Market Recap

The Philippine Stock Exchange index (PSEi) rose by 0.29% to finish at 8,141.82 last July 12. Positive sentiments were generally at play throughout the week, with the index almost clawing its way back the 8,200-mark. Onset of the week, local shares tracked the region’s weakness following the release of a strong US jobs data, which dwindled the possibility of a rate reduction from the Federal Reserve. Accordingly, odds of a 25bps rate cut this July meeting has declined from the previous week’s 93% to just 74%, although, was still considered high. The souring appetite was also short-lived as investors ogled for hints from Fed Chairman Jerome Powell’s scheduled semiannual monetary policy report. Minutes from the June FOMC meeting also showed bolstered expectations of tweaking the Fed rates as a rate cut could counter the supposed economic slowdown from the US’ trade war with China. At home, investors also turned cheery on expectations of another policy rate cut from the Bangko Sentral ng Pilipinas this second half of the year. Likewise, foreign investors finally turned net buyers, reversing the three consecutive weeks of outflows.

The Bureau of Treasury (BTr) made a full award of the Treasury bills (T-bills) it has auctioned last July 8. The government borrowed P15 billion from total tenders of P50.5 billion, which was more than thrice the auction block. Broken down, the BTr awarded P4 billion through the 91-day tenor with bids amounting to P10.370 billion. Accordingly, the average rate plunged 50.2 basis points (bps) to 3.883% from the 4.385% logged in the previous auction. Likewise, the Treasury made a full award of the 182-day papers, accepting P5 billion out of offers totalling P19.15 billion. In turn, the average yield declined 48.5 bps to 4.238% from last week’s 4.723%. Meanwhile, the government borrowed the planned P6 billion out of the P21.01 billion tendered for the 364-day T-bills. Consequently, its average yield slipped 25 bps to 4.736% from the 4.986% tallied in the previous offering.

The Bureau of Treasury (BTr) made a full award during an auction of its Treasury bills (T-bills) last June 17 as strong liquidity in the market prevailed. The government raised the planned P15 billion auction volume, with total bids totaled P43.1 billion or thrice the amount the government wanted to borrow. Broken down, the BTr made a full award of the 91-day debt papers, borrowing the P4 billion programmed volume alongside total offers amounting to P7.45 billion. In turn, the average yield declined by 10.2 basis points (bps) to 4.453% from the 4.555% fetched in the previous auction. The Treasury also awarded P5 billion via the 182-day securities out of the P17.88 billion tenders. Accordingly, the average rate slipped 6.7 bps to 4.856% from last week’s 4.923%. Likewise, the BTr fully awarded the 364-day T-bills, accepting P6 billion out of total tenders worth P17.734 billion which resulted to its average yield to skid by 1.9 bps to 5.05% from the 5.069% tallied in the previous auction.

The Bangko Sentral ng Pilipinas (BSP) fully awarded its term deposit facility (TDF) during an auction last July 10. Total tenders raked up P83.825 billion, well above the P60 billion in the auction block. In particular, bids for the seven-day papers totaled P27.82 billion, filling the P20 billion planned volume, resulting the average yield to settle at 4.5466%, lower than last week’s 4.5537%. Meanwhile, the 14-day papers received P33.365 billion in tenders versus the P20 billion placed on the auction block. Consequently, the average rate declined to 4.5931% from 4.6129% previously. Likewise, the 28-day term deposits received P22.64 billion in tenders, higher than the P20 billion up for grabs for the notes. The average rate for the one-month deposits, in turn, declined slightly to 4.6407% from the previous week’s 4.6347%.

Exports grew by 1% to $6.155 billion in May, matching the pace in April yet lower than the 1.7% in May 2018. Year-to-date, merchandise exports were down 1.3% to $28.106 billion against the 6% growth target of the Development Budget Coordination Committee (DBCC) for full-year 2019. On the other hand, imports contracted 5.4% year-on-year to $9.43 billion during the month, worse than the 1.9% decline observed in April. Markedly, the import decline was the biggest since the 5.8% contraction recorded in April 2015. Import of goods, though, grew 1% to $44.613 billion on a cumulative basis against the DBCC’s 9% projection for 2019. Accordingly, the country’s trade balance went down 3% to $15.584 billion in May, bringing the five-month trade balance tally to a $16.508-billion deficit, bigger than the $15.682-billion shortfall in 2018’s comparable five months.

