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The old 60-40 formula for stocks and bonds has run into trouble

Calls for the demise of the 60/40 portfolio resurfaced in August, as US-China trade tensions exacerbated fears of a global economic slowdown.

A precipitous slide in Treasury yields is calling into question one of the world’s most popular investment strategies.

The traditional asset mix of 60% stocks and 40% bonds, a starting point for investors since the proliferation of modern portfolio theory in the 1950s, has produced one of the best risk-adjusted returns of the past three decades, outshining debt alone. But with Treasury yields now hovering around zero, and likely to stay there for years, those gains are in doubt.

It’s not the first time that so-called 60/40 portfolios have faced scrutiny; the strategy is often a target of griping after a surge in stocks leaves investors short-changed. Still, this blend has protected many from this year’s volatility, eking out a 2.5% return through last week, according to JPMorgan Chase & Co.’s Jan Loeys.

But with yields in the world’s biggest debt market plumbing new depths, bonds have less room to rise going forward, hurting their use as a hedge against falling stock prices. That has money managers looking beyond Treasuries to securities that have more potential to rally.

“There’s a strong temptation to reach for yield wherever people can find it,” said Bill Merz, head of fixed-income research at US Bank Wealth Management, which oversees $180 billion from Minneapolis. “On a global scale, more investors are migrating out the risk spectrum because they feel they have no choice.”

Calls for the demise of the 60/40 portfolio resurfaced in August, as US-China trade tensions exacerbated fears of a global economic slowdown. Bank of America Corp. and Morgan Stanley warned of sobering returns late last year, but expectations that the Fed will eventually cap yields for some Treasury maturities have given these arguments further traction.

The mix, as measured by the S&P 500 Index and Bloomberg Barclays US Aggregate Bond Index, produced an annual compounded rate of return of almost 10% from 1983 to 2019, JPMorgan’s Mr. Loeys, a senior adviser of long-term investment strategy, wrote in a note June 30.

Going forward, he sees returns on the 60/40 portfolio dropping to around 3.5% per year over the next decade, but investors could boost their returns to a little over 4% by adopting a portfolio that’s 40% stocks, 20% bonds and 40% invested in securities with some characteristics of both, he wrote.

That could include collateralized loan obligations, commercial mortgage-backed securities, real estate investment trusts or utility stocks.

MAKING A MOVE
Investors seem to be on the same page. Conning—an investment manager that oversaw $180 billion from Hartford, Connecticut as of June 30—has looked more closely at structured products such as CLOs over the past three months because it’s an area where prices haven’t been pushed higher by the Federal Reserve’s emergency asset purchases, Chief Investment Strategist Rich Sega said. And US Bank Wealth Management increased allocations to investment-grade corporates and municipal credit in June, Mr. Merz said.

Convertible bonds, which offer a risk profile between bonds and stocks, have also benefited from greater investor interest. US exchange-traded funds tracking this type of debt added more than $300 million in May, and another $427 million in June—the biggest monthly haul in six months, data compiled by Bloomberg show.

“Convertibles are getting the best of all worlds because they have both bond- and equity-like aspects: They are a bond and they are convertible into stocks,” Mr. Loeys said by phone. “They gain when stocks go up and they gain when bonds rally, as both asset classes have in the last three months.”

In Europe, where banks have spent the past decade shoring up balance sheets and deleveraging following the 2008 financial crisis, so-called CoCos—or bonds issued by the lenders that are convertible into stock—have become an appealing bet. They’ve returned more than 6% annually during the five years through June 30, even after accounting for a 9.4% annualized loss in the first half of 2020, according to Daniel Tenengauzer, head of markets strategy at Bank of New York Mellon Corp. CoCos returned double the region’s government bonds over the same period.

Still, some investors aren’t ready to write off 60/40 just yet. Jack McIntyre, who helps oversee more than $60 billion at Brandywine Global Investment Management in Philadelphia, says some of the criticism about this strategy may be unfair.

“No matter what kind of portfolio you have, you need a defensive allocation,” he said. “That 40% serves a role.” — Bloomberg

The virus is still sapping China’s $6 trillion power to consume

Louis Vuitton shop
One silver lining for retail has been the almost complete halt of global travel and disrupted networks of parallel importers, which have trapped high-end shoppers at home. Chinese buyers power over a third of the global industry, and their inability to travel is set to boost the luxury market on the mainland by as much as 10% this year, compared to a 45% plunge in the global industry, according to estimates by Boston Consulting Group. Image via Reuters

Three months after China started to emerge from its coronavirus restrictions, its army of shoppers that help power the global economy are still nervous of travel, reticent to spend, and forming habits that may change the face of consumption permanently.

The verdict for now: a recovery is indeed underway—but it’s slow and vulnerable to setbacks like the latest virus flareup in Beijing.

