The
shift to negative interest rates is all the more problematic. Given
persistent sluggish aggregate demand worldwide, a new set of risks is
introduced by penalizing banks for not making new loans. This is the
functional equivalent of promoting another surge of “zombie
lending” — the uneconomic loans made to insolvent Japanese
borrowers in the 1990s. Central banking, having lost its way, is in
crisis. Can the world economy be far behind?—Stephen S. Roach,
former chairman Morgan Stanley Asia and Senior Fellow at Yale
University
In
this issue:
Phisix
6,800: Shocking! BSP Hid Data of OFW Remittances as October and
November Monthly Reveals of CONTRACTIONs! PSE Censors 3Q Performance
of Listed Firms!
-Shocking!
BSP Revamps 2014-5 OFW Remittances Data, Concealed October and
November 2015 Massive Contractions!
-Negative
Numbers Spur PSE to CENSOR 3Q 2015 Performance of Listed Firms as
Philippine NGDP and PSE’s NGDP Goes on DIVERGENT Directions!
-Philippine
Bonds: The Fascist Crony Political Economy and The Escalation of the
Yield Curve Inversions!
-Robinson’s
Land Corp: Leveraging UP on a Vulnerable Topline
-Phisix
6,800: Global Central Banks Talk Up Risk Assets as Philippine Stocks
Approaches Overbought Conditions
Phisix
6,800: Shocking! BSP Hid Data of OFW Remittances as October and
November Monthly Reveals of CONTRACTIONs! PSE Censors 3Q Performance
of Listed Firms!
Shocking!
BSP Revamps 2014-5 OFW Remittances Data, Concealed October and
November 2015 Massive Contractions!
Just
what has been going on with the Philippine central bank, the Bangko
Sentral ng Pilipinas (BSP)?
Have
they been panicking over the state of OFW remittances?
The
BSP disclosed that they have reached their yearend target1:
“Personal remittances from overseas Filipinos (OFs) amounted to
US$2.7 billion in December 2015, posting a 4.9 percent growth
year-on-year. This is the highest monthly level recorded thus far.
Consequently, full-year personal remittances from OFs reached US$28.5
billion, higher by 4.4 percent than the previous year’s level and
exceeding the BSP’s projection of 4 percent for 2015”
That’s
nice unless one sees how the supposed target had been met, and
secondly, how the previous or original numbers had been glossed over
by the current (December) report.
You
see, the numbers for the November data in the December report had
been different from the November report. Here’s the disclosure:
“Personal
remittances from overseas Filipinos (OFs) amounted to US$2.4 billion
in November 2015, representing a year-on-year growth of 3 percent. On
a cumulative basis, personal remittances in January-November 2015
rose by 3.4 percent to US$25.2 billion”2.
Let
us take personal remittances for November 2015: in the November 2015
report, the numbers were US $2.416 billion for the month and $25.25
billion in cumulative. These compared to December 2015 report’s US
$2.06 billion for the month, and $25.7 billion cumulative. The
difference for the monthly data alone was a staggering $356 million!
Because
the headline numbers were different, so should this be reflected on
the growth rates: for the same period based on November report, 3%
and 3.4% for monthly and cumulative, respectively. That’s against a
NEGATIVE 6.2% for the month and 4.4% cumulative!
Gadzooks
huge NEGATIVE numbers!
I
had the initial impression that these were merely one month
‘revisions’. But the BSP hardly makes revisions for OFW
remittances.
So
upon further scrutiny, I
realized that the entire
data
set for the year 2014 to 2015 had been overhauled!
(November
data released January 2015
and December
data released last week February 2015)
To
highlight the difference, let me use the personal and cash remittance
data on a cumulative basis for December 2014 extracted from both
reports.
In
the November report, December 2014 personal and cash remittance were
at $26.97 billion and $24.348 billion, respectively. In the December
report, December 2014 personal and cash remittance were at $ 27.273
and $ 24.628 correspondingly (see blue rectangles above). The
difference amounts to $303 million and $280 or 1.2% a piece.
Yet
once the base or reference numbers changes, everything else changes.
The
critical question is why
the sudden overhaul of the entire 2014 and 2015 data set???!!
(I
haven’t seen any explanation from the BSP’s report)
The
BSP cited that they reached the target. But they also didn’t
mention of the BIG NEGATIVE numbers from the altered data.
