OROCHAMBER bats temporary assistance to employees

The country’s Hall of Fame Most Outstanding Chamber of Commerce– the Cagayan de Oro Chamber of Commerce and Industry Foundation, Inc. (Oro Chamber) presented its position paper Friday (June 24) to the Board members of the Regional Tripartite Wages and Productivity Board in the region (RTWPB 10). 

The same paper revealed that 62% of member local companies are not in favor of implementing a wage increase this year reflecting on the following common concerns:  

1. The problem is only temporary in nature and a long range solution is not yet necessary at this time. 2. Any wage increase will also increase the overhead expenses of business establishments.
3. Cannot afford to pay wage increase at this time as businesses are also affected by price increases.
4. Our company is not making any profit at all.  We just want to keep the employees since many are old already. 5. A wage hike will increase the costs of service making us less competitive in the BPO industry.

   

 6. Government should find ways to lower the prices of commodities instead.

 7. The current minimum wage is already very high.

OROCHAMBER President Antonio D. Uy said that the business community in the area is aware that the prices of basic commodities such as rice, bread, canned goods, vegetables, sugar, oil and local transportation included have increased as a result of the fuel price increases. 

“We have to consider that such increases in the prices of goods and services have an effect on both employees and employers, not to mention that this predicament is temporary which is due to the political instability of oil producing countries located in the Middle East,” Mr. Uy continued. 

The implementation of mitigating measures is critical.  Mr. Uy said that what is needed right now is for Government to re-establish the Oil Stabilization Fund to cushion future sudden fuel price increases and to look for ways and means to keep within bounds the increase in power and water rates through the reduction of taxes or efficiency incentives.

On the other hand, local companies should also extend temporary cash or in–kind assistance to employees to soften the impact of the increases in the prices of basic goods.  The assistance could be in the form of rice subsidy, transportation allowance, grocery or COLA.  

To strengthen labor and management relationship, we should encourage a freer employer-employee wage adjustment based on performance.  Thus, the institutionalization of a productivity-based Incentive Income Scheme (IIS) at the workplaces which will extend additional cash benefit to employees whenever they surpass work targets is in order.  

Separately, sister Chamber Ozamiz backed by the Ozamiz Filipino-Chinese Chamber (OFCCC), Misamis Occidental Chamber of Commerce and Industry and Oroquieta Filipino Chinese Chamber proposed for a Php 5 daily wage hike.  

The RTWPB 10 Board is composed of DOLE 10 Dir. Allan Macaraya, NEDA 10 Dir. Leon Dacanay, DTI 10 Alicia Eusena, Management representatives Arsenio Sebastian (OROCHAMBER) and Ptr. Prudencio Plaza (Chamber of Industries), and Labor representatives Jose Ares and Milbert Macarambon (ALU/AWATU-TUCP).

