By Elijah Joseph C. Tubayan
Reporter

THE OVERALL RISE in prices of widely used goods and services could have eased in November as a stronger peso softened import costs, according to analysts polled last week who said this should leave room for the central bank to steady its policy stance till yearend.

A poll among 13 economists saw a headline inflation estimate median of 3.2% for November, which if realized would be slower than October’s nearly three-year-high 3.5% but faster than the year-ago’s 2.5% pace.

The median matches the estimate released last Friday by the Department of Finance and approximates the midpoint of the Bangko Sentral ng Pilipinas’ (BSP) own 2.9-3.6% range announced earlier last week.

The Philippine Statistics Authority is scheduled to report official inflation data on Tuesday.

In an e-mailed response to queries, Land Bank of the Philippines market economist Guian Angelo S. Dumalagan said headline inflation’s expected slowdown in November was “fueled by the unexpected appreciation of the peso and a tamer increase in food prices.”

“The peso strengthened this month, tempering the rise in the costs of imported products,” Mr. Dumalagan said, citing investor concern over the fate at that time of planned US corporate tax cuts as well as generally better weather that softened food price increases.

Still, Union Bank of the Philippines chief economist Ruben Carlo O. Asuncion said that anticipation of stronger consumer demand with the approach of Christmas as well as continued recovery of global oil prices sustained price pressures.

ANZ Research economist Eugenia Fabon Victorino blamed the continued climb of electricity rates, particularly of the Manila Electric Co. which is the country’s biggest electricity distributor.

Actual headline inflation has so far averaged 3.2% in the 10 months to October, matching the central bank’s 3.2% full-year forecast and hovering just above the midpoint of its 2-4% target band for 2017.

“We expect inflation to average 3.2% for the full year, with no expected change in the BSP policy rates for now and the near future,” Ildemarc C. Bautista, vice-president and head of research at Metropolitan Bank & Trust Co., said via e-mail.

For Security Bank Corp. economist Angelo B. Taningco, “I still think BSP will keep its key interest rates unchanged by December as inflation risk appears to have waned and peso appreciated vis-à-vis the US dollar.”

Still, Mr. Dumalagan said a tightening bias worldwide may soon force the BSP to adjust its own policy settings.

“While the slowdown in domestic inflation favors steady policy settings, rising global interest rates may require some preemptive tightening moves from the BSP, as widening interest rate differentials may result in unwanted volatility in domestic financial markets,” he said.

Two economists polled last week said they expect a rate hike from the BSP in 2018’s opening quarter, citing quickening credit growth and the expected impact of the first package of the government’s comprehensive tax reform program that has hurdled both chambers of Congress and is targeted to take effect in January.

The BSP’s Monetary Board on Nov. 15 maintained interest rates, which have steadied since September 2014 save for procedural adjustments in June 2016 to usher in an interest rate corridor system designed to better siphon unwanted liquidity and influence market rates. The board is scheduled to meet for the last time this year on Dec. 13 — 2017’s eighth policy review.

THE Securities and Exchange Commission (SEC) has moved to regulate fund raising via the Internet, a mode used especially by micro, small and medium enterprises (MSMEs).

A draft memorandum circular providing rules and regulations for crowdfunding (CF), posted on Nov. 29 on the Web site of the Securities and Exchange Commission, “shall primarily govern the operation and use of equity-based and lending-based CF by registered persons such as brokers, investment houses, funding portal, and issuers and investors…”

The World Bank has actually noted that the Internet has been used for alternative financing for varied purposes such as donations, equity and lending. The SEC seeks to regulate crowdfunding for the purpose of raising capital for start-ups in exchange for equity, interest and other forms of return on investment.

This fund-raising mode has been particularly tapped by MSMEs, which Republic Act No. 9501 or the Magna Carta for MSMEs defines as businesses with assets worth up to P3 million for the micro category, more than P3 million up to P15 million for the small segment, and more than P15 million up to P100 million for medium-scale enterprises.

SEC Chairperson Teresita J. Herbosa had first disclosed in October last year the regulator’s plan to draft rules and regulation for this funding mode, citing its increasing use and the need to guard against investment scams.

The draft rules cap crowdfunding volume within any 12-month period to P10 million per issuer, and aggregate amount of securities sold to any investor “across all issuers” at P50,000 within the same duration.

Moreover, there should be only one “intermediary” — defined as a registered broker, investment house or funding portal which handles the sale of crowdfunding securities — per offer drawn from SEC’s list of registered CF intermediaries.

Issuers should inform investors of the identity of the chosen intermediary, risks of investing in the project, procedure on how funds will be returned if total fund target is not met, and procedure to complete or cancel investment commitment, among others.

Separately, advertisement of any offer should be limited to a statement that the issuer is conducting an offering; the name of the intermediary through which the offering is being conducted and a link directing potential investors to the intermediary’s electronic platform; terms of the offering; as well as the name of the issuer of the security, the address, phone number and Web site of the issuer, the e-mail address of a representative of the issuer and a brief description of the business of the issuer.

Crowdfunding intermediaries bear much of the burden of ensuring the integrity of the offer.

Among others, the draft charges intermediaries with the task of guarding against potential conflicts of interest which “must be managed in a timely manner.” This includes prohibiting the intermediary and its officers from providing financial assistance to investors to invest in the securities offered through its platform and from funding issuers, among others.