It’s
stunning to see that the modified numbers revealed of two consecutive
months where OFW remittances growth rates actually crashed! Yes, read
my lips, remittance output substantially SHRANK!!! (see
red rectangles at the above BSP table)
For
October and November, monthly growth rate for Personal remittances
cratered -4.1% and -6.1% while Cash remittances plummeted by -4.2%
and -6.2%, respectively!!!!
Moreover,
stagnation
in August and September numbers compounded
on the crash. Monthly growth rates for Personal remittances were -.8%
and +1.3% while Cash remittances -.6% and +1.3% correspondingly!
So
in the last 3 out of the 5 months for 2015, OFW
remittance monthly
year on year changes for both personal and cash output exhibited
CONTRACTION!!!!
The
last time remittances showed of growth shrinkage was in November of
2014 were monthly personal and cash remittances posted deficits of
4.5% and 4.4%. Apparently, the November 2014 episode seems to have
paved way for this year’s incredible downturn. I warned about the
spillover risks from November
2014’s remittance decline here.
Yet
to compare with the original
data (see green rectangle in the table above), the only negative
number that surfaced in the monthly change was in August,
specifically -.8% for personal remittance and -.6% for cash
remittance. Two other months, particularly July and October posted
less than 1% growth, namely .5% for both personal and cash remittance
in July and .2% for both categories in October.
This
implies that if the December figures were the accurate measure, then
what the BSP did was to camouflage the crashes of the October and
November figures, in the hope that December data would provide the
necessary enhancements for the yearend! Astounding!
Nonetheless,
what made the BSP hit their annual target was the sudden remarkable
increase in the growth rate of the personal and cash remittances
cumulative at 4.9% each, last December! But
this came about after only a major recalibration of the remittance
numbers for 2014 and 2015!
[As
a side note 5% used to be the low end, look at the charts, now it is
the high end]
Question
is: How much of the yearend increase had been a result of the
juggling of remittance numbers? Could
it be that the 2014 figures have been deliberately suppressed in
order to inflate the 2015 counterparts?
Notice
too the end of the year numbers were hoisted by the huge surge in the
growth rates of March and June 2015. The gains from these months
padded up on the remittance data that essentially cushioned the
erosion during the last 5 of 6 months! (see horizontal orange
ellipses in BSP table above)
Just
to cite the numbers for personal remittances: in March, for the
revised December data, growth rates were 15.5% monthly and 9.4%
cumulative. The original data registered 11% and 5.1%. Original
BSP disclosure here.
In June, for the revised December data, growth rates were 10.5%
monthly and 9.0% cumulative as against the original data 5.8% and
5.3%, original
BSP disclosure here.
Again,
did the BSP wait for the December data in the hope that the numbers
would improve significantly to elevate the yearend tally? In
the apparent failure to meet the BSP’s expectations, did the BSP
panic, thus prompting them to facelift the entire data set for 2014
and 2015 so as to cosmetically embellish the yearend outcome?
Has
the government’s recent floating of an “OFW
crisis”
been a trial balloon or a public conditioning for this?
Yet
even from the cumulative perspective, remittance growth rates, for
both personal and cash in the 2H (specifically from the collapse of
the 4Q), dived to its lowest
level since October 2009!
Additionally,
those revised numbers have
not erased
the inflection point or the law of diminishing returns or diminishing
growth rates for OFW remittances (see orange ellipses)
If
OFW remittances stagnated in Q4, then just how did the government
compute for Household
Final Consumption Expenditure for Q4 2015? (The same question
should apply to the Q3 2015)
HFCE
constant 2000 and NGDP both rose during the said period (upper
window) even when the average monthly growth rate (based on revised
data) of OFW remittances for the quarter decreased.
Previously,
remittance growth rates mirrored the undulations of the NGDP and RGDP
(constant 2000) as shown in the lower window. But for Q4 things
changed. Again, HFCE, which accounted for 72% of the 4Q RGDP grew by
6.9% NGDP and by 6.4% RGDP even as the average monthly (nominal|)
remittance growth rates for the same period shriveled by 1.5%.
Stunning deviations!
Once
again, OFWs have been stripped by government statisticians as
economic heroes!
Said
differently, just where did 6.3% Q4 GDP (5.2% NGDP), as well as, 6.1%
Q3 GDP (4.4% NGDP) emerged from? (see lower window)
Contrary
to consensus thinking, I have been warning that OFW remittances have
not been static or permanently embedded growth numbers and have been
vulnerable to global economic
as well as geopolitical
developments.
