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Down memory lane

For years, the Philippine Stock Exchange, Inc. (PSE) had two separate trading floors: one in PSE Tektite Building in Ortigas Center and another in Ayala Tower One in Makati City. But starting late last month, the bourse has one unified trading floor in a new headquarters in Bonifacio Global City (BGC), in Taguig City, a symbolic turning point.

“As we move to our new office at the Bonifacio Global City, we shall embark on recording new history for the stock market and for our country,” Jose T. Pardo, chairman of PSE, announced during the final closing bell at the trading floor in Ayala Tower One.

PSE was incorporated in 1992, the same year Manila Stock Exchange, which was established in 1927, and the Makati Stock Exchange, which arrived in 1963, issued a joint declaration on their unification under PSE, for the purpose of hastening the development of the capital market

But it wasn’t until 1994 that PSE was granted the license to operate by the Securities and Exchange Commission. Before the end of that year, a major modification was made to the PSE Composite Index, the precursor of the bellwether Philippine Stock Exchange index (PSEi). It was now calculated based on its own set of components, which was increased to 30.

In 1996, the Banking and Financial Services Index was launched to reflect the financial environment. An All Shares Index including all listed companies was also introduced. Both indices began with a base value of 1,000.

In 2001, PSE transitioned from a nonstock, member-governed entity into a shareholder-based organization. In 2003, its shares were listed by way of introduction, opening at P100 per share and reaching as high as P252.50 before settling at P200 by the end of the year. The following year, PSE invested in the Philippine Dealing System Holdings Corp., the holding company of the fixed-income exchange, which serves as an alternative market for raising funds.

Listed companies saw major changes in 2006. They were now categorized according to their major source of revenue. PSE also changed how it selected the companies to be included in the index. Companies had to have, among others, a liquidity or average daily trading value of at least P5 million and a volume turnover ratio of at least 10%. It was also this year that the PSE Composite Index was renamed PSEi.

How companies were listed by way of introduction was revised in 2010. Applicant companies must now have, among others, a fairness opinion and valuation report on the pricing of their securities issued by a third party financial institution. And in an effort to enhance the quality of PSEi, PSE, in 2011, began requiring companies to meet the following criteria: having of a free float level of at least 12%, being one of the top 25% companies in terms of median daily value in nine out of a 12-month period, and ranking high in terms of full market capitalization.

PSE EDGE, the mobile application of the bourse’s disclosure platform, was unveiled in 2014 to give investors real-time access to disclosures and notices. Both Android and iPhone users can download it for free. In 2015, the bourse made the shift to a new trading system, PSEtrade XTS, which utilizes the xStream Technology of Nasdaq, an American stock exchange and is capable of handling large trading volumes. And to formalize its transfer to its new headquarters in BGC, PSE purchased office units on One Bonifacio High Street.

The barometer of economic health

For a country, sustainable economic growth and well-being is something to aspire for. Many societal issues can be addressed with a developed economy, given that the public and private sectors do their parts. The alleviation of poverty, adequate health care, public security, and even the cultural vibrancy of a nation all depend on a stable and growing economy.

The public sector’s job is obvious. It needs to enact smart policies that benefit business, enforce equitable taxes, and encourage investments. The contributions of the private sector rely on its enterprise, in the stock exchanges and capital markets.

A mobilized economy is a healthy economy and a stock exchange is very efficient at mobilizing money: Investors invest their money to companies in exchange for the chance of future profit, while the companies gain more capital to expand their businesses.

“Stock markets are, first and foremost, financial institutions established to help businesses and entrepreneurs come together to buy, sell and trade shares for the purpose of capitalizing enterprises in need of cash infusions,” investment research firm Zacks wrote on its Web site.

“Were it not for stock exchanges, entrepreneurs would be left to their own devices to find investors, and consumers could wind up at the mercy of unlicensed and unregulated financial products with no oversight.”

The growing number of exchanges worldwide could stand as proof of their effectiveness. According to the United Nations Conference on Trade and Development in a joint report with the World Federation of Exchanges, as of 2016, there were nearly 50,000 companies listed on 81 exchange groups around the world, with a combined market capitalization of approximately $70 trillion.

“The number of countries with a stock exchange has grown dramatically over the last 40 years — from just over 50 in 1975 to over 160 in 2015. This increase is partly attributable to a growing consensus about the role of stock exchanges in promoting economic development,” Nandini Sukumar, CEO of The World Federation of Exchanges (WFE), wrote.

