July 19 Philippine Stock Market Commentary
A MIXED Picture marks today’s trading activities as foreign investors sold BLUE CHIPS down while local investors bolstered the BROADER market.
THE Phisix fell 6.97 points or .45% as index heavyweights led by the telecom issues weighed on the benchmark index on light volume of P 352.046 million (US$6.29 million). FOUR index heavyweights declined namely, PLDT down .84%, Globe Telecoms lower 1.24%, SM Primeholdings slipped 1.69% and BPI dropped 1.19% against the only heavyweight gainer Ayala Land up 1.88%. San Miguel Local and Foreign shares and Metrobank were unchanged for the day.
Of the 9 issues that comprises more than 75% of the Phisix, San Miguel foreign or B shares, Bank of the Philippine Islands and Metrobank failed to make the top 20 most traded issues, while 5 out of the 8 heavyweights reported net foreign outflows against Ayala Land, BPI and Ayala Corp that posted foreign buying.
Net foreign activity accounted for 49.63% of today’s output while foreign money flows recorded a net outflow which totaled P 10.844 million. Foreign money sold more issues than they acquired.
On the other hand, market breadth was mixed as advancers pounced on decliners 46 to 24 while the sub-indices manifested mostly declines as only the OIL and PROPERTY index defied the bearish bias.
For the SIXTH consecutive session foreign capital flows have been on the NEGATIVE side of the trade which means that foreigners have been SELLING local equities in TEPID volume and has substantially been REDUCING their participation as evidenced by the FOURTH straight session where foreign money’s share of trade accounted for LESS than FIFTY percent.
AVERAGE Trade per share has fallen below the P 160,000 for the THIRD session, the last of which occurred during mid MAY of 2003 when the Market was at the root of last year’s BOOM. This reflects that RETAIL INVESTORS NOW DOMINATE the market, hence the LOW Volume of KEY heavyweights and the NEGATIVE showing of the sub-indices. The 112 issues traded today represents the FIFTH straight session and the 21st in 22 sessions since June 18th ABOVE 100-benchmark which shows that local investors have been pushing up THIRD TIER issues.
Take a look at today’s major winners, the top ten according to the citiseconline.com, are Jardine Davies** (+49.3%), Fil Hispano** (+46.18%), MRC Allied** (+40%), Macroasia Corp (+25.28%), Philippine Telephone and Telegraph (+21.73%), House of Investments** (+21.62%), Alcorn Petroleum (+20%), Southeast Asian Cement (+15%), Ever-Gotesco Resources (+14.81%) and DM Consunji (+13.69%), all of the above can be classified as third liners.
** volume below P 200,000.
Looking at the region, as of this writing only the South Korean Bourse has made a major upside move while the rest of ASIA are likewise trading MIXED. SEVEN of the 15 bourses are lower and except for the KOSPI, the rest of the region does not have more than a 1% move in either direction. In other words the REGIONAL BOURSES like the Philippines are undergoing CONSOLIDATION.
Monday, July 19, 2004
Sunday, July 18, 2004
Dueling Analysts on PLTL: Bullish Mr. BearBull, Bearish Random Walker
Here are two articles by high profile analysts engaging in a Piltel 'Bull-Bear' debate...
******
A stock with certain growth potential
Posted: 0:43 AM
Jul. 13, 2004
Ron Nathan
Inquirer News Service
NOTHING of importance has happened in the stock market this week, here or abroad, so I will write about a company instead.
My last recommendation was Petron Corp. at P1.80 and allowing for the 20-centavo dividend, anyone who bought it almost doubled his money.
Before that was Philippine Long Distance Telephone Co. (PLDT), which has risen to more than 5.5 times my original price of P226.
The first was on the basis of a guaranteed 11-percent return; the second, purely on the chart.
There were no fundamentals, but the technical indicators suggested minimal downside risk and large potential recovery.
Now I have a similar pattern, connected to the last stock, only this time with compelling fundamentals as well.
The stock is PLDT affiliate Pilipino Telephone Co. (Piltel), which was issued originally at P20 and went subsequently to a high of P44 before biting the dust.
After rising from a low of 28 centavos very rapidly, the shares have moved within a narrow range of P1.60 to P1.88 for the past four months.
Suddenly, just over a week ago, the price surged to P2 on unusually high volume of 43 million shares.
This constitutes a breakout and bearing in mind the length and narrow width of the base, a short-term target price of P2.55 looks likely. There should be good support at P1.88 so the current buying price of P1.94 has little downside risk.
In March, the PLDT group set in motion a series of events that will eventually make Piltel a very profitable and valuable company.
At the end of the day, PLDT's wholly owned Smart Communications will be both the majority owner (with a 92-percent stake) and biggest creditor (69 percent of debts).
Smart decided to acquire its equity and debt holdings in Piltel (stock symbol: PLTL) in order to access the latter's huge base of deferred tax assets, thereby reducing its own tax burden.
