the market call (november 2013)

8/13/2019 The Market Call (November 2013)

1/21The Market Call - September 2013

November 20

MARKET CALL

The

Capital Markets Research

FMIC and UA&P Capital Markets Research

Macroeconomy 2 Fixed-Income Securities 10 Equity Markets 16

Recent Economic Indicators 19 Contributors 21


2/21The Market Call - November 2013

Macroeconomy

Super Typhoon “Yolanda” Blows Away

Economy’s Winning Streak*

* Our usual data cut-o is at the end of each month; but we make recognion of Super Typhoon “Yolanda’s” impact in this

issue as an excepon.

LEI Reects Sustained Economic Growth in Q4

The composite leading economic indicator (LEI), a

short-term forecasng tool of macroeconomic acvity

developed by the Naonal Stascal Coordinaon

Board (NSCB), accelerated to 0.181 in Q4 2013 from a

revised 0.046 in the previous quarter. Indicaons are

that the Philippines may connue to stay in an upward

trend unl this quarter. Meanwhile, the computed

slope of the index for Q4 2013, which indicates the

change, was 0.135, also higher than the rate of 0.087in the previous quarter. This acceleraon, which goes

back to Q4 2012, promises connued sasfactory

performance of the country’s economy unl the

end of the year, but now tempered by “Typhoon

Yolanda’s” negave impact.

The advance of LEI remained broad-based as in the

previous quarter, but the total share of posive

contributors decreased by about 5.0 percentage

points. Eight out of 11 indicators supported the

trend – money supply, wholesale price index, totalmerchandise imports, hotel occupancy rate, terms of

trade index, electric energy consumpon, number of

new businesses, and stock price index – altogether

comprising 77.6% of the total contribuons.

Just as another set of economic data was poinng towards an above-7% Gross Domesc Product (GDP) in Q3,

killer super typhoon“Yolanda” (internaonal name: Haiyan), that devastated large swathes of the Visayas and

Palawan, may have killed the further acceleraon suggested by the country’s Leading Economic Indicators (LEI)

for Q4. Aer all, industrial output and exports expanded at a faster pace in August and peso equivalent of

Overseas Filipino Workers’ (OFW) remiances rose at a double digit rate.

The world’s biggest ever typhoon, that packed over-300 kph winds and huge waves aened and killed thou -

sands of Filipinos in the eastern coast of some Visayas islands, may now mean below-6.0% GDP growth in Q4

and the rst half of 2014. To be sure, reconstrucon eorts could oset the loss on output and income due to

the negave eects of the super typhoon, but the aected areas reportedly represent some 12% of the coun -

try’s populaon, and the laer would probably lt the balance.

Meanwhile, the foreign exchange rate, visitor

arrivals, and consumer price index were the negave

contributors.

The contribuon of each of the 11 indicators is

measured through the combined eects of (1) the

direcon (the slope or change) of the cycle component

of each indicator; and (2) the correlaon of their cycle

components with that of the reference series. Table

1 below shows the composite LEI esmates and the

corresponding slopes for the period Q1 2001 to Q4

2013.

Period Composite Slope

Q1-2012 0.037 0.013

Q2-2012 0.015 -0.022

Q3-2012 -0.029 -0.044

Q4-2012 -0.058 -0.038

Q1-2013 -0.066 0.002

Q2-2013 -0.041 0.025

Q3-2013 0.045 0.087

Q4-2013 0.181 0.135

Source: Naonal Stascal Coordinaon Board (NSCB)



Macroeconom

Industrial Sector’s Electricity Demand Revitalizes in

September

Indicave of the recovery of exports and the

manufacturing sector, electricity consumpon of the

Industrial sector expanded 6.9% (year-on-year) in

September, the second month of acceleraon and

the fastest so far in 2013. The slowdown in electricity

consumpon in the residenal and commercial

sectors was due to the eect of oods in Metro

Manila which limited total Meralco’s electricity sales

volume growth to 5.9%.

Electricity sales to the Industrial sector had picked

up from negave territory in July, rising further by

2.8% in August. This recovery overshadowed the

sharp easing of growth rates in the Residenal and

Commercial sectors. Residenal electricity sales shed

6.4 percentage points, slowing to 5.9% from 11.3% in

August while energy sales growth to the Commercial

sector slipped to 5.7% from 8.9%. Mall operators

and restaurant owners complain of low customer

turnover during typhoons and oods.

Inaon rate advanced to 2.7% in September on the

back of hey price gains in heavily-weighted Food and

Non-Alcoholic Beverages (FNAB) and Housing, Water,

Electricity, Gas, and Other Fuels (HWEGOF).

Figure 1 - Meralco Sales and VoPI Year-on-Year Growth, 2009-

2011

Source: Naonal Stascs Oce (NSO)

The robust Industrial power sales may be due to th

surprisingly strong 20.9% export earnings growt

and the 18.3% gain in the Volume of Produco

Index (VoPI) in August. Industrial output improve

on the (revised) 14.9% upck in July as 15 out of 2

major industry groupings posted strong gains. Thre

industries surged with triple-digit expansions, i.e

Furniture & Fixtures at 175.4%, Chemical products a

145.0%, and Leather products at 102.9%. The r

two connued their above-100% growth record i

July.

Thus, it is quite likely that manufacturing outpu

accelerated further in Q3, and would be second on

to the construcon sector’s likely lead.

Inaon at 3-Month High of 2.7% in September

Inaon rate accelerated to 2.7% in September ae

reaching a 10-year low of 2.1% in August on th

back of hey price gains in heavily-weighted Foo

and Non-Alcoholic Beverages (FNAB) and Housing

Water, Electricity, Gas, and Other Fuels (HWEGOFNonetheless, the headline inaon rate remain

below the 3% lower limit of the Bangko Sentral n

Pilipinas’ (BSP) inaon target.

