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Standout cars of 2017

Like the previous years, 2017 was a good year for the automobile industry with a recorded 18. 4% increase in sales, according to a report by the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) and the Truck Manufacturers Association (TMA).

The report showed that 425,673 units were sold last year, surpassing the targeted 400,500 units, and in comparison with the recorded sales of 359,572 units in 2016. In December 2017 alone, it was noted that sales rose to 33.4%, with 45,494 units sold compared to 34,104 units sold in the same period in 2016.

The spike in sales was attributed to the imposition of excise tax on automobiles under the  Tax Reform for Acceleration and Inclusion (TRAIN) law, which started January of this year. While this might be a looming challenge for the industry, CAMPI officials said they remain confident that the market will be able to adjust to the new law. 

Meanwhile, here’s a round-up of 2017’s standout cars:

Honda Civic Type R

An eye-catcher at the 2017 Manila International Auto Show, Honda Civic Type R is reported as the first-ever Civic Type R model to be sold locally. More than its stunning sporty exterior, this vehicle is notable for having a 2.0-litre VTEC TURBO engine with a maximum power output of 310 PS at 6,500rpm, and peak torque of 400 Nm from 2,500rpm to 4,500rpm. Its Three-Mode Drive System namely: +R Mode, Sport Mode, and Comfort Mode enables the user to select through different characteristics that suit their driving conditions. These stellar features, matched with a comfortable interior cabin, make this vehicle a standout.

Mazda CX-5

The all-new Mazda CX-5 boasts of being equipped with G-Vectoring Control, a system known to enhance driving feel and improve passenger riding experience. Also notable is its Skyactiv technology, which is known to deliver high performance yet emits ultra-low NOx emission that complies with stringent Euro 6 standards. To match what is in the inside, the Mazda CX-5 is designed with the Kodo: Soul of Motion, a design language that catches the eye and moves the soul.

Mitsubishi Montero Sport

True to its claim of being “built to success,” this well-loved midsized SUV bagged awards including the Best 4WD SUV in the Car of the Year Awards and Best Mid-size SUV in the 2017 Auto Focus People’s Choice Awards. Dependable on both city driving and on rough terrain, Mitsubishi’s Montero Sport, specifically the GT variant, had a notable make over in 2017. Worthy to mention are its safety features including the forward Collision Mitigation System, Adaptive Cruise Control, Ultrasonic Misacceleration Mitigation System, and blind spot warning. These features coupled with the first-of-its-kind Euro-4 compliant 2.4L Clean Diesel engine with Mitsubishi Innovative Valve Electronic Control system, sleek exterior, and comfortable interior design, the new Montero Sport surely delivered a performance.

Morris Garage MG3

Catering to millennials, MG3 is more than its stylish, sporty exterior. This vehicle with features that passed European safety standards, comes with a 1.5-liter gasoline engine capable of 105hp at 6,000rpm and 135Nm at 4,500rpm. Moreover, it has become a choice for those looking for affordable yet fun, sporty, and trustworthy hatchback road buddy.

Nissan Juke

“Built to stand out,” as it claims, the Nissan Juke’s playful range of colors are a head-turner. But more than its exterior, this vehicle, which is a cross between a sports car and an SUV, has standout features including the world’s first I-CON System that gives the user the freedom to easily switch from various driving modes. With this iconic system matched with a powerful 1.6L engine, Nissan Juke becomes reliable partner on the road.

Suzuki Celerio

Suzuki Celerio, which caters tothe adventure-seekers, is one of Suzuki’s best-selling vehicles since 2016. Apart from being awarded with Best Fuel Rating under the Over-All Gasoline Category at Department of Energy’s Euro 4 Fuel Eco Run in 2016, Suzuki Celerio bagged the Best Value for Money award in the standard mini category at the Auto Focus People’s Choice Awards 2017. Celerio is notable for fuel-efficient engine and patented Total Effective Control Technology (TECT); generous cabin and luggage space; and for having a spacious leg room and higher head room for utmost comfort during trips. — Romsanne R. Ortiguero

Poll: 2017’s growth target in the bag

ECONOMISTS expect the country’s economic growth to have stayed robust and on target in 2017 on the back of higher household and government spending, albeit easing from 2016 as a widening trade deficit may have capped overall expansion.

A poll of 12 economists yielded a gross domestic product (GDP) growth estimate median of 6.7% for both the fourth quarter and full year 2017, slowing from the government’s 7.0% upgraded third-quarter estimate, but slightly faster than the 6.6% notched in 2016’s final three months. The median forecast also compares to 2016’s 6.9% growth that was the fastest in three years.

This puts the growth pace near the low end of the government’s 6.5%-7.5% target band for 2017. The Philippine Statistics Authority is scheduled to release the official GDP data tomorrow.

