US asset managers ready for turn in China sentiment with products stacked up

February 21, 2024 | 12:01 am

THREE STRAIGHT YEARS of losses from Chinese markets and anti-Beijing rhetoric from Washington have not deterred some US asset managers from introducing products they hope will thrive if Chinese stocks rebound.

China’s markets have been hit by a long-lasting property crisis, slowing growth and geopolitical tension. The Institute of International Finance estimates $80 billion of outflows from Chinese portfolios last year, and the bellwether blue-chip CSI 300 Index has fallen 43% from its record high of three years ago. China’s markets, which reopen on Feb. 19 after the Lunar New Year holidays, are down nearly 2% year-to-date, bouncing off lows on support measures from Beijing.

Despite the extended pain, US fund managers with China-focused products have been betting that investors will want to return to the market, arguing that valuations make the country hard to ignore.

China’s CSI 300 index currently trades at 12 times trailing 12-month earnings, while the S&P 500 index’s valuation is at 24 times 12-month earnings, according to Morningstar Direct.

“This is potentially a once-in-a-lifetime opportunity to buy China equities at valuation levels not seen for a long time,” Jonathan Krane, chief executive officer of China-focused ETF provider KraneShares, said in an e-mail.

KraneShares has launched four new China-focused exchange-traded funds (ETF) since the beginning of 2021. Its roster also includes one of the largest China-focused ETFs, the KraneShares CSI China Internet ETF. Launched in 2013, it has about $5 billion in assets.

China’s sheer size and economic growth rate — even if lower than in past years — means investors need to have it in their allocations, fund managers argue.

“Do we fundamentally think that the second-largest economy in the world plays a role in investor portfolios? Yup, no question,” said Bryon Lake, global head of ETF Solutions at JP Morgan Asset Management. The firm launched the JPMorgan Active China ETF in March 2023, which now has about $9.2 million in assets.

In total there were four US-based, China-focused ETFs launched in 2023, compared with two the prior year and eight in 2021, according to Morningstar data, making a total of 48 US-based, China-focused ETFs at the end of 2023. That takes into account both openings and closures and is a figure little changed in the last several years but up 46% in the last decade.

CHALLENGES IN MARKETS
Fund managers, however, have both economic and political challenges with China’s markets, from US scrutiny of Chinese investments to an unpredictable environment in China, where there can be sudden resignations or regulatory crackdowns.

“The bear market scenario for China revolves around government policy, trade relationships and other political actions that surprise market participants,” said Rich Nuzum, global chief investment strategist at Mercer.

The dour sentiment has led some funds to close. Global X Funds plans to shutter ten of its 11 China-focused ETFs, which target a specific sector and together have an average of $7 million in assets. The remaining fund, the Global X China MSCI Consumer Discretionary ETF, is the largest, with assets of $215.4 million.

Global X “probably went a step too far in anticipating that there’d be a China recovery and that it would be broad enough to spill over into sector funds,” said Bryan Armour, ETF strategist at Morningstar. “Slicing up the China market that specifically” may have been over-optimistic, he added.

Global X declined to comment on the closures and could not be reached for comment on the assessment of why they closed.

BUILDING BLOCKS
China-focused asset managers hope that being ready with an established fund — complete with a track record — will position them to profit most if China rebounds.

Since it typically takes at least six months to roll out a new ETF and the process can be longer for asset managers that have to venture into new territory, having a product with a track record ready to scoop up fast-moving inflows can transform a tiny fund into a large player overnight.

“There are tremendous first-mover advantages in the ETF space” for asset managers willing to battle the headwinds, said Michael Barrer, head of ETF capital markets at Matthews Asia.

Matthews Asia, an investor in China for nearly 30 years, has launched a dozen ETFs targeting Asia, including two devoted to China and several others that include Chinese stocks since July 2022. “That way, when the tide turns, we have product that is readily available.”

The firm launched the Matthews China Active ETF last July and the Matthews China Discovery Active ETF in mid-January. The latter targets smaller growth stocks.

In any environment, launching new products — and keeping existing ETFs alive — requires careful planning, issuers say.

“Having or adding a China-focused ETF to your family may make perfect sense, because this is a ‘building block’ that investors will want to use strategically” to get exposure to the world’s second-largest national economy, said Matthew Bartolini, head of SPDR Americas research for State Street Global Advisors. — Reuters

Unlocking opportunities in the global real estate and property market through AXA Asset Master

February 21, 2024 | 12:01 am

The global real estate landscape has seen significant growth in 2023, primarily led by the data center, resorts, and healthcare sectors, according to the latest FTSE EPRA Nareit Global Real Estate Index. In 2024, continued global growth in digital-driven and industrial real estate is seen partly because of expansions of key regions around the world, specifically the US, Europe, and Asia.

