Yields on government debt climb ahead of US Fed hike

March 21, 2022 | 12:02 am

By Bernadette T.M. Gadon, Researcher

YIELDS on government securities (GS) continued to soar last week in the run-up to the US Federal Reserve’s policy meeting where it raised rates from near-zero to help quell inflation.

Debt yields, which move opposite to prices, went up by an average of 15.81 basis points (bps) week on week, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates as of March 18 published on the Philippine Dealing System’s website.

At the short end of the curve, yields on 91-, 182-, and 364-day Treasury bills (T-bills) picked up on Friday compared with March 11 by 6.43 bps (to 1.2005%), 14.34 bps (1.4172%), and 9.09 bps (1.7486%), respectively.

The belly of the curve likewise climbed as the rates of the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) rose by 17.2 bps (to 3.3996%), 19.87 bps (4.0314%), 22.33 bps (4.6019%), 24.48 bps (5.0551%), and 24.78 bps (5.48%), respectively.

The long end of the curve also continued its upward trend, with yields on the 10-, 20-, and 25-year T-bonds gaining 8.45 bps (to 5.5646%), 12.87 bps (5.5433%), and 14.12 bps (5.5345%).

“A large part that affected the yield curve [last] week was the uncertainty towards the FOMC (Federal Open Market Committee) meeting this week,” a bond trader said in an e-mail, referring to the policy-making body of the US central bank.

“It also did not help that the BTr (Bureau of the Treasury) partially awarded the four-year FXTN (fixed-rate Treasury notes) 577 at a high yield, which shows their strong inclination to borrow at any cost,” the trader said.

The trader said yields on government debt “normalized” after the Fed meeting.

“We believe that this will be well-communicated throughout the year and markets should be able to adjust accordingly,” the trader said.

As widely expected, the Fed decided to hike rates last week by 25 bps for the first time since 2018, Reuters reported. It also signaled more tightening to come as it projects its key rates to range from 1.7% to 2% by end of the year and 2.8% next year to combat rising inflation.

Meanwhile, the government partially awarded the reissued T-bonds it offered on Tuesday as investors asked for higher yields in anticipation of the Fed’s rate hike.

The Bureau of the Treasury (BTr) raised just P13.035 billion via the reissued five-year T-bonds it auctioned off on Tuesday, less than the programmed P35 billion, even as the offering attracted P35.305 billion in bids.

The debt papers, which have a remaining life of four years and 23 days, were awarded at an average rate of 4.669%, up by 58 bps from the 4.089% quoted when the series was last offered on Feb. 3.

“The noticeable increase in long-term yields indicated that the Russia-Ukraine conflict continue to influence domestic inflationary concerns, specifically on the impact of the conflict on commodity prices,” another bond trader said in an e-mail.

Recent auctions have been “notably timid” amid uncertainties over the economy’s recovery from the pandemic, the second trader added.

For the week, analysts said yields will continue to rise ahead of the Bangko Sentral ng Pilipinas’ policy meeting on March 24 and the BTr’s return to the English auction format, where there is a suggested opening bid. It previously conducted its fundraising activities via Dutch auctions, where offers start at the highest price and lowered until a price is accepted.

“Notice that the BTr opted to do an English auction via reissuance so it could secure itself some awards instead of the twice rejected Dutch auction for the supposedly new seven-year FXTN 766. Indicative yield for the 6.4-year FXTN 765 is at 5.40%-5.65%,” the first trader said.

The government will offer reissued seven-year bonds with a remaining life of six years and four months worth P35 billion on March 22.

“Investors should be wary of incoming debt supply for March and the release of the April borrowing schedule [two] weeks from now. BSP MB (Monetary Board) meeting should be neutral with assurance that inflation won’t stray too much,” the first trader added.

“Market participants, especially on the bond markets, are highly expected to be on the lookout for the shape and flattening of the US Treasury yield curve from the combined effect of aggressive monetary policy on the short end and dimming optimistic over the global economy as reflected by the long end of the yield curve,” the second trader said.

“Local yields might move higher from expectations of hawkish signals ahead of the BSP policy meeting amid rising local inflationary risks. Yields might likewise increase from the impact of the highly hawkish Fed policy meeting this week,” the second trader added. — with Reuters

Largest Hyperscale Data Center, PLDT Group’s 11^th VITRO facility to rise in Sta. Rosa, Laguna

March 21, 2022 | 12:02 am

PLDT and Smart President and CEO Alfredo S. Panlilio, fourth from left, recently led the groundbreaking of the 11^th and largest VITRO hyperscale data center facility, expanding the group’s network of world-class data centers. Joining him during the ceremonies held in Sta. Rosa, Laguna were, from left: RED Engineering’s Martin Webb, DICT Regional Director Cheryl Ortega, Meralco President and CEO Atty. Ray Espinosa, PEZA Director General Charito Plaza, Laguna Governor Ramil Hernandez, Sta. Rosa City Mayor Arlene Arcillas, and PLDT FVP and Head of Digital Office Viboy Genuino, to officially mark the start of the VITRO mega facility’s construction.