These listed companies, according to “The Role of Stock Exchanges in Fostering Economic Growth and Sustainable Development” report, range from small and medium-sized companies with tens of millions in market cap to large corporations with the market cap of billions.

“The companies listed on stock exchanges come from all economic sectors: services, manufacturing, mining and information technology. They generate revenues that pay salaries, buy goods and services from other companies, pay taxes and return dividends to shareholders. They are also significant employers: WFE estimates suggest that the 24,000 companies across just 26 of the 55 WFE’s equity market exchanges employ over 127 million people,” the report said.

For this reason, stock markets are typically used as a barometer for the economic health of a country. Zacks Investment Research wrote that the ups, downs, trends and shifts that take place in the stock market act as the “the benchmarks of a society’s financial infrastructure”.

“The direct effect of stock market activity can impact a nation’s economy in multiple ways. Stocks fall, spending stops, consumers lose confidence, and a nation’s financial state begins to falter. Conversely, stocks rise, confidence spreads, spending and investments grow. A nation’s mood can rise or fall on stock market activity and performance, which shows how important the role played by a stock exchange can be in a society’s social and fiscal fabric,” the company added. — Bjorn Biel M. Beltran

Intermediaries to opportunities

IHAP induction of 2018 officers and directors

By Bjorn Biel M. Beltran, Special Features Writer

From beginning operations in 1974, the nonstock nonprofit group Investment House Association of the Philippines (IHAP) has been furthering the development of the country’s capital market by promoting a better understanding of the role and functions of investment houses.

The contributions of such investment houses, which are duly licensed enterprises authorized to underwrite financial securities of corporations as well as the government, play a large part in the growth of Philippine business and the economy. Members and fellows of IHAP, which have grown to include more than 30 investment houses and related enterprises over the years, provide financial and advisory services to corporations doing business in the country, syndication of term financing, and underwriting of both debt and equity securities, among other things.

This year, a new roster of officers will be taking charge of IHAP’s duties, led by RCBC Capital Corp. President and Chief Executive Officer Jose Luis F. Gomez. Under Mr. Gomez’s leadership, IHAP is looking to increase its involvement in more important and relevant activities to further promote and contribute to the Philippines’ rapid pace of economic development.

In an interview with BusinessWorld, Mr. Gomez said that he believes that a favorable and likely prosperous future awaits the country, and IHAP is ready to do its part to achieve it. Investment houses, he said, while generally low-key in nature, play a crucial part in the growth of a country’s capital market by providing financial services to corporations wishing to raise capital. With more businesses having access to funding, the greater the contributions they can make to move the economy forward.

“Our role really is to act as intermediaries for institutions that want to access capital by raising equity or borrowing in order to fund their expansion plans, working capital requirements, etc. One of the roles we play is as financial advisors to companies to give them sound advice on the best way to access capital. We guide them in order for them to be able to do this in the most efficient and least costly manner,” Mr. Gomez said.

“The more issuers you have, the better, because it deepens and widens the capital markets. It also provides investors, both retail and institutional, with a means to invest their savings and excess funds in potentially more productive enterprises.”

And there is a lot of demand for it lately. The Philippines as an emerging market is drawing attention from all over the globe as an investment destination, and many businesses from various industries, particularly from the power and infrastructure sectors, are looking to locate here.

“A lot of the transactions, at least the ones we were involved in lately, have to do with power and infrastructure. It’s what the country needs right now,” Mr. Gomez said.

“To me, it’s a sign of development. One, we’re addressing a need for funding; two, there are people who would like to make investments. Matching the two ultimately results in moving our economy forward. Lately, a lot of our activities have been focused on power, specifically renewable energy, and infrastructure.”

In general, the future looks positive, Mr. Gomez said. He also noted that there remains significant interest from foreign investors who perceive the country as one of the few remaining economies which present substantial growth opportunities and higher financial returns.

“We remain to be one of the economies with a lot of growth potential. We’re still very attractive to foreigners when it comes to making investments in the Philippines. It looks pretty rosy, at least in the near term,” he said.

Mr. Gomez recalled the very positive reaction of the IHAP members when Finance Secretary Carlos Dominguez, who inducted IHAP’s new batch of officers, discussed the Philippine government’s plans and achievements.