Despite current high-interest rates, it is easy to understand the preference among seasoned investors for real estate as a reliable source of passive income, stable cash flow, and portfolio diversification. Its values tend to increase over time, which can lead to a higher cash flow.

One way to invest in this growth opportunity is through a real estate investment trust or REIT, for short. Global REITs offer investors a unique asset class that combines the income-generating potential of global real estate with the convenience and accessibility of traditional securities.

Global REITs: What’s the hype about?

The first thing to talk about is affordability. Unlike buying properties outright, retail investors don’t have to shore up significant capital to invest in global REITs. They will still own shares of these real estate properties and get cash payouts through the properties’ rental income, making them a good passive investment.

Second, and more importantly, is accessibility in the aspect of new growth sectors in real estate globally. Local REITs have been limited to residential, commercial, and office real estate while global REITs are much more diversified in different sectors. There are even specialized REITs overseas in sectors of agriculture, healthcare, telecommunications, and data centers.

Many investors all over the world are coming to the same conclusion. In recent years, the global trust fund market has witnessed a remarkable surge in popularity, with the number of REITs listed worldwide increasing dramatically from 120 in 1989 to 893 in 2018, based on Nareit data.

Moreover, the market capitalization for REITs worldwide is now at around US$1.9 trillion, representing an annual growth rate of almost 17%.

Opening the door to the world’s prime global REITs

Local investors can now maximize the opportunities being opened by global REITs through the AXA Global REIT and Property Income Fund which is available through a unit-linked insurance plan called Asset Master.

Building on the reach and reputation of the AXA Group as a worldwide leader in insurance and asset management, this innovative fund allows investors to gain exposure to a carefully selected portfolio of top-tier global REITs, enabling them to diversify their holdings and benefit from the growth potential of prime real estate assets all over the world.

AXA’s Global REIT and Property Income Fund invests in the largest global REITs in the world, providing investors with exposure to a wide range of global real estate opportunities. This allows for diversification and the potential to benefit from different property market cycles across various regions.

For instance, the fund provides investors exposure to REITs in the global infrastructure industry, tapping into the growth of real estate companies leasing antennae sites to top communication brands such as Verizon and AT&T, to name a few. As the demand for wireless communication continues to grow, these infrastructure REITs can offer a stable income stream and long-term growth potential.

The fund also invests in commercial REITs that rent out retail spaces to well-known companies like FedEx, 7-Eleven, Walgreens, and others; as well as industrial REITs that lease logistic facilities to major companies like Amazon, FedEx, Walmart, and more.

The fund also includes investments in data centers, which provide network and cloud-based services to technology giants such as Amazon, Microsoft, IBM, and Apple, and even has exposure in healthcare REITs that invest in senior housing facilities in the United States.

As the digital economy expands, the demand for data centers, industrial and commercial spaces, and e-commerce logistics facilities is only expected to grow ever higher, meaning that investments in these REITs have an opportunity for attractive returns and a stable income stream for years to come.

As with all equity funds, the AXA Global REIT and Property Income Fund caters to those with an aggressive risk-return profile.

A more holistic pursuit of wealth management

Aimed at serving the needs of customers to build and protect their legacy, the AXA Global REIT and Property Income Fund can be availed via Asset Master, AXA’s unit-linked insurance plan. Beyond the profitable property opportunities, the fund combined with the Asset Master insurance plan provides passive income through monthly cash payouts of up to 5% per annum and guarantees investors with at least 125% of the amount invested as life insurance coverage.

Investing in a unit-linked insurance plan goes beyond wealth growth. This is where it stands out from all the other investment options as it is also a smart estate planning move. The conventional idea of leaving a financial legacy to one’s family is by passing on properties accumulated throughout their lifetime. Properties or other assets are the usual inheritance that heirs receive, often co-owned with others. The transfer of ownership of these real properties and assets can be cumbersome and costly due to tax obligations, which — in many instances — the heirs are not financially prepared to pay. It’s always best to ensure that a good amount of cash is part of one’s estate.

Unit-linked insurance plans like Asset Master are one of the best ways to have cash available in one’s estate at the time of death. The proceeds from the insurance payout of an Asset Master policy provide liquidity and are tax-exempt (if the named beneficiaries are designated as irrevocable or if they were never changed through the tenure of the policy). This therefore allows the seamless transfer of money to one’s heirs which can form part of the inheritance itself or may be used to pay estate taxes and other immediate liquidity needs.

