Strong gains in NEA
06 September 1999 00:00 [Source: ACN]
The Indonesian market eases back with political and
Northeast Asian markets - with the exception of Japan - made
strong gains in August, brushing aside China/Taiwan concerns and
the US interest rate rise. The Southeast Asian markets in ACN's
coverage did not fare quite so well however, with the Indonesian
market pressured by political and banking-sector concerns.
A 7% rebound in Chinese exports in July accompanied by rising
imports of goods for processing into finished products which are
then exported suggests a more encouraging external picture. On the
domestic front, both retail and consumer price inflation numbers
for July indicated a fall in deflation. However, on an aggregate
basis, growth in GDP (gross domestic product) may still weaken in
Q3. This would imply the need for continued government-led support
measures for the economy. The overall H-share index made good
progress during August, helped by reasonable results from companies
in a variety of sectors.
The interim results season for the Chinese H-shares brought few
real surprises, with most figures coming in at or around consensus
estimates. Exceptions here were Shanghai Petrochemical and Yizheng
Chemical Fibre, both of which came in with results that were ahead
From a low of close to 7000, the Taiwanese index put in a strong
recovery throughout August. This was mainly driven by the decision
by Morgan Stanley to include Taiwan stocks at a full weighting from
February 2000. Taiwanese stocks are currently weighted at only
As a result, the index surged past the 8000 level. But further
gains were limited by continuing economic and political
On the back of generally improved H1 figures, the main chemical
and fibre stocks outperformed the index during August. Formosa
Plastics Corp, however, reported a first-half decline in sales and
net profits, down 1.4% and 11% respectively.
Movements in the South Korean market for the first part of the
month were dominated by concern over the restructuring of Daewoo.
In the second and third weeks of the month, the index lost over 100
points because investors were concerned over the pace of
restructuring. However, the market had regained most of that loss
Second-quarter GDP growth also helped support the market. The
growth in Q2 was 9.8% higher than in the same period last year.
This was to the upper end of expectations, partly because of strong
domestic consumption figures.
At the corporate level, interim results for the chemicals sector
came in at or above expectations and shares generally outperformed
the index over the month. Honam Petrochemical, however, slipped
The banking sector remained a source of concern in Thailand and
the index remained entrenched below the 460 level for most of the
month. Sentiment was also impacted by a further depreciation of the
baht which has a knock-on effect on inflation. Indeed, July's
consumer price index showed the first rise in five months, although
rising crude oil prices also impact this figure.
On the external front, export growth fell to only 0.2% in July
against a 5.3% growth in imports. The currency is likely to remain
relatively weak if exports remain under pressure.
Against this background, the chemical-sector stocks generally
moved ahead over the month. Share prices were boosted by improved
Q2 1999 results.
But in companies such as National Petrochemical Co and Thai
Petrochemical Industry, gains came from currency effects rather
than from operating recoveries (ACN 23
Aug, p7). Transaction news centred on Thai Plastic and Chemicals'
plan to acquire the PVC pipe business of Siam Cement for US$30m (ACN 30 Aug, p8).
The Indonesian market continued to ease back during August,
beset by persistent political concerns and by worries over the cost
of resolving problems with the domestic banking system.
In addition, the market was impacted by the implications of the
Bank Bali bail-out crisis, the handling of which is under
investigation by the central bank.
At the corporate level, TriPolyta announced a net profit for Q2
1999, essentially due to a reversal in currency losses that
occurred in the same period in 1998. Sales and operating profits
were down, however.
The Indian market built on the gains it had made during July,
backed by a marked improvement in investor confidence. A primary
driver behind this is the prospect of a Bharatiya Janata Party
victory in the coming general election. This implies that the
structural reforms started in 1991 have a strong chance of being
maintained. To an extent, the Indian economy is benefiting from a
stronger-than-expected cyclical upturn, with a strong revival in
the industrial sector, driven by a healthy recovery in demand.
However, it does appear that India's turnaround is due to more than
just a cyclical pick-up. The benefits of the first wave of reform,
implemented between 1991 and 1994, also appear to be feeding
The Indian equity market in fact hit a new record high during
August at over 4810. It is now the second best performing market of
those in the Sharewatch coverage over the year to date.
Reliance Industries continued its process of switching high cost
debt into lower cost instruments. It redeemed some Rs3bn (US$68.9m)
of debentures well ahead of the 2002 scheduled date early in the
month. The company also issued a similar amount of zero-coupon
bonds, with a slightly longer maturity.
On the back of a 34% increase in sales, Indian Petrochemicals
Corp Ltd turned a June quarter loss in 1998 into a profit in 1999
(ACN 9 Aug, p7). Increased volumes were
helped by the new capacity that is now fully on-line.
August was an interesting month for the overall Japanese index.
The Nikkei attempted to regain the 18 000 level, but was put under
increasing pressure by the strength of the yen. Despite market
expectations of renewed currency intervention, the yen continued to
climb during July, reaching Yen111:US$1 late on in the month. In
part, this move reflects the government's decision to pull back
from its previous policy of intervention. A rising yen hits the
profits of export-orientated companies.
Offsetting the negative sentiment of the rising yen were two
positive factors. First, there were continuing signs that the
economy may well have bottomed out. Second, the market was boosted
by the announcement of a proposed merger between three of Japan's
largest banks in a move which could create the world's largest bank
when measured by assets.
Mitsubishi Chemical regained the Yen400 (US$3.59)/share level to
remain the best performing of the Japanese stocks in ACN's
Press comments early in the month indicated it was to sell its
US PVC pipes unit, followed later by indications it was potentially
seeking to merge its domestic vinyl chloride operations with those
of other Japanese players (ACN 30 Aug,
Elsewhere, Showa Denko came in with interim parent net profit
growth of 31%, ahead of previous estimates.
- Huw Williams is a chemicals analyst in Hong Kong. His ACN
column appears in the first issue of each month
Asian Share Watch
||26 Aug 1999
||4 Jan 1999
||year to date
||26 Aug 1998
|Yizheng Chemical Fibre
|HS China Index
|Far Eastern Textile
|Formosa Chemicals and Fibre Corp
|Formosa Plastics Corp
|Nan Ya Plastics Corp
|Taiwan Styrene Monomer Corp
|Hanwha Chemical Corp
|Honam Petrochemical Corp
|National Petrochemical Co
|Thai Petrochemical Industry
|Thai Plastic and Chemicals
|Bangkok SET Index
|Polysindo Eka Perkasa
|TriPolyta ADRs (US$)
|Gujarat Alkalies and Chemicals
|Indian Petrochemicals Corp Ltd
|Bombay 30 Index
|Nikkei 225 Index
Source: Deutsche Bank Research
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