Morning Brief: 08 July 2011

Upgrade factors cited THE GOVERNMENT must show more gains from sustained prudent fiscal management and structural reforms to enable the country to eventually bag its coveted investment-grade debt rating.“Continued prudent monetary and fiscal policy management, combined with reforms to address some of Philippines’ key rating weaknesses -- low fiscal revenues, fairly low investment rate, underdevelopment reflected in low average income -- would support the case for an upgrade,” Andrew Colquhoun, Fitch Ratings Asia-Pacific Sovereigns head, wrote in an e-mail on Wednesday. Similarly, Takahira Ogawa, Standard & Poor’s (S&P) director for Sovereign and International Public Finance Ratings, said in a separate e-mail on Tuesday that “...measures to sustainably enhance the government’s revenues are important factors for the future stability of the Philippines’ fiscal position and strategic use of public funds -- the latter which enhances the country’s growth prospects.” The Philippines under the current administration has garnered a host of rating upgrades from debt watchers since late last year. Just last month, Fitch raised the country’s credit category from BB to BB+, one notch below investment grade, signaling that the country can repay its debt unless a major economic shock occurs. Earlier, Moody’s Investors Service raised the Philippines’ rating to Ba2 from Ba3 in June, while S&P upped the country’s grade to BB from BB- in November. Both ratings are two notches below investment grade, which means the country’s debt papers still have speculative elements, but are no longer considered as high-credit risk. Finance Secretary Cesar V. Purisima had said earlier that the government aims to bag investment grade rating within the first half of the Aquino administration, or by 2013. This, debt watchers said, means the economy’s performance will be under closer scrutiny. “Generally speaking, the higher the rating, the more stringent is Standard & Poor’s assessment of various aspects of sovereign credit risk factors,” Mr. Ogawa said. Reforms designed to increase revenues, investments and growth will also take some time to have an impact on the economy, hence, the stable outlook given to the Philippines, Mr. Colquhoun explained. S&P and Moody’s had also given the country stable outlooks along with their upgrades. At the same time, Mr. Ogawa cited the steady improvement in the country’s fiscal situation, with the government registering a budget shortfall of only P9.54 billion as of May from the P162.107-billion deficit a year ago. “The Philippine government’s fiscal condition has been improving in the last several years and the central government has never recorded fiscal deficits higher than 4% of GDP (gross domestic product) since 2004,” Mr. Ogawa noted. Fitch likewise does not expect any “fiscal policy slippage,” which could otherwise put negative pressure on ratings, Mr. Colquhoun said. “For us, the question is whether fiscal policy is managed sustainably. The upgrade reflected our view that the administration’s fiscal management is proving quite prudent,” he explained. While S&P downplayed fears that the country’s fiscal consolidation has been buoyed largely by state underspending, Mr. Ogawa stressed the need for quality spending -- for example, in social services -- to help fuel growth. The Philippines must now press ahead on other indicators to bring it to the same level as investment-grade counterparts. “In 2010, the Philippines recorded $2,015 of GDP per capita, while the median ‘BB’ and ‘BBB’ (investment grade) categories were $5,575 and $9,441 respectively,” Mr. Ogawa pointed out. Moreover, the Philippines’ revenue-to-GDP ratio of 14.2% in 2010 was lower than those of similarly-rated sovereigns, while its 57% debt-to-GDP ratio that same year was higher than those of others, he added. The Department of Finance aims to increase revenues to 15.1% of GDP this year and further to 15.3% next year. Mr. Purisima has said that the department will work to expand the tax base by plugging leakages from tax evasion and smuggling, as well as monitoring self-employed sectors.  Reserves inch closer to goal by end-June GROSS INTERNATIONAL reserves (GIR) inched up to $69 billion in the first half, just a billion dollars shy of the official $70-billion projection for 2011, the central bank said yesterday. Data released by the Bangko Sentral ng Pilipinas (BSP) showed GIR rising by $100 million from the $68.9 billion recorded as of end-May on the back of the central bank’s earnings from its foreign exchange operations and investments overseas. “These inflows were partially offset by payments by the National Government and the BSP of their maturing foreign exchange obligations, as well as revaluation losses on the BSP’s gold holdings on account of the month-on-month modest decline in gold prices in Jne 2011,” the central bank said in a statement. The GIR, which cushions the economy against external shocks, is a key indicator of the country’s ability to pay for imports and service its foreign debts. The central bank said foreign reserves by end-June could cover 10.3 months worth of imports of goods and payments of services and income. The first-half amount was also equivalent to 10.2 times the country’s short-term external debt, or those falling due within 12 months. BSP Governor Amando M. Tetangco Jr. had said on Wednesday that international reserves this year could breach the central bank’s $70-billion target for 2011.

U.S. Stocks Advance as Job Data, Retail Sales Bolster Economic Optimism U.S. stocks jumped, sending the Standard & Poor’s 500 Index close to a three-year high, as retail and job market data bolstered confidence in the economy.Target Corp. (TGT), the second-largest U.S. discount retailer, and Kohl’s Corp. (KSS) rose at least 6.6 percent as June retail sales surpassed analysts’ projections. Urban Outfitters Inc. (URBN) rallied 6 percent after Morgan Stanley recommended investors buy the shares. JPMorgan Chase & Co. (JPM) climbed 1.9 percent as banking shares soared. The S&P 500 Index (SPX) climbed 1.1 percent to 1,353.22 at 4 p.m. in New York, its highest closing level since May 10. The Dow Jones Industrial Average rose 93.47 points, or 0.7 percent, to 12,719.49, as a report by ADP Employer Services showed U.S. companies added more jobs than forecast in June. Volume on U.S. exchanges totaled about 6.8 billion at 4:30 p.m., 4 percent less than the three-month average through yesterday. Treasuries Snap Two-Day Rally as Employment Outlook Boosts Bets on Economy Treasuries ended a two-day rally as a private report said U.S. companies added more jobs than forecast and economists said government data tomorrow will show nonfarm payrolls gained, fueling bets economic growth is accelerating. Ten-year yields rose from a one-week low as stocks climbed after the European Central Bank signaled it will ease Portugal’s access to emergency funds. ADP Employer Services said U.S. firms’ payrolls increased by 157,000 jobs in June, and unemployment claims fell for the first time in three weeks. The U.S. said it will sell $66 billion in notes and bonds next week. “It’s all about the data,” Siddharth Joshi, an interest- rate strategist in New York at Citigroup Inc., said in an interview. The firm is one of 20 primary dealers that trade with the Federal Reserve. “People are waiting for a good number on NFP and if so, we’ll see a sharp sell-off.” Yields on benchmark 10-year notes increased three basis points, or 0.03 percentage point, to 3.14 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices. Earlier they rose as much as seven basis points. The 3.125 percent securities maturing in May 2021 dropped 1/4, or $2.50 per $1,000 face amount, to 99 7/8. The 10-year note yields touched 3.07 percent yesterday, the lowest level since June 29. Two-year note yields climbed five basis points to 0.47 percent today and touched 0.48 percent, the highest since July 1. They fell to 0.32 percent on June 24, a seven-month low. Treasuries have returned 2.6 percent this year after gaining 5.9 percent in 2010, according to a Bank of America Merrill Lynch index.

