THE MARKET CALL (JANUARY 2011)

8/7/2019 THE MARKET CALL (JANUARY 2011)

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January 2011

MARKETCALLThe

Capital Markets Research

FMIC and UA&P Capital Markets Research

Macroeconomy 2 Fixed-Income Securities 8 Equity Markets 13Special Feature 18 Recent Economic Indicators 20 Contributors 23


http://slidepdf.com/reader/full/the-market-call-january-2011 2/23The Market Call - January 2011

Macroeconomy

Will Few Days Reverse Strong Fundamentals?

Is in a on rearing its ugly head again? Global and domes c nancial market players seem to think so, giventhe unabated increases in crude oil prices and sharp rises in agricultural commodity prices. As a consequence,the fabled January e ect did not materialize as both domes c bond and stock prices have tanked early in theyear.

In the Philippines, the gures for the economy remain robust and the in a on scare may just be a knee-jerkreac on. The latest economic data, which simply reiterate the fundamental strength of the economy, shouldprobably speak best for themselves.

Meralco Sales Eases Further in DecemberMeralco sales for 2010 Q4 did not y high compared to

the other quarters of the year. The total monthly salesof Meralco started to weaken by October and followedthrough for the remaining months of the last quarter of 2010. For December, a year-on-year (y-o-y) growth rate of 3.0% had been recorded. This was the lowest y-o-y up ckof Meralco sales for 2010. This may also spell slower GrossDomes c Product (GDP) growth in 2010 Q4.

The y-o-y growth of each sector remained posi ve for De -cember. The gures indicated an easing of the pace com -pared to the previous month’s records largely due to basee ects. Residen al sales grew a mere 2.8% as opposed to

5.1% for the previous month. Commercial sales registereda 3.3% up ck which was also lower than November's 5.7%climb. Industrial sales slowed down the most from 8.7%last November to 2.1%. Residen al and Industrial salesperformed their weakest for the year in December. Look-ing at Meralco sales as a proxy variable of economic ac-

vity (GDP), we can readily see that its performance lastDecember was not as outstanding as the rest of the year.

Despite the weaker momentum for the last quarter of 2010, Meralco electricity sales nevertheless increasedby 6.6% over the same quarter last year (+3.6%) and waseven faster than Q3’s pace of 5.9%. Thus, we ought not tobe disappointed with the current outcome. A er all, theVolume of Produc on Index (VoPI) was up by 16.2% in No -vember, as 16 out of 20 manufacturing industries postedstrong gains. Similarly, imports for the same month ex -panded by 35.3%, faster than 26.4% in October, suggest -ing that December exports would remain robust.

With these considera ons, we maintain our view that2010 Q4 GDP growth will be close to its preceding quar -ters. The Agriculture sector is expected to swing to theposi ve zone while Industry and Services will slow downslightly. Compared to 2009, when the quarter-on-quarter(q-o-q) growth from Q3 to Q4 declined due to the greattyphoons, there were no similar nega ve shocks in the lat -

ter half of 2010. With that said, a 7.2% GDP expansion for2010 is s ll likely.

In a on Resurgence Unlikely to Materialize in H1The headline in a on rate for December remained at3.0%, the same rate as November. This was a bit disap -poin ng a er having low in a on expecta ons for mostof 2010. Meanwhile, the full-year in a on for 2010 rose

Figure 1 - Meralco Sales & Volume of Produc on IndexGrowth Rates (Year-on-Year)

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Source: Meralco, Na onal Sta s cs O ce (NSO)



Macroeconomy

FLW had the most signi cant change and it is a rib -

uted to the higher annual increase in crude oil prices inDecember.

to 3.8% from 3.3% in 2009. This is well within the BangkoSentral ng Pilipinas’ (BSP) target of 4.5% +/- 1% and righton the dot to our 3.7% outlook. Core in a on eased slight -ly from 3.5% last November to 3.4% in December, bringingthe annual average core in a on down to 3.7% from 4.2%in 2009.

The steady y-o-y in a on of 3.0% for November and De -cember was due to rmer prices of Fuel-Light-Water (FLW)tracked at 11.5%, slightly o from 12.0% posted in Novem -ber and a slight but meaningful rise in Food-Beverage-To-

bacco (FBT) to 2.0% from 1.9% in the previous month.Figure 2 - In a on Rates Annualized (2006-2010) SeasonallyAdjusted vs. Year-on-Year

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Monthly S.A. Inflation Annualized Year-on-Year Inflation Rate

Source: Na onal Sta s cs O ce (NSO)

Clothing products’ prices also accelerated to a 1.9% growthin December from 1.7% the previous month. To o set thefaster pace in these items, slowdowns were seen in Ser -vices and Miscellaneous categories. Services eased from3.6% to 3.4% while Miscellaneous items decelerated from1.2% to 1.1%. FLW had the most signi cant change andit is a ributed to the higher annual increase in crude oilprices in December when it went up by 19.7% to an aver -age of $89.10 per barrel, West Texas Intermediate (WTI).

For the month-on-month (m-o-m) data, in a on sloweddown to 0.5% from 0.8% the previous month. This wasdue to the rapid decelera on in FLW (5.0% to 2.0%) andFBT (0.7% to 0.4%). These rates were su cient to morethan o set the increase in Clothing from 0.1% to 0.3% andServices from 0.4% to 0.7%.

On a seasonally adjusted annualized rate (SAAR) basis, ina on’s pace eased from 11.3% in November to 6.6% in

December. This brought about an average SAAR of 3.0%for 2010. The SAAR of food items declined from 9.5% to

5.6% in December due to stable rice prices. Non-foodSAAR fell from November’s 13.1% to 7.6% in December, asthe pace of petroleum pump price hikes eased.

There have been some concerns about possible in a onaccelera on due to the con nuous upswing in crude oiland other commodity prices, as well as projected increases in toll fees, transporta on rates, and wheat and cornprices. However, with winter ending, crude oil price upswing will likely take a pause, while food prices may bekept in check by stable rice prices due to its abundant sup-ply. Thus, Q1 in a on rate may remain at 3.2% or lower

and not much di erent up to Q2.

Policy Rates Kept UnchangedThe Monetary Board (MB) decided to maintain the keypolicy rates during its last policy mee ng for 2010 on November 18. It retained the 4.0% for the reverse repurchaseagreements (RRP) for overnight borrowing and 6.0% forthe repurchase agreements (RP) for overnight lending facili es in the belief that these rates do not stoke in a onwhile promo ng the needed economic expansion.