In a note last Friday, Moody’s Analytics gave a 6.7% fourth-quarter estimate, saying that domestic demand “likely remained the major driver of growth” as households continued to benefit from steady inflows of remittances from overseas Filipino workers as well as a “healthy labor market.”

Socioeconomic Planning Secretary Ernesto M. Pernia had said in the National Economic and Development Authority’s year-end press briefing last month that he expects growth in 2017 to be “at least 6.7%” and the fourth-quarter pace faster than that, with government spending, exports, consumer spending and improved agriculture output driving growth for the fourth quarter.

Poll: 2017’s growth target in the bag

Economists polled late last week by BusinessWorld shared Mr. Pernia’s optimism, even as some clarified that a widening trade deficit could have capped fourth-quarter and full-year economic expansion.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, estimated 6.7% economic growth for the quarter and full-year 2017: “[Fourth quarter] growth is based on robust growth from holiday domestic consumption and increasing public and private investment on infrastructure development,” he said.

For Mr. Asuncion, the supply side would see services “outdoing” industry and agriculture. “Agriculture might have given a boost to overall growth picture because of a favorable year for harvests in general. Manufacturing may have also been a huge driver for industry in [the fourth quarter].”

Emmanuel J. Lopez, chairman of the University of Santo Tomas Department of Economics, also gave a 6.7% estimate for the quarter and the whole of 2017, citing “increased demand brought about by holiday festivities” in the fourth quarter, “robust expenditures in infrastructure development” and the consistent growth of OFW remittances last year.

‘SIGNIFICANT OFFSET’
For ANZ Research economist Eugenia Fabon Victorino, Philippine economic growth “remains robust”, noting that “[a]lthough, momentum in industrial production has been easing, the rise in government spending should have provided a significant offset. Several infrastructure projects broke ground in the last quarter raising employment opportunities.”

Ling-Wei Chung, principal economist at IHS Markit, shared this assessment, saying: “With the government pledging an ambitious infrastructure program, the main support to GDP growth continues to come from government and investment spending.”

The government spent a total of about P2.494 trillion as of end-November last year, 10% more than the P2.266 trillion spent in 2016’s comparable 11 months.

Furthermore, Department of Budget and Management data showed infrastructure and capital outlays growing 44.8% in November — its fastest pace so far in 2017 — to P43.8 billion from P30.3 billion in 2016. That brought January-November disbursements on the same times to P486.5 billion, 14.2% up from P426.1 billion in 2016’s corresponding period.

“This factor, coupled with favorable liquidity conditions, buoyant domestic sentiment, and steady remittance inflows will render support to domestic demand,” Ms. Chung said.

KEY RISK
Some economists, however, cited the country’s worsening trade balance as a risk to economic growth.

Latest government trade data showed that the import growth rates of 13.1% and 18.5% in October and November, respectively, outpaced that of exports which grew 7.1% and 1.6% in those two months. These contributed to bringing the cumulative trade gap to $25.705 billion — a level not seen in decades.

“The expansion of the Philippine economy likely slowed to 6.4% last quarter from 6.9% [the government revised this slightly upward to 7.0% on Friday] in the third quarter of 2017 as the surge in imports and the slowdown in exports intensified the negative contribution of net trade to the country’s GDP,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines.

IHS Markit’s Ms. Chung noted that “with infrastructure spending boosting import growth, a widening trade deficit will likely weigh on net exports and provide some constraints to GDP growth in Q4 2017 and during the near term.”

‘NOT AT ALL CONCERNING’
For UnionBank’s Mr. Asuncion, however, the trade deficit is “not at all concerning,” describing it as a “consequence of an emerging shift toward more investments rather than mere domestic consumption-led economic growth.”

Angelo B. Taningco, economist at Security Bank Corp., put GDP growth at 6.5% in the fourth quarter and a 6.6% for the full year print, saying that in addition to the trade deficit, there are also “signs of slowdown in agricultural production amid adverse weather conditions such as tropical storms and typhoons during December…” as well as moderation in consumer spending due to higher inflation. — Ranier Olson R. Reusora

Central bank reviewing single borrower’s limit

By Melissa Luz T. Lopez
Senior Reporter

THE CENTRAL BANK is reviewing the single borrower’s limit (SBL) imposed on banks to provide leeway for infrastructure financing, an official said, which is seen to support the government’s massive spending program.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said monetary authorities are looking to relax borrower limits anew to accommodate bank lending for big-ticket projects, possibly similar to the special 25% cap for public-private partnership (PPP) projects.

“It’s under study,” Mr. Guinigundo said on the sidelines of the 1st Global Forum on Infrastructure Strategies last Thursday.