Foreign direct investments (FDI) registered $961 million inflows in April, however, falling year-on-year for the second straight month. The latest data was the biggest amount since May 2018’s seven-month-high $1.625 billion, although the latest tally was down 11.8% from April 2018’s six-month-high $1.089 billion. The BSP attributed the decline to a significant cut in equity flows that offset increases in reinvested earnings and intercompany lending. Accordingly, April brought year-to-date net inflows to $2.903 billion, 14% less than the $3.377 billion recorded in 2018’s first four months.

The Philippine peso continued to rally against the dollar to close at P51.13 per dollar last July 12. The appreciation of the Peso versus the greenback is due to the lingering expectations of a rate cut by the US Federal Reserve. The dovish comments of Fed Chairman Jerome Powell on the US House Financial Services Committee amplified speculations of a rate cut, as he hinted of a policy tweaking while saying that the central bank will act as appropriate to sustain expansion as trade tensions and global growth concerns weigh on their economy

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A mutual fund is an investment company that pools the funds of many individual and institutional investors to form a massive asset base.   The assets are then entrusted to a full time professional fund manager who develops and maintains a diversified portfolio of security investments.  People who buy shares of a mutual fund are its owners or shareholders.  Their purchases provide the money for a mutual fund to buy securities such as stocks and bonds.  A mutual can make money from its securities investments in two ways: a security can pay dividends and interest to the fund or a security can rise in value.  The fund passes any dividends, interest or profits on the sale of its portfolio securities, less fund expenses, to shareholders in the form of distributions.” (PIFA, 2004)

Advantages of Mutual Funds

• Diversification
• Professional Management
• Low investment amount
• Liquidity and Convenience

Investment Protection

DOS and DONT’S for Investors

• Be wary of unexpected telephone calls, letters, or even personal visits from people who offer quick profit schemes that require your immediate investment.
• Be suspicious of “inside information,” hot tips, and rumors that supposedly will give you a big advantage over other, less knowledgeable investors.
• Turn down money request accompanied by high pressure warnings like “Tomorrow will be too late”, “Positioning is important” or “Act now because there will soon be long waiting lists of others who want to take advantage of this golden opportunity.”
• Be wary of schemes that give emphasis on recruitment of members or “downlines”, particularly if the product being offered is overpriced, as the same may be a disguised pyramiding scheme.
• Do not engage in foreign currency trading unless you fully understand the mechanics or dangers of currency trading and can afford to lose your money (margin or security deposit). There is no such thing as a guaranteed return in currency trading.
• Ask for a prospectus, offering circular, financial statement, or other similar document before you even consider investing. Then read the small print carefully, particularly on refund, and make sure you understand the terms thoroughly before signing any kind of commitment.
• When in doubt, make no promises or commitment, no matter how tentative. Remember, “if it sounds too good to be true, it usually is.” It is far better to wait and lose an opportunity than to take the plunge and lose everything.
• Before making a commitment, get an opinion from your lawyer, stockbroker, accountant, or the appropriate government office.
• Always demand official receipts in the name of the corporations or entities you are dealing with.
• Note that a Primary SEC Registration only grants juridical personality. It does not automatically give a company the authority to engage in all types of business activities such as lending, selling of securities and investment contracts, investment taking, etc. To confirm that the company or individual is properly licensed to conduct the business in question and has no history of violating the law, get in touch with the SEC.

Source:

Securities and Exchange Commission (2016). Investment 101.  Retrieved from http://www.sec.gov.ph/public-information-2/investors-education-and-information/investment-101/

What is a SCAM?

• A scam is a trick to cheat you of your money, carried out by people who seem smart and charming but are actually looking for ways to take your money without your knowing it.
• If you want to make a lot of money from a small investment in a short amount of time, wishful thinking often take over where common sense should step in. The more unaware and unsuspecting you are, the more attractive a target you are.

What are the trademarks of a SCAM?

Be careful if:

• The person selling you the scheme hurries you. If you feel that you are being pressured, you are!
• The person selling you the scheme won’t give you anything in writing.
• The person selling you the scheme promises you big profits with little or no effort on you part.
• The person selling you the scheme tells you to decide based on your “gut” feelings.
• The person selling you the scheme is having a hard time explaining how the investment works and how your money actually earns.