With global demand for China’s manufacturing goods most likely depressed this year due to the accelerating pandemic, domestic consumer behavior matters even more for the country, as well as the wider global economy.

China powered one-third of global consumption growth from 2010 to 2017, according to a report from McKinsey Global Institute. Over the next 10 years, the growth in Chinese consumption is expected to equal that of the US and Western Europe combined.

Retail sales data due this week is forecast to show a return to growth in June, but the value of sales so far this year will still be well down on the first half of last year.

“Leading indicators suggest retail sales should have continued to recover in June,” according to a report from Bloomberg Economists Chang Shu and David Qu. “Even so, the revival in consumption probably remains a long way off, given changes in behavior to the detriment of contact-intensive services, as well as stress in the labor market and dented incomes.”

High-frequency data for June and the early days of July paint a similarly mixed picture. While housing sales rose in early June from last year, car sales were down.

When all is well, data on gambling receipts in Macau—China’s Las Vegas—can illustrate the confidence of a rapidly growing economy. This year’s data are a stark reminder that the pandemic is far from over: with borders largely closed to Chinese punters, revenue has plunged by more than 90% for three consecutive months, while casinos are losing $15 million daily in expenses, estimated Morgan Stanley.

There may be a rebound for the city’s casinos on the horizon, with Macau’s neighboring Chinese province, Guangdong, agreeing to lift quarantine requirements for travelers returning from the area from Wednesday, paving the way for a revival of the languishing casino industry.

LESS TRAVEL
As an indicator of economic activity, travel data show a picture of incomplete recovery. Highways and rail passenger traffic still shows fewer people traveling than the same period last year, indicating that many aren’t traversing long distances, whether for work or tourism.

Tourism during June’s national holidays was down about half compared to 2019 and the stay-at-home impulse is still strong in the biggest cities, with subway ridership in Beijing and Shanghai remaining below normal levels.

One silver lining for retail has been the almost complete halt of global travel and disrupted networks of parallel importers, which have trapped high-end shoppers at home.

Chinese buyers power over a third of the global industry, and their inability to travel is set to boost the luxury market on the mainland by as much as 10% this year, compared to a 45% plunge in the global industry, according to estimates by Boston Consulting Group.

Physical economic activity is moving online at a rapid pace, judging by the speed at which the delivery of parcels and mail is growing, a bright spot amid a sea of slowing indicators.

The recovery in China provides an example for other nations about how quickly economic demand can rebound once the viral outbreak is contained and people are more confident that just going out and shopping won’t make them ill. But it also shows that any revival will be limited.

“China’s recovery path supports our current baseline forecasts for private consumption in other major economies, which are lagging by 1-2 quarters,” according to Wang Tao, chief China economist at UBS AG. “Robust sequential rebound in retail sales and consumer services, but a soft overall recovery due to weak labor markets and income growth, and persistent concerns about safety and future outlook.” — Bloomberg

Fixing the food system through ‘responsible consumption’

By changing their food habits, consumers can reduce the environmental impact of large-scale agriculture. The simple act of buying more mung beans instead of rice translates to a reduction in pollution, said Eufemio T. Rasco, Jr., Chair of the Agricultural Sciences Division of the National Academy of Science and Technology.

 

By Patricia B. Mirasol

The existing three-step linear food system—food production, marketing, and consumption—is dysfunctional. Consumers are at the core of this food system and their behavior thus influences its outcome. For the system to be fixed, a fourth step—waste management—and circularity need to be established.

This was according to Academician Eufemio T. Rasco, Jr., Chair of the Agricultural Sciences Division of the National Academy of Science and Technology, who highlighted “responsible consumption as the key to a nourishing and regenerative food system,” during the academy’s 42nd Annual Scientific Meeting.

Responsible consumption and production is one of the 12 Sustainable Development Goals adopted by all United Nations Member States in 2015. It calls “reducing our ecological footprint by changing the way we produce and consume goods and resources.”

Circularity, meanwhile, as defined by Wageningen University & Research, “aims to reduce resource consumption and emissions to the environment by closing the loop of materials and substances.”

CONSUMERS ARE NOT VICTIMS
To illustrate the three-step linear food system, Mr. Rasco offered the example of food coming from a distant farm that travels all the way to the city, but whose waste does not return to the farm it came from.

“The traditional way of fixing the system is working on the production side so we always view the problem with the Department of Agriculture,” said Mr. Rasco. “Marketing is occasionally a problem; traders get greedy and start hoarding. We never look at consumers as part of the problem. We always see them as the victim.”

Consumers are at the core of the system, however. “When we choose to eat white rice, millers respond by removing most of the nutrients to make the rice white. Retailers deliver in plastic bags. As a consequence, we suffer because excess intake of such equals chronic disease. We also add to pollution because of the plastics used as part of marketing,” he said, pointing out that consumer behavior determines the outcome of food systems.