Now
my warnings appear to have arrived.
And
again, it would appear that the BSP has employed statistical mirages
in order to beef up the highly symbolic and economic sensitive OFW
remittance numbers.
Unfortunately,
in spite of the Potemkin numbers, a sustained slump in remittances
will show up in the real economy.
So
expect one of the next hot political issues to be the “OFW crisis”.
Of
course, forget
that the reason OFWs exist have been because of the legacy of
consistent government failures, as demonstrated by the slomo boiling
frog collapse of the peso. The current boom bust cycle will only
exacerbate on this.
And
given the considerable data revisions which exposed of the massive
downturn in OFW remittance growth rates in 2H 2015, just
what will happen to the mythical consumer economy?
The
ballyhooed ‘consumer economy’ has in reality has been about the
massive debt financed race to build the supply side predicated on
catering to mainly OFW spending!
Yet
in the face of falling exports, wilting manufacturing, stagnating
agriculture and slumping remittances, just where will the incantation
of “domestic demand” emanate from?
Most
likely from statistical
Sadako!
Negative
Numbers Spur PSE to CENSOR 3Q 2015 Performance of Listed Firms as
Philippine NGDP and PSE’s NGDP Goes on DIVERGENT Directions!
It
appears that the establishment has been getting so desperate to keep
up with façade of the phony boom.
So
they increasingly resort to rampant financial market (stock market,
bonds and currency) pumps, statistical chicanery, flagrant media
spins and information censorship and manipulation
Well
as expected, the Philippine Stock Exchange (PSE) did it again.
Like
in the second quarter, the PSE has CENSORED or blacked out the
aggregate performance of ALL listed companies during the third
quarter from their press
release.
So
in the absence of disclosure, the PSE’s dismal 3Q fundamentals
translated to a virtual VACUUM in mainstream media.
So
what the PSE did was to announce the NINE month performance of the
PSE’s composite members in their monthly outlook (December issue)
WITHOUT the 3Q numbers!
And
to consider that the distribution of PSE monthly outlook have been
restricted to only paid
subscribers, and that the monthly report are technical, and more
importantly, long winded, the likelihood has been that the reach of
audience for the content of such reports have been very limited.
But
why does the PSE want to bury such information? Below is the original
format
The
answers as provided by the PSE3
(bold mine)
-The
total income of listed companies decreased
by 1.8%
year-on-year in the first nine months of 2015. Data from the latest
financial statements submitted by 2481 out of 260 listed companies
showed that their aggregate income totalled P441.40 billion, P8.17
billion lower than the P449.56 billion income recorded in the same
period last year. Out of the 248 reporting listed companies, 179
posted net gains, 68 posted net losses, while one posted zero income.
The decline in overall earnings performance of listed companies was
primarily
brought about by higher foreign exchange losses and significant
decline in metal prices.
-Listed
companies garnered a combined P4.90 trillion in revenues during the
first nine months of 2015, lower
by 0.6%
from their total revenues of P4.93 trillion in the same period last
year
-The
combined net income of companies comprising the PSEi amounted to
P317.61 billion during the first nine months of 2015, 0.7% higher
than their aggregate net income of P315.51 billion in the same period
last year.
-The
combined net income of PSEi companies represented 72.0% of the total
net income of the 248 reporting listed companies, slightly
higher
than its 70.2% share to total income in the same period last year.
-Twenty
nine of the PSEi members registered net profits, with TEL posting the
highest net income for the period at P25.34 billion. SMPH followed
with net profits amounting to P22.87 billion, while SM came in third
with earnings of P19.43 billion. SM posted a 7.0% increase in income
during the first nine months mainly due to higher revenue
contributions of its key business segments.
-Twenty
one
of the thirty PSEi companies posted improved
net income performances during the period with LT Group, Inc. (LTG),
SMPH, Semirara Mining and Power Corporation (SCC), GLO, and PCOR,
posting remarkable increases of 88.7%, 69.9%, 58.8%, 34.4%, and
34.3%, respectively. LTG recorded an income of P4.71 billion driven
by the improved bottomline of its core businesses.
-Meanwhile,
the remaining nine
companies
recorded
decreases
in their net income in the first nine months of 2015 with Bloomberry
Resorts Corporation (BLOOM), Megaworld Corporation (MEG), SMC, Energy
Development Corporation (EDC), and First Gen Corporation (FGEN),
posting contractions of 145.3%, 56.9%, 53.2%, 43.5%, and 25.0%,
respectively. Higher operating costs and expenses associated with the
operation of the Sky Tower and related amenities pulled down BLOOM’s
bottomline.
