Friday, 10 September 2010

Golden era and a massive bull market

Written by John Mangun
Outside the Box
Business Mirror

They say if you live long enough, you will have seen most everything happen, and almost nothing can surprise you anymore.

If you have followed the Philippine Stock Exchange (PSE) for the last 20-plus years like I have, you have seen quite a lot.

While in 1986, the London Stock Exchange moved trading from face-to-face floor transactions to trading by computer, the Makati Stock Exchange was still posting prices on a blackboard using chalk.

And then we saw the initial-public-offering (IPO) days fueled in large measure by the government’s decision to sell Petron. Part of that IPO was the beginning of the small investor program where buyers were limited to 2,500 shares, if I remember correctly. Clients walked into their stock broker’s offices, hands filled with subscription forms filled out in the names of maids, drivers, yaya, and messengers. These folks were buying amounts of shares equal to their annual salaries. Of course, no one ever questioned the legitimacy of those purchases. And it took years before all the “small investors” made any money from the stock.

At the same time, one name-brand privately owned family company also went public. But before it sold its shares to the public, it declared P130 million in dividends to the private owners. The new buyers had a company with almost no cash reserves, which kept this company from any sort of expansion or improvement for a decade until those depleted cash reserves could be built up again.

We witnessed the backdoor-listing craze when dormant companies were taken over and the stock price flew, then calling them “rocket chips.” Anyone remember BW Resources?

The PSE has generated some great events and stories. Alaska Milk shares rose dramatically the day after its PBA team won a championship. And then there was the front-page rumor that the chairman of a very large property-development firm had cleaned out the company’s bank accounts and fled to Thailand, the week before he appeared at the annual stockholders’ meeting.

This is the PSE, where truth and fiction come together like the conversations at a local beauty salon.

But the PSE is still a stock market, and a stock market will always and forever offer surprises.

Imagine my surprise when I read this headline from and picked up by our local newspapers: “Philippine stocks’ bull-market rally to be ‘massive,’ Macquarie Group says.”

Macquarie Group is an Australian company that is, according to its web site, “a global provider of banking, financial, advisory, investment and funds-management services.” They have been around since 1969, so we know that we are in the presence of stock-market “experts.”

From the article: “The benchmark index will reach 3,900 in the ‘near term’ as economic expansion and earnings growth of 23 percent this year push Philippine stocks into a ‘massive bull market’…and may extend gains to 4,500 in 2011. The Philippines is at the start of a massive bull market.”

Now let’s see. Macquarie is calling an 18-percent price move a “massive bull market.” So tell me what the move between 2008 and 2010, which saw the PSE index go up 100 percent, if not a “massive bull market.” The “experts” at Macquarie apparently have not been paying much close attention to the PSE during the last year.

Macquarie is recommending buying Megaworld now that it is P2. Where was Macquarie’s buy advice when Megaworld was trading at P0.60? They like banks, property and utilities, companies sort of like JG Summit; no, exactly like JG Summit. But they are calling for a buy at P19.90, when you could have bought at P1.60 less than two years ago.

Another international broker, CLSA Asia-Pacific Markets, says (from the BusinessMirror) that, “We would look at accumulating stocks during this cyclical correction” if the market goes to the 3,400 area. Great call from the experts. At 2,000 going to 3,800, the PSE wasn’t worth it. But if it falls 10 percent from where it is now, it is a great opportunity.

It is very tempting to call these people fools, but please do not do that. They may save you a ton of money, because I have been around long enough to have seen all this before—twice.

In what month did the 1990 bull- market rally end? January 1997. What month was foreign buying the heaviest? January 1997. In what month did the 2003 bull-market rally end? February 2007. What month was foreign buying the heaviest? February 2007.

From the September 7 issue of the Daily Inquirer: “Foreign investors continued to make local stocks sizzle, contributing about P1 billion in net buying for the day.” Manila Standard: “PSE president Val Suarez said Wednesday foreign buying in July alone rose 40 percent on year.” Xinhua News Agency: “Trading activity was buoyed by the renewed interest of foreign investors in the market. In fact, the share of foreign investors to total traded value reached 49.7 percent.”