Likewise, YTD inaon stands at 2.8%, and cor

inaon, which excludes volale food and energ

items, accelerated by 0.4 percentage points to

modest 2.3%. FNAB sub-index gained an 8-month hig

of 0.6 percentage points mainly caused by the upc

in the rice index coupled with at most 0.3 percentag

points in corn, sh, and other food productMeanwhile, as the average price in the world crud

oil spot market connued to accelerate for the

month, pump prices and Meralco electricity rate

rose, HWEGOF increased 1.4 percentage points, th

highest since January 2010.



Macroeconomy

The YTD NG decit remained below the cap due to weak NG

spending that grew 4.1%, the lowest in six months

The September gure was the least broad-based in

Q3 with only four commodity group price indices

posng inaon higher than their values a month

ago. Acceleraon in the indices of FNAB and HWEGOF

were evident in 10 regions most especially in the

Naonal Capital Region (NCR) where the two indices

advanced 3.1 and 1.1 percentage points, respecvely.

Alcoholic Beverages and Tobacco (ABT) and Health

also accelerated by 0.2 percentage points. The other

four commodity group price indices decelerated with

heavily-weighted Transport taking the lead, followedby Furnishing, Household Equipment and Roune

Maintenance of the House; Clothing and Footwear;

and Communicaon. Kindly refer to the table below

for comparave values. The three remaining price

indices remained at their levels a month ago.

Underspending by NG Maintains YTD Budget Decit

Below the Cap

The Naonal Government (NG) spending grew 4.1%in September, the lowest in six months, while total

revenue collecon rose 20.9%. Despite such growth

disparity between revenue and spending, the NG

recorded a decit of P18.6 B, bringing the YTD decit

to P101.2 B, sll way below the P144.5 B target.

The surge in revenue collecon was due to both

low base eect and strong performance of tax and

non-tax revenue channels. Tax revenue expanded by

18.3%, slightly lower than the 21.0% in August but

higher than the 13.1% YTD pace. Both the Bureau of

Inaon Year-on-Year Growth Rates Sept. Aug. YTD

All items 2.7% 2.1% 2.8%

Food and Non-Alcoholic Beverages 2.5% 1.9% 2.4%

Alcoholic Beverages and Tobacco 31.2% 31.0% 29.4%

Clothing and Footwear 2.9% 3.0% 3.8%Housing, Water, Electricity, Gas, and Other Fuels 1.1% -0.3% 1.5%

Furnishing, Household Equipment and Roune

Maintenance of the House2.3% 2.4% 3.7%

Health 3.0% 2.9% 3.0%

Transport 0.6% 1.0% 0.7%

Communicaon 0.0% 0.1% 0.3%

Recreaon and Culture 2.5% 2.5% 2.2%

Educaon 4.8% 4.8% 4.6%

Restaurant and Miscellaneous Goods and

Services2.2% 2.2% 2.4%


Figure 2 - Inaon Rates Annualized (2009-2013) Seasonally

Adjusted vs. Year-on-Year


Inaon accelerated to 2.9% in October from2.7% a month ago due to connued upck inFNAB, Clothing and Footwear and HWEGOFmainly in areas outside NCR (AONCR) andlower base compared to September gure.

Seasonally-Adjusted Annualized Rate (SAAR) showed

that inaon rate could not be aributed to seasonal

factors as seasonally-adjusted (s.a.) inaon rose to

6.4%, the highest since September 2012, from 3.6%

(revised) in August. This was triggered by the 9.1

percentage points upck in s.a. non-food prices that

oset the 1.7 percentage points decline in s.a. food

prices.



Macroeconom

Policy Rates Unchanged, Money Growth Sll on

Acceleraon Streak

On the back of well-anchored inaon and its outlook

and the country’s improved absorpve capacity, the

Monetary Board of the Bangko Sentral ng Pilipinas

The BSP maintained the policy rates unchanged together

with SDA facility and reserve requirement raos as inaon

outlook showed no signs of upward risks.

Customs (BoC) and the Bureau of Internal Revenue

(BIR) reported collecons rapidly rising by 10.9% and

21.1%, respecvely. These growths were higher than

their respecve YTD pace of 5.3% and 15.3%. Non-

tax revenue, likewise, grew 45.9%, the biggest gain in

three months.

Meanwhile, the Naonal Government (NG) spending

was at its slowest gain in three months with only

4.1% growth in September. This may have been due

to greater care aer the Napoles- “pork barrel scam”that exploded in the media. Larger share was alloed

to interest payments, which grew 21.1%. Allotment

to Local Government Units (LGUs) rose 4.9%, slightly

lower than 5.5% a month ago.

Figure 3 - Year-on-Year NG Revenue Performance Growth

Rates

Source: Bureau of the Treasury (BTr)

(BSP) maintained key policy rates unchanged at 3.50

for the reverse repurchase (RRP) facility and 5.50

repurchase (RP) facility on its meeng last Octobe

24. The interest rates on term RRPs, RPs, speci

deposit accounts (SDAs), and reserve requiremen

raos were likewise le steady.

Meanwhile, Reserve Money (RM) quickened by 0

percentage point to 26.7% in August, the highe

since November 2007, as the yawning gap betwee

the Net Foreign Assets (NFA) and Net DomesAssets (NDA) remained. The former rose 8.6% due t

ample Net Internaonal Reserve (NIR) build-up whi

the laer declined 2.2% due to declines in Net Othe

Items.

