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Friday, November 12, 2010

Philippines Markets: 12 November 2010

12 November 2010

USD/PhP: 43.76 - 0.11 PSEi: 4076.68 - 67.73
USD/JPY: 81.90 PFINC: 949.84 - 28.95
EUR/USD: 1.3598 BDO: 56.40 - 2.00
GBP/USD: 1.6043 BPI: 57.15 - 1.05
PDSTF3M: 3.2788 MBT: 72.40 - 2.10
Prices as of 4:00pm Source: Bloomberg, Reuters


Philippine Interest Rate Outlook

Secondary money market rates moved sideways to down still on the account of stable inflation rates and expectations that BSP will keep its rates unchanged for the rest of the year. S&P raised Philippine debt rating to BB with stable outlook from BB- today. This will strengthen investor optimism and support low yield environment in the secondary market.

With the market still a washed with cash, continue to expect rates to move sideways to down in the week ahead.

Philippine Equities Outlook

Local stocks fell 6.26 percent week-on-week to 4076.68 on risk aversion woes in Euroland, this time its on Ireland. This caused investors to capitalize on their gains from the previous rallies of the market, ignoring positive 3Q corporate growth numbers. However, with the recent S&P upgrade of country's rating after stock trading hours, this may prompt investor to buy local shares.

Chartwise, the week's close at 4076.68 continues to suggests the market has still some risks to try and test the 4000-4050 levels. Bargain hunting activities is expected at the said levels which may bring it back towards the 4,150 levels in the near-term.

Philippine Peso Outlook

Local currency fell 2.42 percent for the 1st time in three weeks to 43.76. Rising risk aversion themes caused a demand for the greenback. However, the S&P upgrade caused peso depreciation to halt at 44.08 levels.

Chartwise, the week's close at 43.76 still indicates the currency may have temporarily peaked at 44.08. Expect test of 43.50 before it tries 44.00 levels again.




Philippines Wins First S&P Rating Upgrade in 13 Years
By Karl Lester M. Yap

Nov. 12 (Bloomberg) -- The Philippines’ debt rating was
raised to the highest level in more than seven years by Standard
& Poor’s, which cited the country’s strong external liquidity,
foreign reserves, and progress in debt reduction.
The rating on the nation’s government debt was raised one
level to BB from BB-, the rating company said in a statement
today. That’s the first upgrade since 1997 and brings the
measure to two levels below investment grade, the same as
Indonesia and Vietnam.
“We have upgraded the Philippines based on its steadily
improving external liquidity profile and underlying strengths of
its external accounts,” S&P said. These factors “increasingly
mitigate the vulnerabilities posed by its still-high public and
external debt burden.”
President Benigno Aquino, who took office in June, is
hunting tax evaders and corrupt officials to convince investors
the government can narrow a budget deficit forecast to reach a
record this year. A higher debt rating would reduce the cost of
borrowing, allowing the Philippines to spend more on roads and
bridges to meet Aquino’s pledge to expand the economy by as much
as 8 percent annually from 2011.
Philippine international reserves climbed to a record $56.8
billion in October, boosted by remittances and exports. The peso
touched a two-year high of 42.47 a dollar on Nov. 5.

Moody’s Move

Moody’s Investors Service last year raised its rating on
Philippine debt by one level to Ba3, the first upgrade since
1997.
The currency rose 0.3 percent to 43.74 pesos per dollar
after the upgrade, erasing its earlier loss, according to
Tullett Prebon Plc. The benchmark stock index is up 33.5 percent
this year. Four-year peso bond yields fell to a record low today.
The Philippines raised $1 billion in September from its
first sale of 10-year global peso bonds to help fund a budget
deficit it predicts will reach 325 billion pesos ($7.4 billion)
this year. The government plans to narrow the shortfall to 290
billion pesos next year.
The government had a budget deficit of 259.8 billion pesos
in the January-to-September period, compared with its target of
273.7 billion pesos.
The Philippines’ $160 billion economy expanded 7.9 percent
in the second quarter, the fastest pace in three years.

Morning Brief: 12 November 2010


Full-year deficit could fall below P325-B cap -- Abad

THIS YEAR’S budget deficit could end up below the programmed cap given controlled government spending, a Cabinet official said.

"It’s very possible," Budget Secretary Florencio B. Abad said on Wednesday even as he declined to provide an estimate.

