Significance: ISDN expects the construction to commence early next year and last 18-24 months while the first income should flow in after full operations commences. Based on the PPA signed by PT Prisma Karun Energy, the hydropower projects will provide a steady annual revenue ranging between US$4 – 5 million, with a potential upside pending the signing of a similar agreement by PT Potensia Tomini Energi in Central Sulawesi.

Keppel Land China Acquires Prime Landed Residential Site In Shanghai
Keppel Land China has secured a 17.5-hectare residential site in Shanghai for Rmb1.3 billion. The newly obtained site, located in the city’s Sheshan area, is well connected by major transportation networks. Keppel Land China will develop the site, its ninth project in the fast-growing city of Shanghai, to comprise of approximately 200 landed homes ranging from 250 to 350 square metre (sqm), including amenities such as a fully-equipped clubhouse and an auxiliary retail component within the development. Chief executive officer of Keppel Land, Ang Wee Gee, said: “Given its strong attributes, we are confident that we will see positive demand from discerning and affluent homeowners who aspire to own well-designed and top quality homes in Shanghai.” The first phase of homes is expected to be launched in 2H14.

Significance: To date, Keppel Land China has over 20 projects with a total gross floor area of 7.7 million sqm, which translates to over 42,000 homes, in more than 10 cities in China.

ST Engineering Bags Series Of Contracts
Singapore Technologies Engineering’s (ST Engineering) aerospace unit, Singapore Technologies Aerospace (ST Aerospace), secured an exclusive maintenance deal worth US$28 million from Spring Airlines Japan (SAJ). The eight-year contract, commencing in 2H13, will task ST Aerospace with providing component repair management support for 22 of SAJ’s Boeing 737-800. In addition, ST Aerospace, with UTC Aerospace Systems (UTCAS), a unit of New York Stock Exchange-listed United Technologies Corporation, have signed a 20-year repair license agreement for maintenance, repair and overhaul services for UTCAS components. UTCAS is a key supplier of components used in Boeing’s 787 aircraft. Furthermore, ST Aerospace’s commercial pilot training school, ST Aerospace Academy (STAA), has been awarded a five-year Multi-crew Pilot License (MPL) training contract by Qatar Airways (QA). Cadets, assessed and recruited by STAA on behalf of QA, will undergo STAA’s MPL programme, with the goal of eventual employment with QA as Airbus A320 Type Rated First Officers.

Significance: The latest string of contracts secured by ST Aerospace is a vote of confidence of its ability to provide quality maintenance services to its clients and a strong validation of its MPL programme.

Heightened volatility is again the order of the day as the FOMC convenes in Washington, DC for a two-day meeting. The DJIA has seen five straight days of triple-digit moves, for a level of volatility not seen since Fall 2011. As of writing, the DJIA is +0.63%, the S&P500 is +0.50% and the Nasdaq is 0.66%.

- Tomorrow’s press conference by Fed Chairman Bernanke will be main event of the week, with markets expecting more details on the Fed’s taper strategy. Market participants continue to marvel over the near 150-point drop in the DJIA yesterday afternoon after the FT published a preview for the event with the title “Fed likely to signal tapering move.” Bernanke’s future as chairman is also in focus after last night President Obama told Charlie Rose on PBS that Bernanke has stayed on longer than he originally planned and avoided directly answering whether or not he would reappoint Bernanke at the end of his term in Jan 2014.

- The euro continues to hold up very well against the dollar, with EUR/USD trading in a narrow range just below the 1.34 handle. Yen has softened a bit though the European and US trading hours. USD/JPY has back up toward the 96 handle. Cable has seen a sharp move, with the pound loosing the most against the dollar in three months overnight, with GBP/USD dropping as low as 1.5565 from 1.5700 coming into the European session.

- Shares of Hormel Foods are off nearly 5% this morning after the firm trimmed its FY13 earnings guidance, citing higher input costs and softer sales. Steel Dynamics offered a very weak preliminary view of its Q2 earnings. The firms said shipment volume would in fact be up q/q, although the company faces margin compression from pricing weakness. STLD is flat.