CHANGING HABITS
By changing their food habits, consumers can reduce the environmental impact of large-scale agriculture. Mr. Rasco said that the simple act of buying more mung beans instead of rice translates to a reduction in pollution. “The need to use chemical fertilizers is halved in mung bean production. It also produces less greenhouse gases than rice,” he explained.

Mr. Rasco acknowledged the challenge of changing the habits of consumers. To this end, his division plans to target its initial efforts at the middle class. “They are more educated, more open to food choices, and have the financial means. Consumers are not the victims. Empower them by providing the proper information.”

“If the middle class changes, this will have an effect on the farming sector. They will have to adjust in relation to the change in demand. There will be a fallout. The poor will also benefit. Prices will go down and (quality food) will become more available,” he said.

LIFESTYLE AS ADAPTATION
Further down the line, Mr. Rasco wants to develop apps modeled after the GenoPalate app, which analyzes users’ genes to provide them with genetic-based nutrition and food recommendations. He is hoping to work with the Department of Science and Technology and other interested parties to make this concept a reality.

Imagine, he continued, being able to ask your mobile phone: “What can I eat for P20?” and your phone answering “You should not be eating broccoli. That’s expensive. Eat kangkong. That’s also healthy.”

“The real challenge is how to put all these data together. Financial ability is very important,” he said.

Added fellow NAST Academician and faculty member of the University of the Philippines College of Medicine Antonio Dans, who cited data from The 2017 Prospective Urban Rural Epidemiology (PURE) study: “Lifestyle is probably not a choice. We don’t exercise because there’s no place to exercise. We don’t eat healthy because healthy food is expensive. We smoke because tobacco is cheap. Lifestyle is an adaptation to the world we live in rather than a choice we make. The way we change our lifestyle is by changing the world we live in.”

SIDEBAR | Envisioning a better food system by 2050

In his presentation, Agricultural Sciences Division Chair Eufemio T. Rasco, Jr., also listed nine features of the envisioned food system 30 years hence, in keeping with the Philippine Science, Technology, and Innovation Foresight and 30-year Strategic Plan 2020–2050 of the Department of Science and Technology.

Higher food production from urban and controlled environment facilities and more market power to both farmers and consumers are among the benefits of this envisioned 2050 food system as mentioned by Mr. Rasco:

1. Individual consumption decisions will be data- and values-driven.

2. Connection between food producers and the consumer will be more direct.

3. Food production will be highly diversified, local, and seasonal.

4. Production will be closer to the kitchen as urban and peri-urban farms get a bigger share of the food market.

5. Food production from the aquatic environment will grow faster than land-based production.

6. The food system will be circular. Material and energy recovered from wastes, valued as a resource, and returned to the farms and households.

7. Steps in the food system will be digitally interconnected, allowing for a high level of transparency and efficiency.

8. Reduced post-harvest losses with adequate cold chains (temperature-controlled supply chains).

9. A revived industry based on the use of biodegradable materials for food packaging.

WHO sounds alarm as coronavirus cases rise by 1 million in five days

The number of coronavirus infections around the world hit 13 million on Monday, according to a Reuters tally, climbing by a million in just five days.

The pandemic has now killed more than half a million people in six-and-a-half months, and World Health Organization (WHO) chief Tedros Adhanom Ghebreyesus said there would be no return to the “old normal” for the foreseeable future, especially if preventive measures were neglected.

“Let me be blunt, too many countries are headed in the wrong direction, the virus remains public enemy number one,” he told a virtual briefing from WHO headquarters in Geneva.

“If basics are not followed, the only way this pandemic is going to go, it is going to get worse and worse and worse. But it does not have to be this way.”

Reuters’ global tally, which is based on government reports, shows the disease accelerating fastest in Latin America.

The Americas account for more than half the world’s infections and half the deaths.

Parts of the world, especially the United States with more than 3.3 million confirmed cases, are still seeing huge increases in a first wave of COVID-19 infections, while others “flatten the curve” and ease lockdowns.

Some places, such as the Australian city of Melbourne and Leicester in England, are implementing a second round of shutdowns. Chinese-ruled Hong Kong, albeit with a low 1,522 cases, is to tighten social distancing measures again amid growing worries about a third wave.

The United States reported a daily global record of 69,070 new infections on July 10. In Brazil, 1.86 million people have tested positive, including President Jair Bolsonaro, and more than 72,000 people have died.

“POLITICAL FOOTBALL”

The US state of Florida reported a record increase of more than 15,000 new cases in 24 hours on Sunday, more than South Korea’s total since the disease was first identified at the end of last year. It tallied another 12,624 new cases on Monday.

Coronavirus infections are rising in about 40 US states, according to a Reuters comparison of the past two weeks and the prior two weeks.

Yet US President Donald Trump and White House officials have repeatedly said the disease is under control and that schools must reopen in the autumn.