For the month of November, Reserve Money (RM) onlygrew by 5.2% (y-o-y), half of October’s 10.4% growth, despite the 29.1% rise in Net Foreign Assets (NFA). Likewise,a er the double-digit growth rates of M2 and M3 in September, they began to follow a downward path star ngOctober. M2 decreased from 7.7% to 7.4% while M3 declined to 7.6% from the previous 7.8% record. With thedeclining annual growth rates, money mul plier has increased only to 4.0 from 3.8 in October.



Macroeconomy

Year-to-date (YTD) export revenues for November 2010 amounted to $47.2 B, which was 34.5%

higher than the same period in 2009.

Figure 3 - M3 Money Supply Growth Rates (y-o-y)

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Source: Bangko Sentral ng Pilipinas (BSP)

Meanwhile, the Special Deposit Accounts (SDA), which isalso being watched closely by the BSP, has increased toP1.2 Tr in November. This grew massively by 106.0% fromyear-ago levels. Banks con nue to be lured to place their

money in the BSP vaults because of the high SDA ratewhich leaves less money going around to be lent for pro-duc ve uses.

Given the low annual growth rate of RM and the currentlow expecta on for in a on during the rst half of 2011,BSP should seriously consider reducing the SDA rate asthis serves as the oor for interest rates. Doing so wouldfacilitate more liquidity and the a ainment of the 7-8%GDP growth target for this year.

Sans Base E ects, Nov Exports Up 11.2%

In November, exports expanded by 11.2% to $4.1 B. Thiswas a sharp slowdown from the previous month’s growthof 27.4%. Year-to-date (YTD) export revenues for Novem -ber 2010 amounted to $47.2 B, which was 34.5% higherthan the same period in 2009. Notably, since the highestmonthly exports level was recorded at $5.3 B in Septem-ber, exports have actually been declining for two consecu -

ve months. This should not cause any alarm since thebase e ects of exports were no longer present as exportsalready had a posi ve y-o-y growth in November 2009.

For November export performance, manufactured prod -ucts captured 85.7% of the total exports which was veryclose to the share of the same group a year ago. The de-celera on of exports growth mirrored the performance of the electronics sector, which saw an 8.5% gain comparedto 38.2% in October. This re ected the weakness in 7 of the 9 electronic product categories. Fortunately, semicon -

ductors exports had increased by 19.6%, accoun ng for41.6% of total exports. A number of export products alsohad remarkable y-o-y growths ─ Gold (208.5%), PetroleumProducts (176.1%), Coconut Oil (118.5%), Woodcra s andFurniture (53.3%), and metal components (32.5%).

For the m-o-m data, exports declined by 13.4% from $4.8B to $4.1 B. This is in spite of the enormous m-o-m ex-port growth of product groups such as petroleum prod-ucts which had a 280.5% growth and forest productswith 178.2%. These surges were quickly counterweighedby drops in other product groups like mineral products

(-55.7%), Agro-based products (-20.2%) and manufacturedproducts (-16.0%).

Figure 4 - Monthly Exports Growth Rates (y-o-y)

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Macroeconomy

OFW remi ances remained stable at $1.6 B for No -

vember, 10.5% higher compared to the same monthin 2009.

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Figure 5 - OFW Remi ances Growth Rates (y-o-y in US$ andPhP Terms)


For the month of December, we expect export revenues toremain above $4 B and break the full-year record of $50.5B posted in 2007. Exports in 2010 should end up at least30% higher than 2009. A big leap in electronics importsand double-digit manufacturing sector growth in Novem -ber supports this view.

Looking forward, due to the absence of base e ects for2011, we project export growth to be around 13.0-15.0%on account of a be er-than-expected growth in the USand con nued robust expansion in China and the EastAsian region.

OFW $ Remi ances Up 10.5% in NovA er hi ng an all- me high of $1.7 B in October, OFWremi ances remained stable at $1.6 B for the month of November, 10.5% higher compared to the same month in2009. The growth rate was slightly higher than the 9.3%y-o-y growth in October and second only to September’s10.6% up ck.

From January to November 2010, remi ances amounted

to $17.1 B, or 8.1% higher than the same period in 2009.The vigorous growth can be a ributed to the versa lity of Filipinos that enabled them to meet the expecta ons of employers in di erent countries with their con nuouslygrowing demand for professional and skilled laborers. Thediversi ca on of host countries also contributed to the ro -bust remi ance performance. Finally, the incessant e ortsof the government in nego a ng with other countries fora bilateral labor coopera on agreement and the easierand inexpensive means of sending remi ances back homeshould also be acknowledged for aiding the OFWs.

A posi ve news was the 2.2% increase (y-o-y) in the pesovalue remi ances, a slight improvement from the 1.4%posted in October. Even with the huge increase in theamount of dollars sent, it was o set by the peso apprecia -

on. From the P47.0/$ in November 2009, the peso gotstronger by 7.5%, reaching P43.5/$ in November 2010.The December peso value of remi ance performanceshould be be er as the peso apprecia on slowed down to5.2% for the said month.

As of now, the BSP is projec ng a total of $18.8 B for thewhole year of 2010. Achieving this target is not far fromhappening because the peso was somewhat so er in

December than in November. The weaker local currencywould provide a be er s mulus to domes c spending asthe same amount of dollars will increase the peso amountsreceived by remi ance bene ciaries. Also, the fact thathistorically, more US$ remi ances are sent during December should provide con dence that the monthly remittance will not fall behind past gures.

Peso Reverts to Deprecia on Mode in New YearThe peso traded sideways at the start of the year with asomewhat so er bias. For January, the Philippine Peso(PhP) started climbing beyond the P43/$ level up to theP44/$ plane. The external headwinds appear to be morein uen al for the month as fears of a resurgence of in a

on in Asia made foreign investors more mid.

The peso apprecia on in 2010 was a ributed to foreigncapital ows to the country’s nancial markets, wherehigh premiums on T-bonds and self-sustained stock pricegrowth were the rule for the rst 7 months of the year.



Macroeconomy

The dollar reserves of the BSP rose to an all- merecord of $62.1 B in December 2010.

Foreign Por olio Investments (FPI) in stocks, securi es,and currency markets for the en re 2010 have increasedthe net in ows to $4.6 B from $388 M in 2009. With OFWremi ances totalling $17.1 B for January to November,the dollar reserves of the BSP rose to an all- me record of $62.1 B in December 2010, equivalent to 10.2 months of imports, and represen ng a 40% increase from year-agolevels.

foreign investors’ cut-loss limits had been crossed leadingto lower stock and bond prices, reversing a 5-month rallythat ended in November. Their demand for dollars, thus,weakened the peso.

Similarly, large emerging countries like Brazil had beentalking of “currency wars” as their currencies appreci-ated signi cantly during the past year. These moves, tan -tamount to capital controls, made foreign investors waryabout ge ng their funds frozen in emerging markets.