Figure 4 - M1, M2 & M3, Year-on-Year, 2009-2013

Source: Bangko Sentral ng Pilipinas (BSP)

Total domesc liquidity (M3), whose computao

was made to conform to internaonal standar

pracces, connued to grow rapidly by 31.0%, th

same pace as in August. BSP expected this as th

value of Special Deposit Account (SDA) fell 10.9%



Macroeconomy

Export’s recuperaon connued in August posng an

11-month high growth of 20.2%; Electronic Products, how-

ever, was disappoinng.

as a result of operaonal adjustment in SDA facility,

which encouraged the move back to deposits. The

computed money mulplier (MM) declined 4.4% to

3.6X aer a three-month streak as banks became

more cauous in lending.

Exports’ Recovery Connues, Hit 11-Month High

The overall export earnings connued its recovery

posng an 11-month high growth of 20.2% (y-o-y)

in August from 2.3% in July. It was broad based with

seven out of the top 10 export products supporngthe trend, featuring some eye-popping gures with

six of the top ten exports posng above-65.0% gains.

However, the August gure has not come without

a dash of pessimism. First, it relied on a low base

of -9.0% a year ago, and second, Manufactures

grew by 9.5% despite the low base. Nonetheless,

it must confer posive senment as the country

outperformed selected countries in East Asia in terms

of export growth in August 2013. YTD export growth

reached -0.6% from -3.6% in July.

Among the seven top products that propped up

the trend, Petroleum Products skyrocketed by

115,374.8% from 3,356.8% a month ago due to a

19.6% expansion of East Asia’s imports (contributed

mainly by Japan, China, Taiwan and South Korea). The

demand for Philippine products of the EU and the US

also expanded by 42.8% and 15.2%, respecvely. Five

Manufacturing Products likewise beneted from such

expansion namely, Other Mineral Products; Chemicals;

Woodcras and Furniture; and Ignion Wiring Set

and Other Wiring Sets Used in Vehicles, Aircras and

Ships. These ve product lines posted double-digit

growths, with the rst four exceeding 65.0% growths.

Meanwhile, Machinery and Transport Equipment;

Metal Component; and Electronic Products agged

red, although the changes in the last two products

were almost negligible (i.e., close to zero). The decline

in Electronic Products was aributed to low demand

Top 10 Philippine Exports for All Countries in June 2013

(Year-on-Year Growth in Percent)

Gainers Aug Jul YTD

Petroleum Products 115,374.8 3356.8 198.7

Other Mineral Products 455.0 -21.3 101.6

Bananas (Fresh) 266.2 22.7 74.6

Chemicals 121.2 22.8 40.7

Woodcras and Furniture 68.7 44.2 62.6

Other Manufactures 65.6 -37.6 6.1

Ignion Wiring Set and Other Wiring

Sets Used in Vehicles, Aircras and

Ships

12.2 -16.6 3.3

Losers

Machinery and Transport Equipment -58.0 131.7 -28.5

Metal Component -0.5 -84.9 -14.4

Electronic Products -0.4 -21.3 -13.0

Note: “a” means “no value”.


for Semiconductors; Oce Equipment; Consumer

Electronics; Telecommunicaons; and Medical/

Industrial Instrumentaon mainly in Singapore.

(Kindly refer to the table below for comparave

values.)

Exports in September may go down due to a high

base of 22.8% jump in 2012 and the acceleraon of

average price in the world crude oil spot market.



Macroeconom

The robustness of OFW remiances, which grew 6.8% in

August, was magnied by peso depreciaon, causing its

peso value to surge 11.4%, the highest in 46 months.

Figure 5 - Exports Growth Year-on-Year and Month-on-Month



Peso Remiances Bloat 11.4% to 46-Month High

Overseas Filipino Workers’ (OFW) remianc

in peso terms rushed to its highest growth sinc

October 2009 at 11.4% in August, from 10.2%

July, on high remiance inows and substanal y-o

peso depreciaon. Dollar value of OFW remianc

rose 6.8%, the highest in seven months, due t

hey sending of money from the US, Saudi Arabi

the United Kingdom, the United Arab Emirate

Singapore, Canada, and Japan.

Meanwhile, peso had let up 4.3% (y-o-y) against th

greenback as polical unrest in Syria, uncertain

on Fed tapering moves, and foreign selling in th

local stock market fueled addional volalit

About seventy seven percent (77.0%) of total cas

remiances were sourced from land-based OFW

and the remaining 23% from sea-based OFWs.

The outlook for the growth in remiance ow

remained intact as exemplied by connued deman

for Filipino workers abroad and development nancial instuons. According to the Philippin

Overseas Employment Administraon (POEA

approved job orders totaled 542,367 in January t

August. Of these, around 39.0% were processed jo

orders mainly for services, producon, professiona

technical, and related workers intended to wo

in Saudi Arabia, the United Arab Emirates, Kuwa

Taiwan, Hong Kong, and Qatar. Moreover, the POE

reported that workers with processed contrac

reached 1.16M for the H1 2013.

Figure 6 - Philippine Exports Country Desnaons




Macroeconomy

The Peso connued its appreciaon bias for the second

month in October as speculaons of Moody’s upgrade

and end of scal impasse materialized on the backdrop.

Peso Connues Appreciaon for the Second Month

The Peso averaged P43.18/US$ in October, a 1.5%

appreciaon from a month ago, although this wasweaker compared to a year ago. The volality

improved at P0.47 the lowest since April. The peso

appreciated steeply in the rst week on rumors of an

investment upgrade of the Philippines by Moody’s

and US House Speaker Boehner’s statement that he

would not let the government breach the debt ceiling.

Investors’ risk appete, however, had weakened in

the next week as the scal impasse (US government

shutdown and debt ceiling) and negave news from

China ourished on the backdrop, thus pushing the

peso-dollar rates above the monthly average rate.