Popular SCAMS and Swindles

• Pyramiding Schemes/ unregistered investments schemes
• Multi-level Pyramid Scheme
• Ponzi Schemes
• The Chain Letter Scam
• Text/Credit/ATM Card Scams
• Unregistered Pseudo-Market Professionals
• Home Investment or Employment Opportunities
• “Veterans” recovery schemes
• Foreign Exchange Investment Fraud
• Deceptive Timeshare, Travel Club Sales
• Big Money Prizes and Overseas Lotteries
• Nigerian Advance Fee Fraud
• Boiler Rooms

Stock Market

The Philippine Stock Exchange Index (PSEi) rose in June to close at 7,999.71, inching up by 0.37% from May’s finish of 7,970. Investors remained reluctant to take on risk as market developments remained uncertain, with foreigners also fleeing emerging market assets. Local shares were timid to stay within the 8,000 mark, though a year-to-date gain of 7.15% was still recorded from end-2018’s 7,466. Foreign flows also continued the net selling since May at P7.11 billion. Nevertheless, a net buying of P21.43 billion year-to-date was recorded, a turnaround from the P63.83 billion selling spree during the first half of 2018.

Trading remained in a consolidation phase in June, narrowly maneuvering between the 7,900 and 8,100 levels. Players were mostly sidelined, cautiously waiting for fresh developments at home and abroad. Market players, in general, kept their watch on US markets, especially that the world’s largest economy has been staging market movements recently. Initially, the trading was upbeat as the bourse soared past the 8,000 territory. Shares in the PSEi were slightly up as the Federal Reserve signaled its openness to rate cuts, with Fed Chairman Jerome Powell hinting on the probability of reducing interest rates to prevent the US economy from decelerating in light of its ongoing trade disputes. Investors also cheered on the announcement of US President Donald Trump to postpone tariff hikes in Mexico after a deal on immigration was reached. Nonetheless, souring sentiments amplified with the renewed turmoil between the US and Iran. US allegedly linked Iran with the attack of oil tankers in the Middle East, stoking concerns of a furthering conflict. Recall, disputes between the two have grown since May, when Washington ordered all countries to halt imports of Iranian oil. Meanwhile, in Hong Kong, millions of people were in a protest as China sought to assert its greater control, specifically through a bill that would have allowed extraditions to the mainland for the first time. Players then turned cautious as the political unrest may ripple through other financial centers since Hong Kong is especially important as a major center for global finance. Nevertheless, upbeat sentiment was rekindled as traders turned optimistic with the latest statement of the Federal Reserve to keep benchmark rates in a target range of 2.25-2.5%. Moreover, the US central bank changed its initial no-tweaking commitment, opening its doors for possible policy loosening within the year. Also, major central banks including the Bank of Japan (BoJ) and Bank of England (BoE) also held their respective monetary policies the same, resisting central bank bandwagon on looser interest rate environment due to looming global growth slowdown. The BoJ maintained its ultra-easy monetary policy, with short-term interest rates steady at minus 0.1% and its long-term interest rates at close to zero while, the BoE left its main rate of interest unchanged at 0.75%. At home, the Bangko Sentral ng Pilipinas (BSP) likewise, kept its key policy rates unchanged, citing improved inflation environment and resilience of the local economy. Further, escalating fears partly abated as Trump and Beijing’s Xi Jinping agreed to restart their high-level trade talks at the Group of 20 (G20) summit in Osaka. Accordingly, Trump suspended the additional tariffs he previously threatened to slap on Chinese imports and allowed telco giant Huawei to sell products to US companies, alleviating the scorching trade spat.

For the coming month, the local stock index may remain trading within the 7,900 to 8,100 levels as recent market movers, particularly geopolitical issues, continue to stir sentiments. All eyes are set on the US and China relationship, which decided to call a truce in the latest G20 conference, ceding the additional tit-for-tat tariff imposition of both parties in the ‘time being’. Meanwhile, tensions in the Middle East, particularly in Iran may continue to escalate with the rhetorics of Trump to impose new sanctions on Iran and its government. At home, local shares appear to be continuing its broad consolidation trend around the 8,000 territory until upside catalysts solidify the momentum in the near-term, with the release of local economic data and second quarter corporate earnings. Market players may also take guidance from upcoming central bank meetings including the European Central Bank (ECB) on July 25, the BoJ on July 30, and the Federal Reserve on July 31, providing better leads on monetary policy path amid the imminent crackdown in the global economy.

