The PSEi - PSE Composite Index & The Economy


Investors spooked by inflation surprise 

Peso hits new 12-year low against the dollar; stock market drops by 1.65%

The peso and the stock market fell on Wednesday, weighed down by news that inflation had hit a new nine-year high and also tracking regional declines traced to concerns over emerging market economies.

The currency shed one and a half centavos to hit a fresh 12-year low of P53.55 against the greenback. While the drop was minimal, it was still the peso’s weakest close since a P53.57:$1 finish on June 28, 2006.

The Philippine Stock Exchange index (PSEi), meanwhile, plunged by more than 2 percent in intraday trade to touch the 7,600 level before limiting the day’s loss to 129.55 points or 1.65 percent to 7,752.27.

The broader All Shares tumbled 1.33 percent or 63.84 points to end at 4,732.02.

A key driver of the day’s declines was the announcement that August consumer price growth had blown past the government’s 5.9 percent estimate to hit 6.4 percent, significantly higher than the previous month’s 5.7 percent.

The result—the highest since the 6.6 percent recorded in March 2009—brought year-to-date inflation to 4.8 percent, over the Bangko Sentral ng Pilipinas’ 2.0-4.0 target for 2018.

Analysts traced the peso’s weakness to the inflation report and also pointed to concerns over emerging markets—precipitated by financial troubles in Argentina and Turkey with the latest worry that of South Africa’s having slipped into recession.

“We think inflation is becoming an issue … [and]that is driving currency weakness amid volatile global environment,” ANZ Research economist Shashank Mendiratta said.

Bank of the Philippine Islands Vice-President and lead economist Emilio Neri Jr. said the local currency had tracked the movement of most emerging market (EM) currencies.

“No surprises as most EM currencies have been under pressure since yesterday (Tuesday) and continue to be under pressure today (Wednesday),” he said.

Neri added that “a number of currencies in the Asian region were actually trading at or very close to all-time lows” early Wednesday.

Investors are worried that problems in emerging markets could spread and selling pressures on EM currencies is the US economy’s continuing strength, which has prompted the Federal Reserve to raise interest rates and subsequent fund placement shifts by investors looking for better and safer returns.

Among the EM currencies that have plunged in recent weeks, in addition to the Argentine peso and the Turkish lira, are the Indian rupee—sitting at a record low—and the Indonesian rupiah that has fallen to level last seen during the 1998 Asian financial crisis.

The EM fright has extended to equities, with investors already on edge over uncertainties over US President Donald Trump’s trade rows with China and Canada.

Jakarta led a sell-off in EM equities, diving four percent on Wednesday. Hong Kong shed 2.6 percent and Shanghai fell 1.7 percent, while Singapore gave up 1.2 percent and Seoul dipped more than 1 percent. Sydney fell one percent and Tokyo ended 0.5 percent lower.

For Manila, Regina Capital Development Corp. head of sales Luis Limlingan said that Wednesday’s plunge was primarily due to the August inflation report, which stoked fears that the BSP’s policymaking Monetary Board would again hike interest rates as early as this month.

Limlingan said latest inflation figures pointed to another 50-basis point rate hike during the next Monetary Board meeting on September 27.

Diversified Securities, Inc. trader Aniceto Pangan shared the same view, saying a 50-bps rate increase—which would bring year-to-date adjustments to a total of 150 bps—was possible.

“[I]nflation was well above estimates. It’s still on the upward trend so definitely we’re going to expect a rate hike,” Pangan said.


...yan ang sinasabi ko, the current administration plays too much politics which is affecting the running of the economy na...politics per se is ok naman, pero too much na eh and it is scaring away investors...tapos hindi lang basta politics, politics na based on personality pa which is the worst kind....anchored sa iisang tao lang...the president...tsk

Credit raters cautious on political noise

DEBT WATCHERS are cautious over increased political noise due to moves to persecute another of President Rodrigo R. Duterte’s critics and changes at the Supreme Court, even as one said these developments are unlikely to alter its assessment on the country unless they dampen business sentiment.

Sought for comment on Malacañang’s revocation of opposition Senator Antonio F. Trillanes IV’s amnesty, Moody’s senior credit officer Christian de Guzman said political risk will still be a factor in their overall credit assessment for the Philippines.

“To reiterate, political risk is unlikely to alter the sovereign risk profile as long as there are no spillovers to business or consumer sentiment, and there is no decrease in the government’s ability to advance its socioeconomic reform agenda,” Mr. De Guzman told BusinessWorld in an e-mail late Thursday.