The SBL is intended to limit credit exposure to a single client to a maximum of 25% of a bank’s net worth. This is to minimize risks on the bank in the case of the borrower’s default.

The ceiling — which has been in place since 2004 — covers loans, as well as securities underwritten by universal banks and investment houses unsold after 90 days.

In 2010, the central bank provided a separate 25% credit limit for PPP projects, which was meant to encourage banks to fund infrastructure goals of the administration then of former president Benigno S.C. Aqunio III. This SBL lapsed in December 2016.

“Now, the BSP is consulting with the banks the feasibility of carving out again the SBL as long as this is going to fund infrastructure,” Mr. Guinigundo said. “Infrastructure involves big-ticket items. P8 trillion [planned infrastructure spending up to 2022] — that’s about 2.5 times of your national budget.”

He clarified that the new lending cap will come “with certain modifications” but refused to provide details as discussions are ongoing.

“That’s the priority of the government. Ayaw nila masyado ng (The current government is not too keen on) PPP because of the length of time that it consumes before it can even take off the ground,” the BSP official added.

The Duterte administration is looking to spend P8.44 trillion from 2016 to 2022 on infrastructure projects, as it veered away from the PPP model in favor of a “hybrid” mode where the government takes on the construction phase. Several projects in the pipeline — including railways, airports, and toll roads — will then turned over to the private sector for operation and maintenance.

Economic managers said the aggressive public spending will be supported by a mix of government debt, foreign aid and additional revenues expected from up to five packages of the comprehensive tax reform program.

Massive infrastructure spending agenda is expected to propel economic growth to average 7-8% annually by 2022, while addressing connectivity and logistics bottlenecks in order to improve the ease of doing business in the Philippines.

Corporate bonds this year expected to hover around 2017’s record level

By Krista A. M. Montealegre
National Correspondent

THE Philippine Dealing and Exchange Corp. (PDEx) expects new corporate bond listings to match last year’s record level.

The volume of fresh corporate debt listed in 2017 totaled P207.43 billion, the highest level of new corporate bond listings since the public market opened in 2008 and surpassing the level of new listings in 2016 by 23%, according to data from the PDS Group.

“Hopefully, we can match last year’s level,” PDS President and CEO Cesar B. Crisol said in an interview, noting that there are six applications in the pipeline.

Demand for these securities will be driven by robust liquidity in the financial market, Mr. Crisol added.

First Metro Investment Corp. sees corporate bond floats to hit P212 billion this year, buoyed by the positive outlook for the domestic economy.

SM Prime Holdings, Inc. announced last week that it is raising up to P20 billion from the sale of long-term bonds to retail investors — the third tranche of its P60-billion shelf registration of fixed rate bonds approved by the Securities and Exchange Commission in 2016.

“Maliit na lang ang balance ng shelf registration because they issued more last year. We hope to see more applications for shelf registration,” Mr. Crisol said.

Companies can use the shelf registration program to raise funds as they are needed or when market conditions become favorable to them.

“The capital market is very active on the debt side and on the equity side,” Virgilio O. Chua, first vice-president and investment banking group head at China Banking Corp., said in a separate interview.

“There are a lot of issues that were postponed last year. Hopefully, we’ll see them come to fruition this year.”

Two of the country’s biggest banks — Metropolitan Bank & Trust Co. and Bank of the Philippine Islands — are leading the way in raising from capital through the Philippine stock market, with plans to raise as much as P110 billion from the sale of shares to existing investors.

“The increase in economic activity obviously requires funding and that’s where the bank comes in,” Mr. Chua said.

Proposed investment treaty terms leave India’s foreign partners cold

NEW DELHI — Having cancelled investment treaties with about 50 foreign governments last year, India is struggling to convince some to accept new terms that make it harder to seek international arbitration for disputes, sources familiar with the talks said.

From New Delhi’s perspective those treaties, mainly struck in the 1990s when it was desperate for foreign capital, left it too exposed to potential claims awarded by international arbitrators.

To reduce that exposure, India has drafted a new model agreement that legal advisors say is similar to those used by other big emerging market economies like Brazil and Indonesia, but some of its foreign partners are balking at the more restrictive approach.

“India is getting nowhere with the negotiations,” said one of the sources, who is aware of the meetings with government officials over the past 10 months, but does not want to be named as the discussions are private.

Negotiators from countries including Australia, Iran and the European Union have told the Indian side that investors are waiting to come in but the new treaty terms give too little protection, the source said.

Foremost among their concerns are a requirement for investors to fight any case in the Indian courts for at least five years before going for international arbitration, and other provisions narrowing the scope for companies to make claims, the source said.

The new model treaty also has no provision for investors to bring claims against India for any tax-related matters and for disputes arising due to actions taken by local governments.