“It seems that the plans and achievements of the government are very positive for the economy, and we wanted to be involved as a group. We told the Secretary that we were supportive, and we wanted to get involved in any way that we can in order to further these plans of the government,” he said.

State of the Philippine real estate

The country’s economic boom shows no signs of slowing down. Considered as one of the fastest-growing economies in the region, it exhibited an increase in gross domestic product (GDP) by 6.7% in 2017. This robust macroeconomic condition continues to pave the way for different sectors to further flourish, including that of the real estate.

The real estate industry’s steady growth in the past decades is attributed to the increase in demand for residential and commercial properties driven by various factors. These demand drivers, according to a report by Leechiu Property Consultants, include rising urban population growth; housing needs of BPO (business process outsourcing) employees, since a growing number of these workers need to live near their workplace; and remittances from overseas Filipino workers (OFWs), more than half of which are real estate-related.

Oxford Business Group (OBG) stated in a 2017 report, “Years of investment and strong economic development in the Philippines have fostered a robust real estate sector that now extends outside of the greater Metro Manila region and into secondary markets around the country. Economic development and a growing middle class continue to fuel demand for new, high-grade residential units, while commercial investment drives an ever-increasing amount of retail and office space.”

The bullish performance of the country’s real estate sector is projected to further thrive in the years to come. The OBG report continued, “Buoyed by a strong macroeconomic environment, cash-laden investors and a full pipeline of projects scheduled to be built over the next decade, the real estate sector will continue to exhibit strong growth in the coming years. A steady stream of new residential and mixed-use projects is under way at locations across the Metro Manila area, as well as other fast-growing secondary cities around the country.”

Real estate consulting services firm Colliers International also shared the same outlook in a December 2017 report, which stated that opportunities abound for the property sector this year.

“Colliers encourages developers to take advantage of opportunities that could arise from the implementation of government policies such as the Comprehensive Tax Reform Package; relaxation of foreign ownership restrictions on retail and construction; and amendments to the existing procurement law and business registration systems which should entice more developers to take part in the government’s ambitious infrastructure development program,” the firm said in the report.

Colliers sees that the improvement of road networks and expansion of airports in major urban areas in the country will further unlock land values, making it more feasible for residential projects.

Moreover, Colliers said that the demand for residential units in these locations would continuously grow, as OFWs will continue to set aside part of their remittances for housing requirements.

“Colliers expects developers to continue venturing into residential projects in second-tier and third-tier cities all over the country, where demand primarily comes from end-user buyers. The markets may be smaller compared to Manila but more stable in terms of end user housing demand,” the report continued.

On the other hand, the firm predicted that there will be less of office launches following the decline in BPO companies’ office space demand. However, there will be a greater demand for flexible office spaces over the near to medium term given that there are 1.3 million freelancers in the Philippines, and as mobility, connectivity, and flexibility is becoming the norm.

Opportunities are also seen in the popularity of e-commerce, which is expected to drive warehousing and logistics demand. According to Colliers, this particular demand will particularly propel the economy of Northern and Central Luzon especially because of Clark Airport’s planned expansion and the construction of the Subic-Clark cargo railway.

Northern and Central Luzon is also set to be an industrial hub as major developers are developing industrial parks, which is foreseen to increase industrial lease rates especially in areas such as Cavite, Laguna, and Batangas.

Not only industrial parks are going outside Metro Manila. Colliers said that townships are also projected to rise in areas such as Cavite, Laguna, Bulacan, Pampanga, Cebu, and Davao over the near to medium term as land values are being unlocked by an aggressive expansion of road networks anchored on the government’s initiative to generate economic opportunities outside Metro Manila.

The increasing tourist arrivals in the country also open more possibilities for the real estate sector. In terms of hotels, it is seen that three-star and four-star hotels in resort destinations will be more visible in the next two to three years with Cebu, Bacolod, Iloilo, Palawan, Davao, and Bohol as among the most attractive locations for these developments.

Cebu, in particular, experiences a continued surge of tourists resulting to an increase in occupancy rate as well. Seeing the rising attractiveness as a tourist spot and growing competitiveness as an investment destination, Colliers encourages industrial locators in Visayas to consider this province.

Moreover, to cater to the growing domestic market driven by millennial travelers, Colliers encourages investors to build more budget hotels.