AXA Philippines is an established and experienced global insurance company. It is one of the largest and fastest-growing in the Philippines, offering financial security to over 1 million individuals through life insurance products, savings and investments, health plans, and income protection, as well as general insurance.

Learn more about protecting and growing your wealth with Asset Master and the AXA Global REIT and Property Income Fund by watching the video below or visiting AXA’s website.

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Why the ICJ keeps throwing out genocide claims

February 21, 2024 | 12:01 am

FEARS AND ACCUSATIONS of genocide stalk both the war in Ukraine and the war in Gaza. But as painful as the human suffering is in both regions, the Genocide Convention defines this worst of human atrocities very narrowly. Two recent rulings at the UN’s International Court of Justice (ICJ) serve as a reminder — and a sign that the court is walking back a 2019 ruling that opened the floodgates to genocide lawsuits. Both cases should serve as a warning to South Africa in its quest to have the court halt Israel’s military operations in Rafah.

In its recent decisions involving genocide accusations in Ukraine and Gaza, the ICJ has shown that it is unwilling to expand the definition of genocide beyond that in the convention: the intentional destruction, in whole or in part, of a national, ethnical, racial, or religious group as such. These decisions, while disappointing for some human rights advocates, protect the original intent of the Genocide Convention — preventing the worst crime perpetrated by humanity.

In both Ukraine and Gaza, the ICJ has been asked to determine whether violations of the convention occurred. Vladimir Putin premised his February 2022 invasion of Ukraine on the alleged genocide of ethnic Russians in the Donbas. Ukraine argued in March of that year that Russia’s bad faith use of “genocide” as a pretext for the invasion violated the convention. Ukraine quickly succeeded in obtaining a grant of provisional measures against Russia, including a court order for Russia to stop the invasion.

However, on Feb. 2 the court threw out this “bad faith” argument — a blow to Ukraine and the unprecedented 32 countries that intervened in the lawsuit to support it. The court held that Ukraine’s objection to Russia’s justification for its invasion fell outside the scope of the Genocide Convention.

The court allowed only part of Ukraine’s case to continue: The judges will evaluate whether Ukraine’s actions in the Donbas amounted to genocide. This puts Ukraine in the bizarre legal position of defending itself, in the very case it filed, against Putin’s false accusations that he never actually brought before the Court.

The case against Israel came before the Court in a different way. Beginning in 2019, the Court allowed any state that was party to the Genocide Convention to bring claims against any other party. In late December 2023, South Africa asked the ICJ for a provisional measure to stop Israel’s entire military operation in order to prevent genocide.

The standard for receiving a provisional order is remarkably low — a state must only show that it is “plausible” that the Genocide Convention has been violated. The court did find “plausible” violations and ordered Israel not to violate the convention and to let more humanitarian aid into Gaza. However, the Court rejected South Africa’s argument that Israel must stop the military operation entirely.

Although the Court did not elaborate on its reasoning, as is typical in provisional orders, the bottom line is that the Court again refused to broaden the remit of the Genocide Convention.

Additional hearings and final decisions in both cases are likely years away. Any determination of whether genocide occurred in these conflicts will require thorough examination of the actors’ intent and actions.

In both rulings, the Court has shown that it will determine only whether a state’s intent and behavior violates the terms of the convention, and not stretch its interpretation of the treaty beyond its original purpose. It will not entertain other legal grievances outside the scope of the convention that masquerade as Genocide Convention claims. In Ukraine’s case, the court showed that it is unafraid to reject the opinion of more than 30 states in order to protect the law. As for Israel, the court’s ruling is unpopular both in Israel and with the diplomats, legal scholars, and human rights advocates who think genocide is occurring in Gaza.

The court’s 2019 rule change opened the floodgates to genocide lawsuits by any state that does not like another’s war efforts — especially given the low bar for provisional measures. But with its rulings on Ukraine and Gaza, the Court is saying “not so fast.” This is a necessary correction — an attempt to close the floodgates and to preserve the meaning of the convention itself.

On Feb. 13, South Africa petitioned the ICJ to stop Israel’s expansion of its operations in Rafah, arguing that its military actions would violate the Genocide Convention. This claim lies beyond the scope of the convention and is likely to fail. The convention only permits the court to decide whether a state’s actions amount to genocide. It does not allow the court to determine prospectively declare Israel’s hypothetical military plans illegal. As commendable as the goal of stopping a humanitarian catastrophe in Rafah may be, a Genocide Convention lawsuit is not the right way to do it.