Management said that the only way to accomplish this is by revising the revenue-sharing agreement between Smart and PLTL.
The new split has not yet been disclosed, but from the current 50:50, I believe that it will be changed to 85:15 in favor of PLTL.
By shifting more revenue into PLTL, Smart will substantially reduce the tax it has to pay for its own account. At the same time, the profits of PLTL will surge.
For example, if we assume P15 billion in net cellular revenues for next year, the 35 percent difference between the old and new sharing schemes will result in P5.25 billion worth of additional revenue for PLTL. Because it has huge deferred tax assets, nearly all of the P5.25 billion will flow into the company's bottom line.
Thus, even with an expanded capital base of 11.77 billion shares, the 2005 earnings per share should be at least 50 centavos. Minority shareholders should therefore take the impending dilution in its stride because the company's recovery will accelerate rapidly in the coming months and the stock should follow suit.
Meanwhile, how high PLTL can go is anybody's guess. Assuming, an undemanding price-earnings multiple of 6, the shares should be worth at least P3.
Given its negative equity of over P22 billion, the company is unlikely to declare cash dividends before 2011.
On the other hand, the negative equity can easily be wiped out in four or five years, by which time, earnings per share should comfortably exceed P1.
Management has admitted that a 50:50 sharing is not fair to PLTL because it does not affect the true profitability of the company.
On the other hand, an 85:15 split would be unfair to Smart in the long run because it is the one that is making all the investments for the cellular infrastructure upon which PLTL is dependent.
After the deferred tax assets are eventually depleted, I expect that the revenue sharing will be shifted again and that a compromise would be reached at around 60:40.
This will allow substantial profits to remain with PLTL and at the same time allow Smart to earn a good return on its investments.
Smart will always have the best interests of PLTL in mind. As mobile penetration reaches the lower income groups, Piltel's Talk 'N Text will be the brand of choice.
Already, Piltel's subscriber base is foreseeable future, and so the firm will remain profitable in the long term.
PLTL, therefore, represents a near-term recovery story as well as a play on the industry's substantial future growth.
It was noticeable that this week most of the advertising was on Talk 'N Text instead of Smart.
What will happen to the eight percent still in the hands of the public? It is quite possible that Smart will let it be, although it slightly reduces the maximum advantage it can get from Piltel's tax losses of P50 billion.
It might decide to bid when PLTL has paid off all its debt to Smart and redeemed its outstanding preferred shares.
The only problem is that by then the shares will be worth much more, and eventually large dividends could be paid out.
This is an ideal stock for pension funds, insurance companies, bank trustee departments and anyone who does not need income but would rather hold a stock whose inherent value is steadily accumulating.
I do not expect the original buyers to see their money back (anyway they probably committed suicide years ago,) but I can envisage a price of P6, five years from now.
My 85:15 split is admittedly a guess, but Smart will announce the actual figure within the next month. If I am anywhere close, analysts will be doing their calculation and extrapolations, and foreign brokers might then get interested as the telecom sector is their favorite.
If this should happen, my short-term target could be comfortably exceeded.
****
A Smart exit strategy from Piltel
Noel G. Reyes
Random Walker
Businessworld, July 14, 2004
An astute reader made some keen observations about last week's column, "Why Smart and Piltel cannot wed," and I must admit, he pointed out a number of flaws in the 1,000-word column that I had to rush off in less an hour last week.
At any rate, the reader (name withheld on request) added in his e-mail: "I hope I've made sense. Obviously, I'm bullish on the stock [of Piltel]. And I have to admit that I do own a small number of Piltel shares. But I believe my objectivity is intact and that my optimism is well-placed. Of course, I may be wrong so please comment on any error made."
So now I am taking him up on that last request for a comment on his comments.
He makes three major points:
first, on the planned change in revenue sharing between Smart Communications, Inc. and Pilipino Telephone Co. (Piltel);
second, on any potential leakage of these revenues to the minority shareholders of Piltel; and
third, on whether or not Piltel can be a viable stand-alone business even after its tax assets will have been depleted in two years.
On the first point, he wrote:
"As you mentioned, the revenue-sharing agreement between Smart and Piltel will need to be revised in order to take advantage of the latter's deferred tax assets. Assuming PhP17 billion in cellular revenues for 2005 and a shift in the revenue split from 50:50 to 80:20, Piltel stands to earn PhP5.1 billion more next year under the new sharing scheme as compared to the old one. Practically all of this will flow into the company's bottom line and is equivalent to 43 centavos per share based on the enlarged number of shares outstanding (PhP5.1 billion/11.77 billion shares). Thus, even with the huge dilution minority shareholders will experience, they will still come out far ahead vis-a-vis their position if the debt swap/Smart buy-in had not occurred."