Meanwhile, for the retail segment, Colliers said that malls will still be an important part of the Filipino lifestyle and will continue to attract consumer traffic, thus, are encouraged to provide more lifestyle amenities that generate a sense of destination. — Romsanne R. Ortiguero

Powerful technologies

Digital technology is revolutionizing the real estate business everywhere, forcing industry players to rethink their ways of doing business and make necessary adjustments. And that disruption has been amplified by powerful developments that have emerged in recent years. Here are some of them.

Augmented and virtual reality technologies, which have shaken up the gaming industry, have potential to do the same to the real estate industry, where they are gradually being adopted. “Imagine if people could take a virtual tour of a potential house before they went to see it. It could make the whole process much more efficient and it could also make people more likely to make a purchase,” wrote James Paine, founder of the real estate investment firm West Realty Advisors, in a post published on the Web site of the American magazine Inc.

“Meanwhile, augmented reality could come in useful when people are trying to visualize what an empty house will look like once they’ve moved their furniture inside. If a potential buyer has already taken the step of planning out exactly what the house is going to look like, the chances are that they’re keen enough to make an offer,” Mr. Paine added.

According to Onboard Informatics, a provider of real estate data information services, chatbot has started to emerge in the real estate industry. These chatbots, which are virtual reality assistants, are bound to get even more popular than they are today. Tractica, a market intelligence firm, predicts that by 2021, the number of consumers of virtual digital assistants will have reached 1.8 billion, from 390 million in 2015.

“Texting and typing is so 2010. Consumers of 2018 want to speak to their computers. With the advancing technology of chatbots, this is now easier than ever,” the company said. One example of a chatbot specifically made for real estate purposes is Ask DOSS. “Users of this platform can speak their real estate search into Ask DOSS in their natural voice and get accurate, easy and instant answers,” Onboard Informatics said.

The triumvirate of big data, artificial intelligence and machine learning are giving real estate companies the power to make more informed decisions. “Just imagine how powerful it would be to have advance notice of a trend that will affect house prices such as if a large number of college graduates are suddenly flooding into the area,” Mr. Paine said.

Data, along with the ability to understand it, in Mr. Paine’s view, “could well be the key to success in the real estate industry moving forward.” “If we’re able to get a comprehensive view of the housing market, we can more accurately react to what’s happening and use data to back decisions instead of simply reacting to things on a hunch,” he said.

And the amount of data real estate companies can mine is colossal. “90% of data today was generated in the last two years,” Onboard Informatics said, citing a 2017 report on marketing trends IBM, an information technology giant, put together. “The digital universe is doubling every 12 months,” the company added.

Disruptions in the local property sector

By Bjorn Biel M. Beltran, Special Features Writer

One of the most talked-about phenomena happening in the world of business right now is disruption. Times are changing faster than many industries can keep up with, and the arrival of the future is creating an upheaval among those still stuck in the past. This is true in real estate as it is in any other, and more so in the Philippines, a country currently in the middle of an economic transformation.

In a newer, faster world of business, the next generation of workers is adapting to a new, more holistic lifestyle. In the Philippines, there has been a record number of individuals buying condominium units, with about 52,600 units sold in Metro Manila during the final quarter of 2017, according to the residential property market report of real estate consultancy firm Colliers International Philippines.

This is significantly higher than 2016’s 42,000 units sold, and the highest number of units sold in the history of Metro Manila.

Real estate consultancy firm Pronove Tai suggested that the record high in condominium take ups in 2017 was attributed to factors such as the country’s robust economy, record high OFW remittances and dollar exchange, and the low-interest environment.

“Furthermore, the demand was driven by the surging interest from young urban professionals as well as foreign nationals to reside in condominium buildings near their workplace,” Pronove Tai CEO Monique Cornelio-Pronove said in an interview with BusinessWorld.

These young professionals, she said, “dominate the working force in office districts and spend more than any other demographic age due to lifestyle orientation, particularly employees under the IT-BPM (Information Technology and Business Process Management) industry.”

The flexibility offered by vertical living spaces has also become more appealing due to the country’s worsening traffic congestion. Workers are choosing to live closer to their workplaces rather than spend three to four hours on their daily commute.

“In addition, these young professionals want to avoid the inconvenience of Metro Manila traffic which reduces productivity and practicality as commuters spend an average 3-4 hours per day on traffic,” Ms. Cornelio-Pronove said, citing a report by the Japan International Cooperation Agency.

“For efficiency and convenience, these young professionals prefer to invest in condominium buildings for comfort and lifestyle,” she added.