“The president and his administration are messing with the health of our children,” House Speaker Nancy Pelosi said on CNN’s State of the Union program.

“We all want our children to go back to school, parents do and children do. But they must go back safely.”

WHO emergencies head Mike Ryan urged countries not to turn schools into “another political football”, saying they could safely reopen once the virus had been suppressed.

The leader of the Spanish region of Catalonia urged residents of an area of 160,000 people where cases have surged to stay at home, despite a judge’s ruling throwing out a mandatory lockdown.

Spain, which has been one of the European countries worst hit by the coronavirus, lifted nationwide confinement last month, when the pandemic seemed to have come under control.

After the first cases were reported in China around the new year, it took three months to reach one million cases. But it has taken just five days to climb to 13 million cases from 12 million.

India, the country with the third-highest number of infections, has been contending with an average of 23,000 new infections each day since the beginning of July.

In countries with limited testing capacity, case numbers reflect a smaller proportion of total infections. Experts say official data probably under-represents both infections and deaths. — Reuters

US rejects China’s claims in S. China Sea, adding to tensions

WASHINGTON — The United States on Monday rejected China’s disputed claims to offshore resources in most of the South China Sea, a move that Beijing criticized as inciting tensions in the region and which highlighted an increasingly testy relationship.

China has offered no coherent legal basis for its ambitions in the South China Sea and for years has been using intimidation against other Southeast Asian coastal states, US Secretary of State Mike Pompeo said in a statement.

“We are making clear: Beijing’s claims to offshore resources across most of the South China Sea are completely unlawful, as is its campaign of bullying to control them,” said Mr. Pompeo, a prominent China hawk within the Trump administration.

The United States has long opposed China’s expansive territorial claims on the South China Sea, sending warships regularly through the strategic waterway to demonstrate freedom of navigation there. Monday’s comments reflect a harsher tone.

“The world will not allow Beijing to treat the South China Sea as its maritime empire,” Mr. Pompeo said.

The Chinese embassy in the United States said in a statement dated Tuesday that Washington’s accusation is “completely unjustified.”

“Under the pretext of preserving stability, (the US) is flexing muscles, stirring up tension and inciting confrontation in the region,” it said.

The top Republican and Democratic members of the US Senate Foreign Relations Committee and House of Representatives Foreign Affairs Committee backed the administration’s new stance.

“Continued ambiguity with respect to our policy on China’s maritime claims in the South China Sea no longer serves the shared interests of the Indo-Pacific region, given China’s aggressive actions and refusal to abide by international law,” Senators Jim Risch and Bob Menendez and Representatives Eliot Engel and Michael McCaul said in a statement.

US policy had previously been ambiguous in that it urged all sides to resolve their disputes peacefully, diplomatically and in line with international law but it did not take a position on the legality of the competing claims.

Regional analysts said it would be vital to see whether other nations adopt the US stance and what, if anything, Washington might do to reinforce its position and prevent Beijing from creating “facts on the water” to buttress its claims.

The relationship between the United States and China has grown increasingly tense over the past six months over Beijing’s handling of the coronavirus pandemic, its tightened grip on Hong Kong and its crackdown on China’s Uighur Muslim community.

China claims 90% of the potentially energy-rich South China Sea, but Brunei, Malaysia, the Philippines, Taiwan and Vietnam also lay claim to parts of it, through which about $3 trillion of trade passes each year. Beijing has built bases atop atolls in the region but says its intentions are peaceful.

Beijing routinely outlines the scope of its claims with reference to the so-called nine-dashed line that encompasses about nine-tenths of the 3.5-million-square-kilometer South China Sea on Chinese maps.

“This is basically the first time we have called it illegitimate,” said Chris Johnson, an analyst with the Center for Strategic and International Studies. “It’s “fine to put out a statement, but what you going to do about it?” — Reuters

GBP recognized for excellent people practices

Global Business Power Corporation (GBP), a leading energy company in the Visayas Region with presence in Mindanao and Mindoro islands, was recognized by prestigious international award- giving bodies – Investors in People and HR Asia – for its outstanding human resource practices. 

GBP was recently awarded the Investors in People (IiP) Silver Level Accreditation for its “continuing efforts and remarkable policies that develop and empower employees.” UK-based IiP is an esteemed standard for people management that accredits organizations who adhere to practices and outcomes under the performance principles of leading, supporting, and improving. 

This Silver accreditation distinguishes GBP at an “established” stage, signifying that the company has people practices in place and are reaping the rewards by the engagement and teamwork shown by its employees. 

“Establishing policies and programs for the continuous improvement of our employees is a priority for GBP. This Investors in People accreditation reaffirms that we are on the right track. We are grateful and ecstatic to continue doing more for our people,” GBP HR, Admin, Learning and Development Head Maria Luz L. Blanco-Uriarte said. 

