THE VOICE OF BUSINESS IN NORTHERN MINDANAO

Monday, August 8, 2011

Invitation for Knowledge and Information Management Seminar on August 12, 2011, Davao



Morning Brief: 8 August 2011



Philippines to continue buying US treasuries

The Philippines will keep its holdings of US treasuries, which make up the bulk of the country’s foreign exchange reserves, even with the downgrading of the Triple-A credit rating of the United States.In reaction to the credit downgrade by ratings firm Standard & Poor’s, the Bangko Sentral ng Pilipinas said a Double-A-plus rating was still investment grade and US treasuries remained to be instruments that the Philippines could invest in.
The BSP puts the bulk of its $69 billion worth of foreign exchange reserves in US treasuries. Under the investment guidelines of the BSP, the foreign exchange reserves should be invested only in investment grade and highly liquid instruments.
“For the BSP, US treasuries will continue to be within the allowable investible universe for our reserves even with the one-notch downgrade by S&P,” BSP Governor Amando Tetangco Jr. told reporters.
Tetangco said that even with the US credit downgrade, holding on to US treasuries remained prudent since these instruments were still the most liquid and since the value of European assets have been put at risk by the debt woes in the euro zone.
“Because the US market remains the most liquid and deepest and as Europe still faces uncertainty, the US market is not likely going to experience a huge selloff even with the one-notch downgrade. Many still see the US treasury market as a safe haven,” Tetangco said.
Still, the BSP chief said the country has over the years been diversifying its foreign exchange reserves. A small portion of the reserves is invested in other foreign, liquid assets.
“Dips in the value of US treasuries would be compensated for by earlier diversification moves,” Tetangco said.
But although the BSP is poised to continue holding on to US treasuries, Tetangco said it was prudent to pursue actions that would help shield the Philippines from uncertainties in the global economy that might result from the US credit downgrade.
Economists believed that the downgrade of the US credit rating could dampen the outlook on the performance of the global economy and thus drag the overall investment appetite of investors.
Tetangco said the Philippine government’s goal of gradually reducing its budget deficit should help keep confidence of foreign investors in the country’s sovereign bonds.
“It would be good to heed calls for improvements of fiscal management. The call by President Aquino to keep our fiscal house in order is most opportune,” Tetangco said.
Meantime, although the BSP is poised to hold on to US treasuries, Finance Secretary Cesar Purisima said it would be wise to start considering further diversification of the foreign exchange reserves of the Philippines. Purisima added that the same proposal should be considered by policymakers of other countries.
“This development [downgrade of the US credit rating] highlights the need for alternative global reserve currencies and benchmarks that are more stable and as liquid and convertible,” Purisima, who sits in the Monetary Board of the BSP, said in a statement.

Gov’t confident of revenue momentum

THE DEPARTMENT of Finance (DoF) is confident it can sustain the momentum of improving revenue collections this semester in the wake of a robust first half, a senior official said late last week.
"We had almost hit our revenue effort target for the year just in the first half," Finance Undersecretary Gil S. Beltran said in an interview on Friday last week.

Revenues comprised 14.1% of the gross domestic product (GDP) in the first semester, just slightly below the DoF’s full-year target of 15.1%, Mr. Beltran said.

These preliminary figures are based on the department’s GDP estimates, though, as the official numbers will be released later this month.

He also made the assessment just before Standard & Poor’s cut the US’ long-term credit rating by a notch to AA-plus, prompting the department to caution on Saturday that the development may make global investors more wary, triggering widespread economic slowdown.

The revenue-to-GDP ratio is an indicator closely watched by credit raters and other observers, since it shows whether the government is able to increase collections in step with economic expansion.

To be sure, the government was able to conclude the first half of the year with significantly improved revenue collections.

Revenues increased by 8.73% to P100.139 billion in June from P92.095 billion last year.

This brought the six-month haul to P681.640 billion, an improvement of 15.12% from the P592.104 billion collected the previous year.

However, the government missed the target of P686.419 billion for the first half.

The strong collections buoyed the government’s fiscal balance to a deficit of just P17.231 billion in the first semester, the lowest recorded in more than a decade.