Conversely, flexible workspaces are becoming common in the office property market. Colliers International, in its The Flexible Workspace Outlook 2018 report, said that flexible workspaces are no longer seen as a disruptor nor a complementary sub-sector in the office market, but rather “a fundamental part of commercial real estate and a sector in its own right”.

Colliers International noted the continued growth in flexible workspace demand across key submarkets in Asia-Pacific including the Philippines.

“The growth of flexible workspace demand in the country has been attributed to the thirst for flexibility from multinational corporations (MNCs) as well as increasing demand from small businesses,” the report said.

“Over 200,000 square meter (2.15 million square feet) is occupied by flexible office space operators in Metro Manila alone, with many still looking to expand this year. The profile of tenants using these spaces varies from start-ups, to law firms, MNCs and freelancers.”

Maricris Sarino-Joson, Colliers International Philippines’ Associate Director for Office Services, said that flexible workspaces in the Philippines is forecasted to grow along with the attention that the country is garnering from foreign investors.

“We expect international flexible workspace operators to penetrate the Philippine market in 2018, though given the nuances of the domestic market, this will likely be in partnership with local developers or investors, and in some cases via acquisitions,” Ms. Sarino-Joson said.

“Given the range of end-users in flexible workspace, we expect a wide geographical spread, and operators will likely set up several smaller sites rather than fewer large scale sites due to challenges in transport infrastructure. For this reason, we may see space within retail malls repositioned as flexible workspace,” she added.

Colliers predicted that as small and medium businesses in the Philippines expand, the demand for flexible workspaces would follow all across the country. Aside from Metro Manila, Colliers also sees potential in Cebu, Bacolod, Iloilo, and Davao in terms of flexible workspace demand.

Inflation to hit peak in 3rd quarter

INFLATION is expected to keep rising to hit a peak in July to September, the Bangko Sentral ng Pilipinas (BSP) said, but maintained that price pressures will remain temporary and manageable.

The worst is not over for price increases for basic goods and services, with the central bank seeing inflation rising further later this year.

“In terms of our preliminary estimates… we expect inflation to peak by the third quarter of the year. Thereafter, we should be seeing on a monthly basis an inflation rate of four percent or lower than four percent,” BSP Deputy Governor Diwa C. Guinigundo told reporters last week.

“That’s the reason why you have an inflation forecast of three percent for 2019. In the last quarter of 2018, we should be seeing 2-4% or lower monthly inflation.”

As of its March 22 meeting, the Monetary Board expects inflation to average 3.9% this year using 2012 as the new base year for consumer prices, which would jump from the 2.9% rate tallied in 2017. This would be the quickest pickup in prices under the new base.

Under the original 2006 base year, inflation will soar to 4.5% from last year’s 3.2%.

These compare to the central bank’s annual inflation target of 2-4%.

The BSP kept rates steady on Thursday even as headline inflation continued its ascent for three straight months, hitting a three-year peak in February at 3.9%, according to the Philippine Statistics Authority. The BSP said February’s inflation print reflects the full pass-through cost of the Tax Reform for Acceleration and Inclusion (TRAIN) law after it took effect Jan. 1.

TRAIN imposed an additional P2.50 excise tax per liter of diesel and P3/liter for kerosene, which came at a time of three-year highs for world crude prices. The new law also introduced additional taxes on cars, coal, sugar-sweetened drinks and a host of other items that likely drove up prices of other widely-used goods and services.

BSP Governor Nestor A. Espenilla, Jr. has said that they acknowledge that inflation will be “accelerated” within 2018, but noted that prices “will come down soon enough within the policy horizon.”

“Today, we don’t see evidence of propagation of inflationary pressures that would threaten our projected path by 2019 of inflation coming down to within-target levels. Nonetheless, there are risks to that outlook,” Mr. Espenilla said.

Mr. Guinigundo said they do not see a strong push for an increase in wages as well as transport fare hikes, which were previously expected to stoke inflation, while cash transfers to poor sectors as well as the proposal to replace rice imports quotas with tariffs are expected to mitigate upward pressures. — Melissa Luz T. Lopez

US-China trade fight depends on Trump goals

WASHINGTON — How bad will the US-China trade fight get? That depends on whether President Donald Trump will settle for a reduction in China’s US trade surplus or hold out for sweeping changes to China’s industrial policies.

