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The Market Call (January 2011)
The Market Call (January 2011)
The
Is inflation rearing its ugly head again? Global and domestic financial market players seem to think so, given
the unabated increases in crude oil prices and sharp rises in agricultural commodity prices. As a consequence,
the fabled January effect did not materialize as both domestic bond and stock prices have tanked early in the
year.
In the Philippines, the figures for the economy remain robust and the inflation scare may just be a knee-jerk
reaction. The latest economic data, which simply reiterate the fundamental strength of the economy, should
probably speak best for themselves.
Meralco Sales Eases Further in December Figure 1 - Meralco Sales & Volume of Production Index
Meralco sales for 2010 Q4 did not fly high compared to Growth Rates (Year-on-Year)
the other quarters of the year. The total monthly sales 25 50
of Meralco started to weaken by October and followed Meralco Sales % Δ (Left Axis)
20 40
through for the remaining months of the last quarter of VoPI - Total Manufacturing % Δ (Right Axis)
2010. For December, a year-on-year (y-o-y) growth rate of 15 30
3.0% had been recorded. This was the lowest y-o-y uptick 10 20
of Meralco sales for 2010. This may also spell slower Gross
Domestic Product (GDP) growth in 2010 Q4. 5 10
0 0
The y-o-y growth of each sector remained positive for De-
cember. The figures indicated an easing of the pace com- -5 -10
pared to the previous month’s records largely due to base
-10 -20
effects. Residential sales grew a mere 2.8% as opposed to
5.1% for the previous month. Commercial sales registered -15 -30
a 3.3% uptick which was also lower than November's 5.7% Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
climb. Industrial sales slowed down the most from 8.7%
last November to 2.1%. Residential and Industrial sales Source: Meralco, National Statistics Office (NSO)
performed their weakest for the year in December. Look- With these considerations, we maintain our view that
ing at Meralco sales as a proxy variable of economic ac- 2010 Q4 GDP growth will be close to its preceding quar-
tivity (GDP), we can readily see that its performance last ters. The Agriculture sector is expected to swing to the
December was not as outstanding as the rest of the year. positive zone while Industry and Services will slow down
slightly. Compared to 2009, when the quarter-on-quarter
Despite the weaker momentum for the last quarter of
(q-o-q) growth from Q3 to Q4 declined due to the great
2010, Meralco electricity sales nevertheless increased
typhoons, there were no similar negative shocks in the lat-
by 6.6% over the same quarter last year (+3.6%) and was
ter half of 2010. With that said, a 7.2% GDP expansion for
even faster than Q3’s pace of 5.9%. Thus, we ought not to
2010 is still likely.
be disappointed with the current outcome. After all, the
Volume of Production Index (VoPI) was up by 16.2% in No- Inflation Resurgence Unlikely to Materialize in H1
vember, as 16 out of 20 manufacturing industries posted
The headline inflation rate for December remained at
strong gains. Similarly, imports for the same month ex-
3.0%, the same rate as November. This was a bit disap-
panded by 35.3%, faster than 26.4% in October, suggest-
pointing after having low inflation expectations for most
ing that December exports would remain robust.
of 2010. Meanwhile, the full-year inflation for 2010 rose
to 3.8% from 3.3% in 2009. This is well within the Bangko For the month-on-month (m-o-m) data, inflation slowed
Sentral ng Pilipinas’ (BSP) target of 4.5% +/- 1% and right down to 0.5% from 0.8% the previous month. This was
on the dot to our 3.7% outlook. Core inflation eased slight- due to the rapid deceleration in FLW (5.0% to 2.0%) and
ly from 3.5% last November to 3.4% in December, bringing FBT (0.7% to 0.4%). These rates were sufficient to more
the annual average core inflation down to 3.7% from 4.2% than offset the increase in Clothing from 0.1% to 0.3% and
in 2009. Services from 0.4% to 0.7%.
The steady y-o-y inflation of 3.0% for November and De- On a seasonally adjusted annualized rate (SAAR) basis, in-
cember was due to firmer prices of Fuel-Light-Water (FLW) flation’s pace eased from 11.3% in November to 6.6% in
tracked at 11.5%, slightly off from 12.0% posted in Novem- December. This brought about an average SAAR of 3.0%
ber and a slight but meaningful rise in Food-Beverage-To- for 2010. The SAAR of food items declined from 9.5% to
bacco (FBT) to 2.0% from 1.9% in the previous month. 5.6% in December due to stable rice prices. Non-food
Figure 2 - Inflation Rates Annualized (2006-2010) Seasonally SAAR fell from November’s 13.1% to 7.6% in December, as
Adjusted vs. Year-on-Year the pace of petroleum pump price hikes eased.
