Morning Brief: 02 March 2011

Gov’t raises at least P79B from RTBs GOCCs, institutional buyers allotted P20B each MANILA, Philippines—The government raised at least P79 billion from the latest issue of retail treasury bonds (RTBs), according to the Bureau of the Treasury. Deputy National Treasurer Eduardo S. Mendiola told reporters that selling ended at 3:30 p.m. Tuesday. The BTr repeatedly raised the daily offer for the RTBs given the strong demand during the first three days of offer, allowing authorized banks to sell up to P11 billion on Tuesday, P16.15 billion on Wednesday and P17.74 billion on Thursday last week. Underwriters have urged the government to award at least P100 billion for the its 13th issue of RTBs, which are aimed at small investors who could put out a minimum investment of P5,000. Also last week, the Treasury awarded to institutional buyers P10 billion on each tenor to set the price for the RTBs. The five-year RTBs fetched a coupon of 6 percent while the 10-year bonds got 7.375 percent. Interest is paid every quarter, but the amount is subject to a 20-percent withholding tax. Government-owned and -controlled corporations were also allotted a total of P20 billion worth of the latest RTBs. In a related development, National Treasurer Roberto B. Tan said the Treasury cancelled the auction for regular five-year bonds scheduled on March 1 to facilitate the smooth and orderly settlement of the current RTB offering. There were 11 authorized selling agents, including Allied Banking Corp., BDO Capital, BDO Universal Bank, BPI Capital, China Bank, Deutsche Bank, First Metro Investment Corp., Land Bank of the Philippines, Metropolitan Bank and Trust Co., Rizal Commercial Banking Corp. and United Coconut Planters Bank. Also named as issue managers for the 13th installment of RTBs were BPI Capital, Development Bank of the Philippines, Landbank, Metrobank and FMIC. Gov’t clarifies taxation of OFWs OVERSEAS Filipino worker (OFW) incomes derived outside the country are tax exempt but earnings from investments in the Philippines will have to be charged, the Bureau of Internal Revenue (BIR) said. The tax bureau issued Revenue Regulations (RR) 1-2011 late last month "to clarify who are considered as OCW (overseas contract worker) or OFW for taxation purposes and to define the tax treatment of their income earned within and without the Philippines..." BIR Commissioner Kim S. Henares said, "There is no problem with OFWs . It’s just that we did not have an RR concerning OFWs before so we issued it." "An RR is an interpretation of the provisions of the NIRC (National Internal Revenue Code) ... We just want to inform them," she added. OCWs/OFWs were defined as Filipino citizens "who are physically present in a foreign country as a consequence of their employment thereat." The BIR regulation states that a citizen "working and deriving income from abroad as an overseas contract worker is taxable only on income derived from sources within the Philippines." "Thus an OCW or OFW’s income arising out of his overseas employment is exempt from income tax," it adds. Money earned from "business activities and properties in the Philippines", however, will be subject to income taxes. Based on the NIRC, incomes of "not over P10,000" will be taxed 5%, rising to a maximum of 32% for earnings of "over P500,000." Sales of OFW-owned businesses in the country will also be charged the 12% value-added tax. "[I]f gross annual sales and/or receipts do not exceed ... P1.5 million and he opted not to register as a VAT taxpayer, he shall be liable instead to pay 3% percentage tax" quarterly. Passive earnings will be subject to the 20% final tax on interest income from bank deposits, royalties and prizes, and the 10% final tax on royalties related to books, literary works, and musical compositions as well as on cash and property dividends, among others. If a bank account is held jointly by an OFW and a spouse residing in the Philippines, 50% of the interest income will be subject to a 7.5% withholding tax. RR 1-2011 also quotes the Migrant Workers Act of 1995 which exempts OFWs from payment of travel tax and airport fee. "The remittances of all OCWs or OFWs ... shall [also] be exempt from the paying of documentary stamp tax," the regulation states. -- P. P. Magtulis

