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Overview
Asian equities rose in April, led by China and India, on hopes that the worst of the credit crisis had passed and on better-than-expected US corporate earnings. In particular, China’s move to cut stamp duty for share transactions saw speculators return and lift the Shanghai A-share market sharply. Indian equities also recovered, led by information technology companies that gained on a weakening rupee and an extension of tax holidays for the sector.
In first-quarter GDP data, China’s economy grew 10.6% year-on-year, while Korea lagged on lower domestic consumption. Manufacturing output for March expanded in China and India but contracted in Singapore. In Japan, business confidence fell to a four-year low in March as manufacturers struggled with the rising yen. Asian exporters with a large exposure to emerging markets continued to post strong growth but those shipping to the US and European markets faced slowing demand.
Inflation remained at record highs across Asia, particularly in Japan, where consumer prices rose to a decade high and sparked a bond market sell-off. Most central banks left benchmark interest rates unchanged. To contain rising prices, China and India raised their banks’ reserve requirements. The latter also tried to stabilise food prices by banning rice exports. In Singapore, the central bank is allowing its currency to appreciate faster – a move that may hurt the country’s export competitiveness.
On the political front, Chinese president Hu Jintao met Taiwanese vice-president-elect Vincent Siew in the highest-level contact in almost six decades, raising hopes of closer cross-straits relations. Political uncertainty resurfaced in Thailand as the government pushed to amend the 2007 constitution while the election commission simultaneously sought to disband the Chart Thai and Matchima Thipataya parties. In Malaysia, opposition leader Anwar Ibrahim may contest a by-election by September. Meanwhile, the impasse at the Japanese and Indonesian central banks ended with the appointments of Masaaki Shirakawa and Boediono as their respective central bank chiefs.
Renewed optimism that lifted global equity markets in April may prove ephemeral. Investor sentiment remains sensitive to further effects from the ongoing credit turmoil and financial de-leveraging. Meanwhile, rising inflation – emphasised by strong jumps in food and fuel prices – compound the prospect of global economic deceleration. So far, headline growth in Asia has held up, but the region’s reliance on external demand is seeing margins and earnings come under pressure. Nevertheless, our strategy is unchanged: we remain focused on quality companies with strong balance sheets, and invest only as sensible prices.
Australia
ANZ Banking Corp’s first-half results were dented by A$980m in provisions. In M&As, the UK’s BG Group bought Origin Energy for A$12.9bn to gain access to Queensland’s gas reserves; while Insurance Australia Group rejected rival QBE Insurance’s proposed takeover. Leighton Holdings unit Theiss will set up a coalmine in India; and Straits Resources plans to split its coal assets from the rest of its businesses. Tatts Group and Tabcorp are likely to be hurt by the Victorian government’s move to end their duopoly in 2012. Elsewhere, Wesfarmers announced a rights issue; and Westfield Group raised US$1.1bn in US debt.
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China/Hong Kong
Our holdings posted strong first-quarter results. China Merchant Bank’s bottom-line was supported by loan growth and fee income; China Mobile’s profits rose on healthy subscriber growth; while CNOOC’s results were lifted by record oil and gas prices. For the full-year, AEON Stores’ earnings were aided by sound cost controls; Giordano’s earnings were buoyed by solid Asian demand. Despite higher revenues, the cap on domestic fuel prices squeezed PetroChina’s profit margins; separately, it agreed to buy three million tonnes of gas annually from Qatargas.
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India
Hero Honda will set up a third bike-making plant in Haridwar; Satyam will invest in an Australian training and development centre; it will also pay Rs2.5bn for Caterpillar Inc’s assets and buy Belgium’s S&V Management Consultants for Rs1.4bn. Corporate results were mostly positive. For the full-year, Godrej Consumer Products’ profits rose on margin expansion; Nicholas Piramal’s branded formulations aided its performance; Container Corp’s other income boosted its earnings; while higher sales supported CMC and Satyam’s results. In the first quarter, Paper Products, ABB and Glaxo’s net profits rose but Aventis’ fell on lower sales, while higher costs hurt Hindustan Unilever.