Financial Market Outlook: Market volatility to continue amid Fed lift-off, Russia-Ukraine conflict

March 21, 2022 | 12:02 am

top-view-piggy-bank-money-[freepik] — FREEPIK

1 of 5

FINANCIAL MARKETS may continue to experience volatility in the near term following the Federal Reserve’s start of its tightening cycle and the geopolitical tensions between Russia and Ukraine.

The barometer Philippine Stock Exchange index (PSEi) averaged 7,206.92 in the October-December period, up by 6.8% from 6,750.01 on a quarter-on-quarter basis. On an end-period basis, the index was up by 2.4% to 7,122.09 from 6,952.88 the previous quarter.

Meanwhile, the peso averaged P50.45 against the dollar in the fourth quarter, depreciating by 0.6% from the previous quarter’s average of P50.14:$1, and 4.5% weaker compared with the P48.27-to-a-dollar average seen in the fourth quarter of 2020, data by the Bangko Sentral ng Pilipinas (BSP) showed.

Treasury bill (T-bill) auctions conducted in the last three months of 2021 continued to see robust demand, data by the Bureau of the Treasury showed. Total subscriptions in these T-bills reaching around P461.6 trillion, which is estimated 3.1 times the P150-billion aggregate offered amount. This oversubscription amount of P311.6 billion was lower compared with the P506.7 billion posted in the previous quarter.

Similarly, auctions of Treasury bonds (T-bonds) during the period posted a total subscription amount of P360 billion, 12 times more than the offered amount of P30 billion.

At the secondary bond market, domestic yields were higher by 32.4 basis points (bps) for the 10-year T-bonds and 95.8 bps for the five-year papers compared with end-September 2021 levels.

However, the yields for 91-day, 182-day, 365-day, 20-year and 25-year government securities were lower by 3.2 bps, 11.6 bps, 0.7 bp, 31.2 bps and 34 bps, respectively, according to the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

“Markets were generally supported by the improvement in the local coronavirus disease 2019 (COVID-19) situation, the ease in COVID-related movement restrictions, and the continued accommodative policy stance of the BSP,” the central bank said in an e-mail.

The BSP added that local markets were also supported by upbeat economic data releases during the period.

The Philippine economy rose by 7.7% in the final three months last year, higher than the 6.9% in previous quarter and a turnaround of the 8.3% contraction in the fourth quarter of 2020. This brought the full-year GDP growth to 5.6%, a reversal from the record 9.6% decline posted in 2020. This surpassed the revised 5-5.5% 2021 growth assumption of the Development Budget Coordination Committee (DBCC) last year.

Under Philippine Statistics Authority (PSA) rebased 2018 prices, inflation continued to show downward result for the fifth straight month in December at 3.2%. The inflation averaged 3.9%, still within the central bank’s target range of 2-4% last year.

However, BSP expressed that towards the end of the year, sentiment was dampened by concerns over the economic impact of Typhoon Odette, worries over the Omicron variant and expectations that the US Federal Reserve (US Fed) will stay on its path of interest rate hikes in 2022.

“Factors which affected the financial markets in the fourth quarter of 2021 are likely to remain relevant in the early parts of 2022, including the pace of economic recovery and progress in the easing of coronavirus-related restrictions. These may continue to provide support to the local markets. However, the looming interest rate hikes by the Fed may limit gains,” added BSP.

After keeping an accommodative policy environment for nearly four years, the US Federal Reserve hiked its near-zero policy rates by 25 bps to fight 40-year-high inflation. The central bank of the world’s largest economy expects its interest rate to range between 1.75-2% by end of this year, translating to six 25-bp increases for the remaining Fed meetings.

The BSP said it will not follow the pace of the adjustments made by the Fed. BSP Governor Benjamin E. Diokno said the central bank would remain patient and expects to adjust interest rates by the latter half of the year to ensure sustained economic recovery.

However, Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said the central bank might need to adjust its monetary policy to temper the impact of the Fed tightening especially on the exchange rate.

“Expectations of tighter dollar liquidity in the coming months might exert pressure on the peso and the BSP’s dollar reserves if the policy rate is kept at 2%,” Mr. Neri said in an e-mail.

The BSP maintained the key policy interest rate on the overnight reverse repurchase facility at record low 2%. The corresponding interest rates on the overnight deposit and lending facilities remained at 1.5% and 2.5%, respectively.

The central bank’s Monetary Board will meet to review its current policy settings on March 24.

WHAT INDICATORS TO WATCH OUT FOR
Aside from policy normalization and potential threats from new COVID-19 variants, economists said investors should watch out for market volatility amid the ongoing conflict between Russia and Ukraine.

In late February, Russia invaded Ukraine on the pretext of demilitarization and “denazification.” This sent commodity prices, most notably oil, surging to levels not seen since 2014.

“The ongoing conflict will likely continue to roil financial markets with general flight to quality. The peso could come under considerable heat given a likely bloating of the import bill due to expensive oil,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.

“The situation remains fluid particularly with the sanctions imposed and to be imposed as well as the uncertainty if this conflict will remain protracted or reach a faster resolution,” Security Bank Corp. Chief Economist and Assistant Vice-President Robert Dan J. Roces said in an e-mail.

“As such that uncertainty will continue to roil markets and cause volatility,” he added.

For Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort, he said the financial markets could remain volatile in the first quarter amid increased geopolitical risks related to Russia’s invasion/war with Ukraine, in view of the uncertainties ahead.

The central bank also flagged the risks of the rising global oil prices amid the ongoing tensions between the two East European countries.

“Movement in oil prices should also be monitored as this would have a significant effect on global inflation and may prompt other central banks to begin tightening their monetary policies as well,” the BSP said.

It also warned of the market jitters on the uncertainty of the local political landscape due to the upcoming May 2022 national elections as this could weigh on investors’ risk sentiment.

INFLATION OUTLOOK
BSP estimated that the inflation would ease towards the midpoint target range of 2-4% target range this year.

BPI’s Mr. Neri said domestic inflation has slowed down in recent months but sees risks that could change its direction.

“Strong demand and limited increase in oil supply may continue to push oil prices higher. Peso depreciation is another factor that could drive the increase in consumer prices,” Mr. Neri said in an e-mail.

Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion expects Typhoon Odette’s (international name: Rai) supply shocks to ease in March but agricultural output could be aggravated by the dry season in the second quarter.

“Weak peso and elevated oil prices would be at the core of cost-push inflation. Our forward-looking, best guess deprived of a statistical model is an inflation average of 3.5% this year, which implies close to 4% inflation in second half of 2022 as the recovery gains traction,” Mr. Asuncion said.

Security Bank’s Mr. Roces sees inflation to moderate due to base effects in this year.

“However, risks are tilted on the upside with global oil price movements, elevated commodity prices, external supply chain disruptions, and import-dependence on certain food items,” he said.

“Demand-pull may become more pronounced with consumption rebound, but base effects will offset. Moderated levels give BSP some room to maintain accommodative stance in near to medium term to support recovery,” Mr. Roces said.

RCBC’s Mr. Ricafort estimated that year-on-year inflation could mathematically ease to 3% levels due to coming from low base in 2021, but offset by elevated global oil prices among seven-year highs and the prices of other major global commodities among decade-highs recently.

ING’s Mr. Mapa said that domestic inflation will likely be more subdued in 2022, owing in large part to the 2018 rebase of the consumer price index.

“Nonetheless, we could see elevated supply side pressure emanating from still high energy prices and meat inflation persist due to the ongoing unquelled African Swine Fever,” he said. “Demand side pressures are also returning due to improving economic prospects.”

With these developments in mind, below are the BSP’s and analysts’ outlook for each of the key markets:

FIXED-INCOME MARKET
BSP: “The domestic bond market is expected to be liquid with robust demand as the BSP continues to ensure the proper functioning of financial markets. With the market flush with liquidity and with lingering uncertainty, most market players are expected to continue placing funds in safe assets, as evidenced by the high oversubscription consistently seen in the weekly Bureau of the Treasury auctions. Moreover, with the continued accommodative monetary policy stance of the BSP and the appropriate intervention in the secondary market, yields on government securities are expected to remain steady.”

Mr. Asuncion: “The fixed-income market has seen PHP Bloomberg Valuation Service rates continuing to rise with the Ukraine uncertainties even as it was already rising with expectations of a tighter monetary policy stance of the US Fed… and we expect this rising trend to continue for the first quarter this year until tensions simmer down.”

Mr. Ricafort: “The large upward correction in some long-end local bond yields already seen since last year, with an increase of about 170-180 basis points in 2021, so the big moves could have been seen already amid an environment of easing year-on-year inflation at the 3% levels for 2022, thereby could set the valuation for long-term interest rates for 2022 and in the coming years as well.”

Mr. Mapa: “General increase, more pronounced on long rates. Mid-tenor could be impacted by pace of BTr borrowing, projected to be front loaded while rates are low. Short dates to take their queue from potential BSP rate hikes by mid year.”

Mr. Neri: “Local bond yields will likely track the increase in UST (US Treasury) yields with additional upward pressure from government borrowing and possible BSP tightening as a response to the Fed rate hikes.”

EQUITIES MARKET
BSP: “In the near term, stock market volatility is expected to continue in 2022 due to a number of risk factors, including: (1) rising global interest rates; (2) occasional surges in coronavirus infections that may lead to tighter mobility restrictions; (3) local election-related uncertainties; and (4) heightened geopolitical tensions.”

Mr. Asuncion: “The risk asset market has been performing well this 2022, reaching the 7,500 level. It will be highly dependent on local economic news, particularly that of COVID-related ones. Restriction level downgrade would be a welcome development and will definitely bode well for the PSEi’s medium-term prospects. National election uncertainties may, however, mar the improving prospects of the equities market. Second half of 2022 may show more stability as the new administration sets itself up moving forward.

“We expect uncertainties through higher volatility in risk asset markets as investors will be cautious of potential adverse events coming their way, and we have seen the local PSEi respond negatively already to the Ukraine invasion by Russia. Asian currencies, on the other hand, have been quite steady but persistent bouts with flight to safety are undeniable especially as the situation in Ukraine is still very fluid.”

Mr. Ricafort: “The local stock market PSEi could continue to go higher, consistently with improved economic recovery prospects as the economy reopens further towards greater normalcy, leading to higher production, sales, earnings, employment, and overall valuation amid increased vaccination doses towards herd immunity that would effectively reduce the risk of lockdowns.”

