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Optimism prevails as Neda chief confident PH will hit growth target – Sept 19, 2019

Predicted the government would hit its target growth rate by the third quarter of 2019 with a strong push
from spending on public goods and services.

The Neda chief said aside from the usual growth drivers, the full implementation of the 2019 national
budget augured well for the economy.

He revised an earlier outlook on the impact of reduced oil output from Saudi Arabia as a result of an attack
on its oil refinery.

“It’s an ephemeral thing, short-lived,” said Pernia, who earlier expressed concern that rising oil prices as
a result of reduced Saudi output might hurt the Philippines’ gains against inflation.

Strong liquidity to drive demand for new listings – Sept 19, 2019

ANALYSTS are positive the market can absorb the torrent of companies seeking to go public this year,
thanks to the low interest rate environment and strong appetite from local investors.

“Basically the market can absorb the IPOs because of the liquidity, interest rates are very low… Investors
will look at where they can maximize their funds better,” Summit Securities, Inc. President Harry G. Liu
said in a phone interview.

The Bangko Sentral ng Pilipinas (BSP) has reduced interest rates by a total of 50 basis points (bps) since
the start of the year, with BSP Governor Benjamin E. Diokno hinting at another 25-bp cut in its Sept. 26
policy review.

“I think, looking at the range we’re moving in, we’re more positive that the PSE will have an upside. Once
we break the 8,000 level, we can only go higher. But if we go below that then we might see it getting lower
again,” Mr. Liu said.

Axelum lowers maximum offer price for IPO to attract investors – Sept 17, 2019

“By updating the maximum offer price, we aim to optimize investors’ interest and appetite in our local
stock market, include more investors while still maintaining funding for our strategic plans,” Axelum
President and Chief Operating Officer Henry J. Raperoga said in a statement.

Axelum will have a public float of about 28.25% after listing.

Axelum plans to use the proceeds from the offering for the expansion of its domestic and international
distribution networks, installation of new manufacturing facilities for new products, and improvements
for existing manufacturing facilities.

It will also use a portion of the capital for acquisitions. Mr. Raperoga said in an earlier interview that they
have offers from companies in Vietnam and in the Philippines for potential deals.

The company currently has its main production facility in Medina, Misamis Oriental, with two distribution
facilities in the United States and Australia. Its customers include international brands such as Vita Coco,
The Hershey Co., Nestlé, Unilever, Ferrero, General Mills, Campbell’s, Quaker, and ConAgra Foods, among

Its products include desiccated coconut, coconut milk powder, coconut milk or cream, and reduced fat
coconut, as well as other coconut products.

Axelum expects sales volume of coconut water to increase this year, although overall revenues may slump
due to lower global prices for coconut oil, an official said last week.

Coconut water accounts for about 20% to 30% of the company’s business.

Upcoming equity offerings could rain on PSEi’s parade – Sept 16, 2019

The local stock barometer will attempt to conquer the elusive 8,000 barrier in the coming days albeit
liquidity may thin out as investors prepare for soon-to-launch large equity offerings.

Last week, the main-share Philippine Stock Exchange index (PSEi) added 58.85 points or 0.7 percent to
close Friday at 7,992.32.

The local stock barometer will attempt to conquer the elusive 8,000 barrier in the coming days albeit
liquidity may thin out as investors prepare for soon-to-launch large equity offerings.

Last week, the main-share Philippine Stock Exchange index (PSEi) added 58.85 points or 0.7 percent to
close Friday at 7,992.32.

“It looks like the market is preparing for a break to the upside in the next few sessions. Volatility has been
subsiding the past few sessions due to the lack of fresh catalysts,” PNB Securities president Manuel
Lisbona said. “The index is a hair away from the 8,000 psychological resistance. A sustained close above
which should beckon more of the bulls to return.”

Lisbona said the equity offerings by Axelum Resources and AllHome alongside a preferred share offering
from Phoenix Petroleum and a fresh bond foray by San Miguel Corp. may also affect the market.
BDO Unibank chief strategist Jonathan Ravelas said market participants had stayed on the sidelines ahead
of the US Federal Reserve meeting scheduled on Sept 19.

Papa Securities said this week’s Fed meeting could be the next market catalyst, with the consensus
expecting a second interest rate cut.

Why the Fed's interest rate move matters – Sept 18, 2019

The aim is to stimulate the US economy and get inflation closer to the Fed's target of 2%. But it will have
ramifications far beyond US shores.

Why does Fed policy matter for the rest of the world?

There are two general answers.

One is that the US economy's performance is important for the rest of us. If the Fed gets it wrong the US
could end up underperforming, which would be bad news for many other countries.

