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May enjoys reprieve, pound recovers; Quarz turns sights on Sunningdale

Samantha Chiew
Samantha Chiew • 7 min read
May enjoys reprieve, pound recovers; Quarz turns sights on Sunningdale
SINGAPORE (Dec 17): British Prime Minister Theresa May survived a leadership challenge on Dec 12 by 200 votes to 117, during which her position was questioned by 48 Members of Parliament (MPs) who were unhappy with her Brexit policy and submitted letters
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SINGAPORE (Dec 17): British Prime Minister Theresa May survived a leadership challenge on Dec 12 by 200 votes to 117, during which her position was questioned by 48 Members of Parliament (MPs) who were unhappy with her Brexit policy and submitted letters of no-confidence.

May is now immune from a leadership challenge for a year.

This issue came following her shock announcement on Dec 10 regarding her decision to delay a scheduled parliamentary vote on the Brexit deal, or withdrawal agreement. She admitted that the deal would “be rejected by a significant margin” if the vote was held on Dec 11 as planned. MPs will now have to wait until as late as Jan 21, 2019, the final deadline, to vote.

Keeping her role as prime minister is only a short-lived celebration for May, as she still has to face the uphill battle of passing the Brexit deal.

As May won her confidence vote, the British pound surged 0.9%, after it plunged to a 20-month low on Dec 10, following news of the delayed parliamentary vote as currency investors turned to the safe-haven US dollar instead. Despite this short rally, the pound is at only a two-day high.

Meanwhile, on Dec 12, the Dow Jones Industrial Average closed 0.64% higher at 24,527.27, following positive sentiment in the market that was fuelled by reports on the same day that China was considering giving foreign corporations access to its markets.

China also agreed to remove its tariff hike on US-made cars. Tariffs on these cars are now back to 15%, from 40% previously, in line with auto imports from other countries.

“Though this will not close the trade gap between the two economies by a sizeable amount, this will be the first positive outcome from the Dec 1 dinner meeting between Chinese Presi­dent Xi Jinping and [US President Donald] Trump,” says ING economist Iris Pang.

Investors are maintaining their optimism that a US-China trade deal will be reached in the coming months. In an interview with Reuters, Trump said he would intervene in the arrest of Meng Wanzhou, chief financial officer of Huawei, if it would help ensure a trade deal with China. Meng was arrested on Dec 1, at the request of US authorities, when she was transiting in Vancouver. She was granted bail by Canadian authorities on Dec 11, but will be subject to close supervision.

Eye on emerging markets

In view of rising global risks, BlackRock is calling for investors to leverage exposure to government debt as a portfolio buffer, and go for high-conviction allocations to assets that offer attractive risk-versus-return prospects. The asset manager continues to prefer stocks over bonds, and believes lower emerging-market valuations now signal an attractive entry point amid a solid earnings outlook.

FXTM analyst Lukman Otunuga, however, sees the unfavourable market conditions as a prece­dent for “further pain and punishment” for emerging-market currencies, with risk-aversion having the potential to become a major theme in the near term. “Emerging-market currencies are poised to remain in the firing line this week as ongoing trade tensions, Brexit uncertainty, depressed equity markets and turmoil in France cripple investor confidence,” Otunuga writes in a note on Dec 11.

Local stocks

On Dec 13, the Straits Times Index closed up 11.09 points at 3,111.08 points, in tandem with regional markets, which also gained on the same day on the back of a firmer overnight US close.

Also on Dec 13, activist investment group Quarz Capital Manage­ment, well known for agitating the stocks it figures are undervalued, made another move. It urged Sunningdale Tech to take decisive action to address the severe undervaluation of its share price, promote shareholder value and increase its dividend distribution to 60% of core net profit next year.

The proposal, among others, was put forth in an open letter dated Dec 13 that was signed by Jan F Moermann, Quarz’s chief investment officer, and Havard Chi, head of research of Quarz Capital Asia (Singapore).

“We also propose Sunningdale to distribute more than 50% of the proceeds from the disposal of its Zhongshan [China] factory in consideration of its fortified balance sheet,” says Quarz. This could result in a dividend yield of more than 4%. Shares in Sunningdale closed at $1.46 on Dec 13, up 4.29%.

Top Glove, the world’s largest manufacturer of gloves, opened Dec 11 5.9% lower at RM5.55 on Bursa Malaysia, after Malaysian authorities said they would be taking action against the company, which admitted to breaching labour laws. However, this news had no impact on Top Glove shares, which are also traded in Singapore. No trades were done on Dec 11. It closed on Dec 13 at $1.99, up from the previous day’s close of $1.89. Top Glove will also be announcing 1QFY2019 earnings results on Dec 17.

The Malaysian Minister of Human Resources and his enforcement officers have since visited Top Glove’s factories and clarified that the group is operating within the framework of the law. The minister also said allegations regarding the confiscation of workers’ passports by the group were untrue. However, Top Glove has to adhere strictly to the maximum overtime limit of 104 hours a month and at least one rest day a week as permitted by labour laws. If the group is found guilty of breaching labour laws on excessive overtime, it could face a fine of up to RM10,000 ($3,287).

This investigation was triggered when a Thomson Reuters Foundation exposé found that migrants were working for the group illegally to pay off debts. Lim Wee Chai, executive chairman and founder of Top Glove, insists that only “a small number” of workers had done excessive overtime and that the company would “continue” to improve its labour standards. He also denied that the workers were forced to work overtime.

“They got options, you cannot force them. Some workers said they don’t want to do overtime, that’s okay. But most of them come here to make a living, so they want overtime,” said Lim in a press conference on Dec 10.

Medtech company Biolidics launched its IPO of 27.5 million new shares on Dec 11 at 28 cents each, raising gross proceeds of $7.7 million via an all-placement issue. Shares in Biolidics will commence trading on the Catalist Board of the Singapore Exchange on Dec 19.

On Dec 10, Noble Group announced that it planned to apply for a court-ordered administration in Bermuda on Dec 14 to complete its restructuring of the company into New Noble.

Noble’s board said such a course of action is “the only means available to it” to implement a restructuring that is in the interest of all stakeholders of the company. If the company is unable for any reason to complete the restructuring in accordance with this approach, Noble says it would be forced to enter into a full liquidation process. This would then result in no recovery for shareholders and holders of the company’s perpetual capital securities, and lesser recoveries for creditors.

Epicentre Holdings announced on Dec 10 that its $400 million proposed reverse take­over had been called off. MacroCap Asia Capital and Gloria International were supposed to reposition the group as a regional property player after it exited the local Apple reseller business.

However, MacroCap and Gloria were unable to agree on the terms for the proposed acquisition and do not expect to sign a deal within six months of the signing of the memorandum of understanding on June 27. Epicentre closed flat at 8.5 cents on Dec 13.

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