Currently, India is entangled in more than 20 international arbitration cases, and could end up paying billions of dollars in damages if it loses.

Companies like Vodafone Group, Cairn Energy and Deutsche Telekom have initiated arbitration proceedings against India seeking to protect their investments against retrospective tax claims and cancellation of contracts.

Covered by a bilateral trade and investment agreement between New Delhi and Tokyo, Japanese automaker Nissan is the latest company to sue India, claiming damages of over $770 million in unpaid tax incentives.

While several countries limit the type of tax-related claims that can be made, lawyers say India’s step to omit all tax matters goes too far and could expose investors to sudden changes in tax rules or retrospective claims.

NEGOTIATING POSITION
These days, India appears to be in a far stronger negotiating position than it was during the 1991 balance of payments crisis.

Prime Minister Narendra Modi has a strong mandate and there is more confidence in the ability of his pro-business government to get the under-achieving economy moving than there has been in any of its predecessors.

Since Modi came to power in 2014, annual foreign direct investment flows into India have doubled to $46 billion in 2016 from $22 billion in 2013. But the rate of growth in inflows is slowing, and the amount is lower than the $59 billion that a United Nations report says Brazil received in 2016.

A European Commission official termed India’s unilateral decision to terminate treaties as “unfortunate” saying it discriminates between existing investors, who will continue to be protected by the old treaties for a few years after termination, and new ones who will have fewer safeguards.

The Commission is exploring ways to re-establish protection for European investors and resume negotiations on a free trade agreement with India that will include investment, the source said.

Canada has been in talks with India since 2004 to sign its first treaty, but there has been little progress and its trade minister told Reuters in November that Canadian investors are holding back until there is one in place.

“India needs further investments and Canada is willing, but we need a framework. What investors want is to have certainty, stability and predictability,” Francois-Philippe Champagne said in Mumbai during his visit to India as part of a trade mission.

While the sources told Reuters that Australian and Iranian officials had raised concerns in private meetings with Indian counterparts, neither the Australian High Commission in New Delhi or Iran’s ministry of industry, mines and trade responded to emailed requests for comment.

A spokesman at India’s ministry of external affairs also failed to respond to an e-mail seeking comment.

Meantime, some countries, especially those that receive more investment from India than they send, are more open to signing, said the first source. Israel, for instance, does not oppose some of the provisions and the two nations could soon sign an accord, Business Standard, an Indian newspaper, reported on Wednesday last week.

And while India remains a capital deficient country, some of its biggest companies have made major investments overseas and would be reassured if there were bilateral treaties in place to protect their interests.

For now, the draft model treaty is a starting point for negotiations, the second source said, but India is in a good position to press for better terms.

“India is finally flexing its muscles,” the spokesman said. — Reuters

T-bonds to fetch higher yields

TREASURY BONDS (T-bonds) on offer Tuesday are likely to fetch higher yields after 10-year US Treasury yields rose to their highest levels in three years as the US government shutdown spooked investors.

The Bureau of the Treasury plans to raise as much as P20 billion during Tuesday’s auction of fresh three-year T-bonds set to mature on Jan. 25, 2021.

“I think yields of three-year bonds will move higher due to increased yields of the US Treasuries,” a trader said over the phone on Friday.

Last week, yields of the 10-year US Treasuries soared to as much as 2.6407%, its highest level since September 2014’s 2.6256%.

Bloomberg reported yields of US debt papers were rising on the back of market expectations on the Federal Reserve’s interest rate hikes this year as well as increased borrowing to finance the widening budget deficit.

Meanwhile, another trader said the US government shutdown will provide some headwinds.

“That’s the only black swan for now. But we’re seeing demand on the short-end so [the government] will be able to sell the P20-billion target given the higher US Treasury yields,” the second trader added.

On Saturday, the US government shut down after a standoff between Republican and Democrat lawmakers over a short-term spending bill. Democrats demanded spending legislation include protections for young undocumented immigrants, while Republicans refused to negotiate on immigration.

A second trader expects the fresh papers to rise 4% to 4.25%, while the first trader gave a slightly higher projection of 4.25% to 4.325%.

Meanwhile, the first trader expects the demand to be tepid, saying the new bond issuances are less attractive compared with the old ones.

“I’m expecting just the right demand because it will be short tenor but because it’s a new issue, [the demand will be tempered]. They prefer the old issue,” he said. — Karl Angelo N. Vidal

PSE pursues PDS takeover despite Landbank plan

By Krista A. M. Montealegre,
National Correspondent

THE Philippine Stock Exchange (PSE) assured the government it is working to comply with ownership rules, with state-run Land Bank of the Philippines (Landbank) set to compete with the stock market operator for the acquisition of a majority stake in the Philippine Dealing System Holdings Corp. (PDS).