A possible weakness in his reasoning here is that the assumed PhP17 billion in revenues for 2005 takes for granted that Piltel's revenues would continue to grow at a 30% to 35% clip this year and next year, the same as the past two year's average growth. On the other hand, a mere 30% growth in revenues this year would not be enough for Piltel to take advantage of the PhP10.2 billion in deferred tax assets, otherwise known as net operating loss carryover (NOLCO), that would be expiring this year. Another PhP3.3 billion worth of NOLCO would be expiring next year.
The tax benefits of both, at the statutory 32% corporate tax rate, are equivalent to PhP4.32 billion -- this represents the amount of tax savings available to Piltel if it had enough taxable income to cover it.
In other words, if Piltel and Smart were to rely solely on the existing Facilities Service Agreement signed in April 2000 (amended in December 2003), then part of the rationale for Smart's purchase of a major portion of Piltel's debt and 85% of its equity would collapse like a house of cards.
The agreement covers Piltel's use of Smart's GSM service network and facilities, which service it markets under the Talk 'N Text brand. For such usage, Piltel pays Smart a combination of fixed and variable fees. These fees last year amounted to PhP1.4 billion for interconnection and PhP4.25 billion as Smart's direct share in Piltel's GSM revenues; altogether, both fees came to almost 55% of Piltel's subscriber revenues of PhP9.77 billion.
Even if the terms of these fees were dropped to zero percent, meaning all PhP5.3 billion of last year's fees would immediately drop to Piltel's bottom line, this won't be enough to take advantage of this year's expiring NOLCO of PhP10.2 billion.
Since it would be a total waste of available resources not to take advantage of that huge NOLCO, Smart obviously needs to channel some of its own revenues into Piltel this year. This is where a new marketing agreement could come into play.
On this account, Napoleon Nazareno, president of Smart and its parent, Philippine Long Distance Telephone Co. (PLDT), has some interesting words. "We haven't really done the level by which we would allocate the value to Piltel to take advantage of the NOLCO," he was quoted as saying. "So I am not sure if (Piltel's share price of) PhP1.90 correctly factored in the potential of Piltel."
Meanwhile, the reader made a second point:
"As for the 8% leakage, it won't necessarily materialize or, if ever, it will happen more than a few years from now. Dividends on the common shares can be delayed for a number of reasons. The most basic hurdle is that Piltel does not have retained earnings out of which to declare dividends. Since it has an accumulated deficit of over PhP50 billion, it will take six or seven years (even with the revised revenue sharing deal) before it turns positive again. Secondly, to avoid the leakage, management will pay off its debts first. Since Smart is now Piltel's biggest creditor, most of the cash used to pay down debt will accrue to the mother company. Third, Piltel still has 4.9 million Series J preferred shares outstanding all held by PLDT (not sold to Smart) which has a dividend of PhP90 each per annum and a redemption (due starting 2015) price of PhP1,000 per. Thus, on the Series J alone, Piltel can plow back nearly PhP12 billion back to PLDT."
This was an error on my part. It is true that Piltel, or any company for that matter, cannot distribute profits to its shareholders while it maintains a capital deficit in its books. In Piltel's case, it has a deficit of PhP59 billion as of last year in its capital account.
On the other point, that Smart could get out its cash flow out of Piltel through loan repayments, that is so brilliant -- the kind of thinking that I have come to expect of the people in Smart and PLDT.
Another outlet for the channeled cash flow from Piltel into the books of Smart and PLDT would be the Series J preferred shares issued by Piltel to PLDT. These shares have an annual cumulative divided of PhP90 per share.
Furthermore, Piltel may start redeeming these shares at issue value plus any unpaid dividends on the fifteenth year after issue (2015) or even earlier, upon "full repayment of the restructured indebtedness of Piltel "
Still, no matter how ingeniously these cash flow outlets and conduits tie in together, they all hinge on whether Piltel can generate enough revenues and cash flows.
"Finally, on whether or not Piltel can stand on its own two feet after the deferred tax assets are all used up, we believe that it can. Even without the change in the revenue-sharing pact, Piltel already posted a profit in Q1. Admittedly it was small at PhP8 million, but the new revenue split will accelerate the company's recovery and allow it to pay off its debts. Furthermore, the firm's subscriber base is rising faster than the industry average. This may be due to the fact that mobile penetration is reaching the lower income groups more and more. Since Piltel is focused on the low end of the market, it will most likely reap a big portion of the industry's future growth. Thus, once its debts have come down to a reasonable level, Piltel can remain profitable even without the benefit of its deferred tax assets. Some people, meanwhile, fear that the revenue-sharing scheme will revert to 50:50 once the deferred tax assets are used up. Management, however, has indicated that it will not flip-flop on this issue."
Piltel does not have much time before the prince possibly turns back into a frog. Its deferred tax assets would run out in 2006. After that, it would have to be valued on its own, mainly on the merits of its single brand, Talk 'N Text.
With this brand's focus on the low-income segment of the subscriber spectrum, Piltel needs to be, and remain, a low-cost producer.
With only one employee, the company obviously doesn't have much elbow room to cut costs further.