-Two
out of six sectors posted higher net incomes
for the first nine months led by the Property sector, which
registered the highest growth at 6.4% for the period. The Services
sector followed, with its aggregate net income rising by 4.1%.
Meanwhile, total
profit of companies in the Financials, Holding Firms, Industrial, and
Mining & Oil sectors declined by 0.5%, 0.5%, 2.9%, and 54.1%,
respectively.
-The
net income of companies in the Small, Medium & Emerging Board
(SME) increased by 6.2% to P187.98 million during the first nine
months of 2015 from P177.03 million in the same period last year. The
growth in mobile consumer business pulled up Xurpas Inc.’s (X) net
profit by 19.0%. On the other hand, the net profits of Makati Finance
Corporation (MFIN) and Alterra Capital Partners, Inc. (ALT) fell by
12.5% and 163.2%, respectively
Only
two sectors have now been lifting the profits of the PSE universe as
the majority have begun to underperform. It’s the periphery to the
core in motion. The backlash from inflationary boom has been gnawing
at the core of the bubble industries.
The
PSE notes that aside from metals or commodities, foreign exchange has
signified a key factor in the nine month deterioration.
As
previously admonished4:
(bold original)
For
domestic production, prices of imported production inputs will
also increase.
Rising input costs should put a squeeze on
the profits of producers. And profit margin strains will
mean lesser investments,
which subsequently should extrapolate to lesser
outputs and diminished
jobs and wage improvements.
And lesser production output means HIGHER domestic prices. In short, again whatever gains from the lower peso on OFW, exports, BPOs and or tourism will be mostly neutralized by rising domestic prices overtime.
And again, the ascendant domestic prices have been the effects of higher import prices.
Moreover, in the financial dimension, any USD based liabilities will require MORE peso to service. Once again this adds to the cost side of firms exposed on USD borrowings that will amplify debt servicing onus that may reduce access to credit, thereby, put strains on profits and magnify credit risks.
The
PSE forgets that the profit squeeze has not just been about cost
side, but likewise on the top line. This means that aside from higher
prices on imported consumer goods brought about by the falling peso,
those 10 months of 30%+++ money supply growth (July 2013 to April
2014) that have led to a belated surge in consumer inflation (3%+ for
13 months or from November 2013 to November 2014) have buffeted on
the PSE’s gross revenues or the NGDP.
Curiously
just where has mainstream’s touted double digit earnings growth for
the PSE in 2015 been???
Remember,
the above represents the Nine Month report for 2015.
Again,
missing in the above had been the third quarter performance.
Well,
the likely reason they have been expunged the 3Q from the report can
be seen above
You
see, reporting
of losses may have been disallowed most probably because they are
construed as politically
incorrect.
Revenues and profits for the PSE can only go up! And everything else
outside this premise represents an anomaly or deemed as unreal.
Income
of both PSEi and PSE listed firms were down by a huge 10.66% and
1.68% in the 3Q. NGDP (Gross revenues) of listed firms was down by
-.6% but was slightly up by .46% for PSEi firms. Though
NGDP showed slight improvements for both, income remained
significantly down.
So
essentially, the big income gains of 1Q, which
was a result from the outperformance of select issues, diminished
the declines of the NINE month report.
What
a way to spin the story!
But
haven’t you noticed of the disparity between real and statistical
numbers?
The
Philippine government announced that
3Q GDP grew by 4.4% NGDP or 6.1% (2000) constant/headline GDP,
but the PSE’s NGDP (gross revenues) of all listed firms shriveled
by -.06%!!!
Realize
that the PSE’s NGDP, which accounts for street level accounting
based activities, constitute 51.6% of the survey based statistical
(Nominal or current priced) GDP.
What
this exhibits has been that the PSE’s (street level) numbers and
the Government’s (survey based) numbers seem to
be pointing at DIVERGENT directions!
Government says G-R-O-W-T-H! On the other hand, PSE firms say
S-T-A-G-N-A-T-I-O-N!
So
what we have been witnessing has been a blatant departure from real
developments relative to glorifying headline statistical numbers.
As
I commented on the bowdlerization of the 2Q report5
And
this also demonstrates why statistical GDP has basically little
relevance with actual economic conditions!