This recognition came after HR Asia named GBP as one of the best companies to work for in Asia in 2019. GBP was given this distinction based on a stringent proprietary assessment process covering employee engagement, corporate culture, employer branding, and job satisfaction. GBP was the only awardee involved in the power generation business. 

“Our people are largely responsible for what GBP is today. That is why we prioritize establishing practices that promote the growth and development of our people, while seeking an ideal environment where our colleagues could feel secure and bask in the fulfillment of their work,” shared GBP President Jaime T. Azurin, in recognition of their people’s critical role in achieving corporate objectives. 

GBP, through its subsidiaries, is an independent power producer in Visayas, Mindanao, and Mindoro, with a total gross capacity of 1,091 MW.

How digital platforms can provide more efficient, transparent government aid

With many Filipinos severely affected by the COVID-19 pandemic, the government has faced the daunting task of ensuring that every citizen can survive the day to day through financial and other forms of aid.

Yet, delivering financial aid to millions is a challenge, aggravated by the health and safety concerns brought about by face-to-face interactions. This responsibility falls on  local government units (LGUs), who have found their respective innovative ways to give assistance to their constituents.

Solving this task is the topic of the second session of BusinessWorld Insights: A Three-part Online Forum Series presented by PayMaya and the USAID E-PESO Project, which tackled the theme, “Efficient Delivery of Government Aid Through Digital Disbursements”.

“With the emergence of this deadly pandemic, it became more apparent that the government holds a significant role in people’s lives,” Atty. Jeremiah B. Belgica, director general of the Anti-Red Tape Authority (ARTA), said in his opening remarks for the session.

The digital disbursement of the government’s social amelioration program, he says, is about to start, which would certainly set the government’s aid program to be faster, more efficient, and more transparent for the people.

“Automation and digital transformation used to be the future. But due to this pandemic, these have become an urgent need of the present,” he added.

Jonathan Malaya, Undersecretary of the Department of the Interior and Local Government, noted that the country has been recognized as one of the early adopters of digital payments, with 64% of payments made by the government are digital in 2018. The pandemic only accelerated this shift, as the manual disbursement of government aid presents a multitude of challenges.

“The silver lining of the pandemic is that we are forced to push and normalize digitalization more than ever before,” he said.

“Online payments provides the convenience of doing transactions anytime, anywhere. Online payment can reduce red tape, and provides transparency through the easy tracking of funds.”

“The manual disbursement of the SAP is a massive waste of manpower and resources. There is also a potential of leakage, non-compliance, and misappropriation. From the perspective of the recipients, the process is time-consuming, prone to delays, and poses a risk of infection to COVID-19,” Vicente Catudio Jr., digital finance advisor for the USAID E-Peso Project, said.

Aurora Cruz-Ignacio, president and CEO of the Social Security System, added that digital platforms provided the means for SSS members to secure subsidies from the government. Over 150,000 subsidy payouts have so far been given through e-wallets.

Yet, the shift to digital has its hurdles. Gov. Dakila Cua, president of the Union of Local Authorities of the Philippines, said although there are leaps and bounds in the advancement of ICT innovation, the country still has a lot of gaps in digital infrastructure, especially when it comes to solving the issues we have on education.

Mr. Malaya pointed out that the bigger challenge of digitalization is the lack of manpower. LGUs need digital specialists to improve and maintain their digital infrastructure.

Manila City Mayor Francisco ‘Isko Moreno’ Domagoso said that the city has been aggressively adopting technology, even before the COVID-19 pandemic.

“We desire efficiency. We want to digitize the disbursement of government financial aid, including additional aid for senior citizens and students, because of that desire,” he said.“The only way to eliminate government corruption is to eliminate human intervention in government transactions.”

PayMaya’s Marvin Santos said that they have been working with organizations and LGUs in helping disburse financial aid since 2016. The biggest challenges they encountered are issues regarding data and identity, which can be remedied by the proposed National ID System; and educating Filipinos about technology.

This is the reason why PayMaya launched the LGUs Embracing and Accelerating Digitalization (L.E.A.D.) Program, which aims to equip local governments with the right tools and skills to implement cashless ecosystems in their communities.For inquiries on how PayMaya can help LGUs in their digitalization journey through the L.E.A.D. program, email gov@paymaya.com.

This online event is supported by the Department of the Interior and Local Government (DILG), the Anti-Red Tape Authority, and Union of Local Authorities of the Philippines (ULAP) and the Management Association of the Philippines (MAP).

Vehicle sales show signs of recovery

VEHICLE SALES saw an improvement in June, showing signs of recovery as lockdown restrictions eased, although first-half sales continued to lag.

Data from the joint report of Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) and Truck Manufacturers Association (TMA) showed that vehicle sales in the first half fell 51.2% to 85,041 units compared to the same period last year.

In June alone, vehicle sales more than tripled to 15,578 units compared to 4,788 units in May and 133 units in April.