Looking Ahead
- 11:00 (US) Fed to purchase $1.25-1.75B in Notes
- 11:00 (UR) Ukraine to sell Bills and Bonds
- 11:30 (US) Treasury to sell $30B in 4-Week Bills
- 16:30 (US) Weekly API U.S. Crude Oil Inventories
- 17:00 (CO) Colombia Apr Trade Balance: $129.0Me v $285.7M prior; Imports CIF: No est v $4.5B prior
- 19:50 (JP) Japan May Total Merchandise Trade Balance: -¥1.2Te v -¥879.9B prior; Adjusted Merchandise Trade Balance: -¥890Be v -¥764.4B prior

Economic Data
- (IL) Israel Jun Inflation Forecast: 2.0% v 1.9% prior
- (IL) Israel May Money Supply Y/Y: 10.8 v 8.8% prior
- (TR) Turkey Central Bank left Benchmark Repo Rate unchanged at 4.50% as expected; left all three key rates unchanged (first time since Sept)
- (BR) Brazil Jun Final IGP-M Inflation: 0.7% v 0.7%e
- (US) ICSC Chain Store Sales w/e Jun 14th: w/w +0.3%; Y/Y: +2.5%
- (PL) Poland May Avg Gross Wages M/M: -3.4% v -3.0%e; Y/Y: 2.3% v -2.7%e
- (PL) Poland May Employment M/M: 0.0% v 0.0%e; Y/Y: -0.9% v -1.0%e
- (RU) Russia May Industrial Production Y/Y: -1.4% v +0.6%e
- (US) May Consumer Price Index M/M: 0.1% v 0.2%e; Y/Y: 1.4% v 1.4%e
- (US) May CPI Ex Food & Energy M/M: 0.2% v 0.2%e; Y/Y: 1.7% v 1.7%e
- (US) May CPI NSA: 232.945 v 233.066e; CPI Core Index: 233.276 v 233.255e
- (US) May Housing Starts: 914K v 950Ke; Building Permits: 974K v 975Ke
- (US) Redbook Retail Sales w/e Jun 14th: +2.9% y/y, Jun MTD: -0.4% m/m; Jun YTD: +2.9% y/y
- (EU) Weekly ECB Forex Reserves: €220.4B v €219.2B prior

This article originally appeared on www.stockmarketsreview.com, and is reproduced here as part of our collaboration with StockMarketsReview.com

The Federal Reserve will be making one of its special quarterly monetary policy announcements on Wednesday (US) and based on the price action of the currency, equity and bond markets, there is very little consensus on what is expected from the central bank. While no one expects the Fed to cut interest rates or alter its asset purchase programme this week, there’s a lot of confusion on what the Fed Chairman could say about their monetary policy intentions going forward. Based on the rally in U.S. stocks, equity traders don’t except Bernanke to sound overly eager about tapering asset purchases. Bond traders who initially drove bond yields above 2.2 percent changed their minds as the day progressed. Currency traders are just as confused with the dollar weakening against the EUR and CHF and strengthening against the JPY, GBP, AUD and CAD ahead of the Federal Reserve’s monetary policy decision.

While there are a number of potential scenarios for tomorrow’s event, we are focusing on 2 key possibilities. If Bernanke says tapering does not equal tightening but makes it unambiguously clear that they plan to vary the amount of bonds purchased under their Quantitative Easing programme later this year, the dollar should rise. However if Bernanke straddles the fence and spends more time distinguishing the difference between tapering and tightening, the dollar should sell-off as this would suggest that the Fed’s eagerness to adjust asset purchases has weakened. Based on the rise in bond yields and the volatility in the treasury market in general, Bernanke may opt to err on the side caution and give the market as little as possible. Since the central bank last met, 10 year Treasury yields increased 50bp from 1.63 percent to 2.2 percent. The performance of the U.S. economy has also been mixed.

The following table shows how the economy has changed since 1 May. Overall, consumer spending improved and job growth accelerated but inflation ticked higher on the consumer level and manufacturing plus service sector activity slowed. Housing market activity is also mixed and taken together, these reports show an uneven but continued recovery in the U.S. economy. This is part of the reason why the Fed is expected to lower its GDP forecasts. For the central bank, the pullback in service and manufacturing activity is another reason why Bernanke may want to avoid fuelling expectations for Fed tapering and by extension, drive yields even higher. So while a number of policymakers have said the central bank could taper asset purchases in a few months, the stronger message could be that monetary policy will remain extremely accommodative.