“The latest events, such as those related to Sen. Trillanes, do not pose a significant change to that view,” he added.

For its part, Fitch Solutions Macro Research in a separate commentary published on Sept. 5 said there is a “growing chance for Duterte-aligned policy makers to gain control of the Senate in the midterm elections” due to the government’s moves versus Mr. Trillanes and Senator Leila M. de Lima.

The government charged and jailed Ms. De Lima last year over her alleged involvement in the New Bilibid Prison illegal drugs trade when she was still Justice Secretary in the previous administration, although she argued she was only persecuted for being critical of Mr. Duterte’s violent drug war.

Fitch Solutions also said last week that the recent ouster of ex-Supreme Court Chief Justice Ma. Lourdes Sereno “also cast doubts about the independence of the judiciary.”

Ms. Sereno, also a known critic of Mr. Duterte, was ousted in June for failing to fully declare the required statement of assets, liabilities and net worth when she applied for the post.

“President Rodrigo Duterte’s consolidation of power would likely be positive for policy making and would also bode well for his attempt at changing the Constitution, both to introduce federalism and shift the presidential system to a presidential-parliamentary model. However, we see a risk that checks and balances in the country could slip further,” the report read.

The draft Federal constitution is already with Congress, and both houses have indicated their intention to move forward with Charter change.

The change in the government’s structure is among Mr. Duterte’s campaign promises, which seeks to boost regional development by granting them more autonomy. Moody’s and Mr. Duterte’s economic managers have earlier flagged the possibility of a bloated fiscal deficit if fiscal provisions are not clearly laid out.

Moody’s on July 20 flagged the Duterte administration’s “contentious policies on law and order” as well as other “political controversies” as a downside risk on the country’s attractiveness to investors, even as it affirmed the country’s investment-grade rating and its stable outlook over high economic strength from its fiscal health and debt affordability.

In its annual credit analysis for the Philippines published later that month, it rated political risk as “low +,” even as it noted political noise due to issues regarding illegal drugs trade, national security, foreign policy and the alleged suppression of criticism versus the government.

The credit rater said the developments have not led to a significant reduction in the President’s approval ratings, negative spillovers to business and consumer sentiment, and a decrease in the government’s ability to push its socioeconomic reform agenda.

In the same report, however, it said that although the country’s institutional strength is rated “moderate +” due to its effectiveness on monetary and fiscal capacity amid elevated political noise, “contentions regarding the recent ouster of the Supreme Court Justice by her peers foreshadow a further deterioration in the rule of law.”

Fitch Ratings also said last year that political noise failed to dent the country’s growth prospects, while S&P Global Ratings said early into Mr. Duterte’s term that a rating upgrade is unlikely over alleged human rights violations, but eventually upgraded its outlook in April to “positive” from “stable.” 


...eto pa isa

Sweet spot no more

INTERNATIONAL credit ratings agency Moody’s Investors Service is looking to revise downward its growth forecast of the Philippines, following recent developments that put the country out of the so-called economic sweet spot of high growth and low inflation.

In an interview with the BusinessMirror, Moody’s Vice President and Senior Credit Officer Christian de Guzman confirmed that they will revise their current 6.8-percent growth forecast of the Philippines downward, following the weaker-than-expected 6-percent growth in the second quarter of the year.

De Guzman said the disappointing 6-percent second-quarter growth, coupled with the rapid tightening monetary policy levers and the negative outlook on external demand, will cause the economy to fall short of their earlier growth trajectory projection.

The Philippines’ persistently high inflation rate, de Guzman also said, reinforced their July view that taming the strong growth of consumer prices poses  material challenges to local policy makers.

Despite public concerns on slower growth, the Moody’s official said the Bangko Sentral ng Pilipinas (BSP) has made the “appropriate response” in dealing with the stubbornly high inflation rate of the country, and lauded its “data-dependent” moves.

In a separate response to the BusinessMirror, International Monetary Fund (IMF) Resident Representative to the Philippines Yongzheng Yang also affirmed that they are currently monitoring developments in the local economy and will revise forecasts when warranted.

Yang also specifically mentioned the need for further tightening from the BSP, even after the Central Bank already hiked its main policy rates by a total of 100 basis points in the past months.

“Specifically, there is a need for further tightening of monetary policy by raising interest rates, supported by keeping the fiscal deficit broadly unchanged from last year. This would help reduce inflationary pressures,” Yang said.