Mr. Neri: “We expect a faster economic recovery in the first quarter, especially now that COVID-19 cases are declining. Local stocks have the momentum to go up further especially those in high-contact service industries.”

FOREIGN EXCHANGE MARKET
BSP: “The peso will remain market-driven and will continue to reflect the economy’s long-run macroeconomic fundamentals. The stability of the peso will be supported by structural inflows from exports, overseas Filipino remittances, BPO receipts, and foreign direct investments. These inflows are seen to continue as the domestic economy recovers and external demand strengthens in the next few quarters. The ample international reserves could also buttress the Philippine peso.”

Mr. Asuncion: “Peso has risen to almost the line-in-the-sand of BSP at 51.50 level, but it seems BSP is committed to this level at the moment. However, we also think that the strong USD narrative will continue to persist with the reopening of the global and local economy and the need to tame global inflation and unwind expansionary policies employed due to the COVID-19 pandemic.”

Mr. Ricafort: “The country’s GIR (gross international reserve) could still increase close to the record high of US$110 billion or could even post new record highs for the coming months, in view of the continued growth in the country’s structural US dollar inflows such as OFW remittances, BPO revenues, resumption of foreign tourism receipts (after being disrupted for nearly 2 years by the COVID-19 pandemic), POGO (Philippine Offshore Gaming Operator) revenues, foreign investments [both portfolio and FDIs (foreign direct investments)], though offset by increased imports/wider trade deficit as well as some payment of the country’s foreign debts.”

Mr. Mapa: “General weakening scenario on strong USD theme. Weaker also on both current and financial market outflows.”

Mr. Neri: “Peso is expected to weaken as imports will likely exceed exports and remittances,” referring to financial markets. — Lourdes O. Pilar

Watsons recycles 833,000 plastic bottles, incentivizes suppliers to go green

March 21, 2022 | 12:01 am

Watsons screencap — Speaking of sustainability: Anna Oposa of Save Philippine Seas, Viki Encarnacion of Watsons Philippines, David Katz of Plastic Bank, and Commissioner Crispian Lao of the National Solid Waste Management Commission.

WATSONs, the drugstore and cosmetics one-stop shop, has been able to recycle 833,000 plastic bottles from their stores. This was disclosed during a webinar where Watsons discussed their sustainability plans from last year and into the future.

Viki Herrera-Encarnacion, Watsons Philippines Public Relations and Sustainability Director, talking during the Watsons Do Good Webinar on March 17, said that last year, customers were able to access about 1,200 sustainable products that were deemed to have more planet-friendly packaging and ingredients, and reduce electricity intensity by 17% from 2015. More importantly, it has been able to recycle 833,000 plastic bottles from their stores in a collaboration with Plastic Bank.

Plastic Bank, according to its website, has a network of plastic collection branches that “gather plastic waste directly from local beaches, riverbanks, neighborhoods, and even households.”

“Our collectors exchange plastic waste at local Plastic Bank branches for bonuses that help provide basic family necessities, such as groceries, cooking fuel, school tuition, health insurance, digital connectivity, and clean drinking water. By offering safe, secure, and traceable sources of income, we’re empowering vulnerable communities with a path out of poverty,” said the social enterprise. In turn, the collected plastic is turned into a product called Social Plastic feedstock “used in the production of products and packaging — thus helping create new life for old plastic,” they said.

“Admittedly, these numbers are small relative to the problems the world faces today. That is why in the coming months, Watsons aims to step up our programs for the communities and the planet,” said Ms. Herrera-Encarnacion.

Watsons has incentives for suppliers when they tick off their sustainability goals. “For a retailer like us, for any program to make a strong impact, we must involve many stakeholders… for our suppliers, we’re encouraging them to come up with more sustainable products,” said Ms. Herrera-Encarnacion. She encourages suppliers to have more options for refill packs, and use more planet-friendly ingredients for their products. “We incentivize them. Once they qualify for that classification, we actually give them more display space.” From the 1,200 sustainable products they already have, they plan to double that number.

“There had been over 10 trillion kilos of plastic produced so far [in history]. All the plastic that we have produced are still here,” David Katz, CEO and founder of Plastic Bank, pointed out during the webinar, calling from Vancouver.

“Recycling isn’t just an opportunity to return material back in the manufacturing in the supply chain. It’s an opportunity to look at things differently. To look for where there is worth where others saw waste. See where all these opportunities where others thought there was despair,” he said in a speech. “With our partnership with Watsons, the world is powerfully going to not just witness the change of the communities and the lives of our collectors, but they are going to see a new way of thinking and new way of doing business.”

The Philippines generated about 44,000 tons of waste per day in 2019 said Crispian Lao, Vice-Chairman of the National Solid Waste Management Commission (under the Office of the President). “Each person contributes about 0.3-0.7 kilograms,” he said. “What’s important is to segregate whether (in) your home, in your workplace, and wherever you are, you need to segregate. It’s not only the law but it helps in the whole ecosystem of waste management,” he said, citing the Ecological Solid Waste Management Act 4A9003 (otherwise known as Ecological Solid Waste Management Act of 2000).