The court understands that abusing a term dilutes its intended meaning. Stretching the Genocide Convention too far undermines the rights — and the people — that it was designed to protect. Words have meaning — and misusing them has consequences beyond having a case thrown out of court.

Misusing the term erodes its power, meaning, and protection against the most atrocious crime in human history.

BLOOMBERG OPINION

Arts & Culture (02/21/24)

February 21, 2024 | 12:01 am

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Cartellino gets physical space in Galerie Stephanie

CARTELLINO, a five-year-old online platform for contemporary art, recently launched its first physical space. It is tucked in a corner inside Galerie Stephanie on the 6^th floor of Shangri-La Plaza’s East Wing in Mandaluyong City. Its inaugural exhibition, “The Little Paper Show,” will be there until March 3. The collection features small works made of paper. For more information, follow Cartellino on social media platforms like Facebook and Instagram.

Nihongo Fiesta to be held in Shangri-La Plaza

The Japan Foundation Manila is mounting the Nihongo Fiesta, now on its 19^th year, to celebrate the Japanese language and culture. There will be a Nihongo Speech Contest, where nine finalists from Luzon, Davao, and the Visayas will showcase their language proficiency and communication skills. The festival will also display photos submitted by educational institutions across the Philippines, giving the audience a glimpse into the diverse facets of Japanese culture. Meanwhile, attendees will be treated to a performance by the UP Philippines-Japan Friendship Club (UP Tomo-Kai), showcasing Japanese traditions. Visitors will also get to see the Ryukyu Buyo, an Okinawan traditional dance performance. The Nihongo Fiesta is set to take place at the Shangri-La Plaza Mall, Mandaluyong City, on Feb. 24 starting 1:20 p.m. For more details, visit www.jfmo.org.ph and www.facebook.com/JFManila.

CAST PH to present Othello, Patintero sa Ayala Avenue

CAST PH, best known for its staged readings, will be presenting full-fledged theater productions this year. It will premiere Pantintero Sa Ayala Avenue, directed by Rafael Jimenez, and featuring lead actress Zoë de Ocampo and Philippine LEAF Awards Nominee Teia Contreras. The production is set for June. It will also present a new version of William Shakespeare’s tragedy, Othello, with CAST artistic director Nelsito Gomez working with actors Tarek El Tayech as Othello, Gab Pangilinan as Desdemona, Maronne Cruz as Emilia, Reb Atadero as Iago, Davey Narciso as Cassio, Rafael Jimenez as Rodrigo, Dippy Arceo as Bianca, MC Dela Cruz as the Duke of Venice/Lodovico, and Rhenwyn Gabalonzo as Brabantio/Montano. The production is set for October. More details will be available on cast_ph on Instagram and CAST PH on Facebook.

QC to become poetry capital of the Philippines

NATIONAL Artist for Literature Virgilio Almario has formally launched a movement to make Quezon City the Poetry Capital of the Philippines. This began at a Valentine’s Day book donation drive for the QC Public Library and its 28 branches, which included copies of his book, Lemlunay: Pagunita sa Gunita, a collection of poems inspired by cultural objects and artifacts and Filipino artworks. Mr. Almario dubbed the Feb. 14 event as “Libro Para sa Aklatan ng Bayan” (Books for the Public Library) or LAB which he plans to hold yearly. The QC Public Library, San Anselmo Publications, Inc., and LIRA are collaborating with other divisions within the QC government for the development and implementation of literature and poetry-related programs and projects, including a National Poetry Day celebration on Nov. 22, the birthday of poet Jose Corazon de Jesus, a.k.a. Huseng Batute.

Greenery Kitchen sees rise in plant-based food demand

February 21, 2024 | 12:01 am

Greenery-Kitchen-1 — GREENERY KITCHEN — JOSEPH EMMANUEL L. GARCIA

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By Patricia B. Mirasol, Multimedia Producer

ENTREPRENEURS in the Philippines may find opportunities in catering to shifting consumer preferences towards plant-based options, according to vegan restaurant Greenery Kitchen.

Consumer demand for healthier and sustainable food choices is contributing to the growth of the plant-based food market, said Edilberto Villamor, co-owner of Greenery Kitchen.

A chef who is creative with vegan food can satisfy even the most omnivorous palates, he said in an interview with BusinessWorld.

“That’s our motivation actually, ’yung ma-meet namin ’yung hanap nila sa meat (That’s our motivation actually, to meet their expectations for meat),” he said.