Oil Trades Near Three-Week High on Economic Outlook, U.S. Stockpile Drop Oil traded near the highest in more than three weeks in New York as investors bet that shrinking crude stockpiles and signs of economic recovery in the U.S. indicated fuel demand may increase.Futures were little changed after advancing 2.1 percent yesterday following data from ADP Employer Services that showed a 157,000 gain in the number employed by businesses last month. An increase of 70,000 was projected, according to the median forecast by Bloomberg News. U.S. crude supplies fell 889,000 barrels to 358.6 million last week, the lowest level since April, an Energy Department report showed. “We had good news on jobs today, which is more important than anything else,” said Sean Brodrick, a natural resource analyst withWeiss Research in Jupiter, Florida. “People in the energy pits are now looking at sustained economic strength.” Crude for August delivery was at $98.78 a barrel, up 11 cents, in electronic trading on the New York Mercantile Exchange at 8:34 a.m. Sydney time. The contract yesterday climbed $2.02 to $98.67, the highest settlement since June 14. Prices are 31 percent higher the past year. Brent oil for August settlement rose $4.97, or 4.4 percent, to end the session at $118.59 a barrel on the London-based ICE Futures Europe exchange yesterday. The European benchmark contract was at a premium of $19.92 to U.S. futures. The difference reached a record $22.29 on June 15.

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 

Morning Brief: 07 July 2011

Rules pave way for REITs THE LOCAL MARKET can expect to see real estate investment trusts (REITs) soon, as the government has approved the tax rules for these corporations.“I have signed the REIT revenue regulations of BIR (Bureau of Internal Revenue). It [sic] should be published in the next day or two,” Finance Secretary Cesar V. Purisima told reporters at the sidelines of the Pilipinas Natin Forum held yesterday at the National Broadcasting Network Studios in Quezon City. Approval of the tax rules, along with the implementing rules and regulations the Securities and Exchange Commission (SEC) released in May, paves the way for investors to establish REITs, stock corporations that pool investor funds to manage real estate assets. This capital market reform has been long-delayed, given that the law governing REITs, Republic Act No. 9856, was enacted into law back in 2009. However, various industry players have cautioned that only a few real estate companies will want to venture into REITs, noting that the prescribed public ownership floor level remains a hurdle for many. According to the SEC, REITs must have a 40% minimum public ownership, increasing to 67% after three years. These are more than the 33.33% float sought by the private sector, but the initial volume is less than the 51% lobbied by the Department of Finance to enable more people to invest in REITs. The government has long been eyeing REITs as a means of deepening the country’s capital markets, since they would enable the wider public to invest in prime properties, while at the same time give real estate firms another source of financing. “The point of REITs is to give the public a chance to invest in prime real estate assets, but not necessarily to make the public own the prime real estate assets,” Marissa Y. Benitez, Colliers International Philippines’ director of valuation, said by phone yesterday. Explaining the challenge posed by the public ownership floor level, Ms. Benitez noted that “companies have been doing a good job running these assets for a long time. It’s their business. And now, they will have to give that up.” Eduardo A. Gana, co-chairman of the Financial Executives of the Philippines’ Capital Markets Development Committee, shared Ms. Benitez’s view. “The minimum public ownership issue is a key consideration for the largest potential REIT issuers, who appear unwilling to dilute their ownership below 60%,” he said via text yesterday. Mr. Gana added that most Asian companies tend to be majority-controlled by insider groups and their affiliates. But he acknowleged that the Finance department’s stand was “not unreasonable.” The tax treatment of REITs is also a stumbling block. Specifically, the private sector has been fighting for value-added tax (VAT) exemption of the initial transfer of properties to REIT vehicles. BIR Commissioner Kim S. Jacinto-Henares -- who had prepared the tax rules -- confirmed via text yesterday that REITs are not entitled to VAT exemption. To be sure, these ventures are entitled to other perks. For one, since firms involved are required to pay shareholders 90% of their distributable income as dividends, only the balance will be subject to the 30% income tax. Ms. Benitez argued, though, that these tax breaks weren’t enough. “The VAT is still 12%,” she noted. “That’s a big cost that negates all other incentives.” As a result, not a lot of investors will likely be interested in setting up REITs, she claimed. This view was echoed by Eduardo V. Francisco, president of BDO Capital & Investment Corp., who noted via text that “big real estate developers don’t seem inclined at the moment.” Property giants that have expressed interest in REITs include SM Prime Holdings, Inc., Ayala Land, Inc., and Gokongwei-led Robinsons Land Corp. Small real estate companies may venture into REITs, since they will have a smaller tax burden, Mr. Francisco noted. But these may not be enough to develop the country’s capital markets, he clarified. Colliers’ Ms. Benitez agreed, saying, “Second-tier companies will see how it goes for first-tier companies. But if first-tier companies don’t venture into REITs, then who will?” -- Diane Claire J. Jiao