After Trump’s announcement on Thursday that he will impose tariffs on up to $60 billion worth of Chinese goods and impose investment restrictions on Beijing, it is far from clear what Trump’s end game is, trade experts say.

Trump repeated on Thursday that he wants a $100-billion reduction in China’s trade surplus, while his top trade negotiator, Robert Lighthizer, said fundamental changes that allow US companies to keep their technological edge over Chinese competitors were critical to the future of the US economy.

A deal for the latter will not come in the next 45 days before the yet-to-be published US tariff list becomes effective.

“It’s not clear what the Trump administration’s bottom line is,” said Scott Kennedy, the head of China studies at the Center for Strategic and International Studies in Washington.

“We know what the Chinese bottom line is. They won’t do anything to relent on their industrial policy system. They won’t clip the wings of China Inc,” he said.

Kennedy said a deal to cut China’s $375-billion US goods trade surplus by $100 billion is far easier to achieve with additional purchases of US soybeans, beef, liquefied natural gas, Boeing aircraft and other equipment.

But fundamental changes such as joint venture requirements that often cannot be negotiated without technology transfers and industrial policies aimed at acquiring and investing in more US technology firms will not come without significant protracted pressure on China — and economic pain for the United States.

“The Chinese will want to throw us a few bones and otherwise go back to the status quo. If you’re talking about actually changing Chinese behavior, it’s a long, painful process,” said Derek Scissors, a China trade expert at the American Enterprise Institute in Washington.

It also would take a lot more than tariffs on $60 billion worth of exports from China to inflict significant pain on the government, Scissors said.

China’s goods exports to the United States rose by $43 billion in 2017 alone. And the US demand for Chinese goods is expected to increase in the next few years as US tax cuts boost growth and increase federal borrowing.

So far, China’s response to Trump’s announcement has been muted. The Ministry of Commerce announced additional duties on up to $3 billion of imports from the United States, including fruit, nuts, pork, wine and seamless steel pipe. But these are technically responses to US global steel and aluminum tariffs, not the Trump administration’s anti-China tariffs over intellectual property practices.

China’s ambassador to the United States, Cui Tiankai, declined to rule out cutting purchases of US Treasury debt in the dispute, telling Bloomberg Television on Friday: “We are looking at all options.”

China owned $1.17 trillion in Treasuries at the end of January, compared with $14.8 trillion in total US public debt, according to US Treasury data.

China has also hinted at cutting imports of US soybeans, which totaled $12.4 billion in 2018 — the second largest US export to China after commercial aircraft.

But Beijing is likely waiting for Trump’s final tariff list before it responds more fully. The list is expected to be published within two weeks, then subject to a 30-day comment period and potential revisions by the US Trade Representative’s office after that period ends.

A tit-for-tat escalation of trade retaliation, coupled with Trump’s desire to “look tough on China” will make it harder for the two sides to settle their differences, said Eswar Prasad, a professor of trade policy at Cornell University and a former head of the International Monetary Fund’s China department.

“The hardening stance on both sides, and an unclear game plan in terms of the objectives and end game the Trump administration is striving toward, makes negotiations even more complicated than otherwise,” Prasad said. — Reuters

Economy to withstand higher interest rates

By Melissa Luz T. Lopez
Senior Reporter

THE PHILIPPINE economy is robust enough to afford higher borrowing rates, the country’s central bank chief said, following dovish remarks on monetary policy.

“Economic growth remains solid enough to absorb some policy tightening if warranted,” BSP Governor Nestor A. Espenilla, Jr. said in a speech before the Money Market Association of the Philippines, Inc.

“Further, we observe that market mechanisms are working well to enable the economy to automatically adjust to fluid conditions efficiently and avoid serious imbalances, as well as overheating risks.”

The central bank kept benchmark rates within the 2.5-3.5% range at its meeting last Thursday, citing robust domestic economic activity and with inflation seen to remain within the 2-4% target band.

Analysts have been saying that the BSP should kick off tightening moves as soon as possible, with some pointing out that the monetary authority is currently behind the curve especially as the United States Federal Reserve has been raising rates since December 2015.

The BSP, for its part, has kept its monetary policy stance unchanged since September 2014 save for procedural cuts introduced in June 2016 for a shift to an interest rate corridor system.

Inflation hit a three-year peak at 3.9% in February, according to the Philippine Statistics Authority.

Noelan Arbis, economist at HSBC Global Research, said they are pricing in a rate hike from the BSP at its May 10 meeting despite “dovish” remarks from the central bank chief.