Its biggest costs, on the other hand, are the interconnection and revenue-sharing fees it pays to its major shareholder, Smart.
Piltel, thus, has no choice, but to live and die on the direct benevolence of Smart when it comes to these fees.
And that, to me, represents a considerable risk.
******
A stock with certain growth potential
Posted: 0:43 AM
Jul. 13, 2004
Ron Nathan
Inquirer News Service
NOTHING of importance has happened in the stock market this week, here or abroad, so I will write about a company instead.
My last recommendation was Petron Corp. at P1.80 and allowing for the 20-centavo dividend, anyone who bought it almost doubled his money.
Before that was Philippine Long Distance Telephone Co. (PLDT), which has risen to more than 5.5 times my original price of P226.
The first was on the basis of a guaranteed 11-percent return; the second, purely on the chart.
There were no fundamentals, but the technical indicators suggested minimal downside risk and large potential recovery.
Now I have a similar pattern, connected to the last stock, only this time with compelling fundamentals as well.
The stock is PLDT affiliate Pilipino Telephone Co. (Piltel), which was issued originally at P20 and went subsequently to a high of P44 before biting the dust.
After rising from a low of 28 centavos very rapidly, the shares have moved within a narrow range of P1.60 to P1.88 for the past four months.
Suddenly, just over a week ago, the price surged to P2 on unusually high volume of 43 million shares.
This constitutes a breakout and bearing in mind the length and narrow width of the base, a short-term target price of P2.55 looks likely. There should be good support at P1.88 so the current buying price of P1.94 has little downside risk.
In March, the PLDT group set in motion a series of events that will eventually make Piltel a very profitable and valuable company.
At the end of the day, PLDT's wholly owned Smart Communications will be both the majority owner (with a 92-percent stake) and biggest creditor (69 percent of debts).
Smart decided to acquire its equity and debt holdings in Piltel (stock symbol: PLTL) in order to access the latter's huge base of deferred tax assets, thereby reducing its own tax burden.
Management said that the only way to accomplish this is by revising the revenue-sharing agreement between Smart and PLTL.
The new split has not yet been disclosed, but from the current 50:50, I believe that it will be changed to 85:15 in favor of PLTL.
By shifting more revenue into PLTL, Smart will substantially reduce the tax it has to pay for its own account. At the same time, the profits of PLTL will surge.
For example, if we assume P15 billion in net cellular revenues for next year, the 35 percent difference between the old and new sharing schemes will result in P5.25 billion worth of additional revenue for PLTL. Because it has huge deferred tax assets, nearly all of the P5.25 billion will flow into the company's bottom line.
Thus, even with an expanded capital base of 11.77 billion shares, the 2005 earnings per share should be at least 50 centavos. Minority shareholders should therefore take the impending dilution in its stride because the company's recovery will accelerate rapidly in the coming months and the stock should follow suit.
Meanwhile, how high PLTL can go is anybody's guess. Assuming, an undemanding price-earnings multiple of 6, the shares should be worth at least P3.
Given its negative equity of over P22 billion, the company is unlikely to declare cash dividends before 2011.
On the other hand, the negative equity can easily be wiped out in four or five years, by which time, earnings per share should comfortably exceed P1.
Management has admitted that a 50:50 sharing is not fair to PLTL because it does not affect the true profitability of the company.
On the other hand, an 85:15 split would be unfair to Smart in the long run because it is the one that is making all the investments for the cellular infrastructure upon which PLTL is dependent.
After the deferred tax assets are eventually depleted, I expect that the revenue sharing will be shifted again and that a compromise would be reached at around 60:40.
This will allow substantial profits to remain with PLTL and at the same time allow Smart to earn a good return on its investments.
Smart will always have the best interests of PLTL in mind. As mobile penetration reaches the lower income groups, Piltel's Talk 'N Text will be the brand of choice.
Already, Piltel's subscriber base is foreseeable future, and so the firm will remain profitable in the long term.
PLTL, therefore, represents a near-term recovery story as well as a play on the industry's substantial future growth.
It was noticeable that this week most of the advertising was on Talk 'N Text instead of Smart.
What will happen to the eight percent still in the hands of the public? It is quite possible that Smart will let it be, although it slightly reduces the maximum advantage it can get from Piltel's tax losses of P50 billion.
It might decide to bid when PLTL has paid off all its debt to Smart and redeemed its outstanding preferred shares.
The only problem is that by then the shares will be worth much more, and eventually large dividends could be paid out.
This is an ideal stock for pension funds, insurance companies, bank trustee departments and anyone who does not need income but would rather hold a stock whose inherent value is steadily accumulating.
I do not expect the original buyers to see their money back (anyway they probably committed suicide years ago,) but I can envisage a price of P6, five years from now.
My 85:15 split is admittedly a guess, but Smart will announce the actual figure within the next month. If I am anywhere close, analysts will be doing their calculation and extrapolations, and foreign brokers might then get interested as the telecom sector is their favorite.
If this should happen, my short-term target could be comfortably exceeded.