It was well under the ceiling of P152.128 billion and over 90% less than the P196.729-billion deficit recorded in the same six months last year.

However, economists have raised concerns that revenues could slow down this semester since the peak collection months have passed.

Tax collections of the Bureau of Internal Revenue (BIR) typically peak in April, when taxpayers file their income tax returns.

The prices of oil imports have also begun to decline.

Mr. Beltran assured, though, that BIR’s collections should continue to improve, especially on the back of tax administration reforms.

The bureau has implemented a host of administrative measures in a bid to plug revenue leakages.

Just this week, the bureau announced it would press for bigger estate tax collections by checking the records of relevant institutions like banks, hospitals and local governments.

It has also required building owners to check on their tenants to ensure that they are registered taxpayers.

Finance Assistant Secretary Ma. Teresa S. Habitan said in a separate phone interview that the monthly targets would keep the pressure on the BIR to continuously increase collections.

The BIR collected P66.904 billion in June for a total of P457.996 billion, so far, this year.

The first-half tally was up 13.51% from the P403.469 billion netted in 2010 but still fell short of the first-semester target of P460.3 billion.

The BIR, responsible for 70% of tax revenues, is tasked to collect P940 billion this year.

It must now collect P482.004 billion in the second semester to reach the goal.

Meanwhile, Customs collections are likely to improve in the second half, as imports increase to build up stock for the holiday season, Ms. Habitan said.

Mr. Beltran concurred, noting that the seasonal increase in imports begins as early as August, so the collections of the Bureau of Customs could spike this quarter.

The Customs bureau took in P21.663 billion in June for a six-month total of P128.557 billion -- a marginal decline from the P130.722 billion collected the year before.

The bureau also fell short of its P142.34-billion target for the first semester.

The bureau, which accounts for a fifth of tax revenues, is tasked to collect P320 billion this year.

It must now rake in at least P191.443 billion this semester to hit the target.

"We are also predicting faster economic growth in the second semester due to higher government spending," Mr. Beltran had said.

"This can also increase our revenues."

The government’s spending shrank by 14.9% to P107.83 billion in June from P126.717 billion the previous year.

Cumulatively, public spending totaled P698.871 billion in the first semester, dropping 11.4% from the P788.833 billion spent in 2010.

The total was also well below the P838.547-billion cap set for those six months.

The government is seeking to shore up P1.411 trillion in revenues this year to help finance its programmed P1.711 trillion in expenditures.

That, in turn, will yield a budget deficit of P300 billion, equivalent to 3.2% of the GDP.

Stocks: Worst week since financial crisis

NEW YORK (CNNMoney) -- It was a wild ride on Wall Street.Stocks ended Friday on a mixed note after violently whipsawing throughout the day. The Dow had a massive trading range of 400 points as investors scrambled to make sense of a whirlwind of news.
Deep investor concerns about the U.S. economy and the European debt crisis caused heavy damage to U.S. stocks this week. All three indexes had their worst week since the darkest months of the 2008-09 financial crisis.
The Dow Jones industrial average (DJIA) rose 61 points, or 0.5%, to close at 11,445. The Dow at one point was down nearly 240 points.
The blue chips were lifted by shares of Kraft (KFTFortune 500) and Procter & Gamble (PGFortune 500), while the biggest drag on the Dow were shares of Bank of America (BACFortune 500), which fell more than 7%.
The S&P 500 (INX) fell less than a point, or 0.1%; to 1,199; and the Nasdaq Composite (COMP) slid 24 points, or 1%, to 2,532.
The Dow fell nearly 6% for the week, the S&P 500 lost 7% and the Nasdaq dropped 8%. It was the worst week for the S&P 500 and Nasdaq on a percentage basis since November 2008 and the worst week for the Dow since March 2009.
Stocks started Friday's session sharply higher after investors got a strong U.S. jobs report. But the rally had little fuel, with the major indexes turning sharply lower as fears about Europe's escalating debt problems quickly dampened any early enthusiasm.
"The jobs report was modestly reassuring," said Bruce McCain, chief market strategist with Key Private Bank. "But it's been the heightened concerns over Europe that has dominated trading today."
Italy is quickly becoming the latest domino to potentially fall in the eurozone, with many investors worrying that the eurozone's third-largest economy may be too large to save.