“We believe one rate hike is enough for the BSP based on our view that its current reaction function relies on inflation and inflation expectations and not on an overheating economy,” Mr. Arbis said in a report published over the weekend.

“This poses a risk that the BSP passes off this year’s high inflation as merely an effect of the recent tax reform, and so keeps policy rates unchanged.”

Central bank officials continue to insist that the Philippines does not need a fresh monetary stimulus, as growth is expected to continue above six percent for the coming years.

Gross domestic product expanded by 6.7% in 2017, one of the fastest in the region. This year, the government expects aggressive spending on public infrastructure — pegged at P1.068 trillion — to propel growth between 7-8%.

“We want our economy to grow, and it’s a policy call in terms of risks. Right now, there is no reason to move the policy rate because the data is not providing evidence of that,” Mr. Espenilla also said during a briefing on Thursday.

“The central bank doesn’t need to take away the punch bowl — it’s not yet the time. That’s part of our responsibility as part of the economic team that ensures that the country attains economic growth that is sustainable.”

However, Mr. Espenilla said that the BSP stands ready to raise loan rates should price increases turn more broad-based. He noted that the central bank is closely watching out for a shift in inflation expectations, which could prompt tightening moves as needed.

Stock market loses more than P1.5 trillion in value since peak

By Krista Angela M. Montealegre
National Correspondent

A DEEP SELL-OFF has erased more than P1.5 trillion from the Philippine stock market’s value over the last two months, with the lingering weakness expected to continue amid mounting fears of a trade war.

The local equities market’s total capitalization fell 8.4% from its record high of P18.52 trillion on Jan. 29 to P16.97 trillion at the close of the trading session on Friday, according to data from the Philippine Stock Exchange (PSE).

The reduction was aggravated by international investors, who have been in net selling territory in the amount of P38.23 billion during the same period, the PSE said.

In February, foreign portfolio investments posted a $545.14-million net outflow, wider than the $409.01 million that left the country in February 2017 and reversing from January’s $162.16-million net inflow, the central bank earlier said.

Around 81% of these placements went to companies listed on the PSE, mostly to holding companies; property firms; banks; food, beverage and tobacco firms; as well as casino and gaming companies.

For the January to February period, hot money settled at $795.16-million net inflow, a turnaround from the $168.41-million net outflow posted during the same period in 2017.

CORRECTION PHASE
With the heavy profit taking, the Philippine Stock Exchange index (PSEi) has entered a correction phase, or a decline of at least 10% from a recent peak. The bellwether index is now down 12% from an all-time high of 9,058.62 tallied on Jan. 29 after closing at 7,970.80 on Friday.

PSEi Performance

“We can continue to expect volatility in the equity market brought about by negative sentiment in the trade wars in the [United States] and the fear of inflation and further peso weakening in the near term,” Michael Gerard D. Enriquez, chief investment officer at Sun Life of Canada Philippines, Inc., said in a mobile phone message.

Global stocks have been taking a beating after US President Donald Trump inked a memorandum that would slap tariffs on up to $60 billion in imports from China. Investors are worried that US trading partners would respond with retaliatory actions that could potentially launch a trade war.

Those moves came as investors continued to confront the normalization of monetary policy in the US.

Last week, the Federal Reserve raised interest rates by 25 basis points and kept its forecast for two more hikes this year. It added another rate rise in 2019 on top of the two increases predicted in December.

The Bangko Sentral ng Pilipinas (BSP) maintained interest rates in the policy-setting meeting last week, with inflation seen to remain on target this year and in 2019 despite price pressures as a result of a new tax program that raised taxes on fuel, coal and sugar-sweetened drinks, among others.

“The market will be weak as it tries to find a new bottom as the trade war talk escalates,” First Metro Investment Corp. (FMIC) Head of Research Cristina S. Ulang said in a separate message.

Analysts said good first quarter earnings reports, solid economic growth data as well as easing inflation could breathe life back to the market.

“If 7,909 is respected then we might trade sideways between that level and 8,300. If support is breached, we might head to 7,700,” said Raul P. Ruiz, vice-president and research head of RCBC Securities, Inc.

Araneta to develop new budget hotel in Cubao

By Arra B. Francia, Reporter

ARANETA CENTER, Inc. (ACI) plans to launch a new hotel, which will cater to the millennial market, within its 35-hectare property in Cubao, Quezon City.