35%
Monthly S.A. Inflation Annualized Year-on-Year Inflation Rate There have been some concerns about possible inflation
30%
acceleration due to the continuous upswing in crude oil
25% and other commodity prices, as well as projected increas-
20% es in toll fees, transportation rates, and wheat and corn
15% prices. However, with winter ending, crude oil price up-
swing will likely take a pause, while food prices may be
10%
kept in check by stable rice prices due to its abundant sup-
5% ply. Thus, Q1 inflation rate may remain at 3.2% or lower
0% and not much different up to Q2.
-5%
-10%
Policy Rates Kept Unchanged
The Monetary Board (MB) decided to maintain the key
-15%
policy rates during its last policy meeting for 2010 on No-
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
vember 18. It retained the 4.0% for the reverse repurchase
Source: National Statistics Office (NSO) agreements (RRP) for overnight borrowing and 6.0% for
the repurchase agreements (RP) for overnight lending fa-
Clothing products’ prices also accelerated to a 1.9% growth cilities in the belief that these rates do not stoke inflation
in December from 1.7% the previous month. To offset the while promoting the needed economic expansion.
faster pace in these items, slowdowns were seen in Ser-
vices and Miscellaneous categories. Services eased from For the month of November, Reserve Money (RM) only
3.6% to 3.4% while Miscellaneous items decelerated from grew by 5.2% (y-o-y), half of October’s 10.4% growth, de-
1.2% to 1.1%. FLW had the most significant change and spite the 29.1% rise in Net Foreign Assets (NFA). Likewise,
it is attributed to the higher annual increase in crude oil after the double-digit growth rates of M2 and M3 in Sep-
prices in December when it went up by 19.7% to an aver- tember, they began to follow a downward path starting
age of $89.10 per barrel, West Texas Intermediate (WTI). October. M2 decreased from 7.7% to 7.4% while M3 de-
clined to 7.6% from the previous 7.8% record. With the
declining annual growth rates, money multiplier has in-
creased only to 4.0 from 3.8 in October.
Figure 3 - M3 Money Supply Growth Rates (y-o-y) tive months. This should not cause any alarm since the
30% base effects of exports were no longer present as exports
already had a positive y-o-y growth in November 2009.
25%
For November export performance, manufactured prod-
ucts captured 85.7% of the total exports which was very
20%
close to the share of the same group a year ago. The de-
celeration of exports growth mirrored the performance of
15% the electronics sector, which saw an 8.5% gain compared
to 38.2% in October. This reflected the weakness in 7 of
10% the 9 electronic product categories. Fortunately, semicon-
ductors exports had increased by 19.6%, accounting for
5% 41.6% of total exports. A number of export products also
had remarkable y-o-y growths ─ Gold (208.5%), Petroleum
0% Products (176.1%), Coconut Oil (118.5%), Woodcrafts and
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Furniture (53.3%), and metal components (32.5%).
Source: Bangko Sentral ng Pilipinas (BSP) For the m-o-m data, exports declined by 13.4% from $4.8
B to $4.1 B. This is in spite of the enormous m-o-m ex-
Meanwhile, the Special Deposit Accounts (SDA), which is port growth of product groups such as petroleum prod-
also being watched closely by the BSP, has increased to ucts which had a 280.5% growth and forest products
P1.2 Tr in November. This grew massively by 106.0% from with 178.2%. These surges were quickly counterweighed
year-ago levels. Banks continue to be lured to place their by drops in other product groups like mineral products
money in the BSP vaults because of the high SDA rate (-55.7%), Agro-based products (-20.2%) and manufactured
which leaves less money going around to be lent for pro- products (-16.0%).
ductive uses.
Figure 4 - Monthly Exports Growth Rates (y-o-y)
Given the low annual growth rate of RM and the current
low expectation for inflation during the first half of 2011, 60%
BSP should seriously consider reducing the SDA rate as
45%
this serves as the floor for interest rates. Doing so would
facilitate more liquidity and the attainment of the 7-8% 30%
GDP growth target for this year.