Instead
of Gross Domestic Products, GDP should be called Grossly
Deceptive Politics
And yet
those 2Q unpleasant numbers signify as the smoking
gun revelation of the hissing bubble ‘smoke and mirrors’
economy. The 2Q data essentially DEFIES the politically constructed
one way consensus expectations.
And
this shocking reality may have incited the Philippine Stock Exchange
to exorcise, purge, exclude or censor such figures out of existence!
Such that when the PSE reported 1H 2015 performance, 2Q seemed to
have almost existed in a black hole.
Add
3Q to the picture.
Philippine
Bonds: The Fascist Crony Political Economy and The Escalation of the
Yield Curve Inversions!
Given
that the government raised Php 25 billion in fund raising via 5 year
tender last week, which reportedly drew
in “double” the government’s offer from mostly banks due to
“strong demand”, I expected a significant rally on domestic
treasuries this week.
Yet
my expectation was not fulfilled. The rally on the 5 year bonds
turned out to be short lived as 5
year bond yields increased by 37.5 bps to 4.313% at the close of
the week from last week’s 3.938%.
So
the alleged “strong demand” for government “tenders” turned
out to be a dud, as the secondary market sold the same treasuries
(perhaps) right after bidding them up.
More
of the same publicity gimmicks or smokescreens?
Moreover,
I expected the peso to rally hard given that the government announced
that they will raise dollars through “planned
sale of dollar-denominated bonds”. It didn’t. The USD peso rose
by .32% to Php 47.665 this week from Php 47.51 the previous week.
Perhaps, the peso rally may happen when the sale will be formalized
or concluded. There has been no definite schedule announced. Though
it was tipped to be “soon”.
Yet
the government
have “hired eight banks” as their book runners.
Let
me interpose my terse political inquiry on these.
Think
of the banks that have been commissioned to underwrite and sell bonds
in behalf of the government. They are bound to make millions of
dollars in fees and commissions as agents for the government. These
institutions are essentially beholden to the government by virtue of
the latter’s administrative and regulatory controls, the
distribution of economic rent from government activities (such as
book running or underwriting government securities), and most
importantly, as conduits and beneficiaries of financial repression
policies imposed by the government
(e.g. tax agents, intermediaries for the government securities,
credit agents and etc.).
So
do you think that such entities will risk or sacrifice all the
prospective emoluments or economic rent and other privileges by
citing risks from the current activities or by making radical
downside G-R-O-W-T-H projections against the government’s outlook,
or more explicitly, by deviating from the interests of the
government? Do you think that the same financial entities will put
their depositors’ and fiduciary interests ahead of that of the
government?
Do
you think mainstream media, whom are paid for by advertising revenues
from mostly firms owned or attached or affiliated to these
institutions, would publish materials or opinions against them? Do
you think that academic experts, whose schools have been bankrolled
or owned by the same or related institutions, would rail against
their benefactors?
Much
of what one sees as “debates” or “criticism” among media’s
talking heads center on the superficial rather than a thorough
examination of the system. Most of them are fixated on personalities.
And
the centralization, or the particularly, the politicization of system
is what makes everything inherently fragile or vulnerable to a
meltdown.
By
virtue of social policies, resources have virtually been funneled
into vested interest groups affiliated with the government, and to
the government. Such translates to the amassment of systemic
distortions or imbalances.
And
with everyone being told by the government, cronies, and by media
lapdogs, backed by their ‘experts’, that everything has been
hunky dory, these simply extrapolates to the desired sustainment of
the facilitation of such invisible transfers—where, again, such
invisible redistribution or hidden taxation has been intermediated by
these private sector appendages of political institutions.
And
what has been presented in media as economic news has signified as
nothing more than sales
pitches
ornamented with statistical numbers and emblazoned with economic
variables to justify the status quo.
This
by the way HARDLY represents free markets at all. Instead, such are
fascist-corporatist/cronyism political economy guised under the
simulacrum of a market economy.
One
cannot operate a genuine market economy with half of every
transaction being perverted in favor of political agents through
unsound monetary policies. Add to this the mountains of regulatory,
tax and welfare mandates.
The
market economy has been setup as the fall guy once these
maladjustments will unravel.
So
risks or negative news or developments that will serve as obstacles
to the free lunches for the establishment will forcibly be submerged
into oblivion.
Such has been the likely reasons behind the BSP’s December OFW
report and to the PSE’s 2Q and 3Q report.
Unfortunately
for establishment, there is such a thing called the law of scarcity.