EUR – Lifted By Stronger Investor Confidence

The Euro traded higher against all of the major currencies today thanks to the improvement in Eurozone and German investor sentiment. The Eurozone ZEW survey rose to 30.6 from 27.6 and while investors grew less optimistic about current conditions in Germany, their confidence in future conditions improved with the expectations component of the German ZEW rising to 38.5 from 36.4. With the European Central Bank taking additional steps to stimulate the economy, this data indicates that investors are looking for a stronger recovery. In a farewell conference for Bank of Israel Governor Stanley Fischer today, European Central Bank President Mario Draghi talked about ECB monetary policy. He said the central bank would consider non-standard measures including the possibility of negative deposit rates. Draghi said, “We will look with an open mind at these measures that are especially effective in our institutional setup and that fall within our mandate.” Yet he warned that these non-standard measures could also lead to unintentional consequences. Parts of the Eurozone have been unresponsive to monetary policy and Draghi has set to regain its steering capacity. He pointed out that the introduction of non-standard policy measures along with standard measures helped prevent the materialisation of deflation risk. The euro has been rising this year as confidence in the Eurozone is restored. Draghi also said that the exchange rate is “important for growth and price stability.” Survey data suggest some recovery in the Euro-zone but from low levels and as such “monetary policy will remain accommodative for as long as necessary.” The central bank will “monitor very closely all incoming information on economic and monetary developments and stand ready to act if necessary.” No major Eurozone economic reports are scheduled for release tomorrow, letting the market focus on FOMC.

GBP – Hit By EUR/GBP Demand

The British pound fell aggressively against all of the major currencies despite signs of higher inflation. The weakness was driven entirely by demand for EUR/GBP, which saw its strongest gain in nearly a month. UK consumer prices increased more than anticipated in the month of May. Economists expected a rise of 0.1 percent but CPI rose 0.2 percent month over month and 2.7 percent on an annualised basis. The rise in inflation was driven by the previous month’s increase in clothing prices and airfares and decrease in fuel costs. The Bank of England expects inflation to be around 3 percent in the third quarter. Many BOE policy makers have rejected Governor King’s call for more stimulus on the fear of rising inflation. The minutes from the most recent monetary policy meeting, which was also King’s last will be released tomorrow. The central bank left monetary policy unchanged but the meeting came on the heels of stronger manufacturing, service and construction sector activity, which suggests that there could a hint of optimism within the central bank. If one less member voted in favour of additional asset purchases, sterling will soar.

AUD – Extends Losses On RBA Minutes

The Australian dollar extended its losses against the greenback following the release of the central bank meeting minutes. The Reserve Bank of Australia reminded the market that the central bank is looking to ease again and their views have not changed just because the currency weakened. They continue to feel that the “inflation outlook might provide scope for further easing” and felt the “exchange rate could depreciate further over time as the terms of trade declined.” While the AUD/USD is trading below 95 cents, there may not be much downside considering that speculative short positions are record highs. Also, if the Federal Reserve’s monetary policy decision ends up driving the dollar higher against the AUD, the gains could be sharp as shorts cover. Australian leading indicators are due for release this evening along with New Zealand’s current account report. Improvements in New Zealand trade activity in the first three months of the year should help narrow the deficit. No economic data is expected from Canada but the rise in oil prices should limit losses in the loonie.

JPY – Japanese Officials Defend BOJ Policy

The Japanese yen weakened against most of the major currencies today thanks to the continued recovery in U.S. equities. Japanese data on the other hand was weaker than expected with industrial production growing less than anticipated in April. Industrial production gained 0.9 percent month-to-month, and fell 3.4 percent year-to-year. The recent volatility in the equity and currency market isn’t going to be kind to Japan’s economy. In an interview today Japan Economy Minister Akira Amari said, “While market movements are important in themselves, the government isn’t making policy to pander to markets and should have confidence that markets will follow its policies. If we are confident and improve the real economy, stock prices will naturally follow.” Amari advised the BOJ to communicate clearly with financial markets and praised the BOJ for their plans to reach 2 percent inflation. Finance Minister Aso also said he thought the BOJ made the right decision about maintaining its generous QE programme when they last met. Japanese trade numbers are scheduled for release this evening and unfortunately the rising yen is expected to drive the deficit higher.

Significance: Looking ahead, AEON expects its four core businesses, namely the provision of an easy payment scheme for purchase of consumer durables and motor vehicles, personal financing, issuance of credit cards and equipment financing for small businesses, to be the key driving forces for its 2013 performance.