15%
Sans Base Effects, Nov Exports Up 11.2%
In November, exports expanded by 11.2% to $4.1 B. This 0%
was a sharp slowdown from the previous month’s growth
-15%
of 27.4%. Year-to-date (YTD) export revenues for Novem-
ber 2010 amounted to $47.2 B, which was 34.5% higher -30%
than the same period in 2009. Notably, since the highest
monthly exports level was recorded at $5.3 B in Septem- -45%
ber, exports have actually been declining for two consecu- Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10
For the month of December, we expect export revenues to Figure 5 - OFW Remittances Growth Rates (y-o-y in US$ and
remain above $4 B and break the full-year record of $50.5 PhP Terms)
B posted in 2007. Exports in 2010 should end up at least 40%
US$
30% higher than 2009. A big leap in electronics imports
Php
and double-digit manufacturing sector growth in Novem- 30%
ber supports this view.
20%
Looking forward, due to the absence of base effects for
2011, we project export growth to be around 13.0-15.0%
10%
on account of a better-than-expected growth in the US
and continued robust expansion in China and the East
0%
Asian region.
Foreign Portfolio Investments (FPI) in stocks, securities, foreign investors’ cut-loss limits had been crossed leading
and currency markets for the entire 2010 have increased to lower stock and bond prices, reversing a 5-month rally
the net inflows to $4.6 B from $388 M in 2009. With OFW that ended in November. Their demand for dollars, thus,
remittances totalling $17.1 B for January to November, weakened the peso.
the dollar reserves of the BSP rose to an all-time record of
$62.1 B in December 2010, equivalent to 10.2 months of Similarly, large emerging countries like Brazil had been
imports, and representing a 40% increase from year-ago talking of “currency wars” as their currencies appreci-
levels. ated significantly during the past year. These moves, tan-
tamount to capital controls, made foreign investors wary
Figure 6 - Daily Peso-Dollar Exchange Rate
about getting their funds frozen in emerging markets.
46
For the first quarter of 2011, we expect the peso to be
45 within the range of P43.50 – P45.00/$ and will continue to
be volatile, should the BSP allow it to move freely. A likely
44
scenario, on the other hand, is that the BSP will intervene
to prevent sudden sharp movements in the exchange rate.
Nevertheless, the current weakening bias should remain,
43
which is technically supported since the recent rates have
been above their 30-day moving averages (MA) and is ap-
42
proaching the longer-term 200-day MA.
Peso/Dollar Exchange Rate 30 Day Moving Average
41
Outlook
200 Day Moving Average
The recent Q4 GDP rebound contradicted what most ana-
40
lysts saw as an economy that was slowing down. While
Oct-10 Nov-10 Dec-10 Jan-11
y-o-y growth was 7.1%, seasonally adjusted quarter-on-
Source: National Statistics Office (NSO) quarter growth was a hefty 3%, a clear reversal of the
easing in the previous 2 quarters. This outcome gives cre-
At the onset of 2011, investors’ risk appetite was whet- dence to our belief that the 34-year GDP growth record of
ted by expectations of another strong year for Asia. This 7.3% in 2010 was not just about election spending.
is in comparison to the anemic growth projections for ad-
vanced economies, and the easing of euro-zone worries • Dun & Bradstreet’s Business Optimism Index for 2011
after Japan pledged that it would aide Ireland. However, Q1 shows an overall improvement from the previous
only after a trading week into 2011, the peso began to quarter. Specifically, while volume of sales and net
slowly depreciate as the inflation scare surfaced among profits continued to promise a better quarter ahead, it
emerging markets and expectation of stronger US recov- was the indexes for Employment and New Orders that
ery loomed. Thinner inventories in the US provoked a showed the biggest gains. If firms are planning to hire
jump in crude oil prices above $90/barrel, at the same more workers compared to 2010 Q4, then the New Or-
time that agricultural commodity prices (wheat, corn, ders they expect to move up are probably going to ma-
and soybeans) rose steeply due to poor harvests. The rise terialize and add fuel to the growth prospects for H1.
in oil prices also caused lack of liquidity as domestic oil
companies spent more dollars to import oil. To top it all,
Forecasts
Rates Jan Feb Mar Apr
Inflation (y-o-y%) 3.2% 3.0% 3.2% 3.0%
91-day T-Bill (%) 2.51 3.17 3.3 3.3
Peso-Dollar (P/$) 44.17 44.00 43.88 44.35
10-year (%) 5.88 6.25 6.11 6.29
The New Year came with encouraging news: headline inflation for the previous year averaged 3.8%, which
was at the lower end of the BSP's target range of 3.5% to 4.5%; Moody's Investors Service raised the credit
outlook on National Government's (NG) foreign and local currency bonds from stable to positive; and the Basel
3 banking and financial markets reform were finally adopted.
Unfortunately, as the month progressed, many foreign investors had chosen to lighten up on Philippine
bonds and stocks. The specter of a resurgence in inflation (especially in India and China), higher crude oil
and commodity prices, a rise in value-added taxes (VAT) in Europe, and an improving US economy were very
compelling reasons for bringing funds back to developed markets.