“At the same time, structural reforms—e.g., tariffication of rice import restrictions, tax reform, amending the BSP Charter, and shortening the foreign investment negative list—should continue or even accelerate. Such reforms would strengthen market confidence and raise growth potential in the Philippines,” he added.

While both major international analysts see challenges to the local economy, they are in agreement that the Philippines remains a key economic player in the region.

“The fundamentals of the Philippine economy remain strong, although risks have risen in recent months, with managing inflation expectations becoming an important challenge,” Yang said.

“I can say we continue to see the Philippines—even after we revise the GDP [gross domestic product] growth projection—as one of the better performing economies in the region,” de Guzman said.

BSP Governor Nestor Espenilla Jr. had earlier said that while the growth path of the country was tamer in the second quarter of the year, their data showed that it has enough space to absorb the rounds of aggressive monetary policy tightening let out in recent months.

Economic managers and markets, however, expressed concern over the inflation shoot-up in August this year.

Inflation hit its highest in nine years in August, as recently reported by the Philippine Statistics Authority (PSA), wreaking havoc on the near-term market and business sentiment in the country.

The peso, in particular, hit fresh 12-year lows following the announcement, with latest data from the Bankers Association of the Philippines (BAP) showing a P53.85 to a dollar opening value on Friday.

ING Bank Manila economist Joey Cuyegkeng earlier affirmed that the recent weakness of the peso was brought about by the high inflation and the market’s perception of a weak monetary policy response—coupled with external factors.

Latest BSP survey on local business sentiment also showed a significant slump in confidence in local economy dynamics. Firms surveyed during the period groaned amid increasing prices of basic commodities in the global market, augmented by the effects of the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Law on prices of domestic goods. The most pervasive impact cited is that of the higher excise taxes on fuel as imposed by TRAIN, which businessmen said cut across all sectors, raising costs all around.

The quarterly Business Expectation Survey (BES) of the Central Bank, results of which were released late Thursday, showed the overall confidence index (CI) of firms during the period slumped to 30.1 percent—the lowest level of business confidence since the first quarter of 2010.

The BSP will be having its next monetary policy meeting on September 27, and this early several analysts are predicting another rate hike decision.

9-12 gap naman

Trade gap widens on import surge

FLAT merchandise export sales and inbound foreign goods’ continued surge caused the country’s trade gap to widen further in July, the Philippine Statistics Authority (PSA) reported on Tuesday, putting more pressure on the peso that has lately been hitting its weakest level in nearly 13 years (Read article here).

The value of merchandise exports grew by just 0.3% annually to $5.851 billion in July, according to PSA’s preliminary data. This was slower than the 2.8% growth in June and 21.9% in July 2017.

On the other hand, July import payments increased to its fastest pace so far this year with a 31.6% growth to $9.397 billion compared to June’s 24.2% rise and the 0.3% decline in July 2017.

Consequently, the country’s trade deficit expanded to $3.546 billion in July, wider than June’s $3.188 billion and $1.305 billion in July 2017.

To date, merchandise export sales shrank 2.8% to $38.744 billion from $39.869 billion in the same seven months last year while imports increased by 15.7% to $61.234 billion versus last year’s $52.923 billion.

Under the government’s program, exports and imports of goods have been targeted to grow by nine percent and 10%, respectively, this year.

On a cumulative basis, the balance of trade yielded a $22.49-billion deficit, 72.3% bigger than the $13.055-billion trade gap recorded in January-July 2017.

Outbound manufactured goods, which made up 83.4% of total sales in July, dipped 0.3% to $4.882 billion, although electronic products, which made up around 56% of total exports, rose 5.2% to $3.276 billion.

Outbound shipments of agro-based products likewise dropped by 5.4% to $386.103 million while those of petroleum products plunged 75.9% to $12.484 million.

Bucking the trend were exports of mineral products (4.3% growth to $373.603 million) and forest products (130.8% to $24.488 million).

Meanwhile, the July import print marked the fourth straight month of double-digit growth.

Purchases of raw materials and intermediate goods, which made up 36.8% of total imports that same month, grew 28.3% to $3.457 billion.

Likewise, capital goods, comprising 33.9% of the import total, grew 38.9% to $3.183 billion.

Also growing that month were imports of consumer goods (22% to $1.561 billion), as well as mineral fuels, lubricant and related materials (35.8% to $1.142 billion).

“As the global trade situation becomes less encouraging, improving the overall climate for export development becomes all the more indispensable…” Socioeconomic Planning Secretary Ernesto M. Pernia was quoted as saying in a statement of the National Economic and Development Authority, which he heads as director-general.

