Food and beverage (F&B), rubber gloves and power companies will be among the worst hit counters in the months ahead amid surging input costs resulted from the shortage and disruption of raw materials supplies caused by rising demand as well as natural disasters, said a head of research.
These stocks are likely to experience a squeeze in profit margin as commodities such as coking coal, sugar, latex and palm oil make up most of their production cost, according to Bernard Ching, ECM Libra Capital’s head of research.
“Their margin will be under pressure over the next two quarters or so,” he told The Edge Financial Daily. “But stocks which benefit from the commodity price rally such as plantation stocks should do well.”
Recent food and energy price inflation had been partly triggered by the general increase in global commodity prices and by the government subsidy cut in December in Malaysia, according to Ching.
Counters such as Tenaga Nasional Bhd (TNB) had already taken a hit, diving to an eight-month low of RM6.49 on Jan 19, following the surge in coal prices as severe flooding in Australia disrupted supply of the utility company’s main raw material.
Meanwhile, rubber gloves manufacturer Top Glove Corp Bhd also saw its share price tumble to about 12-month lows with latex prices recently surging to record level.
Although property stocks are widely regarded as beneficiaries of an inflationary environment due to asset reflation, Ching cautioned that “persistent inflationary pressure may dampen consumer sentiment, a key demand driver for properties.”
In China, consumer prices could rise by more than 6% in some months in the first half of 2011 from year earlier levels, according to the China Securities Journal last Friday.
The next rate hike in the world’s second largest economy could come around the Lunar New Year holiday early next month, according to the state-run newspaper. The People’s Bank of China raised interest rates twice last year, most recently on Dec 25.
“In any case, food price sensitivity in Malaysia is lower than other countries like China, India and Indonesia, where lower disposable income, demand growth and dependence on imports put more pressure on marginal price increases,” said Ching.
The equity head said Bank Negara Malaysia (BNM) had been staying ahead of the curve in normalising interest rates.
BNM was expected to only increase the rate by another 50 basis points in the second half of 2011 in view of the central bank’s normalisation drive that increased the overnight policy rate (OPR) from 2% to 2.75% in 2010, HSBC Asian economist Wellian Wiranto said in a news report on Jan 14.
“Signs of increased inflation expectations would justify further policy response and we expect the central bank to utilise a combination of currency and interest rate policies to stave off inflationary pressures,” said Ching.
To Ching, concerns over a repeat of the 2008 food supply crisis are premature at this juncture.
The research head said the run-up in commodity prices had been impacted by a series of severe supply disturbances in key-producing countries, but the effect is expected to be transitory and should recede as supply comes back online.
Besides Australia, Brazil is also devastated by severe floods. The World Bank said it will lend Brazil US$485 million for rebuilding and disaster prevention efforts following devastating mudslides that killed more than 700 people, according to a news report by AFP on Jan 19.
Australia is the world’s largest supplier of coking coal, essential in steel-making, and is the second largest supplier of thermal coal used in power plants. Earlier this month, the floods caused world coal prices to hit a two-year high, according to CNN wire report.
Brazil is the world’s largest producer of coffee and sugar, and the second largest producer of soyabeans after the US, according to a Bloomberg report.
“However, if supply shocks continue to surprise negatively, the degree of pass-through of commodity prices to actual domestic consumer prices will have to be monitored closely,” said Ching. - by Yantoultra Ngui Yichen, theedgemalaysia.com
No comments:
Post a Comment