Philippine Markets: 21 July 2011

21 July 2011 

USD/PhP:          42.62        - 0.09                PSEi:             4480.01                        - 27.03 
USD/JPY:           78.75                        PFINC:                   1006.83                        - 5.33 
EUR/USD:         1.4245                        BDO:                  60.45                        - 0.35 
GBP/USD:         1.6158                        BPI:                  58.60                        - 0.35 
PDSTF3M:         2.6400                        MBT:               78.10                        - 0.65 
Prices as of  4:00pm                        Source: Bloomberg, Reuters 


Local stock index sheds 27 points 
By: Doris C. Dumlao 
Philippine Daily Inquirer 

MANILA, Philippines—The local stock market retreated from record highs on Thursday as many investors were tempted to lock up gains after a six-day run-up.

The main-share Philippine Stock Exchange index shed 27.03 points or 0.6 percent to finish at 4,480.01.

Some investors also took a cue from the pullback on Wall Street as concerns that emerged on the lifting of the US borrowing cap offset good tidings from US corporate earnings.

The high-flying mining/oil counter succumbed to profit-taking the most, declining by 2.7 percent.  Only services managed to end in positive territory.

Justino Calaycay Jr., a dealer at local stock brokerage Accord Capital Equities Corp., noted that the winning streak in the past six days was the longest in recent memory and had thus brought the main index to overbought levels.  He thus recommended that investors either hold or sell stocks at this point.

“Profit-taking may begin to surface as a viable and reasonable stance as the week approaches a close,” he said.

There were 67 advancers against 103 decliners while 35 stocks were unchanged.

Turnover amounted to P6 billion.

Profit-taking on Philex, Banco de Oro, Lepanto “A” (reserved for local investors) and “B” (open to both local and foreign investors), Metrobank, EDC, DMCI, PLDT and Ayala Corp. dragged down the index.  San Miguel and Manila Mining were also in the red.

The index losses were tempered by the gains eked out by Metro Pacific Investments, Meralco, ICTSI and Globe Telecom. On the other hand, some second and third-liners gained in active trade, such as Vista Land, Empire East, Zeus Holdings, Semirara and East Asia Power.

Overnight, the closely watched US Dow Jones industrial average fell by 15.51 points, or 0.1 percent, to close at 12,571.91.

BDO UNIBANK, INC.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001 

Morning Brief: 21 July 2011

H1 deficit seen below ceiling Gov’t spent less than planned By: Michelle V. Remo The budget department said the budget deficit stayed below the ceiling in the first half of the year as the government spent less than programmed.According to Budget Secretary Florencio Abad, latest estimates point to a deficit lower than P150 billion for January to June. Under the government’s fiscal program for 2011, the deficit should be kept at or below P152 billion in the first semester. In a chance interview with reporters at the launch of two budget-related projects on Wednesday, Abad admitted that the lower-than-programmed deficit for the period was largely due to the lower-than-planned expenditure of the government. He, however, said that the government was expected to accelerate spending in the second half. Abad said the government would likely spend in the second half an amount bigger than programmed for the period. This will offset the underspending in the first six months. “We expect to hit the full-year (expenditure) program,” Abad said. He said the government aimed to spur spending, especially on infrastructure, in the next six months. For the entire 2011, the government had set its expenditure program at P 1.71 trillion. It is targeting to raise at least P1.41 trillion in revenue to keep the budget deficit at or below P300 billion. Latest government data showed that the budget deficit hit P9.54 billion in January to May, down by 94 percent from P162 billion in the same period last year. The P300-billion deficit ceiling set for this year is lower than the P314 billion registered last year. This year’s deficit ceiling is equivalent to 3.2 percent of the country’s expected gross domestic product (GDP), better than last year’s 3.7 percent. The gradual decline of the deficit is a target of the Aquino administration, the term of which ends in 2016. Policy changes scored by foreign chambers POLICY inconsistencies, particularly those involving ownership limits, can hamper private-public partnership (PPP) projects and planned free trade deals, the Joint Foreign Chambers of the Philippines yesterday warned. A long-term approach spanning administrations is necessary to resolve the issue and attract foreign investments, JFC officials said at a press briefing launching the Arangkada Philippines Web site. “[T]he foreign chambers’ point of view is we don’t like the [ownership] limitation,” said Henry Schumacher, European Chamber of Commerce in the Philippines (ECCP) executive vice-president, as he noted a recent Supreme Court decision declaring that the 40% foreign ownership cap for public utilities should be based on voting shares. As other administrations had gone the other way and attempted to relax ownership restrictions, Mr. Schumacher said: “[S]o if you’re asking, ‘Where are we now?’ We don’t know.” John D. Forbes, American Chamber of Commerce in the Philippines (AmCham) legislative committee chairman, said: “it is clearly time to have a national debate on this ... so many people have recommended it in the last two presidencies.” “[The Aquino] administration boldly chose to promote PPP and if it works, it will give the government the ability to promote social development despite constricted revenues. But they have to invite competition as much as possible by opening these projects not only to the best local firms but to the best firms in the world,” he added. “We all want quality services -- better roads, more public transport, faster broadband -- does it matter who owns it?” An easing of ownership limits, they said, should come with an assurance that such decisions won’t be overturned sometime in the future. “Public-private partnerships, like mining, [have] a payback of 20-25 years, so the whole issue of the PPP and having a good business environment, sound regulatory regime and consistent judicial system cannot be considered separately, because these are the things that attract foreign investments for the long term,” Canadian Chamber of Commerce in the Philippines (CanCham) President Julian Payne said. An understanding of consistency is perhaps lacking because no administration has ever considered a long-term development plan, they said. “If this administration now can move twice as fast the previous ones they can catch up, but there are certain projects that require more than just a medium-term plan ... a long-term one up until 2020 or 2025,” Mr. Forbes suggested. “The problem we have is the direction of the country is different when a new administration takes over, and that is because there is no understanding of the big picture,” Sean Georget, CanCham executive director, said. Liberal and consistent foreign ownership rules will also serve the government’s plans to join various free trade deals, particularly the Trans-Pacific Strategic Economic Partnership (TPP) currently in the works among nine Asia Pacific Economic Cooperation members. “I worry that the Philippines may not be able to join the TPP because of its strict regulation of foreign activities -- not just foreign ownership but even the restrictions on 40 professions, which bars foreigners from practicing these specific activities,” Mr. Forbes said. “You don’t enter a free trade agreement like the TPP without making these changes,” he added. Apart from loosening up regulatory policies on foreign activities, the chambers identified mining and the fight against corruption as two other areas that would benefit from a long-term plan. “We have already seen significant levels of decrease in corruption in the Aquino administration, but it will take a long time to eradicate it, because unlike Singapore, the Philippines is not a small city-state,” Austin Chamberlain, AmCham president, said. With regard to mining, Australia-New Zealand Chamber of Commerce in the Philippines director Ian Porter said: “You don’t come into mining without certainty, because, as we have seen in the case of the Tampakan Project, it’s nearly $6 billion of investments and it will have about 30 years of mine life.” “You need a long-term plan in mining to address the misunderstanding between the national and local governments,” Mr. Payne said, referring to a provincial government’s ban on open pit mining that is threatening the Tampakan project.