The draft circular provides further that intermediaries must have “reasonable basis” for believing that the issuer has accurately presented information on the business for which funds raised will be used, and should deny use of its platform if it has such basis for believing that the issuer “presents the potential for fraud or otherwise raises concerns about investor protection.”

Before accepting any investment commitment, an intermediary must also have “reasonable basis” to believe that the investor concerned satisfies the rule’s investment limits.

Investors who want to cancel their investment commitments have until 48 hours before the offer’s deadline to do so. No cancellation is allowed within the 48-hour period.

If the issuer fails to complete the offering, the intermediary will then have the task of sending investors the notice of cancellation alongside the reason for the cancellation, hand out the refund to investors, and prevent investors from further making further commitments on that offer on the same platform.

Both issuer and intermediary must file with the SEC and post on their Web sites annual reports, along with financial statements of the issuer certified by its principal executive officer to be true and complete, as well as a report on all crowdfunding transactions within the year being reported.

Moreover, all records of a funding portal are subject “at any time, or from time to time, to reasonable periodic, special, or other examination by the representatives” of the SEC. — A. B. Francia

NEW YORK — In their hunt for yield, some investors have been venturing into offerings as exotic as Tajikistan’s sovereign bond or Iraq’s first sovereign debt sale without US backing in more than a decade, only to find out that even those are pricey and hard to get.

Even as emerging markets bonds lost some ground in recent weeks in the secondary market, primary offers from Panamanian bank Multibank, Inc., the Bahamas and a 30-year Nigerian bond have been well oversubscribed, following a trend of lower sovereign and corporate yields.

The sellers’ market is good news for emerging market borrowers, giving them access to funds at rates once afforded only to “investment grade” issuers.

At the same time, it could lead to mispricing of riskier assets and threaten valuations in the long term by encouraging borrowers to cut coupons on future issues.

Right now, it is forcing some funds to scale back.

Samy Muaddi, a portfolio manager of T Rowe Price’s Emerging Markets Corporate Bond Fund, said he has reduced his purchases of initial bond offerings as 2017 has progressed. “We have been more selective in our new issue participation rate for single B credit, including Latin American airlines and Chinese real estate,” Mr. Muaddi said.

Fund managers prefer new issues, particularly corporate debt or debt issued by countries without a solid repayment history, because they typically sell at a discount to the secondary market.

That has not been the case recently, Mr. Muaddi said, noting that the percentage of new issues in his fund has dropped from about 20% of purchases to 12-15%.

Asset managers of dedicated emerging markets funds say the mispricing largely has been caused by “tourist” dollars rushing in from passive funds and non-specialized money managers, such as hedge funds or high-yield funds, chasing higher returns.

“It’s frustrating for me as an investor,” said Josephine Shea, portfolio manager at Standish Mellon Asset Management Company LLC.

“There seems to be quite a bit of indiscriminate buying without looking into underlying fundamentals.”

The difference between emerging market bonds yields and yields for US Treasuries has widened over the past couple months, most recently touching 339 basis points as the US dollar strengthened and local factors weighed on countries in Latin America and the Middle East.

However, that number is 35 basis points tighter than the 16-year historical average and comes after spreads compressed to their tightest in three years in mid-October.

BELOW FAIR VALUE
Ms. Shea said that recently bond deals in India and elsewhere in Asia have been 10 times oversubscribed and that the firm has had to drop out of corporate and even frontier market sovereign bond issues because the final interest rates have fallen well below the firm’s assessment of fair value.

In previous years, Ms. Shea said, bonds would typically be two to four times oversubscribed.

Even when they do participate in offerings, some managers say they get less than they want because of high demand.

Increasing supply would ease the crunch, but investors say the amounts are already significant for some issuers. For example, Tajikistan sold $500 million in bonds, which is a lot considering the central Asian nation’s annual economic output is about $7 billion.

Jim Barrineau, head of emerging markets debt at Schroders, said he has been buying “smaller, less well-known” names and boosting emerging market corporate debt, eschewing stalwarts like Brazil, Mexico and Russia.

Among his additions are international telecoms company Millicom International Cellular SA and mobile provider Digicel Group LTD, which focus on emerging economies.

While portfolio managers talk of “overcrowding,” many still plan to boost their emerging market debt holdings, expecting inflows to keep recovering after worries about the global effects of the US Federal Reserve’s policy tightening kept investment subdued between 2013 and 2016.

This year, emerging market portfolio debt inflows are seen more than doubling to $242 billion from $102 billion in 2016, data from the Institute for International Finance shows.

“Any time you have a market that has had the type of performance that EM debt has had over last 18 months there’s going to be some trepidation, but it’s important to look at fundamentals,” said Arif Joshi, emerging markets debt portfolio manager at Lazard Asset Management.

Mr. Joshi noted accelerating growth, narrowing current account deficits and a shift to sounder economic policies in several emerging economies.

Similarly, Jan Dehn, head of research at Ashmore Investment Management, said he saw the recent pullback as part of a seasonal pattern and was using it to boost his positions.

“EM is still very, very attractive,” Dehn said. “Our plan is to buy more.”

Such optimism has prompted some managers, including T Rowe’s Muaddi and Paul McNamara, investment director at GAM, to direct funds to some less volatile and more liquid emerging market issuers.

“The sheer enthusiasm with which people are throwing money at EM,” said Mr. McNamara, “makes us cautious.” — Reuters