“Trade war fears have weighed on business sentiment, and we now see softer global activity. With a resolution unlikely in the short term, the dispute is expected to dampen growth in both economies and drag down growth in the wider global economy.”

Michael L. Ricafort, economist at the Rizal Commercial Banking Corp. (RCBC), said that the slowdown in exports was due mainly to base effects from a double-digit growth a year ago alongside effects of a broader US and China trade war.

“Prospects of a wider trade war between the US and China — the world’s two largest economies and among the biggest export market of the Philippines — also partly caused the slower growth in Philippine exports,” Mr. Ricafort said.

US President Donald J. Trump considered imposing further tariffs on another $200 billion worth of Chinese imports. This is on top of the tariff on $50 billion of Chinese goods already imposed earlier, of which China responded in kind on US goods.

Furthermore, Mr. Ricafort attributed the faster import growth in July to the “increased importation requirements of the Philippine economy.”

“[The country] is still among the fastest-growing in Asia in terms of increased demand for capital equipment, raw materials, and finished goods, some of which may be for productive purposes amid the record high foreign direct investments in recent years…” he said.

Despite the flat merchandise export performance, analysts were upbeat on growth prospects of the sector for the year despite risks.

“At least our country’s exports [performance] is able to maintain a positive growth for the last two months despite starting the year on the negative side. This can be the trend for the rest of the year. Hopefully, [it is] higher,” Philippine Exporters Confederation, Inc. president Sergio R. Ortiz-Luis, Jr. said.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, shared this optimism saying: “Exports are expected to improve in [the second-half of 2018] with the Christmas season anticipated to drive demand higher.”

At the same time, Mr. Asuncion noted “possible risks” with the escalation of the US-China trade war.

“Although the impact on the Philippines is uncertain, the certainty that the Philippines is interconnected to global trade particularly with the US and China… cannot be denied,” he said.

For RCBC’s Mr. Ricafort, “export growth could still improve in the coming months, with the expected pickup in electronic exports… amid the country’s increased imports of electronics… that may be further processed for re-export, as well as the faster economic growth in the US… a major market for Philippine exports.”

However, “Philippine exports that are part of the supply chain in the production of Chinese exports to the US and the production of US exports to China would experience lower sales in both countries,” Mr. Ricafort cautioned.

The US was the Philippines’ top export market in July with a 16.6% share at $972.52 million, followed by Hong Kong’s 14.7% ($859.98 million) and Japan’s 13.7% ($799.02 million) market shares.

The same month saw China as the Philippines’ top source of imports with a 19.8% share ($1.859 billion) followed by South Korea’s 10% ($936.49 million) and Japan’s 9.7% ($911.48 million).


...this will have an effect on the monthly inflation

'Ompong' agricultural damage up to P9.3B in Cagayan Valley, Cordillera

MANILA, Philippines — Typhoon Ompong (international name Mangkhut) has left at least P9.3 billion worth of agricultural damage in northern Luzon, according to the National Disaster Risk Reduction and Management Council.

The estimated cost of the damage to agriculture in Cagayan Valley and in the Cordillera Administrative Region (CAR) was at P9,358,000,863 as of Tuesday morning.

Meanwhile, a total of 218,492 families or 893,844 persons in Luzon have been affected by the typhoon. About 61,709 families are being served inside and outside evacuation centers.

Excluding those killed in a landslide in Itogon, Benguet, NDRRMC has tallied eight reported casualties and 21 injured. Two have also been reported missing.

The NDRRMC broke down the number of casualties to one in Region 1, one in Region 3 and six in CAR.

Benguet landslide
"We are just confirming the deaths, 50 plus are still the initial (information) and we still have 40 plus missing," NDRRMC spokesperson Edgar Posadas said on Monday.

Rescue and retrieval operations are still ongoing at a landslide site in Itogon, Benguet, where the official casualty count has risen to 56.

The figure is expected to rise as 40 to 50 people are believed to have been buried under mud.

The typhoon also caused cancellations of 146 international and 135 domestic flights. Four international and 56 domestic flights have resumed.

As of September 17, 159 areas in Regions 1, 4-A, 5, 8, 9, 10, CAR and NCR have experienced power interruptions, 45 of which have already been restored.

Government agencies and NGOs have provided at least P41 million worth of assistance to affected areas in Regions 1, 2, 3, 4-B, NCR and CAR. 


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