“We will be coming up with a new hotel.. It will be a lifestyle budget hotel, run by also a popular international brand,” ACI Senior Vice-President for Operations Antonio T. Mardo told reporters on the sidelines of a company event last week.

Mr. Mardo said the new hotel will have around 300 rooms, with a lower price point than ACI’s first hotel in the property, Novotel Manila.

“This will be catering to the millennials… will be directed towards the young traveler, and young families as well,” the ACI executive said.

The introduction of a second hotel forms part of ACI’s P50-billion redevelopment of the Araneta Center complex, which will see more office, retail, and residential projects over the next 10 to 15 years.

For the office component, ACI has recently topped off its second office tower called CyberPark Tower 2. The company plans to launch three more office towers in the coming years, bringing the gross floor area of its office properties to 600,000 square meters (sq.m.).

Mr. Mardo said the towers are expected to attract business process outsourcing companies, as well as Philippine Offshore Gaming Operators (POGOs) once the Quezon City government irons out rules for such businesses.

“The challenge in Quezon City, (POGOs) are not yet an accepted type of business. Maybe we can talk to the city government… It should be pulled to the city because you get to fill up your offices, there is revenue, and you pay taxes to the city. They also get licenses from the city government,” Mr. Mardo said.

ACI is also propping up its retail spaces with the expansion of Gateway Mall. So far, it has brought Gateway Mall 1’s GFA to 100,000 sq.m. The company is adding currently adding 130,000 sq.m. for Gateway Mall 2, and another 100,000 sq.m. for Gateway Mall 3.

“We are going to introduce new concepts that will hopefully entice more people to the Gateway Mall, our new hotel, to Novotel, and to the entire development,” Mr. Mardo said.

For the residential aspect, ACI is currently building the 18-tower Manhattan Residences. 

Mr. Mardo cited Araneta Center’s prime location compared to other developments, given its access to different points in the metro through different modes of transportation through the Metro Rail Transit Line 3, Light Rail Transit Line 2, and provincial buses and UV express terminals.

“The access to transportation, and 24/7 activity. We are probably the only center that has all types of access,” Mr. Mardo said.

Why AI won’t spell the end of Philippine BPO industry

By Krista Angela M. Montealegre,
National Correspondent

EVERISE Holdings, Inc. downplayed fears of massive job losses in the Philippine business process outsourcing (BPO) sector as the integration of artificial intelligence (AI) to operations gain ground, stressing that new technology can augment human strengths and allow the industry to thrive.

The BPO sector is one of the key pillars of the Philippine economy, employing approximately 1.15 million people and projected to generate close to $40 billion in revenues by 2022. Advancements in AI, automation and other technologies have fuelled concerns of job losses.

Sudhir Agarwal, Everise chief executive officer, said in a recent phone interview it is inevitable that BPO companies will adopt AI and emerging technologies in their operations, as clients demand efficiency in their businesses.

“I don’t think technology will replace people but I think people will have to up-skill themselves. People have to embrace technology to become more efficient and do work faster,” Mr. Agarwal said.

“The ability of using your brain and making a decision should still be done by people. At the end of the day when it comes to problem solving, people like to talk to people, not machines,” he added.

Everise partnered with Microsoft to develop and roll out an AI platform that will offer omni-channel customer service solutions targeting voice, video and text interactions, and deliver an unprecedented intelligent, customer-centric experience.

Leveraging on Microsoft’s AI capabilities, Everise can introduce AI tools and chatbots to existing capabilities such as speech recognition, sentiment analysis and image recognition, eventually translating to a more personalized customer experience.

“Human empathy and human emotions are two of the biggest factors that pretty much suggest that human beings will not be taken over by technology,” Mr. Agarwal said.

Everise operates a C3 Lab, which has been incubating a variety of tools focused on transforming the customer experience by marrying Microsoft technologies with domain knowledge from C3’s customer innovations teams.

C3 Lab is in Las Vegas through BPO firm CustomerContactChannels, with locations opening in Manila and Malaysia.

The BPO company specializes in customer relationship management in numerous industries such as health care, financial services, travel and retail.

Even Everise sees no letup in the expansion of its work force in the Philippines, which has increased to 3,500 people from 2,500 when it acquired the business in December 2016.

“Over the next two to three years our target is to at least double in size in the Philippines. There is still a lot of opportunities to grow in the Philippines,” Mr. Agarwal said.

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