He said that one can drop off residual waste at different SM Malls, some of which “already have trash to cash programs.”

On a parting note, he gave a laundry list of simple things an individual can do to help make a less-polluted planet. “Bring your own grocery bag as you go shopping, buy in bulk, avoid small packets when feasible, purchase quality and repairable products, and participate, as I’ve said, in recovery programs and drop-off centers or at least the minimum: bring it to junk shops… finally, if you have waste to dispose of, please dispose properly.”

“It is critical for us to do our share for the environment and participate in the programs that are already there, and if possible, develop your own programs within your community,” he said. — Joseph L. Garcia

Little Trees brand makes a comeback

March 21, 2022 | 12:01 am

VELO_DASHBOARD_S6_P2_image2NEW — IMAGE FROM LITTLE TREES

THE ICONIC car air freshener marque Little Trees Car Air Freshener makes a comeback as it turns 70 years in 2022. Since its founding, the brand has been recognized for its unique design: the familiar shape of the evergreen tree. In a release, its distributor, Waido Marketing, said, “Over decades, it has continuously been renowned for delivering long-lasting, tried-and-true fragrances, always light and clean, without any irritating after-effect.”

The air freshener has been a pop culture icon — appearing on television, advertising, social media, and even cartoons.

The company behind Little Trees is Car-Freshner Corp., based in Watertown, New York. The shape is said to be a tribute to the founder’s efforts in extracting aromatic oils in the pine forests of Canada. “The original Little Trees car air fresheners were made with a combination of a specialized blotter material and fragrances, eventually evolving to remain in the highest quality possible to deliver the best in durability, longevity, and performance,” continued the statement.

The Little Trees freshener is said to keep vehicles smelling clean and fresh without fuss and irritation. The product comes in the familiar convenient, lightweight format — getting the job done without being in the way. “The fragrances are designed to be pleasant, non-irritating, and not overly concentrated. The smell is not too strong, won’t irritate the nose, and will not stick to the fabrics of your car interior.”

Little Trees come in over 20 scents from “classic and calming to fruity and floral” like the iconic Royal Pine, or Lavender and Black Ice.

Follow Little Trees Philippines on Facebook (littletreesphofficial), Instagram (@littletreesphofficial), and the hashtag #LittleTreesLetItHang. Waido Marketing said that the brand will be coming out with three new formats this year.

Ukraine conflict already impacting food security, UN agency warns

March 21, 2022 | 12:01 am

LONDON — The war in Ukraine is already resulting in rising food prices and a shortage of staple crops in parts of central Asia, the Middle East and North Africa, the United Nations (UN) International Fund for Agricultural Development (IFAD) said on Thursday.

The Russian invasion of Ukraine last month has severely curtailed shipments from the two countries, which jointly account for around 25% of world wheat exports and 16% of world corn exports, leading to surging prices for the grains on international markets.

These are now trickling down to retail food prices in some of the world’s poorest countries, according to IFAD. “The conflict in Ukraine, already a catastrophe for those directly involved, will also be a tragedy for the world’s poorest people living in rural areas. We are already seeing price hikes,” said Gilbert F. Houngbo, President of IFAD.

He warned that hikes are set to cause escalating hunger and poverty, with dire implications for global stability. Wheat prices are currently not far off levels seen during the last food crisis of 2007 and 2008, which sparked protests in many developing nations and is widely regarded as having contributed to the Arab Spring uprisings in the Middle East.

Russia is also one of the world’s largest suppliers of fertilizer — prices of which had already spiked last year, contributing to a 30% increase in world food prices and a related increase in global hunger levels.

To help mitigate the crisis facing poor rural people who produce about a third of the world’s food, IFAD said it will focus on interventions like cash transfers, strengthening remittances, setting up savings and loans groups, and providing subsidies for agricultural enterprises. — Reuters

PHL stocks may rebound on Russia-Ukraine talks

March 21, 2022 | 12:01 am

STOCKS may rebound this week amid proposed peace talks between Russia and the Ukraine and expectations of a further reopening of the economy with the nationwide implementation of Alert Level 1, the least strict restrictions.

The benchmark Philippine Stock Exchange index (PSEi) slid by 114.82 points or 1.61% to close at 7,007.63 on Friday, while the broader all shares dropped by 41.92 points or 1.11% to 3,718.04.

Week on week, the PSEi retreated by 104.56 points from its finish of 7,112.19 on March 11.

“The PSEi eased on [Friday], after correcting higher for three straight days, amid the weaker peso exchange rate versus the US dollar, recently among the weakest for peso in 2.5 years or since August 2019,” Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said in a text message.

On Friday, the local unit closed at P52.335 per dollar, weaker than its finish of P52.14 on Thursday.

Mr. Ricafort said the drop was also due to Russia’s continued invasion of Ukraine that sent oil, energy and other global commodity prices higher, leading to higher inflation, petitions for transport fare hike, possible wage hike, a risk of second-round inflation effects that could lead to tighter monetary policy and higher borrowing or financing costs for some listed companies.

Oil prices settled higher on Friday, but posted a second straight weekly loss, after a volatile trading week with no easy replacement for Russian barrels in a tight market, Reuters reported.