However, the month’s sales figure remained 51.2% lower than the 31,950 units sold in June 2019.

Car dealerships were shut from mid-March due to the Luzon-wide lockdown. Some dealerships started reopening in mid-May after lockdown restrictions were relaxed.

CAMPI President Rommel R. Gutierrez said in a statement that he remains cautiously optimistic about industry growth amid social and economic risks posed by the pandemic.

“This positive growth shows early signs that consumer demand for new cars is starting to improve albeit slowly. The auto industry recovery may take time as vehicle sales still remain a challenge,” he said.

Commercial vehicle sales, which accounts for 70% market share, declined 51.5% to 10,867 in June from the same month last year. Broken down, Asian utility vehicle sales slipped 29.9% to 2,373 units in June, while light commercial vehicle sales dropped 56.4% to 7,808 units.

Sales of passenger vehicles fell 50.6% to 4,711 units in June.

Year to date, commercial vehicle sales slumped 49.8% to 61,129 units, while passenger vehicle sales declined by 54.4% to 23,912 vehicles.

Toyota Motor Philippines retained its market leadership with 48% market share, while year-on- year sales fell 48.6% to 7,485 units in June.

Mitsubishi Motors Philippines Corp.’s sales declined 56.5% to 2,268 units, giving it 14.56% market share in June. Suzuki Philippines, Inc. claimed 9.6% market share even as sales slid 30.8% to 1,495 units.

Nissan Philippines Inc. clinched 6.5% market share as sales plummeted 73.9% to 1,012 units. Ford Motor Co. Philippines, Inc. has 6.17% market share, with sales dropping 44.6% to 961 units.

Last week, Kia Philippines said it is optimistic that auto industry sales will reach 275,000 units this year,

“Other sources have said that we are looking at about a range of 240,000 to about 255,000 unit sales for this year… In Kia Philippines, we spent some time trying to analyze and doing a forecast on how things will be. So our forecast for the industry this year is a more aggressive 275,000,” Kia Philippines President Emmanuel A. Aligada said in an online press conference.

Combining figures from automotive manufacturing and import groups released by January, the industry sold 457,925 vehicles last year.

Mr. Aligada said he is seeing more demand from employers looking to transport workers amid public transportation challenges and individuals who prefer transportation with fewer health risks.

Mr. Gutierrez said the industry is using digital platforms for sales promotions. Some companies have launched or plan to launch virtual dealerships, while several have rolled out discounts.

Honda Philippines is offering cash discounts for buyers of its City, CR-V, Civic, Brio Amaze, Mobilio, and Accord units in July. Toyota Motors Philippines is also offering savings and low monthly payments for some vehicles this month.

Mitsubishi Philippines extended its “mid-year lowdown” low downpayment promo for its L300, Montero, Strada, and Mirage HB. — Jenina P. Ibañez

BoI-approved investments more than double in 1st half

THE Board of Investments (BoI) said approved pledges more than doubled to P645.3 billion in the first half of 2020, led by the San Miguel Holdings Corp. subsidiary’s airport project in Bulacan.

The BoI, which accounts for the bulk of planned projects registered with investment promotion agencies (IPA), said the approved pledges rose by 112% from P304.4 billion in the same period last year.

Domestic investments jumped by 166% to P626.7 billion from P235.6 billion in the first half of 2019. In contrast, foreign investments plummeted by 73% to P18.6 billion from P68.9 billion.

“The robust bounce back despite the pandemic shows the country’s resilience as we begin the transition to easing out the restrictions after a prolonged lockdown of the economy,” Trade Secretary and BoI Chairman Ramon M. Lopez said in a statement.

“While we expect a lower GDP (gross domestic product) output in the second quarter than the first quarter due to the ECQ (enhanced community quarantine), there are already signs that the economy is humming back to life with industry conditions becoming stable.”

The economy contracted by 0.3% in the first quarter, as the ECQ started in mid-March. The second-quarter GDP is expected to be worse, as most business activity remained shuttered for most of the period.

The 96 approved projects in the first half of 2020 are expected to generate 27,082 jobs, up 57.3% from the same period last year.

The construction or infrastructure industry saw the biggest investment with San Miguel Aerocity, Inc.’s P530.8-billion airport project in Bulacan. The project, which is touted as an alternative to the Ninoy Aquino International Airport, will consist of four parallel runways, eight taxiways and three passenger terminal buildings on a 2,400-hectare property.

The BoI also reported a 785% spike in transportation investment to P86.7 billion. Real estate investments grew 16.5% to contribute P9 billion to the total. Investments in renewable energy/power, manufacturing, and accommodation reached P6.6 billion, P5.3 billion, and P3.8 billion, respectively.