Primary Market: Doubts Emerge after a Good Start Market players chose to keep funds in short-term govern-
President Aquino signed a P1.6 T budget for the fiscal year ment securities (GS), particularly 91-day and 182-day T-
2011, a 14% increase from last year’s budget of P1.5 T. bills at the start of the year; decreasing their yields by 7.50
This highly stimulative budget targets a budget deficit of and 8.70 basis points (bps) to record lows of 0.70% and
P298.6 B in 2011, or 3.3% of projected Gross Domestic 1.56%, respectively. Correspondingly, there was a slack in
Product (GDP). With the changed attitude abroad, the NG demand for 20-year notes (offered on January 18) as the
may have to finance most of this from the local financial total amount tendered was lower than what the BTr of-
markets until the global markets regains confidence over fered. The third auction of the year simply confirmed mar-
actual inflation rates in the coming quarters. ket players’ fears. The final straw was drawn in the last
auction of January where market players asked for higher
The first two auctions for the year continued to reflect yields even for the short-term T-bills (by as much as 150
positive sentiment among investors. To keep debt yields in bps) and the NG dutifully rejected the entire P7.12 B ten-
line with secondary markets, the Bureau of the Treasury dered by market players for P8.5 B of T-bills on offer.
(BTr) made only a partial award for the first auction of the
year─ the reissued 5-year bonds provided a 4.67% yield,
some 10 basis points (bps) higher than the previous 5-year
auction.
Secondary Market: Yield Curve Moves Up Slightly Figure 8 - Trade Volume (in billions)
10.0 200
18-Jan-10 18-Nov-10 80
15-Dec-10 24-Jan-11
8.0 150 2010 YTD (Jan 16) = P91 B
60
2011 YTD (Jan 14) = P81.7 B
6.0 100
40
4.0 110 50
20
50
20
2.0 0
-45 0
Dec 20-24 Dec 27-31 Jan 3-7 Jan 10-14
0.0 -50
Source: Philippine Dealing and Exchange Corp. (PDEx)
5-62 7-43 10-42 10-48
Source: First Metro Investment Corp. (FMIC) Secondary trading in corporate bonds was clearly more
active in December 2010 compared to the same month of
Among the biggest casualties of market fears of higher in- the previous year. The state-run PSALM was most active
flation rates was the Fixed Income Treasury Notes (FXTN) in 2010 trades amounting to P428 M. San Miguel Brewery
market. Yields across the FXTN curve have been rising (SMB) took over the second spot from Energy Develop-
since last month except for the 3-year FXTN series 7-43. ment Corporation (EDC) with trading volume of its debt
The highest jump among outstanding notes was in the instruments reaching P185 M. Metrobank (MBT) pushed
FXTN series 10-42 which rose 110 bps in yield. FXTN series EDC down further by getting P60.87 B of its debt papers
3-16 and 10-48 had risen by 50 bps and 20 bps respec- traded for the month.
tively. However, in the new 25-year benchmark bond, the
yield moved only marginally. Figure 9 - Corporate Trading (in millions)
500
Secondary trading at the start of 2011 was brisk, show- December 2009 December 2010
ing a 144.3% growth of trade volume in the first week of
January from the last week of December 2010. The first 400
and second week of January gathered a total of P86.1 B
and P77.3 B, respectively. Although the double-digit fig- 300
ures pale in comparison with the record trading volumes
in the middle of 2010, 2011 year-to-date (YTD) remains
200
way above last year’s. The 2011 YTD (January 14) of P81.7
B overshadowed 2010 YTD (January 15) of P63 B by almost
30%. 100
0
PSALM SMB MBT EDC GLO
10
Corporate Issuances: • Megaworld (MEG) launched its P5 B fixed rate bond cam-
With banks' Single Borrower’s Limits (SBL) being exceeded paign with the highest credit rating (AAA) from Credit
by large firms, these companies have been turning to the Rating and Investors Services Philippines, Inc. (CRISP), a
bond market to fund their various capital expenditures new rating agency in the country. With a 15-year tenor
and infrastructure developments. and coupon rates yet to be released, these bonds are to
be issued to institutional and retail investors through a
• Only recently, Ayala Land, Inc. (ALI) raised P10 B worth of public offering. Proceeds from the bond issue would be
fixed-rate corporate bonds to fund capital expenditures used to partly fund capital expenditures over a 3-year
─ P5.7 B in 5-year notes with rate of 5.625%, P3.3 B in period beginning 2009, especially the development of
10-year notes with a rate of 6.875%, and P1 B in 15-year its North Bonifacio Central Business District project.