The peso’s strength reverted on the nominaon of

Janet Yellen as the new Fed chairman, raising of debt

ceiling, and the hint of postponing tapering unl the

end of the year. Some prot-taking in the local stock

market and the bets that the US is unlikely to shi

monetary policy at the end of the FOMC meeng

weakened the peso by month-end.

Figure 8 - Daily Peso-Dollar Exchange Rate, October2013


Monthly US Dollar Cross Rates of Selected Asia-Pacic Currencies

Currency Jul-13 Aug-13 Sep-13 Oct-13

AUD 3.0% 1.2% -2.5% -2.6%

CNY 0.0% -0.3% 0.0% -0.3%

HKD 0.0% 0.0% 0.0% 0.0%

IDR 2.3% 5.0% 6.7% -1.5%

KRW -0.8% -0.9% -2.8% -1.6%

MYR 1.6% 2.6% -0.7% -2.5%

PHP 1.0% 1.3% -0.3% -1.4%

SGD 0.6% 0.3% -0.7% -1.6%

THB 1.0% 1.4% 0.3% -1.4%

Note: Posive changes mean depreciaon and negave changes

mean appreciaon against the greenback

Source: x-rates.com

Meanwhile, all the selected currencies of countries

in Asia-Pacic region also strengthened against the

greenback. Australian Dollar (AUD) and Malaysian

Ringgit (MYR) appreciated the most, by more than2.0%. Singaporean dollar (SGD), Indonesian Rupiah

(IDR), Philippine Peso (PHP), and Thai Baht (THB)

followed suit. It must be noted that the reversal in IDR

and THB were mainly due to improving fundamentals

Figure 7 - OFW Remiances Growth Rates (Year-on-Year in

US$ and PhP Terms)

Sources: Bangko Sentral ng Pilipinas (BSP)



Fixed Income Securite

eects in the Visayas, but steady to lower crude o

prices wold pull down inaon to 3.3% in Q4, whic

would bring full-year inaon to 3.0%, at the low end

the BSP’s target.

• The scal picture connues to look beer. Ta

collecons’ rising pace have been at double-digit rate

and this would keep decit and debt build-up in chec

and bring down the debt rao clearly below 50% by th

end of the year.

• BSP is right not to be overly worried about the shar

jump in money supply (M3 at over 30% in August an

September), as funds ow out of SDAs. Much of thmoney is put into nancial instruments and hopeful

more into producon. But banks remain risk-averse an

are not and won’t be lending-crazy.

• Exports appear to be doing beer in H2 as we ha

ancipated. However, this mini-surge would just b

enough to bring exports growth to posive territory fo

the year.

• OFW remiances will be a posive factor for th

economy in H2 due to the depreciaon of the peso, an

should connue to do so unto Q4.

• The peso will not likely appreciate signicantly, if

all, considering the oulow of funds from emergin

markets (EMs).


Figure 9 - Daily Peso-Dollar Exchange Rate, October 2012-

October 2013

Forecasts

Rates October November December January

Inaon (y-o-y %) 2.9 3.2 3.4 3.6

91-day T-Bill (%) 0.29 0.28 0.26 0.22

Peso-Dollar (P/$) 43.18 43.60 43.60 43.57

10-year (%) 3.68 3.74 3.69 3.61

Source: Authors’ esmates

and their relave cheap values aer depreciang for

four months since July. Lastly, Chinese Yuan (CNY) and

Hong Kong Dollar (HKD) had negligible appreciaon.

Technical analysis using the moving average (MA)

method indicates that the peso is likely to consolidate

in the short term, as the 30-day MA moved closely

to actual exchange rates. Meanwhile, the narrowing

gap between 200-day MA and actual rates has put an

element of doubt as to the direcon of the peso over

the long-term.

Outlook

Despite the devastang impact of super typhoon

Yolanda, our basic posive view on the economy

remains, with some shimmer a lile o.

• GDP probably expanded by 7.3% in Q3, but could slow

down to below 6.0% in Q4, with the immediate eect of

the typhoon on income and output.

• Headline inaon averaged at 2.4% in Q3 on the face of

the slower pace in the rise of crude oil prices. This will

certainly rise in Q4, exacerbated by the super typhoon’s

Macroeconomy

GDP probably expanded by 7.3% in Q3, but could slow down

to below 6.0% in Q4, with the immediate eect of the ty-

phoon on income and output.



Fixed Income Securites

Primary Market: Zero-rate for 91-day T-bills

The two regular aucons in October together with the

unplanned T-bill aucon on October 8 via tap facility

were met with overwhelming demand, and yields of

T-bills plummeted to all-me lows. The 91-day T-bill, in

parcular, fetched a near-zero average yield of 0.001%.

The 182-day and 364-day T-bills similarly posted average

record yields of 0.090% and 0.190%, respecvely. The bid

cover for the 91-day T-bill oer was 9.65x, the highest this

year so far. Meanwhile, the 182-day and 364-day T-bills

were oversubscribed by 5.91x and 3.46x, respecvely.

The Bureau of the Treasury (BTr) took advantage of theunmet demand and ultra-low rates by oering another

P20 B worth of securies through a tap facility. Demand

in the tap sll exceeded oers. The demand for T-bills was

heightened by expectaons of an appreciaon of the peso

by year-end as well as the Moody’s credit rang upgrade.

U.S. Shutdown Reinforces Further Smulus Delay

The 16-day paral US government shutdown may have been a blessing in disguise for global nancial markets.

