pacific has reported a profit of US$7.6m (K20.3m) in the 2014 .The profit included a US$15.0m (K40.0m) return value for the company’s investment in the Ramu nickel mine in Madang which has come as a gain in earnings after it made a loss of US$37.2m (K99.4m) in 2013.

• Steamships Trading Company Ltd’s profit in 2014 decreased by 22.2% to K88.7m compared with K114.0m in 2013. The company’s directors advised that sales during the period jumped by 1.2% to K941.7m against 2013 sales of K930.9m.

• This week’s BPNG auctions in Treasury Bills were undersubscribed by K100.9m out of the K200.0m on offer. Weighted average yields remained flat at 4.7% for 183 days and 7.4% for 364 days from last week’s auctions.

• The KSi index ended the week flat at 3,555.0. KSi Home Index closed 0.2% higher for the week to 9,772.1 from 9,750.9, mainly due to the rise in the prices of BSP and CCP by 0.5% and 0.7% respectively.

International Market Summary

• S&P 500 closed this week slightly higher gaining 0.1% to 2,059.7 points as the market was subdued by lesser than previously expected Q1 growth, as was highlighted by low manufacturing activity in March (see graph in the pdf attachment below).

• EU shares began the quarter with gains on Wednesday, after data showed manufacturing activity across the EU accelerated faster than previously estimated last month. Positive economic news resulted in the DAX gaining 1.3% during the week to 12,001.4.

• Despite a rally in Asian stocks on the last day the week, the effects of the longest slump since February still shoed as the Nikkei closed the week 0.8% lower for the week at 19,312.8.

• Australian shares have enjoyed a lift ahead of the long Easter weekend as hopes climb of an RBA cut on Tuesday, and after gains among banks in particular, outweighed selling in the miners as iron ore slipped below $US50/tonne. S&P/ASX 200 index was up 0.3% higher for the week at 5,898.6.

• Oil prices closed lower as Brent and WTI dropped by 3.4% and 3.8% to 56.6 and 49.7 respectively, despite the fall in US oil production last week for the first time since January.

• Gold prices declined by 0.1% to US$1,203.7 per ounce despite optimism that lackluster US labour market data would push the Federal Reserve to delay raising interest rates.

• PGK/USD ended 0.3% lower for the week to 0.3735, while PGK/AUD appreciated by 2.8% to close at 0.4917.

Click on the link below to view full report in PDF.

pdfKFM Weekly Investment Update: Thursday, 02 2015

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