And the law of scarcity tells us that the vast misallocation of
resources will have natural limits regardless of what the
establishment yearns for.
The
fundamental lesson: There is no such thing as a free lunch.
And
NO free lunch is being expressed today on the Philippine bond markets
Despite
the sustained interventions to facelift the Philippine treasury
markets, yield
spreads point to a forthcoming significant stress in the domestic
financial system’s liquidity.
As
of Friday, the yield differential between the 10 year bond and 6
month bill has flattened to near zero (4.2 bps). Stealth
interventions pushed the 1 month spread off from a negative spread
last week. But the variance still remains at near zero (47.4 bps)
Yet
the negative yield curve phenomenon has been spreading.
ADB’s
benchmark the 10 year 2 year yield spread remains flat with only 23.8
bps away from zero. The 10yr-3yr spread has been on a second week of
inversion. The 10yr-4yr spread has also inverted! The negative spread
of the curve’s belly, the 10yr-5yr, has only deepened to 49.7 bps!
So
despite constant interventions, negative yield phenomenon prevails.
While
narrowing interest margins may dissuade banks from expanding credit,
this may not be enough. Desperate for profits, banks may seek to
replace thinning margins with volume. But the substitution of volume
with margin means assimilating on more credit risk than necessary.
And this is where things will get aggressively dicey.
And
financial institutions will likely run rings around the regulatory
climate.
Nonetheless,
if
credit conditions will tighten as the yield curve continues to
indicate, then economic weakness can only be expected to permeate
into a larger segment of the economy.
Unlike
the consensus experts who read the economy through painting by the
numbers or by shouting statistics, remember the economy represents a
complex network of interrelated and interdependent agents. Like the
Butterfly effect of the chaos theory, where a flapping of the
butterfly’s wings may ripple into a storm, one’s sector’s
weakness may spread into the rest of the economy, even while the
mainstream remains blind to these.
Yet
such blindness has not been because they are unintelligent, most of
them are incredibly smart, but rather incentives to protect the
status quo and the principal agent problem represent as the primary
causes of such myopia.
The
fantastic
spreading of the negative yield spreads will most likely serve the
key transmission mechanism for the unwinding of the domestic bubble.
In
2009,
the BSP declared the adaption of an accommodative monetary policy,
or the reconfiguration of the economy, by tweaking the yield curve as
a means to promote domestic demand. Now
the basis for the soi-disant “domestic demand” is being reversed
by the market place.
Since
Philippine asset bubbles have emerged and has been nurtured and
fostered on credit expansion from the BSP’s credit easing policies,
then a reversal of monetary accommodation either through policies or
from the marketplace would entail of the taking away or undermining
of the credit pillar. And once such pillar has been disestablished,
then these bubbles will fall like a house of cards.
Robinson’s
Land Corp: Leveraging UP on a Vulnerable Topline
One
of the companies to have reported earnings for December 2015 has been
key property developer and shopping mall operator, Robinsons Land
(RLC)
Curiously,
while RLC reported gross revenues to have jumped 12.5% for its first
3 months (RLC’s fiscal year ends in September) what has been
evident has been real estate sales have significantly underperformed
having been up by a measly 3.99%! Has this signified possible signs
of weakening
property sector in the 4Q?
RLC’s
real estate sales have lagged for two straight years (up .26% in
2014)! (top window)
Yet
shopping mall revenues, which grew by 14.38%, and which was
responsible for the gist of the topline for the period, had largely
been driven by the “contribution
of the new malls namely Robinsons Place Antipolo, Robinsons Place Las
Pinas, Robinsons Place Antique and Galleria Cebu”6.
The company reported that “same
mall rental revenue growth of 7%” and stunningly, “system-wide
occupancy rate was stable at 95% as of December 31, 2015”.
From
the surface, about half of RLC’s mall revenues came from existing
malls and the other half from new malls.
Yet
what defines same mall rental revenue? Has it been increases in
rental rates? Or has it been from the overrides/royalties on the
lessee’s store sales? Or how has these been distributed?
It
matters because even from the government’s GDP,
growth of retail sales moderated in Q4 to 7% from 8.7% in Q3
(current) or 7% from 8.3% (constant 2000). So if retail sales have
been slowing, then most of the top line growth from same mall rents
must have come from rate increases. So if rental rate increases
stall, then RLC’s top line will be in jeopardy or will
substantially fall.