Peso Bond Market

For the month of June, local bond yields further dropped by an average of 66 basis points (bps), marking the biggest fall in five months or since the similar 66-bps plunge in January amid sustained confidence in the fixed income space. Inflation eased further in June to 2.7%, the lowest reading since September 2017 alongside the downtrend in prices of most commodities. Accordingly, the first half of 2019 registered an average inflation of 3.4%, which was within the 2-4% government target range. Meanwhile, the Bangko Sentral ng Pilipinas (BSP) kept policy rates unchanged during its Monetary Board meeting last June 20, banking on the sound inflation environment and resilient domestic growth. The policy-setting council left interest rate untouched with the overnight reverse repurchase (RRP) facility at 4.5%. The interest rates on the overnight lending and deposit facilities were likewise held steady at 5% and 4%, respectively.

Accordingly, the Bureau of Treasury (BTr) made a full award for the auction of its Treasury bonds (T-bonds) in June. The government fully awarded P20 billion for the 20-year bonds auctioned last June 11, with received bids amounting to P27.29 billion. The 20-year debt notes, which carry a coupon rate of 6.75% and have a remaining life of 19 years and 7 months, fetched an average rate of 5.17%, 154.6 bps lower than the 6.716% recorded when the bonds were last offered in January. Markedly, the average rate recorded was the lowest for the 20-year tenor in two years or since it fetched 5.035% in June 2017.

Likewise, the BTr made a full award during an auction of its Treasury bills (T-bills) last June 25. The Treasury raised P15 billion for the debt notes, with total tenders recorded at P50 billion. Broken down, the Treasury accepted P4 billion for the 91-day papers coming from the P11.14 billion bid offers. The average rate, consequently, was recorded at 4.385%. Likewise, the government made a full award of the 183-day instruments, borrowing P5 billion versus total bids of P16.85 billion with the average yield registered at 4.723%. The BTr also fully awarded the 364-day bills, accepting P6 billion out of the total bids worth P22.016 billion and the average yield of 4.986% was recorded.

The BSP also fully awarded its term deposit facility (TDF) offering ahead of the implementation of the second tranche of reserve requirement on big banks. Markedly, the central bank opted not to offer the one-month term deposits amid continuous under-subscription. The 20-billion auction block was oversubscribed, offering P10 billion for both the 7-day and 14-day securities. Accordingly, the average rates for the 7-day and 14-day were logged at 4.6278% and 4.7107%, respectively.

This July, we expect the local bond market to trade sideways with a positive bias as players mull over developments in the fixed income space. The local central bank reduced anew its inflation forecast this year to 2.7% from the 2.9% estimate in May, also indicating a continued stance in key policy rates in spite of external headwinds wobbling the market. Moreover, the second tranche of reserve requirement cut in banks is seen to support the financial system and safeguard players’ confidence through boosting domestic liquidity. Meanwhile, the BTr announced its plans to borrow just P230 billion from the domestic market for the third quarter, smaller than the P315 billion in the second quarter. The BTr noted that the loosening of its borrowing program was due to the ‘slow’ enactment of the national budget.

Dollar Bond Market

For the month of June, prices of Philippine sovereign US-dollar denominated bond (ROP bond) climbed by 2.83%. Year-to-date, prices were also up by 9.20%, trailing the slide in US Treasury yields on expectations that major central banks would respond with more monetary stimulus in the course of dimming global economy. Specifically, the Federal Open Market Committee (FOMC) hinted on changing its initial view of keeping rates steady to tweaking some monetary tools, with economic activity also seen rising at a moderate rate, a downgrade from being solid. Likewise, several banks across the globe have been indicating their openness to more policy accommodation of their own as geopolitics continue to hamstring global growth.

For the coming month, the dollar bond market may remain upbeat alongside the downtrend of US Treasury yields which, notably, has been on a decline for the third consecutive quarter, while monitoring macro-data releases and comments from the US central bank. Analysts have noted that the US economy posted 10 years of expansion as July has started, the longest on record. But while economic wealth is rising, some indicators has been pointing to a recession such as a slowdown in manufacturing output and a downturn in business confidence, haunted further by the US-China trade dispute and sluggish global economy. Further stoking growth is its widening trade deficit, and struggling housing sector; notwithstanding the strong reading for the first quarter gross domestic product (GDP) of 3.1%. Fed Chairman acknowledged the temporary boost to economic growth yet, signaled that interest rate cuts could occur as early as July. Accordingly, odds of reducing the current policy rates by 25 bps this July 30-31 FOMC meeting is now at 72.4% based on the CME Fedwatch Tool.