For the rst quarter of 2011, we expect the peso to bewithin the range of P43.50 – P45.00/$ and will con nue tobe vola le, should the BSP allow it to move freely. A likelyscenario, on the other hand, is that the BSP will interveneto prevent sudden sharp movements in the exchange rate.Nevertheless, the current weakening bias should remain,which is technically supported since the recent rates havebeen above their 30-day moving averages (MA) and is ap -proaching the longer-term 200-day MA.

OutlookThe recent Q4 GDP rebound contradicted what most ana -lysts saw as an economy that was slowing down. Whiley-o-y growth was 7.1%, seasonally adjusted quarter-on-quarter growth was a he y 3%, a clear reversal of theeasing in the previous 2 quarters. This outcome gives cre-dence to our belief that the 34-year GDP growth record of 7.3% in 2010 was not just about elec on spending.

Dun & Bradstreet’s Business Op mism Index for 2011•Q1 shows an overall improvement from the previousquarter. Speci cally, while volume of sales and netpro ts con nued to promise a be er quarter ahead, itwas the indexes for Employment and New Orders thatshowed the biggest gains. If rms are planning to hiremore workers compared to 2010 Q4, then the New Or -ders they expect to move up are probably going to ma-terialize and add fuel to the growth prospects for H1.

At the onset of 2011, investors’ risk appe te was whet -ted by expecta ons of another strong year for Asia. Thisis in comparison to the anemic growth projec ons for ad -vanced economies, and the easing of euro-zone worriesa er Japan pledged that it would aide Ireland. However,only a er a trading week into 2011, the peso began toslowly depreciate as the in a on scare surfaced amongemerging markets and expecta on of stronger US recov -ery loomed. Thinner inventories in the US provoked ajump in crude oil prices above $90/barrel, at the same

me that agricultural commodity prices (wheat, corn,and soybeans) rose steeply due to poor harvests. The risein oil prices also caused lack of liquidity as domes c oilcompanies spent more dollars to import oil. To top it all,

Figure 6 - Daily Peso-Dollar Exchange Rate

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Peso/Dollar Exchange Rate 30 Day Moving Average

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Macroeconomy

We think that exports will slow down a li le bit more in early Q1, but will return to double-digit growth by Q2.

ForecastsRates Jan Feb Mar Apr

In a on (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

Source: Authors’ Es mates

We think that the in a on scare is overblown, given•that rice stocks are plen ful, harvests are quite promis -ing according to Department of Agriculture experts, andcrude oil prices are likely to ease with the o -winter sea -son and the eventual return of 200,000 barrels per daycrude from Alaska which was closed late last year dueto an explosion. Meralco rates are also expected to beslightly lower in January and February.

The tax collec on e orts of the country appear to be•making some headway. While no o cial gures for De -

cember will be available un l February 20, in 3 of the 4months from August to November, BIR collec ons grewin excess of 15% (our cri cal growth benchmark). Thishas given the agency more op mism to meet its 2011targets.

Since we do not expect a sharp rise in in a on in H1,•we also do not think the BSP will raise policy rates in the

rst half of the year, despite robust GDP growth. This isbecause in a onary forces should remain in check.

We think that exports will slow down a li le bit more•in early Q1, but will return to double-digit growth byQ2 on the back of stronger-than-expected US growth inH1, while China and East Asia, and ASEAN provide ad -di onal export demand as they boost their domes ceconomies.

With OFW remi ances retaining its vitality in Q1, this•will not be su cient to o set the slower export growthand the exit of por olio capital, and so the exchange ratewill have a slight deprecia on bias during the quarter.



Fixed Income Securi es

The New Year came with encouraging news: headline in a on for the previous year averaged 3.8%, whichwas at the lower end of the BSP's target range of 3.5% to 4.5%; Moody's Investors Service raised the creditoutlook on Na onal Government's (NG) foreign and local currency bonds from stable to posi ve; and the Basel3 banking and nancial markets reform were nally adopted.

Unfortunately, as the month progressed, many foreign investors had chosen to lighten up on Philippinebonds and stocks. The specter of a resurgence in in a on (especially in India and China), higher crude oiland commodity prices, a rise in value-added taxes (VAT) in Europe, and an improving US economy were verycompelling reasons for bringing funds back to developed markets.

Early Ji ers in the Philippine Bond Market

Primary Market: Doubts Emerge a er a Good Start

President Aquino signed a P1.6 T budget for the scal year2011, a 14% increase from last year’s budget of P1.5 T.This highly s mula ve budget targets a budget de cit of P298.6 B in 2011, or 3.3% of projected Gross Domes cProduct (GDP). With the changed a tude abroad, the NGmay have to nance most of this from the local nancialmarkets un l the global markets regains con dence overactual in a on rates in the coming quarters.

The rst two auc ons for the year con nued to re ectposi ve sen ment among investors. To keep debt yields inline with secondary markets, the Bureau of the Treasury(BTr) made only a par al award for the rst auc on of theyear─ the reissued 5-year bonds provided a 4.67% yield,some 10 basis points (bps) higher than the previous 5-yearauc on.

Source: Bureau of the Treasury (BTr)

T-Bills and T-Bonds Auc on Results

Date T-Bond/T-Bill O er (PhP B) Tendered (PhP B) Awarded (PhP B)Tendered ÷

O eredAverage Yield Change bps

4-Jan 5-year 9.00 13.70 7.03 1.52 4.67 10.3

10-Jan 91-day 1.00 2.76 1.00 2.76 0.70 -7.50

182-day 3.50 13.4 3.50 3.83 1.56 -8.70

364-day 4.00 11.06 4.00 2.77 2.46 7.30

18-Jan 20-year 9.00 8.021 4.12 0.89 8.02 -49.60

24-Jan 91-day 1.00 1.71 0.00 1.71 0 –

182-day 3.50 3.19 0.00 0.91 0 –

364-day 4.00 2.22 0.00 0.56 0 –

Totals All Auc ons 35.00 56.06 19.65 0.62 – –

Market players chose to keep funds in short-term govern-

ment securi es (GS), par cularly 91-day and 182-day T-bills at the start of the year; decreasing their yields by 7.50and 8.70 basis points (bps) to record lows of 0.70% and1.56%, respec vely. Correspondingly, there was a slack indemand for 20-year notes (o ered on January 18) as thetotal amount tendered was lower than what the BTr of-fered. The third auc on of the year simply con rmed mar -ket players’ fears. The nal straw was drawn in the lastauc on of January where market players asked for higheryields even for the short-term T-bills (by as much as 150bps) and the NG du fully rejected the en re P7.12 B ten -dered by market players for P8.5 B of T-bills on o er.