Do not misunderstand me. There is a lot more room for prices to go up, and they will. But when the foreigners start saying the things like I quoted above, it is time to start some serious and careful thinking. The foreigners have been wrong about the Philippines and the PSE before, a lot.

And it sure would be nice to see a large amount of foreign money waiting to buy locally owned shares for a big profit when the PSE hits 4,000. It’s called an exit strategy. You cannot sell at a high profit, unless somebody is willing to pay you the high price.

So let the PSE fiesta continue for as long as it can, and enjoy it all you can. But remember, at a time in the future, someone is going to have to pay the bill for all the stock-market beer and pulutan, and it sure would be nice to give the check to investors like Australian Macquarie and majority French-owned CLSA.

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RP Exports Post 36% Annual Gain in July

By Cris Larano (Dow Jones)
Manila Bulletin

Philippine July exports surprised on the upside, rising 36% from a year earlier and extending a recovery that started last November on the back of a rebound in electronic shipments--a development that bodes well for sustained robust growth of the domestic economy, at least into the third quarter.

Economists, however, note that easing sales of personal computers abroad and a slowdown in June imports--primarily raw materials for export--suggest growth in Philippine exports could slow in the months ahead.

The National Statistics Office reported Thursday that exports in July increased to $4.50 billion, from $3.31 billion in July 2009, but are down from June's $4.56 billion --the highest single-month tally since October 2007 when exports totaled $4.66 billion.

Shipments of electronic products, the country's main export item, rose 49% in July to $2.86 billion, from $1.92 billion in the year-earlier period, but were just shy of the $2.90 billion posted in June.

Double-digit growth was also reported in July for exports of copper cathodes, coconut oil, woodcrafts, ignition wiring sets and metal components.

In the seven months to July, exports totaled $28.22 billion, up 37% from the $20.54 billion recorded in the year-earlier period. "July exports surprised on the upside, with the main thrust stemming from electronics shipments," said Radhika Rao, an economist at Forecast Pte Ltd.

"While it is too early for the pullback in June imports to feed through to the export channel, nonetheless in the light of other leading indicators for the electronics sector, we expect exports to remain supported in the second half with the interim softness in raw materials and intermediate demand attributable to inventory adjustments and fresh orders being fulfilled from existing stocks," she added.

She said export growth of over 25% in the second half is still possible, even with the slowdown.

Wednesday, 8 September 2010

Investors' confidence in RP bullish – BOI

Manila Bulletin

BACOLOD CITY, Negros Occidental (3 September) – The Board of Investments (BOI), an attached agency of the Department of Trade and Industry, recently bared that investors' confidence is high and bullish in the country and that the BOI is matching this enthusiasm with tax grants and fiscal incentives to investors.

This was revealed by Lucita Reyes, Executive Director of the BOI-Project Assessment Group during an orientation-seminar focused on the 2010 Investment Priorities Plan (IPP) held in Bacolod City’s L’Fisher Hotel last week. Said orientation-seminar was attended by stakeholders from different sectors in the Western Visayas region.

In the same event, Reyes disclosed that for the period covering January to July this year, investment approvals by BOI and the Philippine Economic Zone Authority (PEZA) has reached a total of P240 billion so far, compared to the some P100 billion gained during the same period last year.

Both BOI and PEZA is targeting at least P450 billion in investment approval this year.

Reyes is confident the target can be reached since the BOI, as of this time, has already P111-billion worth of projects lined up for check listing.

BOI Governor Francisco Ferrer said the role of BOI is to mobilize savings toward direct investments in the hope of moving the country forward.

"It is the program of Government to disperse industries in the country and not just in Metro Manila," Ferrer told the Western Visayas stakeholders during the orientation.

Reyes, meanwhile, also presented during said orientation, BOI’s 10 themes for 2010, covering different industry sector groupings namely, The Olympian, The Heavy Lifters, Green Entrepreneurs, New Kids on the Block, Homeland Security, Globe Trotters X (Exporters), Social Rate of Return, Responsible Corporation, Bias for the Little Guy and The New BOI.

The Olympian include power industries which are tourism, business process outsourcing, electronics, and mining. Under Heavy Lifters are investments in energy, physical infrastructure, logistics and the downstream oil industry. Green Entrepreneurs cover investments in green projects, waste management facilities, industrial forests, and renewable energy.