U.S. Stocks Drop as Oil’s Jump Overshadows Manufacturing Growth U.S. stocks tumbled, sending the Standard & Poor’s 500 Index to its first drop in three days, as concern that rising energy costs will hurt the economic recovery overshadowed the fastest manufacturing growth since 2004. Alcoa Inc. and General Electric Co. slumped at least 3.2 percent as crude exceeded $100 a barrel amid escalating unrest in the Middle East and northern Africa. Fifth Third Bancorp dropped 4.5 percent after receiving a subpoena from the Securities and Exchange Commission for information on commercial loans. Carnival Corp. slid 6.1 percent after the chief operating officer of the largest cruise-line operator sold 180,000 shares. The S&P 500 fell 1.6 percent to 1,306.33 at 4 p.m. in New York. The gauge slid 1.7 percent last week as anti-government uprisings in Libya pushed oil prices higher. The Dow Jones Industrial Average dropped 168.32 points, or 1.4 percent, to 12,058.02 today. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, surged 15 percent to 21.01. “Anyone who thinks that a year from now we’re going to look at the Middle East and see nothing but candy and roses, that’s not going to happen,” said Stanley Nabi, New York-based vice chairman of Silvercrest Asset Management Group, which oversees $9.5 billion. “Manufacturing, the overall U.S. economy, is doing very well. Still, that geopolitical situation will be an overhang.” Treasuries Rise as Oil Surge Renews Refuge Appeal, Economic Growth Concern Treasuries gained as oil rose from the lowest price in a week amid unrest in the Middle East, renewing the refuge appeal of U.S. government debt and concern that the economy recovery may be in jeopardy. Ten-year note yields earlier reached the highest in four days after Federal Reserve Chairman Ben S. Bernanke acknowledged inflation gains from higher oil prices and a report showed U.S. manufacturing grew at the fastest rate in almost seven years. The central bank bought $1.9 billion of Treasuries maturing from August 2028 to February 2041 as part of its plan to support the recovery. “The effect on growth from sustained higher oil prices are likely to take some steam out of the economy and it’s causing Treasuries to stay bid,” said Christopher Sullivan, who oversees $1.7 billion as chief investment officer at United Nations Federal Credit Union in New York. “No one has any idea the extent of the current Middle East unrest and how it might spread toward other oil producing countries likeIran.” Ten-year yields fell three basis points to 3.4 percent at 5:01 p.m. in New York, according to BGCantor Market Data. The price of the 3.625 percent security maturing in February 2021 rose 9/32, or $2.81 per $1,000 of face value, to 101 29/32. The yield touched 3.49 percent, the most since Feb. 24. Thirty-year bond yields fell two basis points to 4.48 percent, after reaching as high as 4.55 percent. Two-year notes fell four basis points to 0.64 percent, touching the least since Feb. 2.

Oil Surges to Highest Price in 29 Months on Mideast Unrest, Supply Concern Oil surged to the highest level since September 2008 as Middle East turmoil threatened to spread from Libya to top OPEC producersSaudi Arabia and Iran. Crude jumped 2.7 percent as Libyan rebels braced for renewed clashes with forces loyal to leader Muammar Qaddafi. Saudi Arabia’s benchmark stock index plunged the most since November 2008 on concern regional unrest would extend to the kingdom, and Iranian protesters clashed with security forces in Tehran, Al Arabiya television reported. “All over the region, things are keeping the market very nervous,” said Phil Flynn, vice president of research at PFGBest in Chicago. “Right now in this Middle East situation there’s no real end in sight.” Oil for April delivery rose $2.66 to $99.63 a barrel on the New York Mercantile Exchange, the highest settlement since Sept. 30, 2008. Prices jumped 5.2 percent in February and have risen 27 percent in the past year. Oil touched $100.68 a barrel at 4:11 p.m. in electronic trading after the settlement.

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

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Philippine Markets: 01 March 2011