U.S. Stocks Rise as Transport, Consumer-Staple Shares Climb; Costco Gains July 6 (Bloomberg) -- U.S. stocks rose, posting their sixth advance in seven days, as gains in transportation and consumer- staple companies overshadowed a slowdown in service-industry growth and China’s interest-rate increase.Union Pacific Corp. (UNP) climbed 0.8 percent to lead gains in shipping companies, while Costco Wholesale Corp. (COST) rallied 1.7 percent to help lead an advance in companies that sell consumer necessities. DuPont Co., Intel Corp. (INTC) and Caterpillar Inc. (CAT)increased at least 1.3 percent, pacing gains among companies most-dependent on economic growth. Bank of America Corp. (BAC) andJPMorgan Chase & Co. (JPM) slumped at least 1.1 percent as financial stocks retreated. The Standard & Poor’s 500 Index gained 0.1 percent to 1,339.22 at 4 p.m. in New York. The intraday move in the S&P 500 between its high and low was 0.7 percent, following a move of only 0.5 percent yesterday. The Dow Jones Industrial Average climbed 56.15 points, or 0.5 percent, to 12,626.02. Volume on U.S. exchanges totaled almost 6.1 billion at 4:53 p.m., 15 percent less than the three-month average through yesterday. “We’re beginning to put the short-term economic issues behind us,” said Robert Schaeffer, a money manager at Becker Capital Management Inc. in Portland, Oregon, which oversees about $2.5 billion. “We’re likely to get better economic data over the next months and that will rally the stock market on an intermediate basis even if the long-term problems such as too much debt remain unsolved.” Treasuries Advance, Pushing 10-Year Yield to 1-Week Low on Growth Outlook Treasuries rose, pushing 10-year note yields to a one-week low, as China’s announcement it will raise interest rates for the third time this year spurred concern that economic growth will slow and discouraged risk demand U.S. government bonds gained for a second day amid concern Europe’s debt crisis may spread beyond Greece and Portugal. Moody’s Investors Service cut Portugal’s credit rating yesterday to junk status. Treasuries trimmed gains today as U.S. stocks erased losses. “The China story is obviously a component to the nerves in the market,” said Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker. “People are held hostage to the headline risks in Europe.” Ten-year note yields fell one basis point, or 0.01 percentage point, to 3.11 percent at 5:05 p.m. in New York, according to Bloomberg Bond Trader prices. The 3.125 percent securities due in May 2021 increased 3/32, or 94 cents per $1,000 face amount, to 100 1/8. Benchmark 10-year note yields earlier touched 3.07 percent, the lowest level since June 29. Thirty-year bond yields slipped one basis point today to 4.36 percent. Yields on two-year notes, among the most sensitive to changes in interest rates because of their short maturity, traded at 0.42 percent, compared with 0.43 percent yesterday. They earlier fell to 0.41 percent, the lowest since June 28. Rates on three-month bills increased one basis point to 0.005 percent after dropping below zero yesterday for the first time since 2008.

Crude Oil Rises as Industry Report Shows U.S. Stockpiles Fall a Fifth Week Oil rose from a two-day low in New York after an industry-funded report showed crude stockpiles declined for a fifth week in the U.S., signaling fuel demand may be climbing in the world’s biggest consumer of the commodity.Futures climbed as much as 0.6 percent after the American Petroleum Institute said inventories dropped 3.2 million barrels to 357.1 million last week. An Energy Department report today may show supplies slid 2.5 million barrels, according to a Bloomberg News survey of analysts. Brent’s premium to U.S. crude may widen to $40 a barrel or more between now and the middle of 2012, Citigroup Global Markets Inc. said. Crude for August delivery gained as much as 61 cents to $97.26 a barrel in electronic trading on the New York Mercantile Exchange and was at $97.22 at 8:25 a.m. Sydney time. The contract yesterday fell 24 cents to $96.65, the lowest since July 1. Prices are 31 percent higher the past year. Brent crude for August delivery was at $113.62 a barrel, up 1 cent, on the London-based ICE Futures Europe exchange. The European benchmark was at a premium of $16.42 to U.S. futures. The spread reached a record $22.29 on June 15.

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