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Indonesia
Telkom signed up 3.4m new subscribers but its low-cost CDMA segment disappointed; Indosat will invest US$1.2bn to raise capacity and improve coverage; and Holcim Indonesia will build a US$500m cement plant in Java. In earnings news, shoemaker Sepatu Bata and brewer Multi Bintang both saw strong full-year earnings driven by solid sales; Bank Panin’s healthy loan growth boosted its net interest income; but Jababeka’s performance was hurt by higher interest charges from further loans to fund its power plant project. For the first quarter, both Mandom Indonesia and Unilever Indonesia’s profits rose on robust sales; but Inco’s earnings fell as nickel prices eased.
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Japan
Drug-maker Takeda Pharmaceutical surprised investors with the US$8.8bn acquisition of US cancer drug-maker Millenium Pharmaceuticals. Showa Aircraft plans to restructure its loss-making divisions and develop its prime properties. In full-year results, mall operator Parco reported good earnings after renovations and the opening of new stores, while supermarket operators Maxvalu Tokai and San-A benefited from improved sales; carmaker Honda Motor and robot manufacturer Fanuc’s performance were aided by substantial overseas growth; but Okinawa Cellular’s earnings worsened because of stiff competition.
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Korea
Following his indictment for tax evasion, Samsung Group chairman Lee Kun-hee and his son, Jae-yong, will step down from the company; separately, Samsung Card will sell its 25.6% stake in Everland over several years, effectively ending complex cross holdings. First-quarter results generally exceeded expectations: positive contributions from Samsung Electronics’ LCD and telecom divisions outweighed a weak showing by its memory chips unit; Hyundai Motor was aided by the depreciating won and new model launches, strong loan growth lifted regional lender Pusan Bank’s earnings; but higher provisions dampened profits for both Daegu Bank and Jeonbuk Bank.
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Malaysia
Corporate results were broadly positive. Pos Malaysia’s full-year profits were dented by provisions for its Transmile investment, while Astro reported a loss of RM6.2m due largely to its Indonesian venture. Astro secured a RM951m loan to fund its operations and Public Bank received approval to issue RM5bn-worth of ringgit-denominated subordinated notes. Shareholders approved Digi.com’s acquisition of Time.Com’s 3G spectrum; BCHB is in talks to buy a strategic stake in mainland China’s Bank of Yingkou; while SP Setia terminated a deal to buy 156 acres in Cyberjaya. Maybank won control of Bank International Indonesia, paying US$1.5bn for a 55.7% stake; it also paid RM430m for 15% in Vietnam’s An Binh Bank.
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Philippines
Ginebra San Miguel’s full-year net income recovered strongly as it reduced its debt burden. The Bank of the Philippine Islands reported a sharp rise in first-quarter loan growth. Ayala Land will build an office for business process outsourcing in Fort Bonifacio, while associate ARCH Capital will develop a residential project in Chennai with an Indian partner. Another Ayala unit, Cebu Holdings, will increase its investments to Php932m to expand the Ayala Center shopping mall; it is also interested in buying land in Cebu City.
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Singapore
Dubai-based Al-Futtaim Group successfully took over Robinson & Co; Singapore Press Holdings (SPH) will provide digital media services in Malaysia with a local partner; City Developments unit Millenium and Copthorne Hotels will invest US$46m in two Indial hotels via a joint venture; and SembCorp Marine signed a five-year deal with Mac-Laren Shipyard for offshore projects in Brazil. Company results were mixed: Singapore Exchange’s earnings rose on revenues from derivatives; a CDO charge hurt Venture Corp’s profits; SPH’s second-quarter performance was marred by lower investment income; Keppel Corp’s bottom line was below expectations, while its unit, Singapore Petroleum Co’s profits fell on lower sales.
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Sri Lanka
There is no report this month.