Landbank President and Chief Executive Officer Alex V. Buenaventura plans to recommend to its board of directors this week the lender’s acquisition of “a majority stake or at least 66.67%” in PDS, complicating the plan of the PSE to unify the country’s capital market infrastructure. Landbank’s board meeting is scheduled on Jan. 23.

“Yes, all the more!” PSE Chairman Jose T. Pardo said in a mobile phone message when asked if the local bourse will pursue the acquisition of PDS.

“Our focus though remains in completing our stock rights offering which we expect to happen end-February,” Mr. Pardo said.

Last week, the Securities and Exchange Commission (SEC) approved the share sale that will raise P3.16 billion to raise financing for the acquisition of PDS, among others.

Mr. Pardo said he has guaranteed Finance Secretary Carlos G. Dominguez III that the proposed stock rights offer will bring down the ownership of trading participants in the local bourse to 19% — one of the key requirements before the PSE can secure the corporate’s nod for a merger with PDS.

“[N]o industry or business group shall beneficially own or control, directly or indirectly, more than 20% of the voting rights of the Exchange Controller,” according to Rule 33.2 (c) of the SRC.

Mr. Dominguez singled out the failure of the PSE to be compliant with the above-mentioned rule as the reason for Landbank’s move to take control of PDS.

Currently, the Landbank owns 1.56% of PDS through the Bankers Association of the Philippines (BAP).

“With waivers of preemptive rights made by all existing shareholders, ownership levels will now comply with the law. This was a separate commitment we made to the DoF [Department of Finance] Secretary,” Mr. Pardo said.

“We likewise assured him that PSE, with SEC oversight, will have in place a system which will automatically stop trade beyond the 20% per industry ownership level,” he added.

Sought for comment about the PSE’s plan to acquire PDS, SEC Chairperson Teresita J. Herbosa told reporters last week: “They have to do some little things before we get to that point.” 

“We have to see that the stock rights offering will achieve its purpose which is to make the share structure in accordance with what the law provides, which is one should not achieve the industry limit of 20%.”

The SEC approval for the PSE-PDS merger is one of the final steps in closing the deal that began back in 2013, when the PSE proposed to merge the two markets for synergies in operations. The corporate regulator initially rejected the merger in 2016 after denying the local bourse’s petition for an exemption to the SRC rule.

The PSE has made renewed attempts to buyout the PDS shareholders after signing new share purchase agreements with them that gave the former a 69.03% total stake in the latter.

Since June last year, the PSE has inked SPAs with the BAP; Whistler Technologies Services, Inc.; Investment House Association of the Philippines; The Philippine American Life and General Insurance Co.; FINEX Research and Development Foundation, Inc.; San Miguel Corp. and Tata Consulting Services Asia-Pacific Pte. Ltd.

‘AGGRESSIVE BID’
Meanwhile, Mr. Dominguez, who is an ex-officio chairman of Landbank, on Friday said the bank is planning to make an “aggressive bid” to secure a majority stake in PDS.

“Landbank asked my permission, so I said if it’s a good business for you, yes. If it doesn’t make money for you, don’t do it. But they said they will make money from it and Landbank has to increase its profits because the more money they make, the more dividends they give to the government. So it only happens if it makes commercial sense. So go ahead, it will achieve our goals to improve the efficiency of the capital market,” the Finance secretary told reporters.

Mr. Dominguez said he been talking to PSE officials since September 2016 to bring down the broker ownership, but has not made progress ever since.

“It’s been 16 months. Maghihintay pa ba kami? (Will we still wait?) In the meantime,  we cannot improve the domestic capital, we cannot really push the improvement of the domestic capital market. Landbank looked at it, it’s a profitable business, they said they’re willing to acquire it,” said Mr. Dominguez. — with Elijah Joseph C. Tubayan

Yields on gov’t securities show mixed movements

By Jochebed B. Gonzales,
Senior Researcher

DOMESTIC YIELDS saw mixed movements last week as market players took cues from data releases in the US even as they factored in the temporary shutdown of the federal government.

Prices rose as yields on government securities (GS) dipped by an average of 2.97 basis points (bps) week on week, data from the Philippine Dealing and Exchange Corp. as of Jan. 19 showed.

“Yields fell this week by 2.96 bps due to mixed US data on retail sales and inflation as well as safe haven buying amid fears of a US government shutdown from a possible failure to pass a short-term spending bill,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (Landbank).

US headline inflation picked up 2.1% year on year last December from 2.2% in the previous month while core inflation, which excludes volatile prices of food and energy, was up 1.8% from clipping 1.7% in November. Retail sales expanded by 5.4%, closing with a strong growth of 4.2% for the entire 2017.