Yet
the addition of 4 malls (11.7%) to its inventory, which now has
reached 38 malls, suggest that the contribution from new malls have
not been optimized (I am speaking here of only malls not actual
retail spaces in sqm for rent). What will happen to its vacancy
rates, which are now at 5%, if diminishing returns affect the new
malls? How will RLC maintain its topline growth conditions and its
profitability?
It’s
the first time I have encountered RLC mention “occupancy rates”
in their December reports since 2009. So I have no idea what their
definition of “stable” means. What I ascribed to as “stunning”
was because the firm’s occupancy rates seem to have now fallen to
US levels.
In
the US, dead malls or the extinguishment of excess capacity over the
years along with improvements in retail sales had brought about
occupancy
rates to rise to 94.2% at the end of 2014. As explained last
week, this could be much lower today.
Yet
if RLC, a major developer and mall operator, has vacancy rates of 5%,
how much more for the rest of the industry, especially for the lesser
known or established contemporaries?
(Yes in my recent mall sorties I can attest to this bulging turnovers
and vacancies)
And
what will happen to the industry vacancy rates, not only if topline
declines, but if the supply side like RLC will continue to add
inventories? RLC
reported a capex of Php 16-17 billion for 2016 up 6.67% to 13%
from 2015’s Php 15 billion.
Here’s
more. What has been striking from the report has been the dearth of
cash flows from populist headline G-R-O-W-T-H! RLC’s receivables
have ballooned by 49% in 2014 and 29.26% in 2015 even as real estate
sales have been dismal. (lower left window) Has this been about late
payments?
And
like her peers, RLC has huge uncollected accounting profits.
Also
because RLC has engaged in massive inventory buildup in 2014 and
investments in 2015, financing of such activities entailed that the
firm’s total debt swelled by 40.36% in 2014 and 69.33% in 2015
(lower right window)!
While
RLC’s topline has become increasingly vulnerable to an economic
downturn, the company has rampantly been levering or gearing up on
expectations that Filipino consumers have hit the national lottery
with no end!
RLC
seem to have been transformed from a conservative (little debt) to a
high roller (heavy debt) firm…all predicated on hope.
When
the impact from those yield curve inversions spread to a broader
sector of the real economy, backed by the sustained fall in the peso,
RLC’s derring-do gambit will put her balance sheet in a parlous
position.
RLC
officials better be right that too the Philippines will be “immune”
to external developments and that strong/robust/resilient “domestic
demand” represents a linear thing. Though they didn’t directly
say these, their balance sheet expresses on such convictions
(demonstrated preference).
Actions
have consequences. Actions premised on wrong expectations can have
nasty consequences.
Phisix
6,800: Global Central Banks Talk Up Risk Assets as Philippine Stocks
Approaches Overbought Conditions
Last
week I wrote7
This
is not to say that actions of central banks will have no effects on
the markets. Rather, present dynamics have shown diminishing returns
in terms of boosting risk assets. Or said differently, central bank
magic has been fading. But it won’t stop them from trying.
Central
bankers ensured that they were on the spotlights last week. They were
there to soothe on the scathed nerves of increasingly apprehensive
casino gamblers.
The
Chinese central bank, the People’s Bank of China (PBoC), opened the
lunar New Year by firming the yuan’s fixing, which according to the
Bloomberg,
“was the most in three months”.
China’s
PBOC Governor Zhou Xiaochuan broke his long silence to declare
support on the yuan by saying “there’s
no basis for continued yuan depreciation”. Chinese officials
stepped on the stimulus rhetoric in stating that they would be
“making
more money available to local governments to fund new infrastructure
projects”. Authorities also floated the plan to lower “the
minimum ratio
of provisions that
banks must set aside for bad loans, a move that would free up
additional cash for lending”.
In
the meantime, China’s January’s lending skyrocketed to a new
record, HALF a trillion USD (3.42
trillion yuan or $525 billion) in a month!!! (see chart
here). This comes even
as January’s external trade has collapsed while December NPLs soar
to milestone highs!
Meanwhile,
ECB’s Mario Draghi reasserted that the European
Central Bank won't hesitate to boost its stimulus in March if it
believes recent financial-market turmoil or lower oil
prices could
weigh further on stubbornly low inflation.