This year’s deficit target has been set at P325 billion, a new record from 2009’s P298.5 billion, given revenue shortfalls and spending earlier in the year by the previous administration.

It stood at P259.8 billion as of September and the country’s two main revenue agencies have warned that full-year collection goals will likely be missed.

October fiscal data is scheduled to be released next week.

Mr. Abad, however, continued to express optimism that the 2010 deficit target will be achieved given "prudent spending".

He said the Aquino administration had been "delaying expenditures" that were "not really so important" since August when the new government posted its first monthly budget surplus.

The belt-tightening extended to last month, with outlays "below P90 billion in October, well within our [monthly] spending cap of P94 billion."

"The spending side basically, the government has control over it. What we have to watch over is our revenue collection efforts," Mr. Abad said.

Asked to comment, University of Asia and the Pacific economist Victor A. Abola said he agreed with Mr. Abad’s deficit forecast but added that the final figure would "not be lower than P5 billion" from the P325-billion target.

"The economy has been quite okay, and ... the deficit for last three months has been stable. But our tax collection efforts suffer. I think it will just be a matter of managing the last three months," he said.

End-September revenues of P894.7 billion were P40.3 billion below target. The Bureau of Internal Revenue’ nine-month tally of P607.3 billion was below its P620.5-billion goal while the Bureau of Customs collected only P191 billion out of its P210.2-billion target.

Deputy tax commissioner Nelson M. Aspe said the bureau was "doing okay" with respect to October collections, but reiterated that they were only on track to meeting an earlier 2010 goal of P830.4 billion, not the existing P860.4-billion revised target.

Customs Commissioner Angelito A. Alvarez, for his part, said achieving the bureau’s P241-billion cash collection target was "no longer possible" given duty-free oil importations and the strong peso.

Customs’ full-year target is P289 billion, which includes a P39-billion Tax Expenditure Fund representing subsidies for state imports.


State purchase of undervalued goods to proceed

THE CUSTOMS bureau will proceed with its plan to forcibly buy imports found to be undervalued after addressing key reservations aired by the Finance department, its mother agency, the head of the state’s second biggest revenue collector said.

Customs Commissioner Angelito A. Alvarez said in an interview earlier this week that his bureau will have to open its own credit line with Land Bank of the Philippines -- instead of relying on the bank’s facility for the Philippine International Trading Corp. (PITC) -- to purchase the undervalued goods, which will be auctioned off as part of a bigger effort to curb smuggling and generate more revenues for the government.

Mr. Alvarez noted that "the main concern of Finance is that there is a third party involved" in the original plan.

Mr. Alvarez was pertaining to a Finance position paper issued as a comment to a planned memorandum of understanding between the Customs bureau and PITC.

Under the planned arrangement, the PITC was to store and auction off the goods concerned, besides providing its credit facility for Custom’s use.

The bureau’s only role was to identify the undervalued imports.

The Finance paper, dated Oct. 20, said the compulsory acquisition scheme should, instead, "require Customs to put up a separate department to handle the storage, preservation, and disposition of undervalued imported goods, not to mention its funding."


Potential conflict with WTO

The department had also cited possible violations under the World Trade Organization (WTO) Agreement on Customs Valuation, which provides that an importer who appeals the government’s acquisition of his goods will be allowed to secure their "tentative release," pending the resolution of his case.

The department warned that compulsory acquisition, provided under Section 2317 of Republic Act No. 1937 or the Tariff and Customs Code of the Philippines, would violate that pact since goods the state buys under the planned scheme will stay in the government’s custody for the duration of the importers’ appeal.

In its comment, the Finance department called for a repeal of the provision, which will require no less than legislative action.

The Finance department also noted a lack of clear rules to govern compulsory acquisition, which could lead to abuses.

Asked to comment on the matter, Mr. Alvarez said: "I’m sure there will be solutions to it [Finance and Customs difference]."

"I am organizing a meeting [with Finance officials] next week; I’m sure [the department’s] team and Customs will solve this."

He described the tack is a "good deterrent to undervaluation," which is classified as "technical smuggling" that costs the government millions in foregone revenues.

Customs, which accounts for about a fifth of state revenues, was behind target as of September, collecting only P191 billion against the programmed P210.2 billion for those nine months. For October, the bureau has said it had incurred "another shortfall" against its P23.8-billion cash collection target.