MHB To Bid RM4bil Projects This Year
Malaysia Marine and Heavy Engineering Holdings (MHB) will be tendering for various projects worth about RM4 billion this year, in a move seen as strengthening its order book. The company is confident to win a large percentage of the total projects tendered, even though the tenders are still at various stages of evaluation and discussion. “About one-third of the tendered projects are international projects. We are confident of securing those projects also, as we have a proven track record, with international standards. I believe we have the capability and improved services such as our procurement and engineering capabilities, which is in line with our intention of transforming MHB to be a high-performing company, globally,” said chairman Datuk Nasarudin Md Idris. He added that the company also plans to participate in PETRONAS’ RM60 billion Refinery and Petrochemical Integrated Development (RAPID) project in Pengerang, Johor. With MHB’s experience in onshore gas terminal projects, the company believes it has the capability to undertake a slice of the mega-project.

Significance: MHB plans to allocate a capital expenditure of more than RM300 million this year, of which some RM280 million will be spent on its yard optimisation programme. It also expects more operational improvement initiatives to launch this year, as part of the company’s three-year transformation programme.

1MDB Planning US$1bil IPO
Sovereign wealth fund 1Malaysia Development (1MDB) plans to raise about US$1 billion through listing its power assets in Malaysia next year. The proposed initial public offering (IPO) is the latest in a string of announced listings that could return Malaysia to the ranks of the top regional IPO markets. Government-owned investor 1MDB had been acquiring several power plants since last year, this includes Malaysian tycoon Ananda Krishnan’s power generation business for US$2.7 billion and Genting’s domestic energy operations for RM2.3 billion. In 2012, Malaysia was Southeast Asia’s top IPO market by deal value, as big issues capitalised on a rising share index and optimism over government’s economy growth plans. At least half a dozen new IPOs have been reported or are in the works, including that of Malaysian budget long-haul carrier AirAsia X, which has said it plans to raise more than US$400 million in a July listing.

Significance: 1MDB’s sole shareholder is the government of Malaysia. Funds raised through the share sale would enable it to reduce part of its borrowings.

Markets Snapshot (as of 03:30 GMT)
- Nikkei225 -0.7%
- S&P/ASX -1.1%
- Kospi +0.2%
- Shanghai Composite -0.3%
- Hang Seng -0.7%
- Jun S&P500 -0.1% at 1,633
- Aug gold flat at $1,382/oz
- Jul crude oil flat at $97.80/brl

Observations/Insights
- Asian equity markets are generally softer despite the strong session of gains in the US hours and all the volatility of the final 90 minutes following the FT Fed taper speculation fiasco. US equities swung some 100pts on the Dow, first lower and then higher, after FT’s Harding opined the Fed chief will hint closing proximity to tapering QE on Wednesday, before redacting his view on Twitter as something he has expressed in the past, rather than a reflection of any direct information from the US central bank.
- Regionally, China home prices was the most notable event in an otherwise lackluster pre-Fed session. Soft May economic data has given a rise to speculation of a renewed PBoC easing bias, but those expectations may have to be scaled back after May home prices across 70 main cities rose 6% y/y, up from an already 2-year high of 4.9% in April. China housing data was released concurrently with the RBA policy meeting minutes noting that not only is the mining investment peaking, but that conditions in the non-mining industry are also subdued. AUD suffered after the China housing/RBA minutes release, falling to session lows below $0.95 vs USD and ¥90 vs JPY. Japanese Yen remained on the defensive against other currencies, with the 20-year JGB auction showing a more robust demand and Japan cabinet officials reflecting on the endorsement of Abenomics from the G8.

Fixed Income/Commodities
- (JP) Japan’s MoF sells ¥1.10T 20-year 1.6% JGBs; Avg yield: 1.686% v 1.680% prior; bid-to-cover: 4.23x v 2.54x prior
- GLD: SPDR Gold Trust ETF daily holdings fall by 0.3 tons to 1,003.2 ton (lowest since 985.9 tons in Feb of 2009)

Speakers/Political/In the Papers
- (JP) Japan Econ Min Amari: Abenomics have been well received at the G8 Summit; too early to discuss BoJ easing exit
- (JP) Japan Fin Min Aso: Agrees that BoJ is correct in sticking with the QE expansion announced in Apr
- (JP) BlackRock Japan bond portfolio head: Volatility is subsiding; 10-yr yields likely to remain in 0.65-0.90% range until at least the end of July – Nikkei News