Secondary trading at the start of 2011 was brisk,showing a 144.3% growth of trade volume.

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Figure 7 - FXTN Yields

Secondary Market: Yield Curve Moves Up Slightly

Among the biggest casual es of market fears of higher in -a on rates was the Fixed Income Treasury Notes (FXTN)

market. Yields across the FXTN curve have been rising

since last month except for the 3-year FXTN series 7-43.The highest jump among outstanding notes was in theFXTN series 10-42 which rose 110 bps in yield. FXTN series3-16 and 10-48 had risen by 50 bps and 20 bps respec-

vely. However, in the new 25-year benchmark bond, theyield moved only marginally.

Secondary trading at the start of 2011 was brisk, show -ing a 144.3% growth of trade volume in the rst week of January from the last week of December 2010. The rstand second week of January gathered a total of P86.1 Band P77.3 B, respec vely. Although the double-digit g -

ures pale in comparison with the record trading volumesin the middle of 2010, 2011 year-to-date (YTD) remainsway above last year’s. The 2011 YTD (January 14) of P81.7B overshadowed 2010 YTD (January 15) of P63 B by almost30%.

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Figure 8 - Trade Volume (in billions)

Secondary trading in corporate bonds was clearly moreac ve in December 2010 compared to the same month of the previous year. The state-run PSALM was most ac vein 2010 trades amoun ng to P428 M. San Miguel Brewery(SMB) took over the second spot from Energy Develop

ment Corpora on (EDC) with trading volume of its debtinstruments reaching P185 M. Metrobank (MBT) pushedEDC down further by ge ng P60.87 B of its debt paperstraded for the month.

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Figure 9 - Corporate Trading (in millions)




At the start of the year, even giants in the corporateworld were mulling over issuing more long-term

peso debt papers.

Corporate Issuances:With banks' Single Borrower’s Limits (SBL) being exceededby large rms, these companies have been turning to thebond market to fund their various capital expendituresand infrastructure developments.

Only recently, Ayala Land, Inc. (ALI) raised P10 B worth of •xed-rate corporate bonds to fund capital expenditures

─ P5.7 B in 5-year notes with rate of 5.625%, P3.3 B in10-year notes with a rate of 6.875%, and P1 B in 15-yearnotes with a rate of 7.5%. Addi onally, strong investor

demand led orders amoun ng to P17.5 B, an oversub -scrip on of 75%. Excluding new issuances, a number of investors holding P875 M worth of 7- and 10-year notesissued last 2006, maturing in 2013 and 2016 accepted aprepaid o er through a liability management exercise.

At the start of 2011, even giants in the corporate worldwere mulling over issuing more long-term peso debt pa-pers. Corporate bond markets, with emphasis on the realestate and energy sectors, will remain ac ve in the comingmonths.

On January 14, EDC raised $300 M for corporate and•capital expenditures. The paper has a 10-year tenor anda coupon of 6.5% and was o ered at par. Proceeds willbe used for capital expenditures, debt servicing, andother general corporate purposes including the fund-ing of an 86- megawa wind farm in Ilocos Norte. Thesedebt papers will not be traded in the Philippines.

ATR KimEng Asset Management deployed an open-end-•ed bond auc on with a mutual fund that aims to de -liver superior risk-adjusted returns consistently over thelong-term, giving bond-holders more breathing spacefor market vola lity and adjustments of por olios. Mini -mum subscrip ons are quoted at $2000 and addi onalsubscrip ons are at $500. Capital raised will be investedin global and domes c securi es issued by sovereign na -

ons with credit ra ngs not lower than BB- and in cor -porate securi es denominated in major currencies.

Megaworld (MEG) launched its P5 B xed rate bond cam -•paign with the highest credit ra ng (AAA) from CreditRa ng and Investors Services Philippines, Inc. (CRISP), anew ra ng agency in the country. With a 15-year tenorand coupon rates yet to be released, these bonds are tobe issued to ins tu onal and retail investors through apublic o ering. Proceeds from the bond issue would beused to partly fund capital expenditures over a 3-yearperiod beginning 2009, especially the development of its North Bonifacio Central Business District project.

The SMB energy unit started its road show for an up-• coming $500 M bond issue. With a guidance as low as6% and a prospec ve tenor of 5 years, the SMB grouphopes to raise funds for its transforma on from a foodto a power-based conglomerate.

ROPs:A red ag has been raised on Asian currencies due to in -

a onary specula ons on yields. According to Na onalAssocia on of Securi es Dealers Automated Quota ons(NASDAQ), the Philippines’ peso denominated globalbonds con nued to sell voluminously as cumula ve lossesfor the rst two weeks of the month reached almost 10%.Despite this fact, however, yields on ROPs across the curveedged lower with 32.3 bps, 35.6 bps, 38.3 bps, and 28.3bps on ROP14, ROP16, ROP19, and ROP32, respec vely, asUS Treasury benchmark yields eased.

This in a onary scare of foreign investors has led to thewidening of the country’s spread versus US Treasuries.This year’s spread (January 21) widened from last year’s(December 17) 115 bps to 162 bps ─ a sharp 47 bps in -crease. Nevertheless, compared to last year of the sameperiod (January 22), spreads have actually narrowed by 36bps aided by favorable macroeconomic environment leby the year 2010.

Year-long changes in yields have amounted to a decreaseof 160.6 bps at the front end of the curve and 100.3 bpsat the back end while the belly has ROP-16 easing by 210bps.




The ROPs market is expected to be vola le as theeuro-zone debt woes linger on with li le clarity ona more permanent resolu on.

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Figure 10 - ROPs

The ROPs market is expected to be vola le as the euro-zone debt woes linger on with li le clarity on a more per -manent resolu on. The recent poli cal and nancial scarein Egypt will also add pressure to ROP yield spreads.

ASEAN+1 MarketThe corporate bond market of emerging East Asia grewby 23.8% year-on-year (y-o-y) while local currency gov -ernment bonds were 14.6% higher y-o-y, a slower growthcompared to past years. While Euro and US dollars are s llhaving vola le sessions in currency markets, expecta onsof a er yield curves may be reasonable for the ASEANcountries.

US: Its yield curve shows that debt papers have retainedthe momentum of steadily increasing yields, especially inthe longer end.

PRC: Latest yields for 1-, 5- and 10-year bonds increasedby 11 bps, decreased by 12 bps, and increased by 8 bpsmonth-on-month (m-o-m) respec vely. 1-year depositand 1-year lending rates rose to 2.75% and 5.81% respec -

vely, a change of 25 bps to both. China is considering toraise its in a on target from 3 to 4 % as consumer priceshit 4.4% in October and increased to 5.1% last Novembery-o-y. Further monetary ghtening to prevent develop -

ment of in a onary expecta ons was evident as authories increased reserve requirements to 19%.