notes with a rate of 7.5%. Additionally, strong investor
demand led orders amounting to P17.5 B, an oversub- • The SMB energy unit started its road show for an up-
scription of 75%. Excluding new issuances, a number of coming $500 M bond issue. With a guidance as low as
investors holding P875 M worth of 7- and 10-year notes 6% and a prospective tenor of 5 years, the SMB group
issued last 2006, maturing in 2013 and 2016 accepted a hopes to raise funds for its transformation from a food
prepaid offer through a liability management exercise. to a power-based conglomerate.
11
12
Outlook
With domestic bond yields having adjusted to higher in-
flationary expectations in the opening weeks of 2011,
many investors should be more comfortable with the cur-
rent level of yields, at least for the time being. Because
the prospects of higher yields are quite real, investors and
market players will be quite sensitive to official inflation-
ary figures for guidance. The bottom line really depends
on how short-term rates behave in the coming months.
January has been very challenging for Philippine equities market. Local risky assets have been volatile and this
serves as a reminder of risks involved in the market – external and local. The recent sell-off in the Philippine
equities market is reminiscent of the fear-based sell-offs that plagued equity markets in early 2010 (i.e.
emergence of the euro-zone debt crisis). Bearish price actions led to the PSEi breaking down the 4,000 support
level on January 21, 2011, a level that was deemed to be strong. In light of the recent sell-offs, we believe
that the reasons for the local market’s weakness were associated with the reallocation of global portfolios
in developed markets (DM), especially in US equities, for better earnings potential and fears of tightening
contagion from our Asian neighbors.
2 0 0 0
Jan Mar May Jul Sep Nov Jan Sep-08 Apr-09 Nov-09 Jun-10 Jan-11
Preference on US Equity Markets Strong Macro Correlation – there are increasing signs
Positive macro backdrop remains intact (see Macroecon- over the past few months that economic growth will be
omy section), while the recent pullback has made valu- stronger-than-expected in the US. The economic recovery
ations attractive. Regardless of these, foreign investors appears to be holding up: consumption is supported by
continue to sell Philippine equities for potentially stron- improving labor markets, credit growth, low/negative real
ger market returns in US equities this year (as of January interest rates, and policy support. Having said these, there
28, 2011, foreigners were net sellers by P3.1 B). Accord- is plenty of room for more positive macro data surprises
ing to data from Emerging Portfolio Fund Research (EPFR) that would translate to further upsides in US equities.
Global, fund flows into US equities significantly increased
last December 2010. This is consistent with our view that
funds are being reallocated to the US. The reasons behind
the global portfolio reallocation are:
14
Figure 14 - Global Equity Fund Flows Proliferation of Mergers & Acquisitions (M&A) – prospects
of an increase in M&A activity is highly likely in 2011. Its
drivers are: 1) extraordinary high corporate cash levels; 2)
the need to rationalize capacity in a low utilization envi-
ronment; and, 3) depreciated dollar makes US companies
attractive targets to foreign investors.
15
for 2010. We expect this trend to continue in the first few Currently, BPI is set to purchase a trust unit of ING Bank on
months of 2011, regardless of rising oil prices and the March. Performance of these major banks will be further
front loaded increase in government spending (see Mac scrutinized as they release their 2010 annual reports.
roeconomy section).
12/30/10 1/31/11 %
Company Symbol
Close Close Change
Sectoral Performance
Meralco MER 228.00 215.00 -5.7%
Index % Change Index % Change San Miguel Corporation SMC 163.80 168.80 3.1%
PSEi 4,201.14 6.26% 3,881.47 -7.61% Jollibee Foods Corp. JFC 88.90 75.00 -15.6%
Financial 961.47 5.40% 870.86 -9.42% Source of Basic Data: PSE Quotation Reports
Industrial 7,220.61 8.43% 6,764.31 -6.32%
The Industrial sector declined by 6.32% with all the ma-
Holdings 3,388.74 5.97% 3,126.45 -7.74%
jor companies under the sub-index turning red except for
Property 1,582.47 8.66% 1,464.21 -7.47%
SMC. SMC continues its expansion as it plans to purchase
Services 1,590.40 5.58% 1,536.06 -3.42% the stake of an Australian mining firm in the $5.2B Tam-
Mining and Oil 13,947.58 15.53% 13,826.70 -0.87% pakan copper-gold project. MER was allowed to hike its
Source of Basic Data: PSE Quotation Reports distribution rates by P1.6464 per kilowatt-hour (kWh).