Meanwhile,
Federal
Reserve Bank of St. Louis President James Bullard called
for a delay in interest rate hikes saying that “I regard it as
unwise to continue a normalization strategy in an environment of
declining market-based inflation expectations”. Mr Bullard added,
“The recent sell-off in global equity markets, along with increases
in risk spreads in corporate bond markets, may have made this risk
less of a concern over the medium term…These data-dependent changes
likely give the FOMC more leeway in its normalization program”
In
the meantime, at
the G-20 meeting, Bank of Japan’s
Haruhiko Kuroda appealed to other counterparts “to find ways to
stabilize global financial markets”.
The
OECD
joined the calls for fresh stimulus mostly from government
spending and not just credit easing by central banks. They said that
“Governments in the U.S., Europe and elsewhere should take "urgent"
and "collective" steps to raise their investment spending
and deliver a fresh boost to flagging economic growth…In its most
forceful call to action since the financial crisis, the OECD said the
global economy is suffering from a weakness of demand that can't be
remedied through stimulus from central banks alone.”
Governments
have been panicking over the latest financial market turmoil. And
central banking coordinated opiates haves served to fuel massive
short covering or short squeezes that have led to broad based
resurgence in risk assets.
Most
of Asia’s equity markets went into overdrive with benchmarks
posting gains by 1.5% and above. (see left window)
Japan’s
Nikkei, for instance, soared 6.79% this week after collapsing 11.1%
the other week.
The
intense tug of war between the bears and the bulls has been a
manifestation of developing instability. Sharp volatilities are
hardly signs of bottom. Instead they are most like manifestations of
a denial phase.
The
question is how long before central bank assurances begin to fade?
On
the other hand, those central bank jawboning appears to have worked
less in the favor of Asian currencies. Despite the risk ON, the USD
has risen against most Asian currencies this week.
This
means that the USD has ignored central bank assurances.
Meanwhile,
the Philippines joined the global stock market party.
With
this week’s 2.07% advance, the Philippine Phisix racked up its
third week of substantial gains in four.
This
week’s gains had been broad based. All sectors rose led by the
service (+3.08%) and the industrial sector (+3.06%).
Among
the 30 issue composite index, 25 registered gains while 5 posted
losses.
Market
breadth was heavily tilted towards advancers. The spread in favor of
advancers hit the second highest level for the year.
Peso
volume increased modestly. This week’s average volume at Php 7.232
billion was the second highest for the year.
(Due
to space constraints posting of charts have been limited)
However,
given the degree of advances over the past four weeks, specifically
11.63% from the January 21 2016 lows (or in 21 days), peso volume
should have been way much much much bigger.
For
comparison, the average peso volume during minor bear rallies in 2013
were much larger than today.
In
August 28 to October 23 2013, where the PSEi returned 15.63% the
average peso trading volume during the period was at Php 10.483
billion. In June 25 to July 24 2013, where the PSEi rallied by
17.53%, the average volume was at Php 8.295 billion.
During
the 2016 cycle, from January 21, the average daily volume had been a
puny Php 6.673 billion! This means that current volume accounted for
only 64% of the August-October rally and 80.44% of the June-July
rebound.
As
previously noted, bear markets are characterized
by rallies that have been fast and furious. A volumeless rebound
seems indicative of a lack of conviction.
Yet
at .58%, the rate of the average daily gains seems as decelerating,
perhaps indicating signs of emerging fatigue.
Helped
by several sessions of last minute pumps by Team
Viagra, the PSEi now approaches critical resistance levels and
have emitted signs of overbought conditions.
Yet
current gains of the PSEi seem as hardly being supported by the still
weak peso, the incredible spreading of yield curve inversions on
domestic sovereign bonds and little signs of meaningful improvements
in earnings.
Most
of the
gains have been anchored on HOPE.
____
1
Bangko
Sentral ng Pilipinas Personal
Remittances Exceed 4 Percent Growth Projection for 2015; Full-Year
Level Reaches US$28.5 Billion February 19, 2016
2
Bangko
Sentral ng Pilipinas, Personal
Remittances Sustain Growth in November 2015; Year-to-Date Level
Reaches US$25.2 Billion January 15, 2016
3
Philippine
Stock Exchange, December 2015 Monthly Report VOL. XXII NO. 12
4
see
Phisix
7,050: The Peso in the Face of Crashing Emerging Market and ASEAN
Currencies September 6, 2015
5
See
Phisix
6,900: Smoking Gun Evidence: PSE Listed Firm’s 2Q NGDP Drops By
3%, as Income Dives 7.5%!
December 6, 2015
6
ROBINSONS
LAND CORPORATION AND SUBSIDIARIES SEC
Form 17-Q Philippine Stock Exchange