Indonesia : 1-, 5- and 10-year bond rates decreased by 4.8bps, increased by 90.5 bps, and increased by 120.1 bpsm-o-m respec vely. The Bank Indonesia rate is peggedat 6.5% while Moody’s January outlook for the country isstable.

Malaysia : With the highest inward foreign direct investments in the region, yield rates are steadily decreasing,

re ec ng the strong demand for domes c debt instruments. 1-, 5- and 10-year bonds registered incrementalyield changes, decreasing by 2.9 bps, increasing by 2 bps,and increasing by 21.2 bps. Maybank Investment Bank’seconomists expect in a on to rise 2.5% in 2011, thusovernight policy rates have been pegged at 2.75%.

Thailand : 1-, 5- and 10-year bond rates increased by 32bps, decreased by 10.2, bps and increased by 11 bps m-o-m respec vely. 1D and 3M interest rates had latest ratesof 2.25% and 2.39%, by the third week, closely followingThailand’s 1-day repurchase rate of 2.25% from an in-

crease of 25 bps.

0

2

4

6

8

10

12

1 5 10

US PRC Indonesia

Malaysia Thailand Philippines

Source: Bloomberg

Figure 11 - ASEAN+1




Because the prospects of higher yields are quite real, inves -

tors and market players will be quite sensi ve to o cial in a onary gures for guidance.

OutlookWith domes c bond yields having adjusted to higher in -

a onary expecta ons in the opening weeks of 2011,many investors should be more comfortable with the cur-rent level of yields, at least for the me being. Becausethe prospects of higher yields are quite real, investors andmarket players will be quite sensi ve to o cial in a on -ary gures for guidance. The bo om line really dependson how short-term rates behave in the coming months.



Equity Markets

Reallocation and Inflationary Fears

January has been very challenging for Philippine equi es market. Local risky assets have been vola le and thisserves as a reminder of risks involved in the market – external and local. The recent sell-o in the Philippineequi es market is reminiscent of the fear-based sell-o s that plagued equity markets in early 2010 (i.e.emergence of the euro-zone debt crisis). Bearish price ac ons led to the PSEi breaking down the 4,000 supportlevel on January 21, 2011, a level that was deemed to be strong. In light of the recent sell-o s, we believethat the reasons for the local market’s weakness were associated with the realloca on of global por oliosin developed markets (DM), especially in US equi es, for be er earnings poten al and fears of ghteningcontagion from our Asian neighbors.

Preference on US Equity MarketsPosi ve macro backdrop remains intact (see Macroecon -omy sec on), while the recent pullback has made valu -a ons a rac ve. Regardless of these, foreign investorscon nue to sell Philippine equi es for poten ally stron -ger market returns in US equi es this year (as of January28, 2011, foreigners were net sellers by P3.1 B). Accord -

ing to data from Emerging Por olio Fund Research (EPFR)Global, fund ows into US equi es signi cantly increasedlast December 2010. This is consistent with our view thatfunds are being reallocated to the US. The reasons behindthe global por olio realloca on are:

Strong Macro Correla on – there are increasing signsover the past few months that economic growth will bestronger-than-expected in the US. The economic recoveryappears to be holding up: consump on is supported byimproving labor markets, credit growth, low/nega ve realinterest rates, and policy support. Having said these, thereis plenty of room for more posi ve macro data surprises

that would translate to further upsides in US equi es.

Figure 12 - PSEi “February 2010 Lows”

0

1

2

3

4

5

6

2

2.5

3

3.5

4

4.5

5

Jan Mar May Jul Sep Nov Jan

Volume (in billions), right axis PSEi (in thousands), left axis

50-Day MA 100-Day MA

200-Day MA

February Lows

Source: Yahoo! Finance

Figure 13 - Foreign Ac vity

0

700

1400

2100

2800

3500

4200

4900

0

20

40

60

80

100

120

140

Sep-08 Apr-09 Nov-09 Jun-10 Jan-11

Foreign Buying (in billions), left axis

Foreign Selling (in billions), left axis

PSEi, right axis

Source: Philippine Stock Exchange (PSE)



Equity Markets

Fears and uncertain es surrounding the ongoingghtening in emerging markets (EM) have de -

pressed most Asian equity markets.

Earnings Con nue to be Robust – evident in the fourthquarter earnings season, US corporate earnings data con -

nued to beat expecta ons. Such gures call for strongerearnings growth es mates (+14% for the S&P 500) and forhigher odds for be er earnings revisions in US equi es.Moreover, with US 10-year benchmark rates trading athistorical lows, valua ons in S&P 500 component stocksremain at a rac ve levels.

Prolifera on of Mergers & Acquisi ons (M&A) – prospectsof an increase in M&A ac vity is highly likely in 2011. Itsdrivers are: 1) extraordinary high corporate cash levels; 2)the need to ra onalize capacity in a low u liza on envi -ronment; and, 3) depreciated dollar makes US companiesa rac ve targets to foreign investors.

Other Poten al Posi ve Risk Events – 1) Historically, largereturns had been made in the S&P 500 a er mid-termelec ons. 2) Improving con dence will likely result tooverweighing alloca ons in US equity markets. 3) Buyback

of shares by US companies will likely con nue in 2011.

Monetary Tightening Contagion

Figure 14 - Global Equity Fund Flows

Source: EPFR Global

Figure 15 - S&P Valua ons

-4

-2

0

2

4

6

8

Jan-06 Nov-06 Sep-07 Jul-08 May-09 Mar-10 Jan-11

Dividend Yield minus 2 yr T-Bond Yield

Earnings Yield minus 1 0 yr T-Bond Yield

Source: Bloomberg

Asian Indices Year-to-Date Performance

Countries Index YTD Performance (as of January)

India SENSEX -10.64%

Indonesia JKSE -7.95%

Philippines PSEI -7.61%

Thailand SET -6.65%

Shanghai SSEC -0.62%

Singapore STRAITS -0.32%

Malaysia KLSE 0.07%

Japan NIKKEI 0.09%

South Korea KRX 0.32%

Taiwan TWII 1.45%

Hong Kong HANG SENG 1.79%

Source: Bloomberg and Yahoo! Finance

Fears and uncertain es surrounding the ongoing ghten-ing in emerging markets (EM) have depressed most Asianequity markets, including the Philippines. The sharp jumpin 10-year Philippine benchmark rates re ects rising in a-

on expecta ons, increasing the odds of ghtening. How-ever, we believe monetary ghtening is valid in most EMcountries (China, Brazil, Indonesia, Thailand, and etc.) butunfounded in the Philippines. In a on for December 2010was at 3.0%, even less than the lower interval of BangkoSentral ng Pilipinas’ (BSP) in a on target of 4.5%+/-1%



Equity Markets

The PSEi declined by 7.61% this month as foreign investorsbecame net sellers.