- (CN) China Stats Bureau: China should continue with property control policies – financial press
- (CN) BoA/ML: China property tax could be more severe than expected
- (CN) China sovereign wealth fund (CIC) investment unit, Central Huijin Investment, increased stake in big four banks last week for CNY360M – Chinese press
- (CN) Fitch analyst Chu: sees increasing awareness of credit risks in China; continues to see relative stability in the coming year
- (CN) China Academy of Social Sciences (CASS) Researcher Liu: China may further cut interest rates if growth continues to slow down
- (CN) China interbank liquidity may be tense until July – Chinese press
- (CN) Large banks in China have been urging the PBoC to inject more liquidity into the money market and lower the reserve-requirement ratio (RRR) – US financial press

- (KR) South Korea Fin Min Hyun: Govt policies unlikely to impact corporate business activities – financial press
- (NZ) New Zealand PM Key: Believes RBNZ and retail banks could find a way to exempt first-home buyers from proposed restrictions on low-deposit home loan – NZ press
- (TW) Taiwan Financial Supervisory Commission plans to ease rules for Chinese companies to issue yuan-dominated bonds – financial press

- (US) US President Obama: Fed Chairman Bernanke has stayed on longer than he originally planned – financial press citing interview with Charlie Rose on PBS
- (US) Fitch analyst Colquhoun: Fed likely to be the first major central bank to begin tightening – financial press
- (EU) S&P: Forecasts euro recovery to be delayed to 2014 vs H2 in 2013 – financial press
- NPD: May total video game sales $386.3M v $495.2M m/m, -25% y/y

Equities
- S: Files lawsuit against DISH, Clearwire citing the illegality of DISH tender offer for Clearwire; +0.1% afterhours
- STLD: Guides Q2 EPS $0.10-0.14 v $0.21e; -0.9% afterhours
- GNMK: Guides FY13 Rev lower to $30M v $35Me ($35M prior), citing additional uncertainties relating to the future revenue contribution from its largest customer; -4.7% afterhours

- Seven & I 3382.JP: May report Q1 op profit around ¥74B, +10% y/y; Rev seen rising 10% to ¥1.3T – Nikkei News
- SNE: Third Point increases stake by 9% to 70M shares valued at approx $1.4B

- AQG.AU: Affirms FY13 gold output forecast of 330-365K oz
- RIO: China Minmetals reported to be considering bid for Canada iron ore assets – financial press

Economic Data
- (CN) CHINA MAY CONFERENCE BOARD LEADING ECONOMIC INDEX M/M: 0.3% V 1.5% PRIOR
- (CN) CHINA MAY ACTUAL FOREIGN DIRECT INVESTMENT (FDI) Y/Y: 0.3% V 0.4% PRIOR
- (CN) CHINA MAY NEW HOME PRICES M/M: RISES IN 65 OF 70 CITIES VS 67 PRIOR; Y/Y: PRICES RISES IN 69 OF 70 CITIES VS 68 PRIOR
- (AU) RESERVE BANK OF AUSTRALIA (RBA) JUNE MINUTES: POLICY APPROPRIATE FOR THE TIME BEING
- (KR) SOUTH KOREA MAY PRODUCER PRICE INDEX (PPI): -2.6% V -2.8% PRIOR

This article originally appeared on www.stockmarketsreview.com, and is reproduced here as part of our collaboration with StockMarketsReview.com

Significance: The proposed new business would reduce GRP’s reliance on its existing business which remains competitive and challenging, while potentially, forming part of the core business of GRP in the future.

TEE International’s Subsidiary Secures Water Management Contract
Global Environmental Technology (GET), partly owned by TEE International’s subsidiary, TEE Resources, has formed a consortium with Cisco Engineering (Cisco) and Lam Water Solution (Lam) to secure a water management contract. The contract, which was entered into with Bangkok Metropolitan Administration, tasks the consortium to manage and control the water level at Makkasan Water Catchment area by periodically pumping water into the Chao Phaya River. The contract, worth approximately $8.6 million, commenced from 1 May 2013 and will last for a period of three years.

Significance: GET, Cisco and Lam will own 30 percent, 50 percent and 20 percent respectively in the consortium which TEE International’s total effective interest being 14.7 percent.