In other news, the US government has been on a shutdown after Republican and Democratic lawmakers failed to pass the federal funding bill on a Friday midnight deadline. Until a deal is reached between the two opposing parties, wherein at least 60 of the 100 senators must vote in favor of the bill, most government workers will be placed on unpaid leave.

Meanwhile, the local GS market saw more demand on shorter-dated securities than those in long-end whose yields tread higher last week.

Security Bank Corp. Head of Institutional Sales Carlyn Therese X. Dulay noted of the gains in yields on medium- to long-term debts.

“Government securities yields traded slightly higher this week in line with higher UST (US Treasury) yields as influenced by the possibility of more Fed hikes this year as well as more debt issuances to fund the US’ widening deficit,” she said.

A bond trader also agreed, saying: “Profit taking ensued at the end of the week due to Bangko Sentral ng Pilipinas Gov. Nestor A. Espenilla, Jr.’s comments that the coming board meeting might be an interesting one in terms of assessing the appropriateness of the current policy rates.”

He added that volume traded was “better” as it reached P21.6 billion on Tuesday, and averaged more than P10 billion during the rest of the week.

At the secondary market on Friday, the yield of the 182-day Treasury bill (T-bill) shed the most, by 38.08 bps week on week to end with 2.8960%. It was followed by the 364-day T-bill whose yield decreased by 35.32 bps to 2.7983%.

The yield 91-day paper also slid by 7.42 bps to 2.2077%, while that of the two- and three-year treasuries dipped 5.20 bps and 8.06 bps, respectively, to close at 3.9015% and 4.1514%.

On the other hand, double-digit gains were observed on the yields of the four-, seven, 10- and 20-year bonds as they increased by 11.22 bps, 16.28 bps, 15 bps and 19.62 bps, respectively, to finish with 4.9354%, 5.4807%, 5.9450% and 5.9714%.

The yield of the five-year bond fetched 2.30 bps to 4.7359%.

“Expect yields to stay within range this week as market continues to wait for more direction and ahead of the new 3-year FXTN issuance [this] week (FXTN 3-23) with market expecting it to print at 4.25-4.375%,” said Security Bank’s Ms. Dulay.

For Landbank’s Mr. Dumalagan: “Yields might correct upwards amid likely firm Philippine growth data and possibly hawkish signals during the ECB (European Central Bank) monetary policy meeting.

Weaker US data on existing US home sales might limit the rise in yields.”

The Bureau of the Treasury will offer P20 billion worth of three-year bonds on Wednesday, the same day the Philippine Statistics Authority will release results of the fourth quarter and full year 2017 gross domestic product.

PSEi seen to hit 9,300 but market correction looms

By Arra B. Francia, Reporter

INVESTORS should wait for a market correction in the coming months if they are to buy more aggressively, as looming interest rate may weigh on the Philippine Stock Exchange index (PSEi).

This is according to stock brokerage COL Financial Group, Inc., noting risks such as higher-than-expected inflation due to the tax reform program, impending rate hikes by both the United State Federal Open Market Committee (FOMC) and the Bangko Sentral ng Pilipinas, and a rise in 10-year bond rates, may prompt the market to take a pause after reaching another record high last week. 

“There’s room for rates to correct… The market is anticipating inflation of 3.6%, 10-year bond rates of 5.3%, two to three rate hikes from the Fed (FOMC), and two rate hikes from our own BSP. But what if inflation goes above 3.6, and the 10-year bond rate goes above 5.3%,” COL Financial Research Head April Lynn C. Lee-Tan said in a press briefing on Friday. 

“I think there will be some level of confusion, and negative reaction if those risks actually materialize… Yes, we are positive, but now is not the time to be overweighing the market. Wait for the market to correct to buy more aggressively,” Ms. Tan added.

With corrections expected over the next 12 months, COL Financial predicted the market to reach the 9,300 level by yearend, around 400 points away from it recent close above the 8,900 mark. Factors boosting this performance would be the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law, as well as the growth of the global economy. 

The brokerage noted this is not a conservative projection, as investors’ positive sentiment has been priced in at its current level. It noted the market has already climbed 12.5% since TRAIN was approved by House of Representatives in May 2017. 

Another engine for growth would be the rise in government spending, as the country targets a gross domestic product (GDP) growth of 7-9%. COL Financial said government spending has lagged behind in the past, accounting for only 13% of the country’s GDP in 1998, and dropping to 10% in 2016.

“With them actually increasing their spending, we can finally see that 7-9%. This is why we’re very confident that maybe this time it’s really different. It’s not just consumer spending, but government spending as well,” Ms. Tan said.

A survey of the brokerage’s active investors showed 40% of respondents expected earnings growth of listed companies to be the market’s top driver in 2018, followed by foreign fund flows (33%), and performance of global markets (17%).