“Ano ba ang taste ng kaldererta? Hindi ko siya ilalabas sa kitchen kung hindi siya at least maglalasang regular kaldereta…hindi ko ilalabas ’yung sisig kung hindi siya lasang regular sisig (What does kaldereta taste like? I won’t bring it out of the kitchen unless it tastes like regular kaldereta… I won’t serve the sisig if it doesn’t taste like regular sisig),” he added.

About two million Filipinos were vegetarians in 2021, representing 5% of the population, as reported by the London-based market research company Euromonitor in 2022.

The Philippines’ consumption of non-meat food reached $68.9 million in 2021, with the sector’s compound annual growth rate growing by 4.3% from 2016 to 2021, it also said.

Data from Mintel Group Ltd. in 2022 showed that 149 plant-based meals were launched in the Philippines between 2017 and 2021. Dairy, snacks, processed fish, meat, and egg products were the top categories of the released plant-based meals, according to the global market intelligence and research agency.

Low or reduced allergen, plus no additives or preservatives, were the top claims associated with the plant-based meals released during the period, it said.

CUSTOMERS
Most of Greenery Kitchen’s customers are non-vegan, according to Mr. Villamor.

“A majority of our clients are non-vegan, or non-vegetarian,” Mr. Villamor said.

“These are people na nakatikim ng vegan fare, or nakapanuod ng mga vlogs. ’Yung mga regular vegan practitioners talaga na clients namin, konti lang sila (These are people who have tasted vegan fare, or have watched vlogs. The regular vegan practitioners who are our clients, they are just a few),” he added.

Veganism is a lifestyle that excludes meat and all animal-based products. Vegetarianism, in contrast, still allows for animal-based products like eggs, dairy, and cheese.

According to Ivy Villamor, Mr. Villamor’s wife who helps run the restaurant, the largest segment of their customers consists of women aged between 24 and 44 years old.

“The next big chunk of our customer demographics are senior citizens between 60-65 years old,” she said. A majority give their food a go for health reasons, “and we are really happy that they try our plant-based options.”

CHALLENGES
The main challenges in running a business include supply chain and pricing concerns, Ms. Villamor said.

It is difficult to keep meal prices low, and cover other expenses, especially with inflation, she added.

“Kung mas mura ang plant-based, mas maa-appreciate ng mga tao… as it should be, kasi lahat ng pagkain natin, kaya natin i-source sa palengke (if plant-based foods are cheaper, people will appreciate them more… as it should be, because we can source all our food from the market),” she said.

Complying with government requirements and overhead also eats up into the profit margin, she added.

The Villamors cut costs by sourcing their supplies from local markets.

“We look for the cheapest but nicest suppliers,” Ms. Villamor said. “We also make our own in-house, plant-based meat alternatives.”

LOOKING FORWARD
The business was started as a delivery service in 2006 by the couple to spread their advocacy for plant-based living.

They now average about 100 à la carte packs Monday through Saturday, serving their market both through their in-house delivery service and through food delivery apps.

Rice meals from the restaurant, which opened in 2016, are likewise available at Caffe Te Ree Ya in NAIA Terminal 3.

“We’re also looking for resellers,” Ms. Villamor said.

“We want to promote peace, starting with our plate,” Ms. Villamor added.

“How can we ask people to turn plant-based if hindi namin ipapakita kung paano? Kaya in-offer namin ’yung food ngayon, for anyone who wants to try (How can we ask people to turn plant-based if we don’t show them how? That’s why we offered the food now, for anyone who wants to try).”

Philippines: Balance of Payments (BoP) position

February 21, 2024 | 12:01 am

THE COUNTRY posted a balance of payments (BoP) deficit of $740 million in January — the biggest in 11 months — as the government paid its foreign debt, according to data released by the Bangko Sentral ng Pilipinas (BSP) late Monday. Read the full story.

How PSEi member stocks performed — February 20, 2024

February 21, 2024 | 12:00 am

Here’s a quick glance at how PSEi stocks fared on Tuesday, February 20, 2024.

Maharlika in talks to develop three ecozones

February 20, 2024 | 9:56 pm

Rafael-Consing-MIF — Rafael D. Consing, Jr. — COURTESY OF THE PRESIDENTIAL COMMUNICATIONS OFFICE

By Luisa Maria Jacinta C. Jocson, Reporter

THE Maharlika Investment Corp. (MIC) is in talks to support the development of three economic zones (ecozones) in Luzon and Mindanao.

“I’m in active discussions with (three) government agencies in relation to their respective properties. The aim is for us to develop them into (economic zones),” Maharlika Chief Executive Officer and President Rafael D. Consing, Jr. told BusinessWorld.