Significant investments include Solarace 1 Energy Corp.’s P4.2-billion renewable energy project, followed by Primex Land, Inc.’s P3.6-billion housing project. Cebu Air, Inc. in March had two aircraft projects valued at around P3.3 billion each.

Other recent investments include Gigasol3, Inc.’s P2.4-billion 63 Megawatt solar project in Central Luzon, Royale Cold Storage North, Inc.’s P1.5-billion storage facility in Laguna, Heineken International BV’s P1-billion brewery plant, and Seaoil P654-million downstream petroleum project in La Union.

France led all foreign investment sources with P1.5 billion, followed by the Netherlands with P1.06 billion.

Asian countries took the third to sixth spots as investments from Japan, Malaysia, and India were valued at P790 million, P601 million, and P329 million, respectively.

Central Luzon took in the largest investment with P538.1 billion due to the Bulacan airport. The National Capital Region followed with P85.4 billion, followed by Calabarzon with P9.2 billion, Davao Region with P4.6 billion, and Northern Mindanao with P3.2 billion.

“It is important to highlight the strategic nature of the projects and their important contribution towards building a more modern Philippines. The project proponents have reaffirmed their commitment to the immediate implementation of these infrastructure, ICT and transport projects — towards completion in the medium-to long-term term. Prior to approval of the big-ticket projects, the BoI required them to provide written confirmation of their commitment,” Mr. Lopez said.

For full-year 2019, total approved commitments among investment promotion agencies rose 112.8% to P390.11 billion. BoI contributed 86.1% of total foreign direct investment pledges at P335.74 billion. — Jenina P. Ibañez

Gov’t takes 2nd look at unsolicited proposal for NAIA rehabilitation

The Ninoy Aquino International Airport (NAIA) has been operating way beyond its 30.5 million annual passenger capacity. — REUTERS

THE government is taking a second look at another unsolicited proposal to upgrade the Ninoy Aquino International Airport (NAIA), after the consortium of top conglomerates backed out of an earlier deal.

Manila International Airport Authority (MIAA) General Manager Eddie V. Monreal said the government is studying another unsolicited proposal for the NAIA rehabilitation, without naming the proponent.

“Dalawa po ang nag-submit n’yan noong nagkaroon tayo ng unsolicited proposal, ’yan po ay pag-aaralan natin at kung sila po ay tatanggapin nila ’yung dati pong na-aprub ng NEDA-ICC (National Economic and Development Authority-Investment Coordination Committee-Cabinet Committee), ay baka po tayo magpatuloy doon sa pangalawa (There were two unsolicited proposals submitted, and we will study it. If they are willing to accept the one that has been approved by NEDA-ICC, then I think we can proceed with the second proponent),” he said at a Laging Handa briefing on Monday.

However, Mr. Monreal said this is not final and guidelines would have to be ironed out.

In 2018, the consortium of Megawide Construction Corp. and India’s GMR Infrastructure Ltd. also submitted an unsolicited proposal for the rehabilitation of the country’s main gateway.

Megawide officials were unavailable for comment.

According to Section 10.6 of the revised implementing rules and regulations of the Build-Operate-Transfer law or Republic Act No. 6957, the “second complete proposal will only be entertained if the first one is rejected.”

“Otherwise, the second proposal will be considered only if there is a failure in the negotiation of the first proposal or during the ‘invitation for comparative proposals.’”

MIAA, as the primary grantor of the rehabilitation project, has terminated any further negotiations with the consortium composed of Aboitiz InfraCapital, Inc; AC Infrastructure Holdings Corp.; Alliance Global Group, Inc.; Asia’s Emerging Dragon Corp.; Filinvest Development Corp.; and JG Summit Holdings, Inc.

MIAA has also revoked the original proponent status and approvals earlier granted to the consortium.

Finance Secretary Carlos G. Dominguez III said last week there are two other proponents interested in the project at the terms the government has indicated.

Mr. Monreal said he was not aware of the two new proponents.

In a statement issued on July 7, the super consortium said the “far-reaching and long-lasting consequences of the coronavirus pandemic on airline travel, airline operations and airport passenger traffic necessitated a review of the assumptions and plans to ensure that the NAIA project will be viable in the new normal.”

The group said it could only proceed with the NAIA project under the options it had proposed.

In September 2018, the NAIA consortium obtained the original proponent status from the Department of Transportation to rehabilitate, upgrade, expand, operate and maintain the country’s main gateway for 15 years.

The NAIA, which has four terminals, has been operating beyond its 30.5 million annual passenger capacity. It recorded 45.3 million passengers in 2018. — Arjay L. Balinbin

‘Sin’ tax collections bounce back in June

Tax collections from tobacco and alcoholic products rose in June, as lockdown restrictions eased in most parts of the country. — REUTERS

THE government’s tax take from alcohol and tobacco products bounced back in June after two months of contraction, as restrictions eased around the country.