“Investors will be on the sidelines moving forward. The index will move in a huge range between 6,600 and 7,100 for now. There are still uncertainties but there is hope after news came out that President Zelensky pushes for meaningful talks with Russia,” Mercantile Securities Corp. Analyst Jeff C. See said in a Viber message.

Ukrainian leader Volodymyr Zelensky called on Saturday for comprehensive peace talks with Moscow and also urged Switzerland to do more to crack down on Russian oligarchs who he said were helping wage war on his country with their money, Reuters reported.

“The country’s economic team also proposed measures to further reopen the economy, especially the nationwide easing to Alert Level 1 and resumption of in-person schooling, among other intervention measures, such as more subsidies for the agriculture and transport sectors, temporary lowering of tariffs on some food imports, among other non-monetary measures, in an effort to mitigate the adverse economic impact of the Russia-Ukraine conflict on the Philippine economy especially in terms of higher price so imported oil and energy and other major commodities,” RCBC’s Mr. Ricafort said.

Mr. Ricafort placed the PSEi’s immediate major support between 6,600 and 6,700 and resistance at 7,100 and 7,200.

Meanwhile, Mercantile Securities’ Mr. See put the PSEi’s support level from 6,638 to 7,000 and resistance at 7,200 to 7,545. — Luisa Maria Jacinta C. Jocson with Reuters

Veteran Santy Barnachea retires to focus on coaching

March 21, 2022 | 12:01 am

Santy-Barnachea-Ronda-Pilipinas2_philstar-file — SANTY BARNACHEA — PHILIPPINE STAR FILE PHOTO

BAGUIO CITY — Santy Barnachea, winner of four Tour titles including two in the LBC Ronda Pilipinas, is retiring for good.

“After 25 years in cycling, I’m retiring and focusing on coaching,” said the 47-year-old Barnachea during yesterday’s 10^th and final Ronda stage at the Burnham Park here.

Riding for Excellent Noodles, Mr. Barnachea, who ruled Ronda’s maiden edition in 2011 and repeated in 2015, had actually retired two years ago when he raced for Scratch It in Ronda but came out of it for one final shot at glory.

And the Umingan, Pangasinan native came out swinging as he finished 20^th overall of the 57 survivors out of the original 104 cyclists and was even fourth in the Individual Time Trial Stage One in Sorsogon where he edged younger riders almost half his age.

“I call him the heart and soul of the team, he will be our coach,” said Excellent Noodles team owner Alex Billan referring to his legendary skipper. — Joey Villar

Peso may go up before BSP’s policy review

March 21, 2022 | 12:01 am

THE PESO may strengthen this week on expectations that the central bank will keep benchmark rates low at its meeting this week and of a decline in global oil prices.

The local unit ended at P52.335 per dollar on Friday, weaker by 19.5 centavos from its P52.14 close on Thursday, based on Bankers Association of the Philippines data.

It also depreciated by 4.5 centavos from its P52.29-a-dollar finish a week earlier.

The peso opened Friday’s session at P52.20 versus the dollar. Its weakest showing was at P52.43, while its intraday best was at P52.20 against the greenback.

Dollars exchanged increased to $1.445 billion on Friday from $998.2 million on Thursday.

The peso depreciated as the country posted a wider balance of payments (BoP) deficit last month, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The country’s BoP position stood at a $157-million deficit in February, the Bangko Sentral ng Pilipinas (BSP) reported on Friday. This was attributed to foreign currency withdrawals from the National Government meant to settle its external debt.

The February BoP deficit was slimmer than the $2.01-billion shortfall seen a year earlier, but bigger than the $102-million gap in January. It was also the widest deficit since the $412-million gap in September 2021.

There was also risk-off sentiment in the market as oil prices increased after several days of decline, Mr. Ricafort added.

The benchmark Brent crude futures rose by $8.62 or 8.79% to close at $106.64 a barrel on Thursday, while the US West Texas Intermediate (WTI) crude increased by $7.94 or 8.35% to $102.98 per barrel.

Market participants are still concerned on possible supply shortages which may result due to sanctions imposed against Russia, Reuters reported.

Mr. Ricafort said the peso may strengthen this week as oil prices are expected to decline.

On Friday, both the Brent and WTI contracts were down by around 4% from a week earlier.

Meanwhile, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said a widely expected accommodative stance from the BSP will be factored in by the market.

A BusinessWorld poll last week showed 16 out of 18 analysts expect the Monetary Board to keep rates at record lows at their policy review on Thursday.

Analysts said the BSP is likely to focus on supporting economic recovery, as some cited how the impact of the Ukraine-Russia conflict to commodity prices is better addressed by fiscal policy at this point.

For this week, Mr. Ricafort gave a forecast range of P52.10 to P52.45 per dollar, while Mr. Asuncion expects a wider P51.85 to P52.35 band. — Luz Wendy T. Noble with Reuters

Ayala Corp.’s share price dips amid Russia-Ukraine conflict

March 21, 2022 | 12:01 am

AYALA CORP. shares dipped due to bearish market sentiment as investors continue to monitor the Russia-Ukraine conflict and its impact on surging oil prices.

Data from the Philippine Stock Exchange showed a total of 2.83 million Ayala Corp. shares worth P2.21 billion exchanged hands from March 14 to 18, making it the seventh most actively traded in the stock market last week.