Tuan Sing’s Subsidiary Obtains Tender To Gilstead Court
Tuan Sing Holdings’ subsidiary, Dillenia Land, has been awarded the tender for the collective sale of all strata lots and the common property in Gilstead Court for $150.2 million. The freehold property has an approximate site area of 75,479 square feet. Gilstead Court is situated along Gilstead Road, within the highly exclusive and sought after Novena/Newton district with close proximity to their respective MRT stations. The area is a long serving private residential estate accompanied by commercial developments including Velocity @ Novena Square, United Square, Square 2 and Oasia Hotel. With Mount Elizabeth, Novena Hospital, Novena Medical Centre and Novena Specialist Center located in the vicinity, the area has earned the reputation of a medical hub. Tuan Sing has developed distinctive projects including Leedon Park Good-Class Bungalows, Botanika and the upcoming Cluny Park Residence. The firm intends to develop a high-end project for this exclusive freehold site.

Significance: With a plot ratio of 1.4, the price of $150.2 million would translate to $1,292 per square feet per plot ratio, including a 10 percent balcony area.

Significance: With Dayang’s rich order-book, Naim could look forward to getting more dividend payouts from the associate firm. Currently, Naim’s ongoing contracts is worth some RM800 million, management is optimistic that its construction arm stands to win some of the new contracts it has bid for.

Alliance Research Maintains “Overweight” On Glove Sector
Alliance Research is maintaining its “Overweight” call on the glove sector, highlighting Hartalega Holdings and Kossan Rubber Industries being its top picks. The research house maintained a “Buy” rating on both Hartalega and Kossan with a target price of RM6.80 and RM4.85 respectively. “We like Hartalega as a medium to long term investment (one to three years), as we are convinced that it will emerge as the industry’s game-changer in two years’ time, once its NGC plants kick start in August 2014,” it said. Over the short term of 12 months, it continued to favour Kossan despite the share price already outperformed over the past six months. “We believe that Kossan is still trading at an attractive valuation, less than 10 times price P/E for financial year 2014, as it moves up its value chain and improve its profitability,” it added. Alliance added it retained its “Neutral” call on Top Glove Corporation with a target price of RM5.90 and Supermax Corporation at RM2.04 based on the strong nitrile transition would place both companies in an adverse position such as margin compression, as both companies have less than 40 percent nitrile glove capacity currently.

Significance: The research house has upgraded the glove sector from “Neutral” to “Overweight” on 3 December 2012, as it forecast the latex cost to stabilise between RM5.50 per kg to RM6.50 per kg due to weak global demand, strong US dollar against the Ringgit in the run up to the 13th General Election and improving supply and demand dynamics.

MRCB Drops On News Of Nusa Gapura Merger Falling Through
Malaysian Resources Corporation (MRCB) shares plunged as much as seven sen yesterday, tumbling to a low of RM1.52 on news its RM729 million merger with Nusa Gapurna may be hampered. The developer closed at RM1.53 yesterday, with some 19.2 million shares done. According to a report, the Selangor State Development Corporation (PKNS) had sent a letter to MRCB saying it wanted out of the MRCB-Nusa Gapurna deal. The state-owned entity is purportedly looking to exercise an option to buy out Nusa Gapurna’s 70 percent interest in the RM3 billion PJ Sentral development. PKNS has a minority 30 percent stake in PJ Sentral. CIMB Research said in a report PKNS’ resistance was a “setback” to the merger. “There could be a near-term share price overhang triggered by this news, but it could be offset by large-scale job wins, conclusion to the Eastern Dispersal Link divestment, and positive resolution to the Nusa Gapurna deal in the second half of 2013,” it said.

Significance: CIMB Research is retaining an “Outperform” rating on the stock with a target price of RM1.98, whilst other analysts believe the near term share price would react negatively, given the huge amount of uncertainties.

In Singapore’s property development segment, we have started to notice several strategic moves by key property developers. While most of these moves have been envisioned as long-term, we wonder if it is a sign of things to come. These developments include Keppel Corporation’s recent divestment of Keppel REIT as well as the possible sale of Keppel Land’s Tower three at Marina Bay Financial Centre. These developments beg the question, have the Singaporean property market finally exhausted its stockpile of steroids?

The Effects On Bernanke’s Policy
The possible curtailment of bond purchases by the Federal Reserve has driven up the yield of bonds almost immediately as bond prices fell (the driving up of bond yield is an indication to what will happen to the interest rate). In the event of an interest rate hike in the US, Singapore is likely to follow as we are highly correlated (correlation is a measure of how two independent variables move with each other. A positive correlation means the two independent variables move closely with each other. A positive correlation of 1 means that the two independent variables move in perfect harmony) to the US market.