The company also plans to open its first power plant in
The PSEi declined by 7.61% this month as foreign inves- Calamba in the first quarter of next year. The power plant
tors became net sellers. All the sub-indices were in the red will bring down power costs thus raising returns. Mean-
with Financial and Holdings sectors as the largest contrib- while, AP dropped by 10.8% due to the local government's
utors to the fall while the Property sector followed closely foreclosure of its Pagbilao power plant for non-payment
behind. The Mining and Oil sector had the least decline of property taxes.
of 0.87% because of record-high copper prices as well as
the increase in copper shipments of major companies like 12/30/10 1/31/11 %
Company Symbol
Philex. Close Close Change
Ayala Corp. AC 394.00 340.00 -13.7%
12/30/10 1/31/11 % Metro Pacific Investments MPI 3.89 3.68 -5.4%
Company Symbol
Close Close Change
SM Investments Corp. SM 543.00 470.00 -13.4%
Metrobank MBT 72.00 64.90 -9.9%
DMCI Holdings, Inc. DMC 36.00 33.75 -6.3%
Banco de Oro BDO 58.50 50.80 -13.2%
Source of Basic Data: PSE Quotation Reports
Bank of the Philippine Islands BPI 59.00 51.50 -12.7%
Source of Basic Data: PSE Quotation Reports The Holdings sector posted a 7.74% decline this period led
by AC and SM. This is despite SM’s plans to add seven new
The Financial sector had the biggest fall by 9.42% this peri- malls, adding a total of 400,000 square meters (sq. m.) to
od with the major banks under the sub-index turning red. its commercial area for lease. The company will also part-
Large banks BPI and MBT raised cash from new shares sold ner with local government units to convert public markets
in the market. MBT raised P10 B by listing 200 M addi- into formal retail malls. SM Dasmariñas in Cavite will be
tional shares at P20 par value while BPI raised P10 B worth the pilot test project which will cost P500 M. In the agree-
of capital last August, both through special rights offering. ment, SM cannot increase rental rates to public market
tenants beyond the approved fees.
16
12/30/10 1/31/11 % that runs in a span of 9,620 km. connecting Asia to the
Company Symbol
Close Close Change United States. The company also revealed a hyperspeed
Ayala Land Inc. ALI 16.46 14.70 -10.7% broadband plan that can reach 100 megabytes per second
SM Development Corp. SMDC 9.00 7.90 -12.2% (mbps) using fiber-optic technology.
Robinsons Land Corporation RLC 16.30 14.02 -14.0%
Megaworld Corp. MEG 2.48 2.10 -15.3% 12/30/10 1/31/11 %
Company Symbol
Close Close Change
Source of Basic Data: PSE Quotation Reports Philex Mining Corporation PX 16.10 15.24 -5.3%
Semirara Mining Corp. SCC 185.00 198.90 7.5%
The Property sector declined by 7.53% this month. The
Nickel Asia Corp. NIKL 16.3 19.54 19.9%
fall in the sector is attributed to the rising 10-year T-bond
Source of Basic Data: PSE Quotation Reports
yields and rising inflation expectations. Despite this, com-
panies plan to expand as they enter massive projects this The Mining and Oil sector had the smallest loss this pe-
year. MEG just entered in a huge housing program, build- riod as companies under the sector posted gains led by
ing 18,673 residential units catering to 48,000 families. NIKL followed by SCC. The whole sector in general had a
Some of its other projects include developments in Busi- remarkable performance as rising copper prices comple-
ness Process Outsourcing (BPO) and tourism. Meanwhile, mented hikes in copper shipment reported by PX and
ALI embarked on a joint venture with Anflo Management several other companies. PX in particular increased ship-
and Investment Corp. in building a boutique hotel called ments by 36.17% to P12.95 B in 2010. Meanwhile, SCC
Abreeza Complex in Davao which will have a commercial expects up to 7 M metric tons this year in coal output,
mall, several residential condominium units and BPO fa- same as last year. Despite the flat output, the company
cilities over a 10-hectare land. The complex is aimed to expects growth due to rising coal prices brought by the
cater to the growing number of visitors in the city. RLC, major flooding in Australia that affected coal mines. Coal
on the other hand, together with SMDC and ALI, joined prices have increased around 15% to 20% from last year.
the bid to acquire the state-owned Food Terminal Inc., a
food processing and consolidation center for agricultural Monthly Turnover
products.