The second point is that Fed policy can have an impact through financial markets by affecting currency
exchange rates, interest rates and international flows of investment money.
What difference does the health of the US economy make for the rest of us?

For most countries on the planet, the US is an important export market - for many, the largest of all.

If the US has a recession, it will buy less stuff from abroad than it would have if growth had been
maintained. Its immediate neighbours, Canada and Mexico, are particularly exposed. For both, more than
three-quarters of their exports go to the US.

Growth has slowed, though there does not appear to be an imminent danger of the economy actually
contracting. That said, there have been some warning signs in the financial markets that often do signal
a recession is not that far away.

The rest of the world keeps an eye on how well the Fed is managing to keep that balance between growth
and inflation, since a healthy US economy reduces the risk of the rest of the world catching a dose of
economic slowdown.

What impact does the Fed have on currency markets?

Cuts in interest rates in any country tend to make its currency lose value against others.

That is because lower interest rates mean there is less money to be made by investing in that country's
assets, since they're yielding less interest. Primarily that means government bonds.

If investors are less keen to buy, for example US government bonds, there is less demand for the currency
needed to buy them. So the currency concerned, the dollar in this case, tends to lose value.

Currency movements affect how competitive countries' exports are. If US rates are cut and the dollar
weakens, American exports become cheaper, and imports to the US from elsewhere go up in price. That
can have a knock-on impact on the price of goods on shop shelves, in other words inflation.

But for other countries importing goods priced in dollars, the impact can be to reduce inflation. When the
dollar is weaker it costs other countries less in their domestic currency to buy dollar-priced goods. And
that's not just American exports, lots of commodities including oil are priced in dollars.

What about the impact on international investment flows?

When an economy as large as the US changes its interest rates, it is possible for the subsequent movement
of investment funds to be disruptive.

There was an episode in 2013 when the Fed started to consider reducing its quantitative easing
programme. That programme involved creating new money to buy financial assets such as government
bonds. Reducing QE was in some ways akin to raising interest rates.

The plan was to "taper" the quantitative easing, and the result for emerging economies such as India and
Indonesia came to be known as the "taper tantrum".

Large amounts of money left emerging market economies, and there were concerns at the time that it
might even lead to a new financial crisis in those countries. In the event, that did not happen.

This time, because interest rates are likely to be cut, it is more likely that money will go into emerging
economies. That can sometimes lead to financial instability (or unsustainable bubbles). That is not an
immediate concern now, but it is a reason why governments around the world need to keep a careful eye
on what happens in the US.

Sudden Fed Decision To Halt Interest Rate Rises Could Mean Weaker Dollar Exchange Rate

How U.S. Interest Rates and Exchange Rates Influence Each Other

When the Fed raises interest rates, investors looking for returns tend to sell assets denominated in foreign
currencies and buy dollar-denominated assets. The wider the spread between U.S. interest rates and
interest rates in other countries, the more investors are likely to move from foreign-denominated to
dollar-denominated assets. In order to purchase dollar-denominated assets, investors need dollars. So,
they exchange other currencies for dollars, and their increased demand for dollars raises the dollar
exchange rate. Conversely, when the Fed cuts interest rates, investors sell dollar-denominated assets and
buy foreign assets, which tends to weaken the dollar’s exchange rate. Thus, U.S. interest rates and
exchange rates tend to rise and fall in tandem.

The Fed’s interest rate decisions also influence the interest rate decisions of other central banks, but in
the opposite direction. When the Fed raises rates, strengthening the dollar, the currency exchange rates
of other countries tend to weaken. This raises the prices of imports to those countries, pushing up
inflation. If imports are generally priced in U.S. dollars, as is typically the case for developing countries, a
falling currency exchange rate can also make it difficult for companies and governments to service dollar-
denominated debt. So central banks, particularly in developing countries, may decide to support their
currency exchange rates by raising interest rates in parallel with the Fed to negate the effect of the Fed’s

Conversely, when the Fed cuts interest rates, the currency exchange rates of other countries tend to
strengthen, hampering their export businesses. Central banks in those countries may choose to cut
interest rates in line with the Fed rather than accept weaker exports.

Thus, the Fed’s interest rate decisions affect the dollar’s exchange rate, and the dollar’s exchange rate can
influence interest rate decisions in other countries.