Palace presents priorities A FINAL LIST of 23 priority measures was presented yesterday by Malacañang to the Legislative-Executive Development Advisory Council (LEDAC), meeting for the first time under the Aquino administration. Congress leaders pledged approval of the list, which Palace officials said tackled human development, economic progress, infrastructure development, good governance as well as enhancement of national sovereignty and rule of law. "At the House [of Representatives at least half [of Malacañang’s priorities] are in advanced stages of discussion," House Speaker Feliciano R. Belmonte, Jr. said in a briefing after the meeting. Senate President Juan Ponce-Enrile, meanwhile, said: "we have to support the President, see to it that the legislative program ... will be tackled by the Senate, the sooner the better." The final priority list -- culled from an initial list of 32 identified in January by Cabinet officials -- is a bit lengthier than the 17 measures identified last month by Malacañang. It comprises: the fiscal responsibility bill mandating legislators to pass counterpart revenue-generating provisions for every loss-causing law; the rationalization of fiscal incentives offered investors; an anti-trust measure; a National Land Use Act that will ensure equitable access to resources and sustainable development; amendments to the government procurement law to support the public-private partnership program; amendments to the build-operate-transfer law to ensure uniformity in the treatment of investors and transparency in the award of contracts; amendments to the Electric Power Industry Reform Act to address continued power sector inefficiency; amendments to the Anti-Money Laundering Act; amendments to the National Health Insurance Act to expand basic health care coverage to more of the poor; amendments to Labor Code provisions preventing night work for women; reorganization of the National Food Authority; creation of the Department of Housing and Urban Development; creation of the Land Administration Authority; a water utilities reform bill; a measure streamlining perks at state-owned firms; strengthening of the witness protection, security and benefit program; better protection for whistle-blowers; changes to the 1935 National Defense Act to address current security issues; a measure prescribing the rights and obligations of foreign vessels passing through the country’s sea lanes; defining the country’s maritime zones to provide clear territorial limits; a revival of the Armed Forces of the Philippines modernization program that ended in February 2010; extension of the basic education term to 12 years; and the postponement of this year’s Autonomous Region in Muslim Mindanao (ARMM) elections and synchronizing this with the 2013 national and local polls. Measures that have already hurdled the committee level at the House are those extending the basic education term, the postponement of the ARMM elections, and changes to the Labor Code and perks at state-owned firms. Mr. Belmonte said the LEDAC had discussed all but one of the priority measures during the five-hour meeting. The fiscal responsibility bill, he said, would have required more time than was available. The LEDAC was also forced to defer discussion of the 2011-2016 Medium Term Philippine Development Plan. President Benigno S. C. Aquino III, asked what bills he wanted Congress to pass before the end of its first regular session on June 9, cited the deferment of the ARMM polls. Yesterday’s LEDAC meeting -- originally scheduled for end-January but moved as the Palace worked to trim the priority list -- marked the first time in over a year that the consultative and advisory body was convened. Republic Act 7640, signed by then President Fidel V. Ramos signed into law in 1992 states that the body should meet at least once every quarter. The last LEDAC event, according to state planners, was on Oct. 15, 2009. The LEDAC is chaired by the President with the Vice-President as vice-chairman. The Senate President, Speaker of the House, seven Cabinet secretaries, three other senators and three other congressmen who deal with socioeconomic issues are members. In principle, the council also includes a representative each from the local government, private sector and youth sector. PH is 3rd most optimistic economy MANILA, Philippines—Still riding the euphoria that followed President Aquino’s election victory last year, Filipino businessmen now count themselves as among the most optimistic in the world, according to a recent worldwide survey. More specifically, the results of the annual Grant Thornton International Business Report (IBR) showed that Filipino business leaders were now ranked third in the world in terms of optimism with 87 percent of businessmen saying they were more confident about business prospects for 2011. Local businessmen came in just behind their peers from Chile (95-percent optimism) and India (93 percent), and ahead of those in Brazil (78 percent). The IBR—conducted locally by the group’s affiliate Punongbayan & Araullo—is an international survey of the opinions of medium to large privately held businesses. “Some may dismiss this rosy outlook of Filipino executives as simply in keeping with the Filipino’s positive thinking,” said P&A managing partner and COO Marivic Españo. “This year, however, such optimism is backed by the 7.3-percent real GDP [gross domestic product] growth in 2010,” she added. “That’s the highest economic growth rate we have ever experienced, so I would say our optimism is well-founded.” The IBR results echoed similar findings released recently by the Bangko Sentral ng Pilipinas, which showed local businessmen having record-high confidence levels since the entry of the new administration last year. The Makati Business Club, the group that brings together the country’s biggest businesses, also agreed with the findings. “We share that optimism,” MBC executive director Peter Perfecto said, adding that the key now was to translate this confidence into concrete gains for the benefit of the broader population. “We believe that the government can sustain the growth momentum of 2010, if the [Public-Private Partnership] projects begin rolling out this year,” he said. “I understand that they are committed to rolling out at least 10 projects this year. This will be significant.” Since the Philippines began participating in 2004, optimism among local business leaders has always tracked an upward trend until 2009, when optimism dropped from a high of 95 percent to 63 percent in reaction to the global financial crisis, P&A said in a statement. The following year, confidence level marginally improved to 68 percent as business leaders cautiously looked forward to a rebound, it added. Survey respondents were also asked about their business expectations for this year. Filipino businessmen reported improved confidence in the areas of employment, revenue, selling prices, exports, profitability, investments in new buildings, investment in machinery, and research and development.