COL Financial has a positive outlook on the property, gaming, retail and restaurant sectors, while it remains negative for the telecommunications, food manufacturing, and cement industries.

“Concerns of a third player still hurting sentiment for (telco) stocks,” the firm said.

Among the stocks the brokerage recommends are Ayala Land, Inc. and Megaworld Corp. for property, Bloomberry Resorts Corp. for gaming, Metropolitan Bank and Trust Co. for financials, D&L Industries, Inc. and Shakey’s Pizza Asia Ventures, Inc. for consumer, Semirara Mining and Power Corp. and Aboitiz Power Corp. for power, and Ayala Corp. for conglomerates. 

Peso to strengthen vs US dollar this week

By Karl Angelo N. Vidal

THE PESO is seen to regain its strength against the US dollar this week, as solid fourth quarter Philippine economic growth, and the continued US government shutdown, will likely temper the greenback’s rise.

On Friday, the local currency strengthened against the greenback as it gained eight centavos to close at P50.72-per-dollar. This was attributed to the US currency’s weakness due to weak housing data and worries over the US government shutdown.

“After unexpectedly rising last week amid soft domestic reports and US rate hike expectations, the dollar might show a downward bias this week due to likely firm Philippine GDP (gross domestic product) data,” Guian Angelo S. Dumalagan of Landbank said in an e-mail on Saturday.

The Philippine Statistics Authority (PSA) is scheduled to report fourth-quarter GDP data on Jan. 23.

Multinational lenders such as the World Bank and Asian Development Bank expect the Philippine economy to have grown by 6.7% in 2017, well within the 6.5-7.5% target set by the government.

“The potentially upbeat growth report could divert investors’ attention to the country’s sound prospects this year,” Mr. Dumalagan said, adding that the upward revision of the country’s third-quarter GDP growth as well as weaker-than-expected reading on US consumer sentiment may further strengthen the local currency.

The PSA reported GDP expanded by 7% in the third quarter of 2017, slightly higher than the 6.9% initially. The slightly upgraded July-September estimate kept the average of 2017’s first three quarters at 6.7%.

Meanwhile, Ruben Carlo O. Asuncion, chief economist of UnionBank of the Philippines, said the US government shutdown will be unpleasant for the greenback.

“It definitely doesn’t look good for the US dollar. The shutdown communicates that US policy makers need to get their act together seriously,” Mr. Asuncion said in a text message on Sunday.

On Saturday, the US government shut down as Republican legislators failed to secure enough votes to pass a short-term expenditure bill, forcing some government services to be halted. This was the first US government shutdown in four years.

“The greenback’s decline may persist until the last day of the week, especially since US reports on existing home sales, services and manufacturing are generally expected to show weaker readings,”

Mr. Dumalagan added.

The likely hawkish tone of the European Central Bank meeting may provide some boost to a basket of currencies including the peso, he noted.

For this week, Mr. Dumalagan sees the peso moving between P50.30 and P51, while Mr. Asuncion gave a slimmer range of P50.50 to P50.90.

Lucio Tan says PAL Holdings to conduct re-IPO in 2nd quarter

THE COUNTRY’S flag carrier intends to push through with a plan to sell shares to the public this year, the Philippine’s second-richest man said.

PAL Holdings, Inc. Chairman Lucio C. Tan, Sr. said in an interview last week the airline operator can embark on the re-initial public offering (IPO) in the “second quarter” of the year. He did not elaborate.

PAL entered the Philippine Stock Exchange in 2007 via the “backdoor” with a takeover of Baguio Gold Holdings Corp. Proceeds from the share sale will bankroll its expansion.

PAL is undertaking a capital restructuring to clean up the company’s balance sheet, as it seeks the entry of a new investor group to help the company manage its fleet and reach five-star full service carrier status by 2020.

PAL can give up a stake equivalent to a maximum percentage allowable by law. Under the Philippine Constitution, foreigners cannot own more than 40% of certain industries, including transportation.

The company secured the approval of the Securities and Exchange Commission (SEC) for the valuation of shares for a proposed share-swap transaction with Zuma Holdings and Management Corp., another company controlled by the tycoon and owner of budget carrier Air Philippines Corp. The transaction will allow PAL to issue 19 shares for each Zuma share surrendered.

The consolidation of Mr. Tan’s airline business is a move seen helping increase PAL’s appeal to investors.

The corporate regulator likewise cleared the decrease of PAL’s authorized capital stock to P13.5 billion from P30 billion, resulting from the reduction in par value of each share to 45 centavos from P1.

The SEC further approved the increase in par value of each share to P1 from 45 centavos, as a result of the decrease in the number of shares corresponding to the authorized and subscribed capital stock of the company.