Yearly Turnover (in millions)
12/30/10 1/31/11 % Total Turnover Average Daily Turnover
Company Symbol
Close Close Change
Sector Value % Change Value % Change
Philippine Long Distance Tel. Co. TEL 2,554.00 2,460.00 -3.7%
Financial 10,515.6 -33.8% 500.74 -37.0%
Globe Telecom GLO 800.00 771.00 -3.6%
Industrial 36,410.7 21.8% 1,733.84 16.0%
Manila Water Company MWC 19.18 18.18 -5.2%
Holdings 19,357.4 -30.6% 921.78 -33.9%
Source of Basic Data: PSE Quotation Reports Property 19,131.1 49.7% 911.01 42.6%
The Services sector posted a loss of 3.42%. TEL declined Services 15,082.4 -11.7% 718.21 -15.9%
marginally as its subsidiary, Smart Communications, Inc., Mining and Oil 11,239.0 68.5% 535.19 60.5%
ended the year with 45 M subscribers, 9% higher from Total 111,736.4 1.4% 5,320.78 -3.4%
2009. Meanwhile, a better outlook for GLO is seen as it Foreign Buying 40,596.9 -13.8% 1,933.19 -17.9%
increases international network capacity by the activation Foreign Selling 44,752.8 -8.0% 2,131.08 -12.4%
of Unity Cable System, a submarine trans-pacific cable Source of Basic Data: PSE Quotation Reports
17
Outlook
Near-term – the next few months will be very challenging
for the Philippine equities market despite positive macro
and micro backdrop. Fears of rising inflation will likely stay
with us for some time, while continued improvements in
US economic data will continue to suck funds out of EMs.
Hence, we expect foreign selling to continue. We prefer to
reduce risk exposure and be guided by the direction of the
10-year Philippine t-bond yields.
Oversold (Most Preferred) - Joel Greenblatt: High ROIC and Low EV/EBITDA Relative Performance
Company Ticker Industry Group Price 26-Jan-11 Mcap (Pmln) ROIC EV/EBITDA 3m 12m
Alaska Milk Corp. AMC Consumer P13.22 11,648 36.78% 2.816 1.69% 88.86%
GMA Network, Inc. GMA7 Media P6.90 23,191 25.39% 5.163 -9.80% -6.67%
Republic Cement Corp. RCM Industrial P6.30 36,690 19.69% 4.928 -3.37% 100.00%
Asian Terminals, Inc. ATI Transport P7.46 14,920 17.56% 4.894 3.61% 86.50%
Phil. Seven Corp. SEVN Consumer P16.60 5,004 14.92% 5.224 -7.78% 142.08%
Globe Telecom Inc. GLO Telecom P780.50 10,3298 13.93% 4.665 -13.71% -16.52%
Leisure & Resorts World LR Hotel & Leisure P7.98 6,782 12.66% 5.418 262.73% 486.76%
Pepsi-Cola Products PIP Consumer P2.23 8,237 10.31% 4.816 -16.48% -3.88%
Universal Robina Corp. URC Consumer P33.00 68,033 8.07% 5.717 -26.67% 94.12%
ABS-CBN Corp. ABS Media P45.00 34,417 7.52% 4.971 -19.64% 63.64%
The Philodrill Corp. “A” OV Mining P0.015 2,878 6.44% 4.995 7.14% 7.14%
Alsons Consolidated ACR Industrial P1.37 8,619 5.43% 5.771 -3.52% 31.73%
Source of Data: Bloomberg, Technistock
Overbought (Least Preferred) - Joel Greenblatt: Low ROIC and High EV/EBITDA Relative Performance
Company Ticker Industry Group Price 26-Jan-11 Mcap (Pmln) ROIC EV/EBITDA 3m 12m
Sta. Lucia SLI Property P1.37 14,791 0.04 19.495 -33.50 73.42%
Transpacific TBGI Info. Tech P3.73 828 0.14 46.073 -1.32 8.12%
ISM Communications ISM Info. Tech P3.60 6,898 0.51 14.880 -9.77 -40.00%
Alliance Global Group AGI Holding P11.62 11,2943 1.42 24.217 5.44 152.61%
Ayala Corporation AC Holding P346.80 168,399 2.00 19.690 -16.43 22.76%
Araneta Properties, Inc. ARA Property P0.35 546 2.04 12.027 0.00 -2.78%
Anglo-Phil. Holdings APO Holding P1.88 2,190 3.07 41.111 -21.67 51.61%
Filinvest Dev’t Corp. FDC Holding P4.27 32,049 4.72 16.627 -17.09 113.50%