U.S. Stocks Retreat as Debt-Limit Concern Offsets Apple’s Earnings Beat U.S. stocks fell, a day after the best rally since March for the Standard & Poor’s 500 Index, as concern the government will fail to increase the debt limit overshadowed higher-than-estimated earnings at Apple Inc. (AAPL)United Technologies Corp. (UTX) lost 1.8 percent as Boeing Co. (BA) picked a rival engine maker to upgrade its 737 jet. Yahoo! Inc., Altria Group Inc. and Johnson Controls Inc. (JCI) slid at least 2.4 percent as results disappointed investors. Apple jumped 2.7 percent after record sales of iPads and iPhones lifted profit, helping the company join 89 percent of S&P 500 members topping estimates so far in the earnings season. The S&P 500 slipped 0.1 percent to 1,325.84 at 4 p.m. in New York after yesterday surging 1.6 percent as President Barack Obama endorsed a bipartisan deficit-reduction plan from the so- called Gang of Six senators. The Dow Jones Industrial Average decreased 15.51 points, or 0.1 percent, to 12,571.91 after surging 202 points yesterday in its biggest gain of 2011. “There have been a couple of companies that have had some nice beats,” Thomas Garcia, head of equity trading at Santa Fe, New Mexico-based Thornburg Investment Management Inc., which oversees about $80 billion, said in a telephone interview. “But the macro environment is weighing on things and people are still worried about the U.S. debt situation.” The S&P 500 has declined 2.8 percent from a three-year high in April amid speculation the sovereign debt crisis in Europe is spreading across the region and concern U.S. lawmakers will fail to reach a deal on raising the debt limit before the Aug. 2 deadline, pushing the government of the world’s largest economy closer to default. Treasuries Fall for Second Day After Merkel, Sarkozy Meeting on Greek Debt Treasuries fell for a second day as talks between German Chancellor Angela Merkel and French President Nicolas Sarkozyraised optimism the European Union will help Greece avoid a default. The longest maturities led the decline after a spokesman for the German chancellor said Merkel and Sarkozy had reached a “joint position on Greece’s debt” before a summit of European leaders today. The U.S. is scheduled today to sell $13 billion of 10-year Inflation Protected Securities. “The improving situation in Europe will hurt the Treasury market,” said Sungjin Park, who helps oversee the equivalent of $58.8 billion as head of the fixed-income division in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor. “It will encourage growth in the global economy.” Ten-year yields rose three basis points to 2.95 percent as of 9:34 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 3.125 percent note maturing in May 2021 slid 7/32, or $2.19 per $1,000 face amount, to 101 15/32. Greece is struggling to pay its debts, while investors concerned at borrowing levels in Italy and Spain sent bond yields in those nations to euro-area records this week.

Crude Oil Advances for Second Day on U.S. Supply Drop, Europe Debt Talks Crude oil climbed for a second day after a report showed that U.S. supplies dropped as refineries bolstered fuel output and on speculation that European leaders will agree on steps to address the region’s debt crisis.Oil rose 0.7 percent after the Energy Department said stockpiles fell 3.73 million barrels to 351.7 million last week. Analysts surveyed by Bloomberg News forecast a decrease of 2 million. Refineries operated at 90.3 percent of capacity, an 11- month high. European officials meet tomorrow to break a deadlock over a new Greek rescue plan. “The crude number was very strong,” said Phil Flynn, vice president of research at PFGBest in Chicago. “Refineries are operating at the highest rate this season, which suggests there is pretty strong demand somewhere. It looks like U.S. refineries are producing a great deal of fuel for export.” Crude oil for August delivery increased 64 cents to settle at $98.14 a barrel on the New York Mercantile Exchange. The contract expired today. The more actively traded September future advanced 54 cents, or 0.6 percent, to settle at $98.40.

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

BDO UNIBANK INC. 

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher 
(632) 858-3001