Despite higher revenues, PAL booked a comprehensive loss of P3.55 billion for the first nine months of 2017, a reversal of the P2.96 billion booked in the previous year, because of higher expenses as a result of the increase in flight frequencies and introduction of new routes. — Krista Angela M. Montealegre

Business groups weigh in on charter change

By Minde Nyl R. dela Cruz

THE SENATE is looking to invite business groups Makati Business Club (MBC), Management Association of the Philippines (MAP), and the Financial Executives Institute of the Philippines (FINEX) in its next hearing on charter change following a joint statement recommending a focus on amending the economic provisions of the 1987 Constitution.

“We welcome their inputs, especially on [separate voting and constitutional convention]. The Senate committee on constitutional amendments would invite them in the next hearings,” Senator Francis N. Pangilinan, chair of the Senate committee on constitutional amendments and revision of codes, said in a text message to the BusinessWorld.

In a joint statement issued on Sunday, Jan. 21, the business groups called for separate voting of the two chambers of Congress as being “more democratic.” They also urged the holding of a constitutional convention as “the appropriate body to amend the Constitution.”

The business groups also expressed “strong support” for Resolution of Both Houses (RBH) No. 2, as filed by former House Speaker and Quezon City Representative Feliciano R. Belmonte, Jr. That resolution, from way back the 16th Congress, proposes the lifting of economic restrictions by inserting the phrase “unless otherwise provided by law” in the 1987 Constitution.

RBH No. 2, however, is also adopted by the much more recent House Concurrent Resolution (HCR) No. 9 which the House of Representatives approved last Tuesday, Jan. 16. HCR No. 9 calls on Congress to be convened into a constituent assembly, ahead of provisions being crafted on the watch of the House committee on constitutional amendments that aim to overhaul the present system of government into a federal structure.

The business groups, for their part, noted that amending the economic provisions “would allow Congress to pass future laws to change the current Constitutional restrictions.”

“The Philippines’ population has more than doubled since 1987. Government should maximize the amount of foreign investment generated as a means to drive down unemployment and underemployment levels. While there has been a very significant increase in FDI since 2010, amounting to over $8 billion in 2016 and the same level forecasted in 2017, this represents only 8% of total FDI in ASEAN, which is small, considering that the Philippines accounts for 16% of the population of ASEAN,” the joint statement in part reads.

The businessmen added that removal of the economic restrictions “would mean a fresh infusion of financial resources for our undercapitalized sectors, the introduction of new technologies to spur greater innovation and efficiency in our industries, and the promotion of healthy competition that will drive businesses to operate more efficiently, leading to better-quality and more competitively priced products and services for the people.”

MBC, MAP, and FINEX said “there is no better time than now to begin the process of updating the outdated economic restrictions in our Constitution,” and stressed that “it will be unfortunate if the Philippines fails to take advantage of this golden opportunity.”

The businessmen further stated that a separate voting of the two chambers of Congress will “avoid diluting the voice of our Senators in this critical process,” and added that a Con-con will “offer a more diverse, independent, and prospective approach.”

“While such mode would entail greater costs to implement and probably more time, it should be seen as a justifiable investment that will result (in) significant social returns in the long run,” the group stated.

House Speaker Pantaleon D. Alvarez has been pushing for joint voting in amending the Charter by the Senate and the House as a constituent assembly. The Senate, on the other hand, maintains its position on separate voting, and thus the matter of Congress convening as a constituent assembly has reached a deadlock.

BUDGET REFORM
For his part, Senator Panfilo M. Lacson said he plans to revive a bill he filed in 2016 called the “Budget Reform Advocacy for Village Empowerment (BRAVE).”

“Now I’m thinking of reviving it and reporting it out on the floor so that we can have an alternative in case, for example, disagreements continue regarding discussions on (charter change) paving the way for federalism. This is the best alternative method or means to spread out development in many areas of our country,” Mr. Lacson said in Filipino in a radio interview Sunday.

This would, in part, address the matter of local government leaders flocking to Congress during budget deliberations to ask funds for their projects, he added.

“The proposal aims to assign funds to all provinces, municipalities, cities, and barangays from the national budget. It would allocate P5 million per barangay, P100 million per municipality, and P1 billion each for all the 81 provinces. But these funds would only be used for development, livelihood and infrastructure, and not for MOOE (Maintenance and Other Operating Expenses) because it might be abused. Development will then spread,” Mr. Lacson also said.

The senator said he had presented this proposal to Cabinet Secretary Leoncio B. Evasco, Jr.

“He (Mr. Evasco) said after my presentation, ‘If the President sees this, he will forget federalism because this is his goal,’” Mr. Lacson said.

The senator also noted that his budget reform bill does not yet have a counterpart bill in the House of Representatives. — with Camille A. Aguinaldo

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