These include an industrial ecozone north of Luzon, a medium-sized agri-industrial ecozone south of Metro Manila, and another ecozone in Mindanao.

Mr. Consing said Maharlika is aiming to invite locators and mobilize the resources available in those areas.

“Whether those indigenous resources are labor or talent, the aim is, apart from being able to bring in locators, manufacturing facilities and manufacturing locators… to develop agricultural facilities around them and help solve our food security issues. That’s one of the main things.”

The MIC is planning to officially announce the ecozones by the third quarter.

In December, Mr. Consing first floated proposals to create “mega ecozones” on idle government land, alongside townships that will allow people to live where they work.

The MIC’s priority investment sectors are power, agroforestry, industry, urbanization, mineral processing, tourism, transportation and aviation.

Mr. Consing has said that Maharlika is working on determining how much investment it will allocate to each priority area, which he estimated at up to 15% per sector.

It is also discussing the possibility of creating sub-funds focusing on each priority sector, similar to banks’ model of a unit investment trust fund.

In July, President Ferdinand R. Marcos, Jr. signed into law Republic Act No. 11954, which created Maharlika, the Philippines’ first sovereign wealth fund.

Social Welfare department working with PSA, NEDA for inflation indexing method for gov’t cash transfers

February 20, 2024 | 9:55 pm

THE Social Welfare department said it is considering the method for indexing its cash transfer program payments to inflation with the support of government statisticians and economic planners.

Social Welfare Secretary Rexlon T. Gatchalian said the order to index payments made under the cash transfer program, known as the Pantawid Pamilyang Pilipino Program (4Ps), was issued by President Ferdinand R. Marcos, Jr. on Tuesday.

Mr. Gatchalian said at a Palace briefing that the Department of Social Welfare and Development (DSWD) has been tasked with creating a “self-indexing” mechanism to minimize the impact of inflation on the value of cash grants.

“We were tasked to work with Philippine Statistics Authority (PSA) and National Economic and Development Authority (NEDA) to find the best index,” Mr. Gatchalian said at the briefing, citing the need to protect the value of cash grants in the face of rising prices.

“We know that inflation hits the bottom 30% of our population more severely.”

The 4Ps are payments made to the most vulnerable families, with some requiring participants to keep children in school, subject women to health checks, and observe other practices thought to be crucial to development.

Asked to comment, an economist said robust safety nets will do away with the need to legislate wage hikes, in response to the slow pace of minimum wage increases, which labor organizations said have fallen far behind the cost of living.

Leonardo A. Lanzona, who teaches economics at the Ateneo de Manila, said social protection programs like the 4Ps are vital to an economy that is being challenged both by internal and external dislocation.

“In a situation affected by changing technologies, international market reconfigurations and unstable environmental conditions, social protection is needed to protect social welfare especially for the poor,” he said in a Facebook Messenger chat.

The government needs to ensure that the 4Ps program is maintained and adjusted appropriately en route to industrialization, Mr. Lanzona said, adding that the payouts should form part of a broader social security plan.

“A viable manufacturing program requires a robust social security plan. It is the government’s responsibility to establish social security,” he said. “If we had a strong social security program, we would not need the legislated minimum wage policies.”

Inflation hit a 14-year high of 8.7% last year, though it has since receded.

Mr. Marcos had described the need for indexing as an “immediate” priority, Mr. Gatchalian said.

The 4Ps program provides conditional cash transfer to poor households for a maximum of seven years. A qualified child enrolled in daycare and elementary programs earn families a grant not lower than P300 per month for a maximum of 10 months per year.

Qualified beneficiaries with a child enrolled in junior high school are eligible for not less than P500 per month, while those in senior high school are to receive at least P700 monthly, according to the 4Ps law.

It also provides qualified households with a health and nutrition grant not lower than P750 per month yearly.

The program, which was patterned after conditional cash transfer programs in Latin America and Africa, was first implemented by former President Gloria Macapagal-Arroyo in 2006 and was made permanent by her successor, the late Benigno S.C. Aquino III, who assumed office in 2010. It became law in 2019 as Republic Act (RA) 11310, or the 4Ps Act.

Once the index approved by economic managers, it will be introduced to the Legislative Executive Development Advisory Council, Mr. Gatchalian said.

He said some of the items being considered for tracking in an index include the essential goods basket.

“There are many ways to do it but the most important thrust there is to make it responsive and protect its value against being diminished by shocks like inflation.”

He said the DSWD will also consider indexing schemes for other social grants such as the Assistance to Individuals in Crisis Situation, which is being implemented under a memorandum circular.