The New Kids on the Block refers to ventures involving industries that address calamities and disasters, creative industry and knowledge services.

Economic managers list 50 PPP projects

Written by Cai U. Ordinario
Business Mirror

THE government is lining up 50 projects for public-private partnerships (PPP), according to the National Economic and Development Authority (Neda).

Neda Director General and Socioeconomic Planning Secretary Dr. Cayetano W. Paderanga Jr. said the government’s economic managers initially considered about 70 projects for PPP, but the President’s economic team trimmed this down to 50.

The 70 projects had been identified in the previous Medium Term Philippine Investment Plan. But some changes would be made for the final list of the PPP projects to be proposed to the private sector for funding, he said.

But Paderanga also said new projects maybe added as the economic team begins to examine integrated national plans.

Earlier, Neda Deputy Director General for Investment Programming Rolando Tungpalan cited three strong “contenders” for PPP:

The extension of the Light Rail Transit to the Masinag market along the Marcos Highway in Antipolo. The extension will start from the Santolan station, where the present LRT Line 2 ends.
The previously proposed connector road linking the South Luzon Expressway to the North Luzon Expressway. It was initially proposed to be funded by a loan from the Chinese government.

The Laiban Dam. Incidentally, the publicly listed firm Abacus Consolidated Resources & Holdings Inc. yesterday disclosed to the local bourse its proposal to undertake the Laiban Dam project through a P60- billion joint venture with the government.

Tungpalan said “ready to go” projects of the Comprehensive Infrastructure Investment Program could also be considered for the PPP. The only thing lacking in these projects is funding, he said.
Tungpalan said “ready to go” projects of the Comprehensive Infrastructure Investment Program could also be considered for the PPP. The only thing lacking in these projects is funding, he said.

The 3-percent solution for prosperity

Written by John Mangun
Outside the Box
Business Mirror

During his bid for the presidency of the Philippines, former House Speaker Jose de Venecia Jr., primarily through his economic adviser Romulo Neri, proposed that the Philippines could achieve economic prosperity through a “747” program; seven years of economic growth of 7 percent.

Although the Speaker and Neri were never quite able to formulate a specific and feasible plan to achieve that 747, the concept was correct. A sustained economic growth of 7 percent annually would double the size of the Philippine economy in just 10 years.

The Philippines needs growth of 4 percent just to break even. Just like you know how much income you must have just to pay all of your expenses, any additional money coming in can improve your lifestyle. China, by comparison, needs an 8-percent growth, and the US needs about 2.5 percent to keep their economic heads above water.

While knowing that 7-percent growth would make substantial and sustainable inroads into creating enough jobs, reducing poverty and increasing the people’s standard of living, this 7 percent has been very elusive, seemingly always out of reach.

In 2007 7 percent was achieved, preceded by years of 5-percent growth and followed by 3.8 percent and 1.1 percent in 2008 and 2009.

From yesterday’s BusinessMirror: “The Philippines needs at least P180 billion in investments to achieve a gross domestic product [GDP] growth of 7 percent. Finance Undersecretary Gil Beltran said, ‘At 5-percent GDP growth [government’s original goal], the total economic output would be P9 trillion. The additional P180 billion would add about 2 percent.”’

I probably missed it before, but this is the first time I can recall specific quantification by the government of what the Philippines needs in investment to reach that 7-percent objective.

The amount of P180 billion might seem like a lot of money. After all, the total education budget is P180 billion a year.

Think about it from your personal financial situation. What do you think you would have to do to double your wealth in 10 years? Is it possible without a major sacrifice of current lifestyle or without taking too high a financial risk?

In fact, the Philippines could achieve a 7-percent growth this and every year almost without a struggle.

Let me emphasize that point again. Annual economic growth of 7 percent, based on the total value of the Philippines GDP for 2009, can be achieved every year for the next decade. It is a realistic and achievable goal.

Two questions, though, need answers. Where is the money, the P180 billion, going to come from? How is that P180 billion going to be used?

For the government, P180 billion is a lot of money. The government’s budget deficit for 2010 will be approximately P325 billion. It would be fiscally irresponsible to increase the budget deficit to fund the P180 billion. But for the overall economy and for the private sector, P180 billion is not a significant amount.