Monthly Sectoral Performance 30-Dec-10 31-Jan-11

Index % Change Index % Change

PSEi 4,201.14 6.26% 3,881.47 -7.61%

Financial 961.47 5.40% 870.86 -9.42%Industrial 7,220.61 8.43% 6,764.31 -6.32%

Holdings 3,388.74 5.97% 3,126.45 -7.74%

Property 1,582.47 8.66% 1,464.21 -7.47%

Services 1,590.40 5.58% 1,536.06 -3.42%

Mining and Oil 13,947.58 15.53% 13,826.70 -0.87%

Source of Basic Data: PSE Quota on Reports

for 2010. We expect this trend to con nue in the rst fewmonths of 2011, regardless of rising oil prices and thefront loaded increase in government spending (see Mac-roeconomy sec on).

Sectoral Performance

Company Symbol12/30/10

Close1/31/11

Close%

Change

Metrobank MBT 72.00 64.90 -9.9%

Banco de Oro BDO 58.50 50.80 -13.2%

Bank of the Philippine Islands BPI 59.00 51.50 -12.7%


The PSEi declined by 7.61% this month as foreign inves -tors became net sellers. All the sub-indices were in the redwith Financial and Holdings sectors as the largest contrib-

utors to the fall while the Property sector followed closelybehind. The Mining and Oil sector had the least declineof 0.87% because of record-high copper prices as well asthe increase in copper shipments of major companies likePhilex.


Close1/31/11

Close%

Change

Meralco MER 228.00 215.00 -5.7%

Aboi z Power AP 31.10 27.75 -10.8%

Energy Development Corp. EDC 5.87 5.79 -1.4%

San Miguel Corpora on SMC 163.80 168.80 3.1%

Jollibee Foods Corp. JFC 88.90 75.00 -15.6%


The Financial sector had the biggest fall by 9.42% this peri-od with the major banks under the sub-index turning red.Large banks BPI and MBT raised cash from new shares soldin the market. MBT raised P10 B by lis ng 200 M addi -

onal shares at P20 par value while BPI raised P10 B worthof capital last August, both through special rights o ering.


Close1/31/11

Close%

Change

Ayala Corp. AC 394.00 340.00 -13.7%

Metro Paci c Investments MPI 3.89 3.68 -5.4%

SM Investments Corp. SM 543.00 470.00 -13.4%

DMCI Holdings, Inc. DMC 36.00 33.75 -6.3%


Currently, BPI is set to purchase a trust unit of ING Bank onMarch. Performance of these major banks will be furtherscru nized as they release their 2010 annual reports.

The Industrial sector declined by 6.32% with all the ma-jor companies under the sub-index turning red except forSMC. SMC con nues its expansion as it plans to purchasethe stake of an Australian mining rm in the $5.2B Tampakan copper-gold project. MER was allowed to hike itsdistribu on rates by P1.6464 per kilowa -hour (kWh).The company also plans to open its rst power plant inCalamba in the rst quarter of next year. The power plantwill bring down power costs thus raising returns. Mean-while, AP dropped by 10.8% due to the local government's

foreclosure of its Pagbilao power plant for non-paymentof property taxes.

The Holdings sector posted a 7.74% decline this period led

by AC and SM. This is despite SM’s plans to add seven newmalls, adding a total of 400,000 square meters (sq. m.) toits commercial area for lease. The company will also part-ner with local government units to convert public marketsinto formal retail malls. SM Dasmariñas in Cavite will bethe pilot test project which will cost P500 M. In the agreement, SM cannot increase rental rates to public markettenants beyond the approved fees.



Equity Markets

The Mining and Oil sector had the smallest loss this period as companies under the sector

posted gains.

Yearly Turnover (in millions) Total Turnover Average Daily Turnover

Sector Value % Change Value % Change

Financial 10,515.6 -33.8% 500.74 -37.0%

Industrial 36,410.7 21.8% 1,733.84 16.0%

Holdings 19,357.4 -30.6% 921.78 -33.9%

Property 19,131.1 49.7% 911.01 42.6%

Services 15,082.4 -11.7% 718.21 -15.9%

Mining and Oil 11,239.0 68.5% 535.19 60.5%

Total 111,736.4 1.4% 5,320.78 -3.4%

Foreign Buying 40,596.9 -13.8% 1,933.19 -17.9%

Foreign Selling 44,752.8 -8.0% 2,131.08 -12.4%



Close1/31/11

Close%

Change

Philippine Long Distance Tel. Co. TEL 2,554.00 2,460.00 -3.7%

Globe Telecom GLO 800.00 771.00 -3.6%

Manila Water Company MWC 19.18 18.18 -5.2%



Close1/31/11

Close%

Change

Philex Mining Corpora on PX 16.10 15.24 -5.3%

Semirara Mining Corp. SCC 185.00 198.90 7.5%

Nickel Asia Corp. NIKL 16.3 19.54 19.9%



Close1/31/11

Close%

Change

Ayala Land Inc. ALI 16.46 14.70 -10.7%

SM Development Corp. SMDC 9.00 7.90 -12.2%

Robinsons Land Corpora on RLC 16.30 14.02 -14.0%

Megaworld Corp. MEG 2.48 2.10 -15.3%


The Property sector declined by 7.53% this month. Thefall in the sector is a ributed to the rising 10-year T-bondyields and rising in a on expecta ons. Despite this, com -panies plan to expand as they enter massive projects thisyear. MEG just entered in a huge housing program, build -ing 18,673 residen al units catering to 48,000 families.Some of its other projects include developments in Busi -ness Process Outsourcing (BPO) and tourism. Meanwhile,ALI embarked on a joint venture with An o Managementand Investment Corp. in building a bou que hotel calledAbreeza Complex in Davao which will have a commercialmall, several residen al condominium units and BPO fa -cili es over a 10-hectare land. The complex is aimed tocater to the growing number of visitors in the city. RLC,

on the other hand, together with SMDC and ALI, joinedthe bid to acquire the state-owned Food Terminal Inc., afood processing and consolida on center for agriculturalproducts.

The Services sector posted a loss of 3.42%. TEL declinedmarginally as its subsidiary, Smart Communica ons, Inc.,ended the year with 45 M subscribers, 9% higher from2009. Meanwhile, a be er outlook for GLO is seen as itincreases interna onal network capacity by the ac va onof Unity Cable System, a submarine trans-paci c cable

that runs in a span of 9,620 km. connec ng Asia to theUnited States. The company also revealed a hyperspeedbroadband plan that can reach 100 megabytes per second(mbps) using ber-op c technology.