The polical deadlock that resulted in budget indecision reinforced the view that the US was not yet ready to

gradually withdraw (or “taper”) its bond purchases program. The decision to li the debt limit was a band aid

relief that did not promise long-term soluons for the US debt and scal problems. With Janet Yellen chosen

to succeed Fed Chairman Bernanke by January 2014, markets have started to calm their earlier expectaons of

a radical rise in interest rates by year-end of 2013. The new view is for tapering to start in Q1 2014. Meanwhile,

in the Philippine market for government bonds, high cash levels in investors’ hands connue to contain yields

especially aer the Monetary Board (MB) of the Bangko Sentral ng Pilipinas (BSP) decided to keep policy rates

unchanged.

T-Bills and T-Bonds Aucon Results

Date T-Bond/T-Bill Oer (PhP B) Tendered (PhP B) Awarded (PhP B) Tendered ÷Oered Yield Change (bps)

7-Oct-13 91-day 4.00 38.590 4.00 9.65 0.001 -86.500

182-day 6.00 35.460 6.00 5.91 0.090 -83.000

364-day 10.00 34.610 10.00 3.46 0.190 -76.500

8-Oct-13 91-day 4.00 38.00 4.00 9.50 0.001 -86.50

182-day 6.00 30.50 6.00 5.08 0.090 -83.00

364-day 10.00 10.00 10.00 1.00 0.190 -76.50

22-Oct-13 20-Year 20.00 40.425 20.00 2.02 4.5120 99.50

Total - 60.00 227.59 60.00 5.23 - -

Source: Bureau of the Treasury (BTr)

Source: Philippine Dealing and Exchange Corporaon (PDEx)

Figure 10 - FXTN


11/21




Credit Rang and Investors Service Philippines Inc. (CRISP)

assigned an “AA+” issuer rang on Rockwell Land with a

posive outlook.

Source: First Metro Investment Corporaon (FMIC)

Figure 14 - ROPs Yields

*Authors’ computaons

Source of basic data: Philippine Dealing and Exchange Corporaon

(PDEx)

Figure 13 - Corporates (in Million PhP)

• First Gen Corporaon (FGEN), the Lopez-led power

generaon rm, issued 10-year bonds worth $250 M

USD. The bonds were traded in the Singapore ExchangeSecuries Trading Limited (SGX). Proceeds from the

issuance will be used to fund power projects and other

general corporate purposes. It plans to spend $2.3 B for

a 1,300 MW expansion of its energy projects through

the San Gabriel natural gas power project. It plans to

issue another $50 M worth of 10-year bonds aer the

successful issuance.

• Ayala Land, Inc. issued bonds worth P6 B in total. The P4

B bonds are due in 2020 and the rest of the P2 B are due

in 2033. The bonds carry coupon rates of 4.625% and

6.0%, respecvely. BPI Capital Corporaon, BDO Capitaland Investment Corporaon and First Metro Investment

Corporaon were joint lead underwriters and book-

runners.

• Rockwell Land Corporaon is set for its P5 B bond sale

in November. The company will issue P5 B worth of

7-year and one quarter unsecured peso-denominated

xed-rate bonds. Credit Rang and Investors Service

Philippines Inc. (CRISP) assigned an “AA+” issuer rang

on Rockwell Land with a posive outlook. Proceeds from

the bond sale will be alloed for capital expenditures

parcularly the Proscenium project.

In the Pipeline. Although a good number of issuances

are being worked out, only the following were ocially

disclosed by listed companies:

• JG Summit Holdings Inc. (JGS) aims to raise P50 B

from a bond issue to nance some two-thirds of theenre P72 B deal it entered into to acquire San Miguel

Corporaons’s enre 27.1% stake in Manila Electric Co.

(MER). It is contemplang on a rights issue to cover the

balance.

• Manila North Tollways Corporaon, the private operator

of the 84-kilometer North Luzon Expressway (NLEX),

plans to hold a P7 B bond oering to fund the extension

of NLEX to the Manila Port Area. It plans to issue the

bonds in Q1 2014, likely in the form of retail bonds.

• Filinvest Land, Inc. (FLI) is set to oer P5 B worth of



Fixed Income Securite

FOMC minutes described the Fed’s insistence on connu-

ing its QE3 and seeking to nd stronger evidence of U.S.

recovery.

xed-rate retail bonds, with P2 B oversubscripon. It

plans to issue tenors of 7 to 10 years. The Philippine

Rang Services Corporaon (Philrangs) has assigned a

PRS Aaa rang to the bond, the highest possible for a

bond. The proceeds of the bonds will be used to parally

nance projects in Q4 2013 and in 2014.

• Bank of the Philippine Islands (BPI) is set to exercise its

opon to call P5 B worth of hybrid security, lower er 2

notes. The papers were issued on December 12, 2008

and were supposed to mature on December 12, 2018.

ROPs Dollar-denominated bond yields were biased downwards

across all tenors. The belly of the curve took the biggest

drop with the yield on ROP19 falling by 46.8 bps to a yield

of 2.749%. Yield on the ROP16 also slipped by 29.4 bps.

The short-end and long-end of the curve also moved

south. The ROP14 yield eased by 4.9 bps while that of

the ROP32 by 24.2 bps. The short reprieve for the US

borrowing limits and further negoaons on budget cuts

pulled down US T-bond yields in and gave market players

some opportunies in ROPs.

ASEAN + 1

US: Fed Decides to Connue QE3 aer Shutdown

Failure of the two houses of congress to agree on a new

budget led to a paral US government shutdown. This

has been marked in US history as the rst shutdown in 17

years. More than 700,000 federal employees were forced

to take a leave without pay and without a guarantee of

back pay. Meanwhile, the FOMC minutes released in the

last week of October, the week aer the terminaon of

the paral shutdown, described the Fed’s insistence onconnuing its QE3 and seeking to nd stronger evidence

of US recovery. Only Esther L. George voted against the

FOMC monetary policy acon. She was concerned that

connued accommodaon would increase risks of future

economic and nancial imbalances. Inaon in August

rose by 1.2% and unemployment stood at 7.2% as of

September, both sll way o from Fed targets.