P180 billion is about $4 billion. The nominal value of the 2009 GDP is $168 billion. All the Philippines needs to do is use is 3 percent of the GDP for investment to raise the growth rate to 7 percent.

If 3 percent of all the Philippine economic activity were set aside for growth-creating projects, “747” would be a reality.

In a sense, it would be like you saving only 3 percent of your salary and putting that money into a new business that would double your net wealth in 10 years. For an individual, it is almost impossible. For a country, with the public and private sector working together, it is a reality.

How much is P180 billion? The total value of all Philippine Long Distance Telephone shares is P457 billion. The total market value of Ayala Corp. is P187 billion. Meralco shares are worth in total P200 billion. As of December 31, 2009, the Philippine Stock Exchange (PSE) had 248 listed companies with a total market capitalization of $130 billion, or P5.85 trillion. About 3 percent of the total market value of the PSE invested wisely every year would grow the economy by 7 percent, leading to the now unthinkable 7-percent goal.

More personally, if every Filipino family living above the poverty level contributed 3 percent of the family income to a P180-billion investment fund, that would raise half the P180 billion.

Maybe President Aquino has the solution to the funding problem. The World Bank estimates that the Philippines loses P400 billion a year of potentially productive financial resources to corruption.

Finding the money to create a 7-percent growth is not the problem. Using that money wisely is a problem.

The government’s role in this “747” venture should be limited because governments rarely spend and invest money very sensibly, efficiently, or quickly.

Half the funding for this investment fund should go to a lending facility for medium-size enterprises with a proven and successful history of business accomplishment. Half should be allocated for government investment, open, transparent and passive, in clearly identified large-scale joint-venture projects with private-sector companies.

The public-private partnership program of the Aquino administration is simply the answer to the nation’s economic problems. It has always been the answer. It is just that no previous administration has ever effectively made it a primary centerpiece of policy. Whether Mr. Aquino can follow through with this policy remains to be seen. But for a small 3 percent of the total economic activity of the country, raised locally without begging the foreigners for help, set aside, and invested properly the dream of enough wealth creation and Filipino prosperity can be achieved.

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Monday, 6 September 2010

August BOP edges closer to $50B

August BoP surplus higher
by Roderick T. dela Cruz
Manila Standard

The Philippines posted another balance of payments surplus in August, pushing the gross international reserves to about $49 billion at the end of the month and on its way past $50 billion by the end of the year.

“It is going to be higher than the BoP surplus in July,” Bangko Sentral Gov. Amando Tetangco Jr. said of the figure in August, which will be officially released around the middle of the month.

Bangko Sentral reported that the BoP yielded a surplus of $91 million in July, boosting the cumulative figure in the first seven months of the year to $3.326 billion.

Tetangco said it was possible the GIR would exceed the $50-billion mark this year with the strong BoP surplus.

Tetangco said remittances, investments, business process outsourcing revenues, government borrowings and foreign exchange inflows of Bangko Sentral were supporting the balance of payments.

Sources said the country’s BoP position would be further augmented by a $1-billion inflow in the second half of the year, following the recent approval by the Monetary Board of the planned $1-billion global bond issue by the government.

The government is floating the global bond issue with a tenor of up to 10 years to help finance its budget deficit this year and next, sources added.

Tetangco said the government would review its projection for BoP and GIR by November, to take into account the latest trends.

“The way it looks, we may exceed the BoP surplus projected for 2010. We will be reviewing the numbers and release the updated projections by November,” he said.

The BoP, which represents the country’s transactions with the rest of the world, is expected to end the year with a surplus of $3.7 billion, and shore up the gross international reserves to about $49 billion to $50 billion.

Tetangco said the Philippines was one of the emerging economies experiencing increased foreign exchange inflows.

He said the BoP surplus would provide fundamental support to the Philippine peso.

“It can also be affected by what is happening to the US dollar, investors’ sentiment, and the global economic recovery. It is responding to a lot of different factors, but BoP will give the fundamental support,” he said.

The peso bounced back to 44.69 against the US dollar on Friday, in line with the rebound of emerging market currencies and equities.