****
A Smart exit strategy from Piltel
Noel G. Reyes
Random Walker
Businessworld, July 14, 2004
An astute reader made some keen observations about last week's column, "Why Smart and Piltel cannot wed," and I must admit, he pointed out a number of flaws in the 1,000-word column that I had to rush off in less an hour last week.
At any rate, the reader (name withheld on request) added in his e-mail: "I hope I've made sense. Obviously, I'm bullish on the stock [of Piltel]. And I have to admit that I do own a small number of Piltel shares. But I believe my objectivity is intact and that my optimism is well-placed. Of course, I may be wrong so please comment on any error made."
So now I am taking him up on that last request for a comment on his comments.
He makes three major points:
first, on the planned change in revenue sharing between Smart Communications, Inc. and Pilipino Telephone Co. (Piltel);
second, on any potential leakage of these revenues to the minority shareholders of Piltel; and
third, on whether or not Piltel can be a viable stand-alone business even after its tax assets will have been depleted in two years.
On the first point, he wrote:
"As you mentioned, the revenue-sharing agreement between Smart and Piltel will need to be revised in order to take advantage of the latter's deferred tax assets. Assuming PhP17 billion in cellular revenues for 2005 and a shift in the revenue split from 50:50 to 80:20, Piltel stands to earn PhP5.1 billion more next year under the new sharing scheme as compared to the old one. Practically all of this will flow into the company's bottom line and is equivalent to 43 centavos per share based on the enlarged number of shares outstanding (PhP5.1 billion/11.77 billion shares). Thus, even with the huge dilution minority shareholders will experience, they will still come out far ahead vis-a-vis their position if the debt swap/Smart buy-in had not occurred."
A possible weakness in his reasoning here is that the assumed PhP17 billion in revenues for 2005 takes for granted that Piltel's revenues would continue to grow at a 30% to 35% clip this year and next year, the same as the past two year's average growth. On the other hand, a mere 30% growth in revenues this year would not be enough for Piltel to take advantage of the PhP10.2 billion in deferred tax assets, otherwise known as net operating loss carryover (NOLCO), that would be expiring this year. Another PhP3.3 billion worth of NOLCO would be expiring next year.
The tax benefits of both, at the statutory 32% corporate tax rate, are equivalent to PhP4.32 billion -- this represents the amount of tax savings available to Piltel if it had enough taxable income to cover it.
In other words, if Piltel and Smart were to rely solely on the existing Facilities Service Agreement signed in April 2000 (amended in December 2003), then part of the rationale for Smart's purchase of a major portion of Piltel's debt and 85% of its equity would collapse like a house of cards.
The agreement covers Piltel's use of Smart's GSM service network and facilities, which service it markets under the Talk 'N Text brand. For such usage, Piltel pays Smart a combination of fixed and variable fees. These fees last year amounted to PhP1.4 billion for interconnection and PhP4.25 billion as Smart's direct share in Piltel's GSM revenues; altogether, both fees came to almost 55% of Piltel's subscriber revenues of PhP9.77 billion.
Even if the terms of these fees were dropped to zero percent, meaning all PhP5.3 billion of last year's fees would immediately drop to Piltel's bottom line, this won't be enough to take advantage of this year's expiring NOLCO of PhP10.2 billion.
Since it would be a total waste of available resources not to take advantage of that huge NOLCO, Smart obviously needs to channel some of its own revenues into Piltel this year. This is where a new marketing agreement could come into play.
On this account, Napoleon Nazareno, president of Smart and its parent, Philippine Long Distance Telephone Co. (PLDT), has some interesting words. "We haven't really done the level by which we would allocate the value to Piltel to take advantage of the NOLCO," he was quoted as saying. "So I am not sure if (Piltel's share price of) PhP1.90 correctly factored in the potential of Piltel."
Meanwhile, the reader made a second point:
"As for the 8% leakage, it won't necessarily materialize or, if ever, it will happen more than a few years from now. Dividends on the common shares can be delayed for a number of reasons. The most basic hurdle is that Piltel does not have retained earnings out of which to declare dividends. Since it has an accumulated deficit of over PhP50 billion, it will take six or seven years (even with the revised revenue sharing deal) before it turns positive again. Secondly, to avoid the leakage, management will pay off its debts first. Since Smart is now Piltel's biggest creditor, most of the cash used to pay down debt will accrue to the mother company. Third, Piltel still has 4.9 million Series J preferred shares outstanding all held by PLDT (not sold to Smart) which has a dividend of PhP90 each per annum and a redemption (due starting 2015) price of PhP1,000 per. Thus, on the Series J alone, Piltel can plow back nearly PhP12 billion back to PLDT."
This was an error on my part. It is true that Piltel, or any company for that matter, cannot distribute profits to its shareholders while it maintains a capital deficit in its books. In Piltel's case, it has a deficit of PhP59 billion as of last year in its capital account.