Stocks found some support after the European Central Bank said it agreed to buy Italian bonds in exchange for massive budget cuts. But traders said investors were reluctant to hold stocks going into the weekend.
"The crisis in Europe is continuing to unfold and while I suspect Europe's debt story will not have a good ending, it's not clear how many more chapters this book has," McCain said.
It's clear that fear is still dominating sentiment. Wall Street's "fear" gauge -- the VIX (VIX) -- jumped to a reading of 32.05 in late-afternoon trading. Anything above 30 indicates a heightened sense of fear.

Stocks plunged Thursday, with the Dow tumbling 512 points. It was the steepest point loss since October 2008 -- as fear about the global economy spooked investors.
All three major indexes have erased their gains for the year and now are deep into "correction" territory -- defined as a 10% drop from recent highs. And while Wall Street took a hammering the past few weeks, stocks remain well above their March 2009 lows.
World markets: European stocks sank yet again on Friday before Italy's debt deal was announced. Britain's FTSE 100 (UKX) fell 2.7%, the DAX (DAX) in Germany slipped 2.7%, while France's CAC 40 (CAC40) was down 1.3%.
Asian markets ended the session deep in the red follow Thursday's big selloff in U.S. The Shanghai Composite (SHCOMP) lost 2.2%, the Hang Seng (HSI) in Hong Kong plunged 4.3% and Japan's Nikkei (N225) lost 3.7%.
Commodities and currencies: The dollar rose against the euro, the Japanese yen and British pound.
The greenback also rose for a third straight session against the Swiss franc, following the Swiss National Bank's intervention in the currency market earlier this week.
Gold futures for December delivery gained $3 .to $1,662.60 an ounce Friday, while oil for September delivery added 25 cents to $86.88 a barrel.

Bonds: The price on the benchmark 10-year U.S. Treasury fell, pushing the yield up to 2.56% from 2.46% late Thursday.
Companies: Shares of Procter & Gamble (PGFortune 500) rose 2%, after the Dow component posted earnings and sales that were ahead of expectations. The company also warned that results for the current quarter would fall short of estimates.
Priceline.com (PCLN) shares jumped 9%, following the online travel site's better-than-expected earnings and a strong outlook for the rest of the year. 



Crude Oil Tumbles in New York and London After S&P Downgrades U.S. Rating

Oil plunged in New York after Standard & Poor’s lowered the U.S. credit rating by one level, the first-ever reduction for the world’s biggest crude-consuming nation, stoking concern that debt crises will derail the global economic recovery.Futures tumbled as much as 3.7 percent after S&P announced on Aug. 5 that it had cut the AAA rating for the U.S. to AA+ in response to the deal President Barack Obama and lawmakers reached to raise the $14.3 trillion debt limit. U.S. stock futures and the dollar also declined today. The European Central Bank said yesterday it will “actively implement” its bond- purchase program to counter the sovereign debt crisis.
“While the U.S. downgrade is dominating headlines, troubles in Europe are also undermining markets,” economists at Australia & New Zealand Banking Group Ltd., led by Warren Hogan, wrote in a note today. The bank estimates oil will average $100 a barrel in the third quarter. “Progress in dealing with the euro-zone sovereign debt remains painfully slow.”
Crude for September delivery fell as much as $3.20 to $83.68 a barrel in electronic trading on the New York Mercantile Exchange and was at $84.32 at 9:24 a.m. Sydney time. The contract rose 25 cents to $86.88 on Aug. 5. Prices dropped 9.2 percent last week, the biggest decline since May, and are up 3 percent the past year.
Brent oil for September settlement slid as much as $3.17, or 2.9 percent, to $106.20 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $22.57 to U.S. futures, compared with a record close of $22.67 on Aug. 2.








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

BDO UNIBANK INC.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher

(632) 858-3001 
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