Sought for comment, Finance Undersecretary Carlo A. Carag, who wrote the comment on the Customs scheme, said the department "stands by its position."

"It’s up to them [Customs bureau]. What we’re asking is just for rules and guidelines that will rule such acquisition because, as of now, everything is very bare and conceptual."

The guidelines, according to him, may address the possible violations the department mentioned in its comment, saying compulsory acquisition is "confiscatory in nature."


U.S. Stocks Drop After Cisco's Forecast Misses Estimates

U.S. stocks slid, with benchmark indexes falling for the third time this week, after Cisco Systems Inc. and Walt Disney Co. missed analyst estimates and concern over Europe’s debt crisis intensified.

Cisco, the sixth-largest U.S. technology company by market value, plunged 16 percent, the most since 1994. Hewlett-Packard Co. slumped 2.4 percent as technology stocks declined the most among 10 industries in the Standard & Poor’s 500 Index. Disney fell 2.9 percent. GameStop Corp. rallied 4.8 percent after the video-game retailer said it will add content to its digital catalog.

The S&P 500 dropped 0.4 percent to 1,213.54 at 4 p.m. in New York. The Nasdaq-100 Index, which gets 65 percent of its value from computer-related companies, lost 0.7 percent to 2,173.11. The Dow Jones Industrial Average fell 73.94 points, or 0.7 percent, to 11,283.10.


Crude Oil Is Unchanged as U.S. Stocks Decline, China's Processing Surges

Oil settled unchanged as U.S. equities retreated after Cisco Systems Inc. said profit will miss analyst estimates and a report showed Chinese refiners processed a record amount of crude.

Futures retreated from a two-year high as Cisco’s forecast triggered a selloff in technology companies. Futures surged earlier today when a report showed that Chinese refineries processed 12 percent more crude in October than a year earlier, according to China Mainland Marketing Research Co.

“We traded higher and made a new high on the Chinese news,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “We’ve been unable to sustain the gains. The Cisco announcement sent stocks lower and that appears to have put a lid on prices.”

Crude for December delivery settled at $87.81 a barrel on the New York Mercantile Exchange. Futures touched $88.63, the highest intraday price since Oct. 9, 2008. Oil is up 11 percent from a year ago.



Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher

(632) 858-3001

Philippines Markets: 11 November 2010


11 November 2010

USD/PhP: 43.87 + 0.47 PSEi: 4144.41 - 53.16
USD/JPY: 82.23 PFINC: 971.38 - 17.59
EUR/USD: 1.3783 BDO: 58.40 - 1.15
GBP/USD: 1.6134 BPI: 58.20 - 1.30
PDSTF3M: 3.4962 MBT: 74.50 - 0.50
Prices as of 4:00pm Source: Bloomberg, Reuters


PH stocks take beating

MANILA, Philippines – Local stocks again took a heavy beating on Thursday from investors scrambling to pocket gains from previous week's rallies.

The main-share Philippine Stock Exchange index shed 53.16 points or 1.27 percent to 4,144.41, sliding for the fifth consecutive session.

Value turnover was heavier at P7.6 billion compared to the value turnout in the last five days of profit-taking. All counters were in the red but the financial, holding firms, property and industrial counters were the most battered.

Nearly three stocks tumbled for every single one that gained.

Metro Pacific Investments Corp., Philippine Long Distance Telephone Co., Metropolitan Bank & Trust Co., Ayala Corp., Energy Development Corp., International Container Terminal Services Inc., Megaworld Corp., DMCI Holdings Inc., Banco de Oro Unibank, Philippine National Bank, Bank of the Philippine Islands, Filinvest Land Inc., Manila Electric Co., Ayala Land Inc. and SM Investments Corp. led the day's decliners.

On the other hand, Alliance Global Group Inc., Aboitiz Power Corp., Cebu Air Inc., SM Prime Holdings and Aboitiz Equity Ventures Inc. bucked the day's downturn.

The local stock market defied a relative firm Asian equities market which was boosted by the rise in commodity stocks. Overnight, Wall Street also showed a modest rise in risk appetite that brought the Dow Jones Industrial index 10.29 points or 0.09 percent higher to 11,357.04.

www.inquirer.net

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