On the other point, that Smart could get out its cash flow out of Piltel through loan repayments, that is so brilliant -- the kind of thinking that I have come to expect of the people in Smart and PLDT.
Another outlet for the channeled cash flow from Piltel into the books of Smart and PLDT would be the Series J preferred shares issued by Piltel to PLDT. These shares have an annual cumulative divided of PhP90 per share.
Furthermore, Piltel may start redeeming these shares at issue value plus any unpaid dividends on the fifteenth year after issue (2015) or even earlier, upon "full repayment of the restructured indebtedness of Piltel "
Still, no matter how ingeniously these cash flow outlets and conduits tie in together, they all hinge on whether Piltel can generate enough revenues and cash flows.
"Finally, on whether or not Piltel can stand on its own two feet after the deferred tax assets are all used up, we believe that it can. Even without the change in the revenue-sharing pact, Piltel already posted a profit in Q1. Admittedly it was small at PhP8 million, but the new revenue split will accelerate the company's recovery and allow it to pay off its debts. Furthermore, the firm's subscriber base is rising faster than the industry average. This may be due to the fact that mobile penetration is reaching the lower income groups more and more. Since Piltel is focused on the low end of the market, it will most likely reap a big portion of the industry's future growth. Thus, once its debts have come down to a reasonable level, Piltel can remain profitable even without the benefit of its deferred tax assets. Some people, meanwhile, fear that the revenue-sharing scheme will revert to 50:50 once the deferred tax assets are used up. Management, however, has indicated that it will not flip-flop on this issue."
Piltel does not have much time before the prince possibly turns back into a frog. Its deferred tax assets would run out in 2006. After that, it would have to be valued on its own, mainly on the merits of its single brand, Talk 'N Text.
With this brand's focus on the low-income segment of the subscriber spectrum, Piltel needs to be, and remain, a low-cost producer.
With only one employee, the company obviously doesn't have much elbow room to cut costs further.
Its biggest costs, on the other hand, are the interconnection and revenue-sharing fees it pays to its major shareholder, Smart.
Piltel, thus, has no choice, but to live and die on the direct benevolence of Smart when it comes to these fees.
And that, to me, represents a considerable risk.
Friday, July 16, 2004
July 16 Friday Philippine Stock Market Review
July 16 Friday Philippine Stock Market Review
After drifting lower for most of the day the Philippine benchmark, the Phisix eked out a paltry 1.25 points or .08% gain to break its 6th consecutive sessions of decline on very light volume. Peso Volume turnover amounted to a puny P 305.889 million (US $ 5.42 million). Local investors dominated trading activities for the third straight session, and accounted for 53.64% share of the aggregate output.
Among the index heavyweights, Globe Telecoms inched higher by .62% together with Bank of the Philippine Islands up by 1.2% against a sole decliner, SM Prime down 1.66%, which led to the miniscule rise of the key index. Ayala Land, San Miguel local and foreign shares, Metrobank, Ayala Corp and PLDT were unchanged.
Because local investors dominated trading activities while foreign investors either sold out (net outflow totaled P 8.395 million) or stayed on sidelines, four of the 9 heavyweights were off the list of the 20 most traded issues, a rare circumstance. And in lieu of them were companies from the mining sector and other second tier issues.
The Mining Index, after 4 straight sessions of decline, soared by 9.89% to command the day’s biggest advance on frenetic buying on index lightweights such as Manila Mining local (skyrocketed by 44.4%) and foreign shares (flew by 36.84%), Atlas Mining (surged 20%) and Abra Mining (rose 12.5%). Index heavyweights Philex Mining climbed a modest 6.25% for its local shares while its foreign shares accounted for a moderate growth of 5.71% while the largest market cap Lepanto shares plodded along up 2.6% for the local shares and 2.04% for the B or foreign shares. Apex Mining was also today’s top winner with a frothy 50% advance for its ‘A’ shares while its foreign shares was likewise higher by a bubbly 31.81%.
The Prudent Investor is unaware of the reason that prompted the buying frenzy although one can expect ‘stories’ on the press most likely about ‘deals’ to rehabilitate the mining operations, or foreign financing/buyouts or reactivation or reopening of its mining pits for commercial operations. Cash generating mining issues were largely discarded in place of ‘deal-based speculations’, these highly reflect on the quality of the mindset of the typical local investor.
The Oil index, another extractive industry, posted a hefty advance of 8.27%, the second best growth among the industry indices, mostly from the rebound of the index heavyweight Oriental Petroleum whose local and foreign shares were both up 13.33%. After five sessions of sharp declines today’s uptick could mostly likely be construed as a technical rebound.
As we previously have noted, the number of issues traded exceeding the 100 threshold represents bullishness from local investors. Market sentiment despite the slight increase of the Phisix, showed dominant optimistic local punters, as advancers thrashed decliners 50 to 27. Industry indices were mostly up except for the Phi-All index, weighed down by the decline of Manulife the index’s largest component, and the Property Index.