“Let’s protect the flagship (4Ps) first because that it’s most needed, but it doesn’t necessarily mean we’ll stop there.”

Every six years, the Philippine Institute Development Studies is tasked with recommending to the National Advisory Council whether the cash grants need to be adjusted based on movements of the consumer price index.

The council needs to ensure that the grant amounts are sufficient to “make a positive impact on the health, nutrition, and education,” according to the 2019 law.

Inflation hit a 14-year high of 8.7% year on year in January 2023. It declined to 3.9% in December, but the full-year average for 2023 was 6.0%, remaining above the central bank’s 2%-4% target.

The Senate on Monday approved on third and final reading a bill pushing for a P100 ($1.78) across-the-board minimum wage increase for workers in the private sector.

Sonny A. Africa, executive director of think tank Ibon Foundation, said the government should prioritize the creation of quality jobs and funding social services instead of focusing on cash assistance programs, which called “band-aid” solutions.

“The government should be institutionalizing quality job creation and publicly provided social services instead of focusing on the band-aid measure of cash assistance,” he said.

“The government should be looking more into why its economic strategy chronically leaves so many behind and fails to create enough decent formal work for so many Filipinos,” he added.

“The binding constraint to development is really how the economic team still refuses to accept that the country needs a long-term strategy of national industrialization to spur domestic job creation that progressively reduces the need for cash assistance for so many.” — Kyle Aristophere T. Atienza

NEDA warns of legislated wage hike impact on MSMEs

February 20, 2024 | 9:54 pm

MICRO-, SMALL- AND MEDIUM-SIZED enterprises (MSMEs) may not be able to cope with the proposed minimum wage increase now under consideration in Congress, the National Economic and Development Authority (NEDA) said.

“One of the things we’re looking at is affordability levels, especially for MSMEs,” NEDA Undersecretary Rosemarie G. Edillon told reporters late Monday.

The Senate on Monday approved on third and final reading a bill that seeks to impose a P100 across-the-board minimum wage hike for private sector workers.

The last legislated national wage hike was in 1989. Since then, pay rates have been decided by regional wage boards.

The House of Representatives has yet to deliberate on a counterpart bill. The chamber is currently studying a proposal for a P350 to P400 minimum wage hike, while separate bills have been filed for P750 and P150 wage increases.

Ms. Edillon said NEDA studied the impact of the proposed wage hike may offset company savings generated by the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law.

“That’s one of the things that can provide a windfall. But we saw that for MSMEs, they will not be able to manage. The savings from CREATE will not be enough to cover the additional wage increase.”

Ms. Edillon said that large enterprises will manage to pay more. “The problem is if you increase minimum wage, (you have to increase everything) and there will be distortions.”

CREATE was signed into law in 2021 to support enterprises recovering from the coronavirus pandemic. It reduced corporate income tax rates, provided tax relief measures, and rationalized fiscal incentives.

The House is set to deliberate amendments to the CREATE law to simplify and streamline tax and incentive systems.

The proposed changes seek to impose a 20% corporate income tax under the enhanced deduction income tax regime and provide value-added tax (VAT) exemptions for enterprises devoted entirely to the export market.

Calixto V. Chikiamco, Foundation for Economic Freedom (FEF) president, said in a Viber message that the legislated wage increase will “reduce employment, punish SMEs and scare off investors.”

In an earlier statement, the FEF said the wage increase does not account for the cost factors and employment situations in the various regions.

The group warned that it would force small- and medium-sized enterprises to lay off workers or even close operations.

“It will only cause more suffering for informal workers, such as seasonal workers, fishermen, gig economy workers, and market vendors, because they won’t benefit from the mandated daily wage increase but will suffer from the higher inflation that the bill, if passed into law, will bring.”

Mr. Chikiamco recommended to instead raise the disposable income of all consumers by liberalizing imports.

Last year, Metro Manila workers received a P40 increase in their daily minimum wage.

Other regions that approved wage increases were Cagayan Valley (P30), Ilocos region (P35), Central Luzon (P40), Central Mindanao (P35), Western Visayas (P30) and Southern Tagalog (P35 to P50). — Luisa Maria Jacinta C. Jocson

Foreign ownership of universities expected to expand PHL schools’ networks

February 20, 2024 | 9:54 pm

By John Victor D. Ordoñez, Reporter

FOREIGN OWNERSHIP of higher education institutions could improve employment prospects for students, who would have access to the foreign investors’ job placement networks, according to testimony heard by a Senate committee on Tuesday.