China: PRC Makes its Way towards Liberalizaon

People’s Republic of China (PRC) posted a 7.8% GD

growth in Q3 2013 y-o-y, bouncing up from 7.5% in Q

2013. Moreover, GDP growth was at 7.7% in the rst nin

months of the year. This went beyond the government

full-year target of 7.5%. Recent developments in PRC

nancial sector are centered on liberalizaon and sen

up safety nets to remedy its credit problem. People’s Ban

of China (PBoC) has started to ease control over intere

rates with the introducon of prime lending rates. Thes

can now be used by lenders to price loans. In July, it ca

be remembered that the government scrapped a oofor lending rates. PRC is also looking to address the lac

of transparency in credit in provinces by considering th

issue of municipal bonds. This will be a trial progra

designed to see if there will be an improvement in cred

transparency. Moreover, both PRC extended its Renmin

Qualied Foreign Instuonal Investor (RQFII) progra

to Singapore with an aggregate quote of CNY50 B. Bot

wanted to strengthen their es for regulaon and nanci

sector development.

Indonesia: BI Keeps Policy Rates

The Bank of Indonesia (BI) Board of Governors le policrate unchanged at 7.25%. It also decided to keep lendin

and deposit facilies steady at 7.25% and 5.50%. C

eased to 8.4% in September (y-o-y) from 8.8% in Augus

According to BI, inaon eased because of an abundan

supply in the wake of horcultural harvest. It also correcte

aer the fasng month of Ramadan, following the impa

of fuel price hikes. In the same month, the BI agreed t

an extension of its bilateral swap agreement with PBo

amounng to CNY100 B (IDR 175 Tr). Meanwhile, th

Indonesian government raised IDR20.2 Tr from the sale o

retail bonds. The sold bonds carry a coupon of 8.5% and3-year maturity. This was the 10th series of retail bonds

Malaysia: Inaon Accelerates

In September, inaon accelerated to 2.6% from 1.9

in August. This reading was highest in twenty month

Meanwhile, the Bank of Korea and Bank Negara Malays

(BNM) announced the establishment of a 3-year KRW-MY

swap agreement. The bilateral currency swap arrangemen




Moody’s Investors Service upgraded Philippines’ sovereign

currency and local currency long term rangs to Baa3 from

Ba1, with a posive outlook.

Sources: Asian Development Bank (ADB), UA&P

is sized up to KRW 5 Tr- MYR 15 B. This agreement aims tofoster further nancial cooperaon between the Republic

of Korea and Malaysia. In the same month, Malaysia

announced its 2014 budget. The Securies Commission

will ulize the “Framework of Socially Responsible Sukuk

Instrument” that aims to fund sustainable investments.

On October 1, BNM, together with Monetary Authority of

Singapore (MAS) and Securies and Exchange Commission

of Thailand, inked a Memorandum of Understanding to

establish an ASEAN Collecve Investment Scheme (CIS)

Framework that would facilitate cross-border oerings to

retail investors in the said countries.

Thailand: Current Account Surplus in August

The Bank of Thailand (BoT) kept its benchmark interest

rate at 2.5%, aer changing it in May. For Deputy Prime

Minister and Finance Minister Kira Na-Ranong, this

was sll high although he accepted this level as long as the

currency was stable near current levels. The higher-than-

desirable interest rate might further aract speculave

capital. Moreover, Thailand recorded a current account

surplus of $1.3 B in August aer a decit of $1.6 B in July.

This was driven by the increase in merchandise trade

surplus from $257.6 M to $2.2 B in August.

Philippines: Moody’s Raises PH to Investment Grade

Moody’s Investors Service upgraded Philippines’ sovereign

currency and local currency long term rangs to Baa3

from Ba1, with a posive outlook. The country’s inaon,

however, hit a three-month high of 2.7% in September

from a year earlier. This was above the market consensus

Spreads between 10-year and 2-year T-Bonds

Country 2-year

Rate

10-year

Rate

ProjectedInaon

Rates

Real 10-yearYield

10-year to 2-year Spread Spread Change

(bps)

Latest Policy

Rate

Real Policy

RateOct. 1, 2013 Oct. 30, 2013

US 0.313 2.538 1.6 0.94 232 223 -9 0.25 -1.35

PRC 3.940 4.220 2.6 1.62 22 28 6 6 3.4

Indonesia 6.399 7.635 7.7 -0.07 98 124 26 7.25 -0.45

Malaysia 2.99 3.602 2.2 1.40 54 61 7 3 0.8

Thailand 2.817 3.842 2.3 1.54 105 102 -3 2.5 0.2

Philippines 1.95 3.388 2.8 0.59 101 144 43 3.5 0.7

Source: Asian Development Bank (ADB)

Figure 15 - ASEAN + 1

of 2.4%. The unexpected increase in inaon in September

spurred some speculaon that the BSP would be open to

adjust rates to temper inaon by adjusng overnight

policy rate or increase SDA rates by year-end. We do not

share this view.

OutlookAs the bond markets here and abroad recovered aer the

paral US government shutdown (which implied a delay

in Fed’s “tapering”), the respite is now expected to last

as late as March 2014, or even further back, with a more

dovish Fed Chairperson in Janet Yellen, the rst woman to

be appointed as Fed Chairperson.



Equity Marke

• The BSP is expected to keep the low interest environment

in order to have a posive response to super typhoon

Yolanda’s devastaon well into 2014. Thus, despite

the very growth of M3 (as more funds exit from SDAs),

which is expected to connue unto Q1 2014, we do not

see any ghtening of monetary policy any me soon.