The light volume, the broadening breadth, the declining foreign activities, and the stonewalling of the index heavyweights, as well as its diminishing trade activities manifest that local investors, whose underlying psychological framework is bullish, have been rotating the buying binge across the board while eluding the heavyweights, which would require substantial volume to boost up. In other words, the fundamentals behind today’s market activities vastly differ from the trading environment of last year. Foreign investors were the growth locomotive responsible for the substantial climb of the Phisix in 2003, this was largely brought about by the accommodative global monetary policies adopted by the world’s central banks. In today’s tightening climate, foreign investors have scaled down on their activities prompting the locals to pursue with its newfound optimism arising from the recently concluded elections. But unfortunately, due to the shallow breadth of local investors one can expect trading activities to be limited to the second and third tier issues. Hence, a different strategy or approach is required. More on this in our weekly newsletter.
After drifting lower for most of the day the Philippine benchmark, the Phisix eked out a paltry 1.25 points or .08% gain to break its 6th consecutive sessions of decline on very light volume. Peso Volume turnover amounted to a puny P 305.889 million (US $ 5.42 million). Local investors dominated trading activities for the third straight session, and accounted for 53.64% share of the aggregate output.
Among the index heavyweights, Globe Telecoms inched higher by .62% together with Bank of the Philippine Islands up by 1.2% against a sole decliner, SM Prime down 1.66%, which led to the miniscule rise of the key index. Ayala Land, San Miguel local and foreign shares, Metrobank, Ayala Corp and PLDT were unchanged.
Because local investors dominated trading activities while foreign investors either sold out (net outflow totaled P 8.395 million) or stayed on sidelines, four of the 9 heavyweights were off the list of the 20 most traded issues, a rare circumstance. And in lieu of them were companies from the mining sector and other second tier issues.
The Mining Index, after 4 straight sessions of decline, soared by 9.89% to command the day’s biggest advance on frenetic buying on index lightweights such as Manila Mining local (skyrocketed by 44.4%) and foreign shares (flew by 36.84%), Atlas Mining (surged 20%) and Abra Mining (rose 12.5%). Index heavyweights Philex Mining climbed a modest 6.25% for its local shares while its foreign shares accounted for a moderate growth of 5.71% while the largest market cap Lepanto shares plodded along up 2.6% for the local shares and 2.04% for the B or foreign shares. Apex Mining was also today’s top winner with a frothy 50% advance for its ‘A’ shares while its foreign shares was likewise higher by a bubbly 31.81%.
The Prudent Investor is unaware of the reason that prompted the buying frenzy although one can expect ‘stories’ on the press most likely about ‘deals’ to rehabilitate the mining operations, or foreign financing/buyouts or reactivation or reopening of its mining pits for commercial operations. Cash generating mining issues were largely discarded in place of ‘deal-based speculations’, these highly reflect on the quality of the mindset of the typical local investor.
The Oil index, another extractive industry, posted a hefty advance of 8.27%, the second best growth among the industry indices, mostly from the rebound of the index heavyweight Oriental Petroleum whose local and foreign shares were both up 13.33%. After five sessions of sharp declines today’s uptick could mostly likely be construed as a technical rebound.
As we previously have noted, the number of issues traded exceeding the 100 threshold represents bullishness from local investors. Market sentiment despite the slight increase of the Phisix, showed dominant optimistic local punters, as advancers thrashed decliners 50 to 27. Industry indices were mostly up except for the Phi-All index, weighed down by the decline of Manulife the index’s largest component, and the Property Index.
The light volume, the broadening breadth, the declining foreign activities, and the stonewalling of the index heavyweights, as well as its diminishing trade activities manifest that local investors, whose underlying psychological framework is bullish, have been rotating the buying binge across the board while eluding the heavyweights, which would require substantial volume to boost up. In other words, the fundamentals behind today’s market activities vastly differ from the trading environment of last year. Foreign investors were the growth locomotive responsible for the substantial climb of the Phisix in 2003, this was largely brought about by the accommodative global monetary policies adopted by the world’s central banks. In today’s tightening climate, foreign investors have scaled down on their activities prompting the locals to pursue with its newfound optimism arising from the recently concluded elections. But unfortunately, due to the shallow breadth of local investors one can expect trading activities to be limited to the second and third tier issues. Hence, a different strategy or approach is required. More on this in our weekly newsletter.
Wednesday, July 14, 2004
Tanzanian President Mbaka:A better way to help the least developed countries
A better way to help the least developed countries
Benjamin William Mkapa IHT Tuesday, July 13, 2004
DODOMA, Tanzania. As a leader of a least developed country, I speak from experience when I say that poverty is too complex a phenomenon, and the strategies for fighting it too diverse and dependent on local circumstances, for there to be one silver bullet in the war on poverty.
We have learned the hard way over the years. We have experimented with all kinds of ideas.