Weaker USD Could Benefit International Businesses, Improve Global Trade

Rising interest rates have been driving the dollar exchange rate up for the past year. The strong dollar has
worsened terms of trade for American exporters, which is reflected in a widening U.S. trade deficit. But
perhaps more importantly, the rising cost of dollars for international businesses has negatively affected
the global economy. Several developing countries have experienced FX crises due to the strong dollar,
and in the fourth quarter of 2018 both China and the Eurozone weakened economically.4 The
International Monetary Fund (IMF) says it expects global growth to slow in 2019.5

When the dollar’s exchange rate rises, banks can become reluctant to lend for trade finance because of
the cost of funding in dollars. This can make it difficult for international businesses to access the working
capital they need to pay foreign suppliers. As a result, they may shrink their supply chains and reduce their
trade volumes. Additionally, a strong dollar may raise credit risks for American businesses with
international customers. So, a rising dollar exchange rate can mean that global trade shrinks, with
negative implications for global growth.
A weaker dollar can reduce international businesses’ credit risks and make dollar funding easier and
cheaper to obtain. This can help them to expand internationally and develop their supply chains. A weaker
dollar can also encourage investment in developing countries and improve the terms of trade of
commodity exporters. All of this tends to increase both global trade and global economic growth.

So, if the Fed’s decision means a lower dollar exchange rate, this could be good news for U.S. businesses
and for international trade.

PH earned more dollars than it spent in Aug – Sept 20, 2019

On a cumulative basis, the balance of payments position for the January-August 2019 period posted a
surplus of $5.53 billion, representing a turnaround from the $2.44-billion deficit recorded in the first eight
months of 2018.

“The surplus may be attributed partly to remittance inflows from overseas Filipinos during the first seven
months of the year, and to net inflows of foreign direct investments and portfolio investments during the
first half of the year,” it said.

PH companies, consumers upbeat on economy, BSP surveys show – Sept 20, 2019

The country’s entrepreneurs and consumers are upbeat about their prospects in the upcoming fourth
quarter of the year, thanks to the expected seasonal uptick in business and economic activity during the
holiday season, according to the twin surveys released yesterday by the central bank.

A sector-by-sector examination revealed, however, that the outlook on volume of business activity was
mixed—more bullish for the wholesale and retail trade sector, broadly steady for the industry and services
sectors, but less upbeat for the construction sector.

“The percentage of businesses with expansion plans in the industry sector for the fourth quarter of 2019
was lower at 30.4 percent from the previous survey result of 33.5 percent,” the statement added.
“However, the average capacity utilization in the industry and construction sectors for the current quarter
was higher at 76.1 percent from 75.5 percent for the second quarter of 2019.”

These results were echoed by the positive outlook of consumers for the same period.

For the fourth quarter of 2019, consumer confidence was more upbeat as the confidence index—the
percentage of respondents who replied positively, less those who replied negatively—rose to 15.8 percent
from the previous survey result of 9.7 percent.

Similarly, consumer optimism for the next 12 months improved as the confidence index increased to 29.8
percent from the previous survey result of 25.2 percent for the next 12 months.

“Respondents’ more buoyant sentiment for the fourth quarter of 2019 and the next 12 months stemmed
from households’ anticipation of availability of more jobs, additional and high income, good governance
and stable prices of goods,” the BSP said.
Higher fuel prices seen after attack in Saudi – Sept 17, 2019

But following the attack on Saturday, global oil prices surged by 11 percent and are expected to further
drive fuel prices up in the Philippines, stock brokerage Papa Securities said.

“While one-third of lost capacity should be back by [Monday], industry experts still expect full repairs to
span weeks, therefore oil prices are likely to stay elevated this month,” the stock brokerage said on

Saudi Arabia was the top supplier of crude oil to the Philippines last year. The country imported 33.7
percent of its crude from the Middle East kingdom as of 2018, according to the Department of Energy

Surging crude prices would lead to higher prices of goods and services, and a large import bill, which could
weaken the peso against the dollar.

“If risk appetite collapses due to fears of worsening Middle East tensions in the wake of any retaliation to
the drone attacks, some emerging markets could face a double whammy of pressures,” said Mitul Kotecha
of TD Securities.

Peso risk-sensitive

Kotecha said the most risk-sensitive currencies in Asia were the Indian rupee, Indonesian rupiah and
Philippine peso.

Yemen’s Iran-backed Houthi rebel group had claimed responsibility for the attack, which hit the world’s
biggest oil-processing center.

“The impact on [local] prices [of the attacks], if any, may be felt by Tuesday next week,” Energy Secretary
Alfonso Cusi said on Monday. “That is if there will indeed be an adverse impact.”

Jose Mari Lacson, head of research at ATR Asset Management, said it “may be too early to estimate how
long the situation will last given it is still developing but if it persists, an impact on inflation is likely and
could delay [Bangko Sentral interest] rate cuts.”

Insufficient spare capacity

African swine fever is now in the Philippines. Should you be alarmed? – Sept 9, 2019

Concern for the hog industry

While ASF is not known to harm humans, the viral disease can cause major economic loss to the country’s
P260-billion swine industry. The Philippines currently has more than 12 million hogs in its inventory.