• We think nancial markets will prepare for the eventual

Fed “tapering” only slowly, and so long-term US interest

rates should rise only moderately up to early Q2 2014.

And despite the improving outlook for the Eurozone,

neither can we expect a rise in interest rates from thatpart of the world. Thus, world interest rates will not

provide much pressure on domesc rates.

• What may inuence bond yields more is if the inaon

rate accelerates towards the mid-point of the BSP’s 3-5%

target. While we do expect higher average inaon

rates in Q4, we do not think this would be sustainable as

food prices stabilize and world crude oil prices are only

being supported by uncertaines in the Middle East, as

the US, Canada and Eastern European countries step up

producon.

• We expect a rush for corporate bond issuances unl

the end of the year, and probably into Q1 2014. We

also think new names will emerge in this rush to catch

what many see as a boom in interest rates during that

period.

We think nancial markets will prepare for the eventual Fed

“tapering” only slowly, and so long-term US interest rates

should rise only moderately up to early Q2 2014.

Fixed Income Securie



Equity Markets

PSEi Cheers PH Robust Macro Backdrop

The Philippine equity market sustained its rebound in October. The PSEi was up by 6.36% for the month.

Investors have slowly refocused aenon towards the country’s sound macro backdrop over neighbors frail

economic condions and negave externalies from developed markets (DM). Furthermore, the re-opening

of the US government and rhetoric about taper delay lied investors’ senments that the party in emerging

markets would be extended. The Philippines’ strong macro fundamentals will connue to remain a bright spot

and warrant staying long on local equies. But against this background, one should not be over condent. We

reiterate our view that the strong growth is priced-in and posive catalysts are sll very much needed to jusfy

another mulple expansion.

Despite the strong performance in October, foreign inves-

tors remain net sellers. This was a reversal of the strong

foreign buying in September. Foreign ows toward Philip-

pine equies have been errac, gyrang from net buying

and selling. It hardly gives a clear indicaon as to whether

foreign investors will be coming back in a strong way.

Outlook and Strategy

In the long-term, robust macro backdrop should be

supporve of the Philippine equity markets. However,

in the next 12 months, we see higher odds of volality

picking up. The delay of the Fed taper is not necessarily

posive for the Philippine equity markets, as it creates

more uncertaines. And as DM economies improve,

we see more funds reallocated into DM equity markets.

Hence, we maintain our taccal strategy of a long-term

approach rather than focusing on short-term risk events.

Moving forward in November, downside risks are likely to

proliferate and oset third quarter earnings results. We

see lower liquidity on the back of Travellers and Robinsons

Retail IPOs to be aggravated by the Morgan Stanley

Capital Internaonal (MSCI) semi-annual rebalancing.

Furthermore, the taper talks are expected to resurface

as the US economy reported stronger GDP in Q3 and job

gains in October.

Figure 16 - PSEi Net Foreign Flows (In Million PhP)

Sources: Technistock, First Metro Securies

Source of Basic Data: PSE Quotaon Reports

Monthly Sectoral Performance

30-September-13 31-October-13

Sector Index % Change Index % Change

PSEi 6,191.80 1.92% 6,585.38 6.36%

Financial 1,534.33 4.52% 1,618.26 5.47%

Industrial 9,181.94 -1.93% 9,280.11 1.07%

Holdings 5,473.27 3.57% 5,983.26 9.32%

Property 2,369.42 2.15% 2,652.51 11.95%

Services 1,993.33 2.45% 2,004.20 0.55%

Mining and Oil 12,250.69 -11.60% 12,824.29 4.68%

The PSEi ended in the green as investors cheered the

country’s stable economic fundamentals alongside other

posive news from developed markets (DMs). The index

added 393 points to close at 6,585.38, almost 15 points

short of the 6,600 level. The bourse was largely buoyed

up by the Property sector as real estate prospects remain

upbeat amid robust demand.


17/21



Equity Markets

The previous two trading months showed that PSEi has

regained some of its swagger but value turnover fell below

the P11 B daily average.

Company Symbol

09/30/13

Close

10/31/13

Close

%

Change

Philex Mining Corporaon PX 7.95 8.75 10.1%

Semirara Mining Corporaon SCC 240.00 276.00 15.0%

Lepanto Consolidated Mining

CorporaonLC 0.42 0.42 ---


Company Symbol09/30/13

Close

10/31/13

Close

%

Change

Philippine Long Distance Tel. Co. TEL 2,978.00 2,870.00 -3.6%

Globe Telecom GLO 1,600.00 1,740.00 8.8%

Puregold PGOLD 41.70 45.10 8.2%


Monthly Turnover (in Million Pesos)

Total Turnover Average Daily Turnover

Sector Value % Change Value % Change

Financial 22,545.81 -21.21% 1,073.61 -21.21%

Industrial 48,088.10 -25.36% 2,289.91 -25.36%

Holdings 37,626.76 -17.93% 1,791.75 -17.93%

Property 21,445.40 -24.58% 1,021.21 -24.58%

Services 31,573.43 -23.75% 1,503.50 -23.75%

Mining and Oil 3,154.65 -10.59% 150.22 -10.59%

Total 164,435.77 -22.53% 7,830.27 -22.53%

Foreign Buying 94,901.23 -21.12% 4,519.11 -21.12%


Total Turnoverproperty market. Meanwhile, RLC’s stock price increasedon the back of strong residenal and mall revenues and

the upcoming IPO of Robinsons Retail Holdings Inc., which

owns the Robinsons department and supermarket stores,

Handyman, Ministop, Toy R Us, among others.