U.S. Stocks Rise Amid Improving Data as Buffett Eyes Takeovers U.S. stocks advanced, extending a third straight monthly gain for benchmark indexes, amid improving economic data and billionaire investor Warren Buffett’s desire to make more acquisitions. Berkshire Hathaway Inc.’s Class B shares rose 2.8 percent as Buffett’s company said profit jumped 43 percent to the highest since 2007. Stocks of phone and utilities companies led the gains in the Standard & Poor’s 500 Index, adding at least 1 percent. Walgreen Co. climbed 3.3 percent after Morgan Stanley raised its share-price estimate for the largest U.S. drugstore chain. Intel Corp. fell 1.8 percent as JPMorgan Chase & Co. said the largest chipmaker may miss revenue estimates. The S&P 500 advanced 0.6 percent to 1,327.22 at 4 p.m. in New York, rallying for a second straight day. The Dow Jones Industrial Average gained 95.89 points, or 0.8 percent, to 12,226.34. Crude oil fell the most in two weeks as Saudi Arabia offered to make up for supplies lost because of unrest in Libya. Warren Buffett is always out there to buy companies at the right price,” said E. William Stone, who oversees about $105 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “He has enough cash to do what he wants to do. On top of that, the economy continues to recover and earnings will not be affected by the situation in oil prices. We see pressure coming off the oil market.” U.S. 3-Year Notes Rise as Federal Reserve Buys Debt Amid Mideast Turmoil Treasuries rose, with three-year notes rallying for a third day, as the Federal Reserve bought $6.7 billion in U.S. notes, the first of five purchases this week as part of its plan to sustain the expansion. Ten-year notes reached the highest level in almost a month as unrest in Libya drove investors to the safety of U.S. debt and raised concern that higher oil prices will dent the economic recovery. U.S. securities also rose as investors purchased longer-term debt to increase the duration of their portfolios to match benchmarks at the end of the month, such as the Barclays U.S. Treasury Index. “The market is bid given the Middle East news, month-end buying and with the Fed purchases taking supply out of the market,” said John Spinello, chief technical strategist in New York at Jefferies Group Inc., one of 20 primary dealers that trade with the Fed. “There is a lot of data and events to get through this week and the market doesn’t want to be short heading into them.” Three-year notes yields fell three basis points, or 0.03 percentage point, to 1.17 percent at 5:20 p.m. in New York. The 1.25 percent security maturing in February 2014 rose 3/32, or 94 cents per $1,000 0f face value to 100 1/4. Ten-year yields rose two basis points to 3.43 percent after reaching 3.39 percent, the least since Feb. 1.

Crude Oil Declines Most in Two Weeks as Saudis Offer Additional Supplies Oil fell the most in two weeks as Saudi Arabia offered to make up for supplies lost because of unrest in Libya and on reports the North African country is exporting crude. Futures slid 0.9 percent in New York after Khalid Al-Falih, the Saudi Arabian Oil Co.’s chief executive officer, said the kingdom is ready to compensate for any shortfall in crude supply. Most ships picking up Libyan oil cargoes have done so successfully in the past week, said Bob Knight, head of tankers at Clarkson Plc, the world’s largest shipbroker. “The threat to supply overall doesn’t look as dangerous as it did last week,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Events in Libya seem to be moving steadily in one direction, with oil production apparently not dropping further and some exports being loaded.” Crude oil for April delivery declined 91 cents to settle at $96.97 a barrel on the New York Mercantile Exchange, the biggest daily drop since Feb. 11. Futures reached $103.41 a barrel on Feb. 24, the highest intraday price since Sept. 29, 2008. They gained 8.8 percent during February and have advanced 22 percent in the past year.

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

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Jonathan Ravelas
Chief Market Strategist
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Rhys Cruz
Junior Researcher
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Philippine Markets: 28 February 2011

28 February 2011

USD/PhP: 43.565 - 0.145 PSEi: 3766.73 + 29.69
USD/JPY: 81.69 PFINC: 839.97 + 21.17
EUR/USD: 1.3784 BDO: 46.90 + 0.40
GBP/USD: 1.6147 BPI: 55.65 + 2.65
PDSTF3M: 1.9269 MBT: 57.40 + 0.45
Prices as of 4:00pm Source: Bloomberg, Reuters



Upbeat mood marks trading on local stock market
By Doris Dumlao
Philippine Daily Inquirer

MANILA, Philippines—The local stock market started the week on an upbeat mood as bargain hunters loaded up on Aboitiz stocks alongside other oversold conglomerate and banking shares.

The main-share Philippine Stock Exchange index added 29.69 points or 0.79 percent to finish at 3,766.73 in heavy trading on Monday.

Dealers said the day's upswing was fueled by heavy buying on Aboitiz stocks, particularly holding firm Aboitiz Equity Ventures (AEV) and power unit Aboitiz Power. This was as the inclusion of AEV in a closely tracked MSCI index took effect.

Value turnover surged to P8.29 billion, bouncing from anemic trading in the last few weeks. About P3.9 billion of the value traded on the local bourse was on AEV.

But the bargain-hunting was selective, thereby lifting 63 stocks as against 61 that declined.

Other stocks that benefited from bargain hunting for the day were SM Investments, Megaworld, Cebu Air, DMCI Holdings, San Miguel Corp., BPI, Banco de Oro and Semirara Mining Corp.

On the other hand, AGI, PLDT, Ayala Land, ICTSI, Meralco, EDC, Jollibee, SM Prime and Philex Mining traded in the red.

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Jonathan Ravelas
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Rhys Cruz
Junior Researcher
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