In a statement, the Finance department said excise tax payments of large taxpayers on tobacco products reached P18.1 billion in June, up 36.1% from a year ago and nearly triple its P6.56-billion target for the month.

Excise tax collections from alcoholic beverages hit P7.35 billion, up 7.6% from a year ago and exceeded its P3.15-billion monthly target by 133%.

This brought total collections from “sin” products to P25.45 billion last month, up 26.43% from P20.13 billion in June 2019. This was a reversal from the 43% decline in May and 99% drop in April, when the enhanced community quarantine and localized liquor bans were still in place.

The data is based on the Bureau of Internal Revenue’s (BIR) collections from large taxpayers.

In a text message on Monday, Finance Undersecretary Gil S. Beltran attributed the higher collection to loosened restrictions on mobility of people in key regions, including Metro Manila, last month.

From January to June, tax collection from tobacco products totaled P61.47 billion, breaching the revised P43.6-billion target by 41%.

Excise tax collection from alcohol products reached P27.46 billion in the first half, exceeding the P20.95-billion goal by 31%.

The government had revised its “sin” tax collection target for the year, amid the economic downturn.

As of May 12, the Department of Finance (DoF) projected recently passed “sin” tax bills will yield P13.2 billion in additional revenues for the government this year, lower than the previous estimate of P37.1 billion.

Republic Act (RA) No. 11346 and RA 11467 slapped higher excise tax rates on cigarettes, electronic cigarettes, vapor and alcohol products.

The DoF said total excise taxes collected from large taxpayers increased by 16.4% to P31.06 billion in June.

Collection of excise taxes from other sweetened beverages reached P3.02 billion to exceed the revised P2.53-billion target. Excise tax collected from petroleum products inched up 2.6% to P2.1 billion year on year, but fell short of its P4.3-billion target for the month by 51% due to limited public transportation.

The BIR collected P124 million in excise taxes on automobiles last month, P368 million from minerals, and P2 million from non-essentials.

Despite the pickup in June, excise tax collections from large taxpayers still fell by 24.23% to P128.59 billion in the first six months of 2020. But this exceeded the downgraded target of P113.64 billion by 13.15%. — B.M.Laforga

Risks seen in ABS-CBN franchise denial

By Jenina P. Ibañez, Reporter

THE PROCESS denying the renewal of ABS-CBN Corp.’s broadcast franchise could prove to threaten foreign direct investment as it undermines the rule of law, an economist said.

Investors with sophisticated technology and intellectual property rights in the technology, manufacturing, and media industries are sensitive to a weak rule of law regime, Ateneo School of Government Dean Ronald U. Mendoza said in an e-mail on Sunday.

“Rule of law is even more important in the most sophisticated industries — the same ones we hope to attract in order to keep on growing and producing jobs,” he said.

He explained that the impact of the lawmakers’ vote to deny the franchise expands beyond media freedom, with the process reflecting how biases could enter what should have been an evidence-based regulation.

Citing the recent episode on water concessionaire contracts, he said that the ABS-CBN decision “signals how being on the wrong side of the political powers-that-be could threaten your investments. The mere existence of that risk already connotes vulnerability to corruption; and credit rating agencies should call it for what it is: regulatory and political risk.”

Mr. Mendoza said that investments in gambling, such as Philippine offshore gaming operations, could thrive in environments with weak rule of law.

“Clearly, weak rule of law debilitates our development prospects in terms of overall investment levels, and also in the poorer quality investments that would tend to ‘tolerate’ such an environment,” he said.

The House of Representatives Committee on Legislative Franchises on Friday denied ABS-CBN’s 25-year franchise extension request, voting 70 to 11.

John Forbes, senior advisor of the American Chamber of Commerce of the Philippines, in a mobile message Sunday said that observers are still assessing the impact of the vote on investments.

“Foreign investors sometimes pay less attention to media freedom in Asia, for example in China, Singapore, and Vietnam where it is tightly controlled. But the Philippines has been different. The potential displacement of 11,000 employees during a depression is surprising when there is no government unemployment insurance,” he said.

Fitch Solutions Country Risk & Industry Research had said that the “politicization” of the telecommunications sector would discourage investment in the industry, criticizing the regulator National Telecommunications Commission after it ordered cease-and-desist orders against ABS-CBN and its affiliate SKY Cable Corp. on June 30.

Responding to the report, Mr. Forbes said “both media and telco are closed to foreign investment so their interest is low.”

European Chamber of Commerce of the Philippines President Nabil Francis said in a mobile message Sunday that preserving one of the largest sources of credible information is crucial during the public health crisis.

“One of the issues affecting currently foreign investors is the impossibility to come to the country,” he said, referring to business travel restrictions. “Some people might be interested to invest but they cannot enter.”

He described press freedom as “a key issue for foreign investors.”

The Philippine Stock Exchange suspended the trading of ABS-CBN Corp. shares on Monday.

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