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Taiwan
Fubon Financial’s proposed acquisition of a 20% stake in Xiamen City Commerical Bank was approved. The lender’s profits were buoyed by increased brokerage and insurance income, while the revenues of both Taiwan Mobile and TSMC were in line with expectations. Taiwan Mobile benefited from disposal gains, while TSMC’s higher revenue contribution from 65nm technology partially offset the appreciation of the Taiwan dollar.
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Thailand
Eastern Water Resources Development and Management sold off its loss-making unit Eastern Hobas Pipe; Minor International bought a 50% stake in Tanzanian safari operator Elewana Afrika; and Siam Commercial Bank sold THB8bn-worth of non-performing loans. In first-quarter results, our bank holdings, including Kasikornbank, TISCO Bank, Siam Commercial Bank and Bank of Ayudha, performed in line with expectations. Meanwhile, Capital Nomura’s second-quarter profits rose on healthy volume growth, and AEON Thana Sinsap’s full-year results met expectations. Elsewhere, Esso (Thailand)’s IPO, which we subscribed to, was priced at the low end of the indicative range.
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During the month we visited the following companies:
Australia
Australia & New Zealand Banking, Australian Wealth Management, Australian Worldwide Exploration, Avoca Resources, Bank of Queensland, Fairfax Media, Goodman Fielder, Orica, Paladin Energy, Programmed Maintenance Services, SP Ausnet, Stockland, Telstra, Toll Holdings, Wesfarmers
China/Hong Kong
AEON Stores, Agile Property, Amvig, Anta Sports Products, Asia Cement, ASM Pacific Technology, Bank of Communications, CapitaRetail China Trust, Café de Coral, China Huiyuan Juice Group, China Life Insurance, China Merchants Bank, China Merchants Holding, China Mobile, China National Building Materials, China Overseas Land, City E-Solution, Dah Sing Financial, E-Land Fashion China Holdings, Fong’s Industries, Foxconn International, Giordano, Hang Lung Properties, Home Inns & Hotels Management, Hong Kong & China Gas, Hong Kong & Shanghai Hotels, Huabao International, Industrial and Commercial Bank of China, Li & Fung, Lianhua Supermarket, Maoye International, Nine Dragons Paper, Pacific Basin Shipping, PetroChina, Ping An Insurance, Public Financial, Wing Hang Bank, Yanlord
India
Bharti Airtel
Indonesia
Bank Buana, Indosat, International Nickel, Petra Foods, Sepatu Bata
Japan
Funai Zaisan, Marusei, Roland DG, Sankei Building, Tokyo Gas
Korea
Fubon Financial, Hyundai Motor, Shinsegae Food Systems
Malaysia
IOI Properties, Malayan Banking, Petronas Dagangan, Tasek, YNH Property
New Zealand
Telecom Corporation of New Zealand
Philippines
Asian Terminals, Ayala Land, Bank of Philippine Islands, Ginebra San Miguel, Jollibee Foods, Pepsi, Shang Properties
Singapore
Capitaland, City Developments, ComfortDelgro, Courts, Eu Yan Sang, Genting International, Hong Leong Finance, Keppel Corporation, Oversea-Chinese Banking, Raffles Education, Sembcorp Marine, Singapore Bus Service, Singapore Food Industries, Singapore Petroleum, ST Engineering, Straits Trading, United Overseas Bank, Venture, Wheelock
Sri Lanka
Aitlen Spence
Taiwan
Fubon Financial, Taiwan Mobile, Taiwan Semiconductor Manufacturing
Thailand
Advanced Information Service, Bangkok Insurance, Bank of Ayudha, Bumrungrad Hospital, Esso, Kasikornbank, PTT Exploration and Production, Siam Cement, Siam Makro, Thai Reinsurance, Thai Tap Water Supply
Vietnam
Asia Commercial Bank, Vietnam Dairy Products, Thu Duc Housing Development Corporation, Gemadept Corporation
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