Shares in the conglomerate finished at P788.00 apiece on Friday, down by 1.6% week on week. Year to date, the stock’s price fell by 5.4%.

Regina Capital Development Corp. Head of Sales Luis A. Limlingan attributed the week’s performance to volatility due to investors closely monitoring geopolitical tensions and their impact on global oil prices, inflation, and the country’s economic growth.

“AC’s share price movement during the week was more of a reflection of investor sentiment amid said geopolitical tensions rather than something specific to just the company itself,” he said in an e-mail interview, referring to the company’s ticker symbol.

But a lot of investors turned to the stock during the week as its recent earnings report prompted a relatively wider trading range, Mr. Limlingan said.

“The earnings report also reinforced investors’ belief that AC is a fundamentally sound company that has strong potential for growth in the future,” he said.

Market players had a bearish market sentiment in the beginning of the week caused by inflation fears amid the surging oil prices, Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said in an e-mail.

“I believe these are what pulled AC’s share price down by [last] week’s start. There has been some bargain hunting in the next two days. However, by the end of the trading week, bearish general market sentiment resurfaced amid the lack of significant progress in the Russia-Ukraine talks. This pulled AC to a negative close for the week.”

He said that the conglomerate’s net income did surge but one-off gains played a significant role in this.

In a disclosure last March 11, Ayala Corp. reported a 62% growth in net profit to P27.8 billion last year, primarily driven by higher earnings from its businesses such as banking, property, telecommunications, and energy, along with one-time gains.

Its core net income, which excludes one-off gains, decreased by a tenth to P23.5 billion, brought by Bank of the Philippine Islands’ narrower net interest income, Globe Telecom, Inc.’s higher depreciation expenses, and reduced stake in AC Energy Corp.

In the final three months of last year, its bottom line rose 46% year on year to P23.5 billion.

In late February, Russia invaded Ukraine, sending shockwaves to world markets. Russia is the second largest producer of crude oil after Saudi Arabia.

The conflict sent international benchmark Brent crude surging past $100 per barrel, a level not seen since 2014.

Recent reports say there is progress in the talks between Ukraine and Russia.

President Volodymyr Zelensky of Ukraine said their negotiations have become more realistic since the war began three weeks ago, Reuters reported.

Russian President Vladimir Putin, on the other hand, said they are willing to discuss a neutral status with Ukraine.

This year, Mr. Tantiangco projects Ayala Corp.’s bottom line to increase by 10%.

“We’re expecting robust financial performance from its segments, (with the reopening the economy) primarily from its property, banking, telecommunications, and energy segment.”

Mr. Limlingan expects Ayala Corp.’s earnings this year to range from P28 billion to P35 billion, with the first quarter ranging between P7 billion and P8.75 billion.

“Any updates regarding its operations during the reopening of the economy and whether or not it is already back to pre-pandemic levels could make an impact on its share price, as this is what investors are looking for right now,” Mr. Limlingan said.

He placed the stock’s support at P750.00 this week, while its resistance at P825.00 and P850.00.

For Mr. Tantiangco, a recovery in Ayala Corp.’s core net income in the first quarter of 2022 may entice investors to look into the company.

“In the short run, improvements in the general market condition could entice market players to look into AC. This includes positive developments in our current narratives such as progress in the Russia-Ukraine talks, and a waning of inflation concerns.”

He placed Ayala Corp.’s support to range P690.00 to P710.00 while its resistance between P800.00 and P820.00. — Abigail Marie P. Yraola with Reuters

Banks’ profit to improve in 2022 — analysts

March 21, 2022 | 12:01 am

THE BANKING SECTOR’s bottom line could further improve this year as the economy gradually loosens its pandemic movement curbs, analysts said.

Analysts expect the banking sector to continue its improvement on financial performance as the economy leads to recovery, however, risks are still apparent with the continuing coronavirus disease 2019 (COVID-19) and the Fed’s tightening monetary policy.

The barometer Philippine Stock Exchange index ended the fourth quarter at 7,122.63, increasing by 2.4% on a quarter-on-quarter basis from 6,952.88 in the previous quarter.

The financial subindex, which included the banks, rose by 14.4% to 1,606.17, reversing the 6.3% quarter-on-quarter drop seen in third quarter.

Twelve out of 15 listed banks posted growths in their share prices during the fourth quarter. Metropolitan Bank & Trust Co. (MBT) surged the most by 27.5% quarter on quarter. It was followed by Union Bank of the Philippines (UBP, 17.5%), Bank of the Philippine Islands (BPI, 13.1%), Philippine Trust Co. (PTC, 12.4%), and Security Bank Corp. (SBC, 12.3%).

Shares in Asia United Bank (AUB), meanwhile, fell by 3.9%. Philippine Bank of Communications (PBC, -1.1%) and Philippine National Bank (PNB, -0.5%) likewise decreased.

Regina Capital Development Corp. Head of Sales Luis A. Limlingan attributed the increases in share prices among most of the listed banks to lower loan loss provisions of banks stocks amid the economy’s gradual recovery.

“Those that logged strong [fourth quarter 2021] performance have likely booked much lower provisions amid credit risk normalization and saw a significant increase in their fee-based income,” he said.