19
Oversold (Most Preferred) - Intelligent Investor (Benjamin Graham Inspired) Screen Relative Performance
Company Ticker Sector Price Jan-26-11 Mcap (Pmln) EPS Growth (5-yr) PE TTM PE x PB 3m 12m
Original Screen
Robinson Land Corp. RLC Property P13.72 37,445 260.00 10.644 15.029 20.23% 14.33%
Modified Screen
China Banking Corp. CHIB Banking P427.00 458,200 17.79 9.857 13.180 -4.47% 33.25%
Megaworld Corp. MEG Property P2.18 55,890 11.53 11.237 11.330 -14.51% 70.31%
Manila Water Co. MWC Utilities P18.20 36,538 57.14 9.795 19.293 -4.41% 19.34%
Phil. Savings Bank PSB Banking P64.00 15,376 87.94 5.391 7.955 23.08% 14.28%
Security Bank Corp. SECB Banking P85.80 35,918 70.69 8.378 14.461 0.94% 61.98%
Union Bank of the Phil. UBP Banking P58.40 37,459 33.99 8.619 9.861 -4.26% 51.69%
Source of Data: Bloomberg, Technistock
Oversold (Least Preferred) - Reverse Intelligent Investor (Benjamin Graham Inspired) Screen Relative Performance
Company Ticker Sector Price Jan-26-11 Mcap (Pmln) EPS Growth (5-yr) PE TTM PE x PB 3m 12m
Modified Screen
Manila Electric Co. MER Industrial P272.00 306,618 -11.75 35.412 183.355 20.89% 60.95%
Petron Corporation PCOR Mining & Oil P14.78 138,564 -15.63 34.550 116.092 118.96% 189.80%
* Note that the original Intelligent Investor screen was intended for 10 years worth of data. We created a “modified” screen since only one stock passed the Intelligent Investor Screen
using 10 years worth of data: RLC.
** The rationale for multiplying the P/E ratio by the price-to-book ratio is that Graham felt that a low P/E ratio could justify a higher price-to-book ratio. Thus he recommended the said
multiple and let the value not exceed 22.5, which is the product of a P/E ratio of 15 and a P/BV ratio of 1.5. For screening for overbought issues, we filter out stocks with a 20% premium to
the market multiple to signify if it is overvalued relative to the market.
EXPENDITURE
Personal Consumption 1,107,569 4.7% 1,149,828 3.8% 300,123 10.8% 4.6% 288,589 -3.8% 4.2%
Government Consumption 93,746 3.2% 101,753 8.5% 30,451 5.5% 5.8% 23,813 -21.8% -6.1%
Capital Formation 256,244 1.7% 230,906 -9.9% 72,027 5.4% 10.8% 61,668 -14.4% 8.9%
Exports 663,324 -1.9% 569,294 -14.2% 196,133 29.3% 29.1% 222,933 13.7% 29.9%
Imports 643,572 2.4% 606,283 -5.8% 181,363 28.5% 20.3% 196,785 8.5% 18.2%
GDP 1,418,952 3.8% 1,431,978 0.9% 384,859 6.8% 8.2% 366,816 -4.7% 6.5%
NFIA 1,689,846 30.8% 202,704 20.1% 59,613 11.2% 3.9% 65,712 10.2% 13.7%
GNP 1,587,798 6.2% 1,634,682 3.0% 444,460 7.4% 7.6% 432,389 -2.7% 7.5%
Source: National Statistical Coordination Board
Expenditures 1,144,064 9.9% 1,271,022 11.1% 109,017 -11.8% -4.5% 111,053 1.9% 8.1%
Allotment to LGUs 193,712 10.9% 222,995 15.1% 22,297 -0.2% 1.5% 22,443 0.7% 2.5%
Interest Payments 266,833 -14.0% 272,218 2.0% 13,985 -56.1% -1.0% 16,441 17.6% 53.2%
Others 683,519 22.9% 775,809 13.5% 72,735 4.8% -6.8% 72,169 -0.8% 2.9%
Overall Surplus (or Deficit) -62,198 -57.6% -9,422 -84.9% -10,514 -66.8% -63.2% 482 -104.6% -107.5%
Source: Bureau of the Treasury (BTr)
Sources:
Net Foreign Asset of the BSP 1,602,362 24.5% 2,100,977 17.7% 2,651,185 29.14%
Net Domestic Asset of the BSP -763,845 -46.3% -974,382 -27.6% -1,628,945 50.62%
January 2011
CONTRIBUTORS
Views expressed in this newsletter are solely the responsibilities of the authors and do not represent any position held by the FMIC and UA&P.