At a hearing considering a resolution that would ease Constitutional restrictions on foreign investment, Gael McDonald, a senior consultant with Arizona State University and former president of RMIT University Vietnam, said more foreign universities will also expand Philippine universities’ partnership networks, resulting in the exchange of knowledge and research practices.

“When you establish a new university, you establish jobs, you attract students, you contribute to the local economy, you pay taxes and should get tax incentives which should always be quite favorable,” she said.

“And you can also encourage innovation and entrepreneurship. There is an economic multiplier that is clearly in existence when you bring in a foreign university.”

The Senate is debating Resolution of Both House No. 6, which proposes to lift restrictions on foreign ownership in public utilities, education and advertising.

On Monday, legislators filed Resolution of Both Houses No. 7, which also proposes the easing of limits on foreign entities in the 1987 Constitution.

Ms. McDonald noted the possibility of “brain drain” as a result of exchange programs, though at least some expatriates have a good chance of returning eventually.

“You never know, the appeal of home is always quite great and people often do return after their studies,” she said. “If it is set up correctly it is a situation of sharing of knowledge, systems, processes, and policies.”

Karol Mark R. Yee, executive director of the Second Congressional Commission on Education (EDCOM II), said the Philippines is among the strictest in the Southeast Asia region with regard to foreign ownership of schools.

“Allowing foreign ownership is just the first step,” he said. “Singapore and Malaysia rolled out government incentives to encourage the establishment of international institutions.”

He said that EDCOM II is prioritizing the internationalization of higher education and improving research productivity this year.

At the hearing, Senator Juan Edgardo M. Angara said basic education should remain in Filipino hands because they “play a very important part in the instilling of values and the molding of the youth.”

“Before we amend or seek to amend the Constitutional provision on ownership or management and control of higher education institutions, perhaps we should aim at greater precision in the language of the amendment.”

Hilario G. Davide, Jr., a former chief justice and one of the framers of the Constitution, told Senators earlier that Congress should focus on cutting red tape and corruption instead of easing foreign ownership restrictions in the Charter.

Albay Rep. Jose Ma. Clemente S. Salceda has said that opening the economy to foreign direct investment would help the administration achieve its goal of bringing the Philippines to middle-income status by 2025.

“Universities that come into the new environment bring with them their own industry partnerships which are already well-established,” Ms. McDonald said.

PHL demographics may be suitable for AI software development — Microsoft

February 20, 2024 | 9:53 pm

By Justine Irish D. Tabile, Reporter

THE head of Microsoft Corp.’s Asia operation said the Philippines has favorable demographics for becoming a potential hub for artificial intelligence (AI) software, which it could grow as an offshoot of the outsourcing industry.

“The Philippines has such a great population base of young talented people (that it) can actually be a hub for creating AI software … and that could be a great supplement to the current outsourcing industry,” Microsoft Asia President Ahmed Mazhari said at a Makati Business Club forum on Tuesday.

“I truly believe that the outsourcing industry here should not be limited to the back office. You can actually go to the middle and front offices,” Mr. Mazhari added.

Josh P. Aquino, head of PR and communications at Microsoft Philippines, said the young workforce speaks the right languages when it comes to technology.

“It’s very young and global, and speaks the world’s language. We are represented in every country in the world through service workers so there is huge potential to establish ourselves as a nation that has a leading AI capability,” he said.

Microsoft views AI as a tool that can augment and amplify human ingenuity and capacity, potentially supplementing one of the pillars of the Philippine economy, which is the business process outsourcing (BPO) industry.

“When you have individuals catering to a global customer base, for example, in BPO, AI allows individual users to deliver more to more customers at speed,” Mr. Aquino said.

“AI solutions can help give customers insights because of the capacity of AI to process large amounts of data … It allows us to be even more customer-centric by offering more personalized insights and recommendations,” he added.

Microsoft has roughly a hundred workers in the Philippines, operating in large part through its over one thousand partners.

However, the company has not immune to tech industry layoffs, which have also impacted its operations in the Philippines, according to Mr. Aquino.

“This is a global situation we’re facing within the tech sector. It also has impacted Microsoft, but Microsoft today is the most valuable company in the world, and we only recently reached number one, so that speaks to the growth and potential of the company,” he said.

He also said Microsoft has established a larger presence in the Philippines by building a services center.

“There are (staffing) adjustments being made, but other parts of the company are growing. We have a services center here in the Philippines that is newly built, and that’s among the network of global service centers that we have across Latin America and Europe,” he said.

“So, it’s growing, and that speaks to how we’re prioritizing investments and also the resources of the company,” he added.