PNB Senior Equity Research Analyst Wendy B. Estacio said that the increase in share prices of the listed banks was driven by its improvement in asset quality which resulted from lower loan loss provisions.

She also cited the banks’ improved cost-to-income ratios as lenders continued their shift to digitalization that expanded operation efficiency in response to strict movement restrictions.

“On asset quality side, nonperforming loans were lower as credit standing of retail and corporates improved. As a result, banks provided lower loan loss provisions which improved their bottom line during the period,” she added.

Provision for credit losses by the universal and commercial banks (U/KBs) was nearly halved to P93.27 billion in end-December last year from P192.71 billion in 2020, central bank data showed.

Total net income of the big banks jumped by 45.5% year on year to P207.45 billion in the fourth quarter.

Gross nonperforming loan ratio of big lenders, meanwhile, improved to 11-month low at 3.55% as of December last year.

First Metro Investment Corp. (FMIC) Research Head Cristina S. Ulang attributed banks positive performance for the period due to the parallel decline in COVID-19 cases as the economy reopened towards normalcy.

“Sharp drop in virus cases paved the way for economic reopening in [fourth quarter 2021], benefiting banks in terms of lending opportunities,” Ms. Ulang said.

She also noted the pickup in yield curve in 2021, which means lower trading income for government securities.

Looking at the current market climate, analysts recommended to look at the loan portfolio of banks as they start to become less conservative in lending.

“Market participants should still consider the composition of the loan portfolio of the bank, bank classification, prospects, and how eager these banks want to strengthen their digital framework amid the rising fraudulent activities,” Mr. Limlingan said.

Meanwhile, Globalinks Securities and Stocks, Inc. Head of Sales Trading Toby Allan C. Arce stressed that investors and traders should consider investing amid a high interest rate environment.

“Based on the Federal Reserve’s pivot at the end of 2021, it appears as though they may now be adopting a more hawkish stance to removing the stimulus provided during the COVID-19 pandemic while helping to combat non-transitory areas of inflation,” he added.

In December, the US central bank decided to unwind its monthly $120-billion bond-buying program after nearly two years into the pandemic starting this March. It turned hawkish after signaling it could raise its policy rate three times this year.

For the first time since 2018, the Fed hiked its policy rate by 25 basis points and signaled more increases to hit 1.75-2% range by the end of this year to combat highest inflation in four decades.

Meanwhile, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the central bank will stick to its plan to raise its record-low key rate by the latter half of the year, factoring in the Russia-Ukraine crisis and the Fed’s hawkish moves.

“Rising interest rates will likely affect banks’ balance sheets, altering the values of liabilities and assets and reduce the net worth of banks,” Globalinks’ Mr. Arce said.

Meanwhile, Regina Capital’s Mr. Limlingan was confident that the Fed’s policy would not have a significant impact on the banking industry.

“In theory, this would lead to capital outflows, but the BSP gave a reassuring statement that it wouldn’t result in a sizable impact on the domestic economy and banking industry, citing that the country has sound fundamentals and a resilient banking system,” Mr. Limlingan said.

For PNB’s Ms. Estacio, banks efforts to adopt digital banking will likely increase its operating expenses, hence, a factor investors should look into.

“Investors should look into a possible rise in operating expenses of banks given the initiatives to improve their digital operations in line with the BSP’s target,” Ms. Estacio said.

The central bank aims to have 70% of Filipinos to have bank accounts by 2023. It also targets half of the country’s payments to be conducted online by the same year.

OUTLOOK
Analysts expressed optimism on the economic recovery despite uncertainties brought by the COVID-19 pandemic.

“Business conditions for banks are expected to be similar to those in 2021, as the global economy continues to recover, although at a slower pace,” Mr. Arce said.

“Overall, stable or improved bank financial performance can be expected for this year, driven by economic and loan growth despite an uneven path to full recovery,” he added.

FMIC’s Ms. Ulang noted the bank’s profitability is expected to remain resilient as the gross domestic product (GDP) growth accelerates to 6-7% this year as well as the loans pick up approaching double-digit.

The country’s economic managers forecast a growth of 7-9% for this year.

“For 2022, we estimate an average loan growth of 6.1% for banks under our coverage, which will likely be closer to the GDP growth forecast. We also project an average net interest income growth of 5.3% year on year due to a possible rate hike this year,” PNB’s Ms. Estacio said.

“We forecast earnings to increase by an average of 16.6% year on year on lower loan loss provisions (average -20.9%) attributable to the improving economic outlook,” she added.

Mr. Limlingan is also confident that the country’s banking sector will continue to improve as the government steps up its efforts to further economic recovery.

“So long as the pandemic persists, outlooks would likely remain clouded. However, with continued vaccination rollout, border reopening for tourism, and decline in daily infections, it’s possible to see the industry post a high single-digit growth, at least,” he said. — Mariedel Irish U. Catilogo

Analysts’ expectations on policy rates (March 24)

March 21, 2022 | 12:00 am

THE BANGKO Sentral ng Pilipinas (BSP) is widely expected to maintain policy rates at record lows on Thursday in line with its signals it will continue to support economic recovery. Read the full story.