In the Service sector, share price of Puregold (PGOLD) has

sustained its gains due to a posive outlook in the company

amid its aggressive store expansion program. Meanwhile,

rivals Philippine Long Distance Telephone Company (TEL)

and Globe Telecom (GLO) connue to race for the roll-out

of high-speed internet services. TEL shed some points as

it fell vicm to the foreign sell-o in ancipaon of some

posive developments abroad.

Semirara Mining Corporaon (SCC) posted hey gains

aer it had secured SEC’s approval on the incorporaon

of SEM-Balayan Power Generaon Corporaon and St.

Raphael Power Generaon Corporaon needed in its

planned power plant expansion in Calaca and Balayan.

World coal prices also recovered. Share price of PX surged

by 10%, poised for its largest gain since August, aer it

scrapped its plans to issue new shares at a discount.

The previous two trading months showed that the PSEi has

regained some of its swagger. However, trading turnover

remained sparse as the average value turnover fell below

the P11 B daily average, partly due to the US government

shutdown concerns. Foreign investors were seen to track

uncertaines in the developed market as they took a net

selling stance with a net oulow of P7.5 B.


19/21



0

BALANCE OF PAYMENTS (In Million US$)

2011 2012 4th Quarter 2012 1st Quarter 2013

Levels Annual G. R. Levels Annual G. R. Levels Annual G. R. Levels Annual G. R.

I. CURRENT ACCOUNT 7,078 (20.7%) 7126 2.2% 2,208 (0.8%) 3,439.0 775.1%

Balance of Trade (11,857) (44.1%) (12,046) (5.6%) (3,031) (15.4%) (1,017.0) 74.0%

Balance of Goods (15,450) (40.9%) (15,205) 10.4% (4,701) 4.2% (2,733.0) 42.9%

Exports of Goods 62,681 (3.3%) 46,284 20.9% (10,991) 27.4% 11,152.0 7.9%

Import of Goods 74,538 2.0% 61,489 11.3% (15,692) 16.0% 13,885.0 (8.2%)

Balance of Services 3,593 31.4% 3,905 31.4% (1,441) (15.7%) 1,819.0 18.8%

Exports of Services 15,450 9.6% 18,600 9.6% (5,121) 5.3% 5,136.0 6.3%

Import of Services 11,857 4.4% 14,695 4.4% (3,680) 16.8% 3,317.0 0.5%

Current Transfers & Others 17,642 6.0% 4,456.0 3.5%

II. CAPITAL AND FINANCIAL AC-

COUNT 5,228 -29.2% (5,995) 9.4% 2,494 (54.5%)

Capital Account 171 74.5% 136 % 48 60.0% 23.0 (8.0%)

Financial Account 5,057 (30.6%) (6,131) (9.3%) -2542 (158.5%) (1,489.0) 69.1%

Direct Investments 1,253 83.7% (952) 25.5% -92 73.3% (814.0) 9.4%

Porolio Investments 5,524 26.6% (3,523) 19.7% -1851 (311.5%) (3,123.0) (150.2%)

Financial Derivaves 1,002 624.6% (13) 98.7% 27 130.7% 52.0 186.7%

Other Investments (2,722) (211.8%) (1,643) (255.1%) -626 (116.0%) 2,396.0 191.6%

III. NET UNCLASSIFIED ITEMS (2,127) 6.2% (2,127) (217.3%) (1,393) (154.7%) (3,416.0) 14.5%

OVERALL BOP POSITION 10,179 (28.9%) 10,179 (19.0%) 3,405 643.4% 1,535.0 23.5 %

Use of Fund Credits 0 0.0% 0 0.0% 0 0.0% 0.0 0.0%

Short-Term (1) 0.0% (1) 0.0% (11) 0.0% 11.0 10.0%

Memo Items

Change in Commercial Banks

Net Foreign Assets 5,622 11.7% (4,049) 19.9% 249 479.1% 1,546.0 23.4%

Basic Balance 8,655 (25.5%) n.a. n.a. n.a. n.a.


MONEY SUPPLY (In Million PhP)

2012 Jun-2013 Jul-2013

Average Levels Annual G. R Average Levels Annual G. R. Average Levels Annual G. R.

RESERVE MONEY 1,279,614 13.9% 1,540,178 21.1% 1,538,474 26.6%

Sources:

Net Foreign Asset of the BSP 3,323,054 9.5% 3,497,010 9.3% 3,601,127 8.5%

Net Domesc Asset of the BSP (2,043,440) 6.9% (1,956,832) 1.5% (2,062,653) (2.0%)

MONEY SUPPLY MEASURES AND COMPONENTS

Money Supply-1 1,464,490 13.5% 1,737,684 20.0% 1,856,486 29.9%

Money Supply-2 4,584,972 9.3% 5,611,566 21.1% 5,818,614 29.2%

Money Supply-3 4,668,872 8.0% 5,699,722 20.3% 6,033,935 31.0%

MONEY MULTIPLIER (M2/RM) 3.58 (3.58%) 3.64 0.0% 3.78 2.0%


21/21

Roberto Juanchito T. Dispo

Dr. Victor A. Abola

Viory Yvonne T. Janeo

Tyrone Dale R. Agas

Gilleane Julia V. Altuna

Reuben Mark A. Angeles

Augusto M. Cosio, Jr.

President, FMIC

Senior Economist, UA&P

Research Associate, UA&P

Research Assistant, UA&P

Research Assistant, UA&P

Department Head— Research, FMSBC

President, FAMI

CONTRIBUTORS

Views expressed in this newsleer are solely the responsibilies of the authors and do not represent any posion held by the FMIC and UA&P.

November 2013

The Market Call - Capital Markets Research

FMIC and UA&P Capital Markets Research

the market call (november 2013)

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