The Mining and Oil sector had the smallest loss this pe-riod as companies under the sector posted gains led byNIKL followed by SCC. The whole sector in general had aremarkable performance as rising copper prices comple-mented hikes in copper shipment reported by PX andseveral other companies. PX in par cular increased ship -ments by 36.17% to P12.95 B in 2010. Meanwhile, SCCexpects up to 7 M metric tons this year in coal output,same as last year. Despite the at output, the companyexpects growth due to rising coal prices brought by themajor ooding in Australia that a ected coal mines. Coal

prices have increased around 15% to 20% from last year.

Monthly Turnover



Equity Markets

Total turnover increased this month by 1.4% withthe Industrial, Property, and Mining and Oil sectorsas the biggest contributors.

Total turnover increased this month by 1.4% with the In-dustrial, Property and Mining and Oil sectors as the biggestcontributors. Even with expected in a on and monetary

ghtening, these sectors were s ll able to place posi vevalues.

Foreign investors became net sellers this month as theytransfer their investments to other markets due to bearishsen ments across EMs. This is coupled with the decline of foreign par cipa on this month to 38.19% compared toan average of 46.73% for the last six months of 2010 and

40% for the en re year.

OutlookNear-term – the next few months will be very challengingfor the Philippine equi es market despite posi ve macroand micro backdrop. Fears of rising in a on will likely staywith us for some me, while con nued improvements inUS economic data will con nue to suck funds out of EMs.Hence, we expect foreign selling to con nue. We prefer toreduce risk exposure and be guided by the direc on of the10-year Philippine t-bond yields.

Long-term – we reiterate our view on a long-term posi veperspec ve regarding the Philippine equi es market giventhat macro fundamentals remain suppor ve. The recentsell-o s present good buying opportuni es once in a onfears are resolved and US equi es become expensive. Inour view, local equi es market weakness is front end load -ed and is likely going to outperform in the 2nd half.



Special Feature

Screening for Oversold and Overbought Stocks

I. Joel Greenbla Inspired ScreenMethodology:

• Inspired by Joel Greenbla ’s “Magic Formula Inves ng”• Stocks are ranked based on 2 factors: return on invested capital (ROIC) and the enterprise mul ple (EV/EBITDA)• Stocks with high ROIC and low EV/EBITDA are considered oversold and most preferred• While stocks with low ROIC and high EV/EBITDA are considered overbought and least preferred• This screen excludes stocks with nega ve ROIC & EV/EBITDA• Given the nature of the 2 factors, the screen excludes Financial stocks• Note that the screen does not discriminate whether the issues to be ltered in are illiquid or not as it only takesinto account ROIC and EV/EBITDA

By: Reuben Mark A. Angeles and Ghia Paula Yuson, Research Analysts First Metro Securi es Brokerage Corp.

Oversold (Most Preferred) - Joel Greenbla : High ROIC and Low EV/EBITDA Rela ve 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 Netwo rk, 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%

Overbought (Least Preferred) - Joel Greenbla : Low ROIC and High EV/EBITDA Rela ve 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%

Transpaci c TBGI Info. Tech P3.73 828 0.14 46.073 -1.32 8.12%

ISM Communica ons ISM Info. Tech P3.60 6,898 0.51 14.880 -9.77 -40.00%

All iance Global Group AGI Holding P11.62 11,2943 1.42 24.217 5.44 152.61%

Ayala Corpora on AC Holding P346.80 168,399 2.00 19.690 -16.43 22.76%

Araneta Proper es, 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%

Source of Data: Bloomberg, Technistock




Special Feature

II. “Intelligent Investor” ScreenMethodology:

• Inspired by inves ng guru Benjamin Graham’s “The Intelligent Investor”• This screen looks at the company’s size, record of earnings & dividends, and valua ons• For oversold and most preferred stocks, the criteria are as follows:

1. Latest FY Sales is greater than P4.5 B2. Earnings per share is greater than zero for each year in the last 5 years*3. Posi ve EPS growth over the last 5 years*4. Dividend per share (DPS) is greater than zero each year in the last 5 years*5. Price divided by average EPS in the last 3 years is less than 15x

6. P/E mes P/BV is less than 22.5**• For overbought and least preferred stocks, the criteria are as follows:

1. Market cap is at least P5 B2. At least 1 nega ve EPS in the last 5 years*3. Nega ve EPS growth over 5 years*4. Price divided by average EPS in the last 3 years has 20% premium to the market mul ple

- market PE as of January 26, 2011 is 12.79x5. P/E mes P/BV has 20% premium to the market mul ple**

- market PE x P/BV as of January 26, 2011 is 29.64x

* Note that the original Intelligent Investor screen was intended for 10 years worth of data. We created a “modi ed” screen since only one stock passed the Intelligent Investor Screen

using 10 years worth of data: RLC.

** The ra onale for mul plying the P/E ra o by the price-to-book ra o is that Graham felt that a low P/E ra o could jus fy a higher price-to-book ra o. Thus he recommended the said

mul ple and let the value not exceed 22.5, which is the product of a P/E ra o of 15 and a P/BV ra o of 1.5. For screening for overbought issues, we lter out stocks with a 20% premium to

the market mul ple to signify if it is overvalued rela ve to the market.

Oversold (Most Preferred) - Intelligent Investor (Benjamin Graham Inspired) Screen Rela ve 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%

Modifed 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 U li es 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%

Oversold (Least Preferred) - Reverse Intelligent Investor (Benjamin Graham Inspired) Screen Rela ve Performance

Company Ticker Sector Price Jan-26-11 Mcap (Pmln) EPS Growth (5-yr) PE TTM PE x PB 3m 12m

Modifed Screen

Manila Electric Co. MER Industrial P272.00 306,618 -11.75 35.412 183.355 20.89% 60.95%

Petron Corpora on PCOR Mining & Oil P14.78 138,564 -15.63 34.550 116.092 118.96% 189.80%





NATIONAL INCOME ACCOUNTS, CONSTANT PRICES (in P millions)2008 2009 2nd Quarter 2010 3rd Quarter 2010

LevelsGrowth

Rate LevelsGrowth

Rate LevelsQuarterly

G.R. Annual G.R. LevelsQuarterly

G.R.Annual

G.R.PRODUCTIONAgri, Fishery and Forestry 259,406 3.2% 259,573 0.1% 57,234 -10.5% -3.2% 57,390 0.3% -2.5%Industry Sector 465,107 5.0% 455,784 -2.0% 136,931 16.6% 16.1% 121,928 -11.0% 9.2%Service Sector 695,459 3.3% 716,621 3.2% 190,592 6.2% 6.7% 187,301 -1.7% 7.7%