Source: Factset, Graph of US and Singapore Interest Rates

Property development is an industry which is highly dependent on loans which makes them vulnerable to an interest rate hike. When interest rate goes up, the cost of loans will go up which will drive down the profit margin of developers.

Demand for properties might also be affected as higher interest rates keep buyers away due to higher costs. At the same time, there might be selling pressure in the secondary market for properties as some owners might find it difficult to refinance their loans in such a high interest rate environment. In view of such a difficult environment, is it time to sell on Singapore property developers?

The Developers
On the Singapore Exchange, there are several property developers which include a variety of big capitalisation (big cap) and small capitalisation (small cap) companies that undertake different type of property development. Big cap stocks include Capitaland, CapitaMalls Asia and Keppel Land which have projects in the residential, office and retail sectors in Singapore and overseas. Small cap stocks include Chip Eng Seng, Low Keng Huat and Lian Beng which have smaller projects in their portfolios, including projects from the Housing and Development Board.

Below is a table of local developers as well as selected investment ratios.

Source: Factset, Ratios of Keppel Land, Capitaland, Capitamall, Lian Beng, Chip Eng Seng and Low Keng Huat

Diversified Property Developers?
Developers like Capitaland, Capitamall and Keppel Land have country diversification as they develop and own properties overseas. Among which we will focus on China as there is a low correlation between the interest rate of China and US unlike Singapore. Our preference for companies with China exposure comes as President Xi Jinping of China vowed to keep the nation’s GDP above 7 percent, guaranteeing growth of the country.

The property market remains tight in key cities (Beijing, Shanghai and Guangzhou) and robust in developing cities (Chongqing and Chengdu) in China. Based on research from Jones Lang LaSalle, rentals of these regions in China are still growing at a healthy rate.

Source: Factset, Graph of US and China Interest Rates

The residential segment in key cities in China is expected to rise as there are news on plans to scrap the law on Hukou in China. This law restricts the movement of people in China as they are made to stay in their hometown which prevents rural to urban migration.

Currently, Chinese workers in urban areas with their Hukou in other provinces are considered to be illegal residents and are therefore not be eligible for social benefits or able to purchase a property in their place of work. If the law is abolished, demand for residential properties is seen to rise due to urban migration.

The Road Ahead
In view of the current outlook, market watchers have a preference for big cap stocks with strong balance sheets such as CapitaLand, CapitaMalls Asia and Keppel Land. Small cap stock such as Chip Eng Seng, Low Keng Huat and Lian Beng might face financial difficulties during an interest rate hike.

For Singapore developers in China, they will have the benefit of country diversification which reduces their direct exposures and helps to provide a buffer for domestic downsides. Also in China, Singapore developers are seen as the preferred choice compared to their local counterparts. This is mainly due to better development reputation as well as the continued support of the Singaporean government for corporates to expand in China through large scale projects such as the Suzhou Industrial Park and the Tianjin Eco-city.

Source: Factset, YTD graph of STI

The Straits Times Index’s growth since the beginning of 2013 has been nearly wiped out recently. With interest rates no where to go but up, stocks can be expected to underperform particularly cyclical counters such as the property developers. Although diversifying into China might prove to be a long term boon to property developers, investors should still exercise caution as most locally listed property developers still have significant exposure to the domestic market.

- Global markets appear to be benefitting from expectations for a dovish Fed at this week’s FOMC meetin. In Japan the Nikkei rallied 2.7% and finished near the session highs as the index enjoyed its first back-to-back green close since the end of May. In Europe, markets are not far from their session highs. As of writing, the DJIA is %, the S&P500 is % and the Nasdaq is %.

- The headline June Empire Manufacturing survey hit a three-month high, however the relatively positive reading conceals some bad news. The new orders, shipments and inventories components all contracted sharply while the employment index fell to its breakeven level. The June NAHB housing market index saw its first reading above the key 50 level since early 2006, indicating that homebuilder confidence continue to rise. The NAHB said the report is consistent with its forecast for a 29% gain in 2013 housing starts, which would mark the first time since 2007 that starts have topped the 1 million mark.

- Boeing and EADS are racking up plenty of orders at the Paris Airshow. Boeing is launching the extended version of the 787, the 787-10, and also taking “commitments” for the new 777X model, which will be formally launched this fall. Airbus will be pushing its new 787 competitor, the A350 XWB.