Last month, Economic Planning Secretary Ernesto Pernia said the possible entry of ASF is among the risks
to inflation this year.

The Agriculture department said it has received P25-million fund to prevent further spread of the disease.
The agency is expecting an additional P82-million fund.
Axelum counts on resurgent coconut industry – Sept 12, 2019

Integrated coconut product manufacturer and exporter Axelum Resources Corp. is counting on the growth
of exports of Philippine coconut products and a global wave of health and wellness trends to carry its
company forward as it embarks on its initial public offering that could raise as much as P7.7 billion.

“Over the past 10 years, exports by the Philippine coconut industry have grown by some 10 percent
yearly,” he said. – Axelum chair Romeo Chan

Chan noted that while traditional coconut products, such as copra and crude coconut oil grew by some 11
percent yearly, nontraditional products—which accounted for the bulk of the firm’s sales—grew by 25
percent yearly.

These product lines include coconut water, coconut milk powder and coconut cream, among others. In
particular, the company is bullish on its two largest products: desiccated coconut and coconut water.

Citing a recent study by the University of Asia and the Pacific, Axelum president Henry Raperoga said that
over the next five years, the annual growth rate in desiccated coconut sector was expected to be in the
high single-digits and the growth rate in coconut water was expected to be in the mid- to high-teens.

“Axelum’s other product lines are likewise in sectors expected to achieve double digit growth rates over
the next few years,” he said, adding that the high growth rates are driven by global trends toward healthier
diet and lifestyle.

State of the PH coconut industry and what must be done – Aug 25, 2017

While coconut is one of the two agricultural commodities that earns the country more than a billion dollars
in export revenues every year, its vast potential to earn even more has never been tapped because of
numerous issues bugging the industry.

The area currently planted to coconut is about 3.565 million hectares or 26 percent of country’s total
agricultural lands. Also, 68 out of 81 provinces are coconut-growing areas. At present, these lands host
about 339 million bearing coconut trees and 3.4 million farmers who, ironically, live mostly below the
poverty line even as coconut exports reached $2.0 billion in 2016.

So what bugs the local coconut industry?

Besides low yield per tree and aging trees, the supply chain is largely unorganized and made up to
dispersed small holdings that affects economies of scale in input supply, primary processing and

The small production lots and high transport translate to high cost of logistics, which affect both farmers
and processors.

In the global scene, there are market threats from tariff and non-tariff barriers such as minimum residue
levels and labeling regulations.

Addressing low yields at the farm level can be an excellent move to helping realize the coconut industry’s
potential as a bigger generator of export dollars.
Obviously, the low yields are caused by poor genetics, nil fertilization, and limited replanting of tree stocks.
Also 20 percent of coconut trees are already senile while most trees are planted in marginal lands that
also affect yield. Meanwhile, large lands planted to the crop have low genetic potential.

Gov’t looking at measures to ease US-China trade war impact – Sept 5, 2019

The government is already bracing for the possible effects of the trade dispute between the United States
and China as trade and economic officials laid out measures that will mitigate the effects of the trade war
between the two economic giants.

According to presidential spokesman Salvador Panelo the National Economic and Development Authority
(Neda) and Department of Trade and Industry (DTI) conveyed that while the Philippines was “not as
vulnerable in the trade war; in the long run, any prolonged trade war will have negative effects.”

To mitigate the effects of the trade war, the Palace official said Neda and DTI recommended the passage
of the Corporate Income Tax Rationalization Act (Citra) and the amendment of the Foreign Investment

In the 17th Congress, Citra is known as the “Tax Reform for Attracting Better and High-quality
Opportunities” or the Trabaho Bill, which President Rodrigo Duterte identified as a priority bill during his
fourth State of the Nation Address.

Currently in the period of debates in the House plenary, Citra seeks to slash the current 30 percent
corporate income tax rate by two percentage points every other year to 20 percent in 2029 and rationalize
all fiscal incentives under one omnibus code.

The two agencies also seek to intensify investment campaigns in East Asia, expedite business process, and
reduce processing time in exports.

Palace hails Duterte policies making inflation all-time low in 3 years – Sept 5, 2019

Presidential Spokesperson Salvador Panelo issued this statement as “the country’s headline inflation has
further eased to 1.7% in August of this year.”

The Philippine Statistics Authority (PSA) said Thursday that this is the lowest inflation in 35 months.

“Indeed, this is positive proof that our macroenomic policies and measures put in place by the President
and our economic managers are sound and resilient in curbing soaring prices,” he said.

He cited that the deceleration of inflation in August 2019 was mainly due to the slower annual increase in
the index of food and non-alcoholic beverages; housing, water, electricity, gas, and other fuels; health;
recreation and culture; restaurant and miscellaneous goods and services.