EXPENDITUREPersonal Consump on 1,107,569 4.7% 1,149,828 3.8% 300,123 10.8% 4.6% 288,589 -3.8% 4.2%Government Consump on 93,746 3.2% 101,753 8.5% 30,451 5.5% 5.8% 23,813 -21.8% -6.1%Capital Forma on 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: Na onal Sta s cal Coordina on Board

NATIONAL GOVERNMENT CASH OPERATIONS (in P millions)

2008 2009 Oct-10 Nov-10

Levels Growth Rate Levels Growth Rate LevelsMonthly

G.R. Annual G.R LevelsMonthly

G.R. Annual G.R

Revenues 1,134,642 15.9% 1,202,905 6.0% 98,503 7.2% 15.1% 111,535 13.2% 15.8%Tax 932,004 8.5% 1,049,179 12.6% 87,101 5.9% 17.1% 103,357 18.7% 17.6%BIR 711,591 9.2% 778,571 9.4% 63,565 4.3% 15.7% 82,430 29.7% 17.8%BoC 210,524 6.2% 260,248 23.6% 22,577 11.6% 21.7% 19,969 -11.6% 14.1%Others 9,889 8.9% 10,360 4.8% 959 -6.8% 6.4% 958 -0.1% 128.6%Non-Tax 202,488 69.7% 153,601 -24.1% 11,400 17.8% 1.7% 8,178 -28.3% -2.7%

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 De cit) -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)

POWER SALES AND PRODUCTION INDICATORSManila Electric Company Sales (in gigawa -hours)

2008 2009 Dec-10

Annual Levels Growth Rate Annual Levels Growth Rate Levels AnnualG. R. YTD

TOTAL 26,808 2.3% 27,271 1.7% 2,475 3.0% 9.9%Residen al 8,623 -0.3% 8,901 3.2% 753 2.8% 7.1%Commercial 10,482 4.6% 10,796 3.0% 1,007 3.3% 8.2%Industrial 7,563 2.1% 7,439 -1.6% 704 2.1% 15.8%

Source: MERALCO

Recent Economic Indicators



BALANCE OF PAYMENTS (in US millions)

2008 2009 2nd Quarter 2010 3rd Quarter 2010

Levels Growth Rate Levels Growth Rate Levels AnnualG. R.

Levels AnnualG. R.

I. CURRENT ACCOUNT 3,633 49.0% 8,552 135.4% 12193 34.3% 14435 41.3%Balance of Trade -11,725 -90.9% -7,339 37.4% 14639 26.0% 15931 30.1%Balance of Goods -12,885 -53.6% -8,878 31.1% 430 35.6% 88 22.2%

Exports of Goods 48,253 -2.5% 37,510 -22.3% 3105 23.3% 2844 26.3%Import of Goods 61,138 -53.6% 46,388 -24.1% 2675 21.5% 2756 26.4%

Balance of Services 1,160 -48.4% 1,539 32.7% 4327 5.4% 4036 2.7%Exports of Services 9,717 -0.5% 10,101 4.0%Import of Services 8,557 13.8% 8,562 0.1% -203 79.5% 1213 40.4%

Current Transfers & Others 15,247 7.7% 15,960 4.7% 30 30.4% 32 10.3%-233 77.0% 1181 41.4%

II. CAPITAL AND FINANCIAL AC-COUNT -1,802 -151.1% -1,961 -8.8% 115 -86.7% 311 60.3%

Capital Account 53 120.8% 104 96.2% -1116 -685.9% -28 -153.8%Financial Account -1,855 -153.0% -2,065 -11.3% -35 -212.9% -118 -1172.7%

Direct Investments 1,285 307.3% 1,589 23.7% 803 145.5% 1016 75.8%Por olio Investments -3,798 -182.2% 1,449 138.2%Financial Deriva ves -113 60.8% 32 128.3% -327 54.9% -617 -2.3%Other Investments 771 463.7% -5,135 -766.0%

2008 314.9% 3256 48.9%III. NET UNCLASSIFIED ITEMS -1,742 -6.5% -1,296 25.6% 0 0.0% 0 0.0%

-12 97.6% 11 102.8%OVERALL BOP POSITION 89 -99.0% 5,295 5849.4%

Use of Fund Credits 0 0Short-Term 1,508 21642.9% -1,510 -200.1% 595 168.4% 2199 401.6%

Memo Items 2822 48.1% 3437 -3.8%Change in Commercial Banks -1.2 65.7% -2 25.9%

Net Foreign Assets 2,852 378.2% -3,650 -228.0% -1106 28.1% 593 168.2%Basic Balance 3,391 -61.7% 9,921 192.6% 2252 1.2% 2871 50.6%Net Unclassi ed Items as percent -age of Total Trade -1.6 -5.3% -1.5 6.3% -2.3 -131.1% -1.4 60.0%


MONEY SUPPLY (in P millions)

2008 2009 Nov-10 Average Levels Growth Rate Average Levels Growth Rate Levels Annual G.R.

RESERVE MONEY 838,517 13.3% 912,132 8.8% 1,022,240 5.23%

Sources:Net Foreign Asset of the BSP 1,602,362 24.5% 2,100,977 17.7% 2,651,185 29.14%Net Domes c Asset of the BSP -763,845 -46.3% -974,382 -27.6% -1,628,945 50.62%

MONEY SUPPLY MEASURES AND COMPONENTSMoney Supply-1 912,265 12.4% 1,087,407 19.2% 1,262,449 9.96%Money Supply-2 3,164,345 8.0% 3,562,217 12.6% 4,061,344 7.42%

MONEY MULTIPLIER (M2/RM) 3.78 -1.0% 3.91 3.4% 3.97 2.08%



http://slidepdf.com/reader/full/the-market-call-january-2011 23/23

Roberto Juanchito T. DispoDr. Victor A. Abola

Reuben Mark A. AngelesJohann Dale J. Diaz

Rachelle V. FloresJorenz C. Perez

Augusto M. Cosio, Jr.

Executive Vice President, FMICSenior Economist, UA&PResearch Analyst, FMSBCResearch Assistant, UA&PResearch Assistant, UA&PResearch Assistant, UA&PConsultant

CONTRIBUTORS

Views expressed in this newsle er are solely the responsibili es of the authors and do not represent any posi on held by the FMIC and UA&P.

anuary 2011

The Market Call - Capital Markets Research

FMIC d UA&P C i l M k R h

THE MARKET CALL (JANUARY 2011)

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