- Shares of Terex are down 11% in the early going after the construction machinery manufacturer slashed its FY13 earnings guidance and warned Q2 earnings would not meet consensus expectations. The firm cited weakness in its construction and material handling branch.

- There were a handful of smaller acquisitions announced this morning and over the weekend. The most high-profile deal was Johnson & Johnson’s agreement to buy Aragon Pharmaceuticals, a private company that is running a mid-stage clinical trial for a prostate cancer drug, for $650M in cash and a possible second payment of $350M if it meets certain milestones. Medivation is down nearly 10% on the news, as the firm is working on a competing drug to Aragon’s main candidate.

- Volatile Chinese solar names are up 10% or more apiece on reports in the Chinese press that Beijing could introduce new solar subsidy policies as early as this month.

Looking Ahead
(EU) G8 Summit Held in Northern Ireland
- 11:00 (US) Fed to Purchase $4.75-5.75 Bln Notes
- 11:30 (US) Treasury to sell combined $55B in 3-Month and 6-Month Bills
- 12:30 (EU) ECB’s Mersch (Luxembourg) in Hamburg
- 21:30 (AU) RBA June Policy Meeting Minutes

Economic Data
- (PL) Poland Apr Current Account: +€468M v -€150Me; Trade Balance: €601M v €69Me; Exports: €13.3B v €12.5Be; Imports: €12.7B v €12.6Be
- (CA) Canada Apr Int’l Securities Transactions: C$14.9B v C$3.0Be
- (US) Jun Empire Manufacturing: 7.84 v 0.00e
- (FR) France Debt Agency (AFT) to sell combined €6.8-7.6B in 3-month, 6-month, and 12-month bills
- (PL) Poland May YTD Budget Performance: 87.0% v 89.3% prior; Budget Level (PLN): 30.9B v 31.8B prior
- (CA) Canada May Existing Home Sales M/M: 3.6% v 0.6% prior
- (BE) Belgium Apr Trade Balance: +€100M v -€550.3M prior
- (US) Jun NAHB Housing Market Index: 52 v 45e

This article originally appeared on www.stockmarketsreview.com, and is reproduced here as part of our collaboration with StockMarketsReview.com

SingTel, Southeast Asia’s largest telecom operator, values the satellite business of its Australian unit Optus at more than A$2 billion (US$1.9 billion), and has put it on sale as it battles tepid growth in its key markets of Singapore and Australia.

Britain’s Inmarsat , Blackstone Group and Carlyle Group are among the other suitors to submit bids ahead of the Friday deadline, the person told Reuters.

The deal pits strategic bidders against buyout firms in Australia’s third-biggest M&A deal this year, according to Thomson Reuters data.

SingTel, controlled by Singapore state investor Temasek Holdings , sent financial information to bidders in May after announcing a strategic review of the business in March. Optus sells TV, telephony and broadband services to more than two million subscribers in Australia and New Zealand.

In terms of Australia M&A activity this year, the deal ranks behind the acquisition of Port Botany and Port Kembla by Industry Funds Management, and the sale of stakes in Australia power companies to State Grid Corp of China , according to Thomson Reuters data.

Funds raised from the sale would help SingTel plough cash into faster-growing businesses.

Other bidders to express interest include, Asia Satellite Telecommunications Holdings, Intelsat , Sky Perfect Jsat Holdings Inc, Australia’s NewSat and SES , the source said.

Blackstone, Carlyle, KKR, Intelsat, SES and SingTel declined comment. Eutelsat , Inmarsat, AsiaSat, JSat and NewSat did not reply to emails seeking comments. The source declined to be identified as the sale process is confidential.

The suitors are attracted to the steady cashflow generated by the business as well as the low capital expenditure required, sources previously told Reuters.

Companies with satellite operating or communications businesses, like Eutelsat and Inmarsat, are expected to make a stronger case as buyers, because synergies with their existing operations mean they can pay more.

However, private equity bids could receive a boost from debt funding from the United States made available by SingTel advisers Credit Suisse Group and Morgan Stanley. The two banks are providing a loan of around A$1.7 billion that buyers can use for the acquisition.

Optus Satellite operates five satellites, with another, Optus 10, scheduled for launch in 2013. SingTel acquired the satellite arm when it bought Optus in 2001 for US$14 billion.