Yet a report recently released by the World Economic Forum shows that barely a third of what should have been done by now to ensure the world meets its goals to fight poverty, hunger and disease by 2015 is done. I am now convinced that the Millennium Development Goals set by the United Nations in 2000 can only be attained through a global compact, anchored in national policies that take into account local circumstances.
Aid and trade are both necessary, but they are not enough on their own. Neither is good governance enough in itself. Above all, nothing can move without the direct participation of local communities. I fear that we lecture too much. This is not the best way.
All initiatives toward reducing poverty must rest on three pillars: First, there must be political will and good governance in the poor countries. Second, there must be local ownership of initiatives, achieved through direct participatory democracy in setting priorities, planning, implementation and evaluation. Third, the external environment must be not only conducive to the attainment of the Millenium Development Goals, it must actually be supportive through measures such as direct aid - including debt relief - and through enhanced market access and reform of agricultural subsidies in rich countries.
I will give an example of how such a compact worked in Tanzania to achieve universal basic schooling.
In the mid-1990s, almost all indicators for basic education were in free fall. The gross enrollment rate had fallen from 98 percent in the early 1980s to 77.6 percent in 2000. The net enrollment rate had likewise fallen, from over 80 percent to only 58.8 percent. The enrollment of girls fell faster, and dropouts rose higher, than among boys.
Then several things happened. We decided at the top political level that basic education would be a top priority, and adopted a five-year Primary Education Development Plan to achieve universal basic education by 2006 - nine years ahead of the global target.
Good governance produced more government revenues, which quadrupled over the last eight years. In 2001, we received debt relief under the World Bank's enhanced HIPC (heavily indebted poor countries) Initiative. Subsequently, more donors put aid money directly into our budget or into a pooled fund for the Primary Education Development Program (PEDP).
The government's political will was evidenced by the fact that over the last five years the share of the national budget going to poverty reduction interventions rose by 130 percent. We abolished school fees in primary schools.
Then we ensured that all PEDP projects are locally determined, planned, owned, implemented and evaluated. This gave the people pride and dignity in what they were doing. After only two years of implementing PEDP, tremendous successes have been achieved:
Gender parity has been attained in primary schools; The number of children in primary school has increased by 50 percent; The gross enrollment ratio has risen from 77.6 percent to 105.2 percent, the net enrollment ratio has risen from 58.8 percent to 88.5 percent. 31,825 classrooms and 7,530 teachers' houses have been constructed through the direct participation of local communities; 17,851 new teachers have been recruited and 14,852 have been sent to upgrading courses;
More than 9,000 science-teaching kits have been supplied to schools; The pass rate in primary school examinations has risen from 19.3 percent in 1999 to 40.1 percent in 2003; Some 12,689 school committees have been trained to build capacity for local implementation of projects and management of the schools; PEDP implementation has been, and continues to be, predominantly based in the community. All resources are managed in total transparency, with all accounts being posted on the school notice board.
I have written this article to show that it is indeed possible to achieve the Millennium Development Goals if we are all committed to putting the right pillars in place.
We have achieved so much in only two years. Much more will be accomplished by 2006. This is a formula that can work for all the other Millenium Development Goal targets. It can be done if everyone plays his or her part.
Benjamin William Mkapa is president of the United Republic of Tanzania.
Benjamin William Mkapa IHT Tuesday, July 13, 2004
DODOMA, Tanzania. As a leader of a least developed country, I speak from experience when I say that poverty is too complex a phenomenon, and the strategies for fighting it too diverse and dependent on local circumstances, for there to be one silver bullet in the war on poverty.
We have learned the hard way over the years. We have experimented with all kinds of ideas.
Yet a report recently released by the World Economic Forum shows that barely a third of what should have been done by now to ensure the world meets its goals to fight poverty, hunger and disease by 2015 is done. I am now convinced that the Millennium Development Goals set by the United Nations in 2000 can only be attained through a global compact, anchored in national policies that take into account local circumstances.
Aid and trade are both necessary, but they are not enough on their own. Neither is good governance enough in itself. Above all, nothing can move without the direct participation of local communities. I fear that we lecture too much. This is not the best way.
All initiatives toward reducing poverty must rest on three pillars: First, there must be political will and good governance in the poor countries. Second, there must be local ownership of initiatives, achieved through direct participatory democracy in setting priorities, planning, implementation and evaluation. Third, the external environment must be not only conducive to the attainment of the Millenium Development Goals, it must actually be supportive through measures such as direct aid - including debt relief - and through enhanced market access and reform of agricultural subsidies in rich countries.
I will give an example of how such a compact worked in Tanzania to achieve universal basic schooling.
In the mid-1990s, almost all indicators for basic education were in free fall. The gross enrollment rate had fallen from 98 percent in the early 1980s to 77.6 percent in 2000. The net enrollment rate had likewise fallen, from over 80 percent to only 58.8 percent. The enrollment of girls fell faster, and dropouts rose higher, than among boys.
Then several things happened. We decided at the top political level that basic education would be a top priority, and adopted a five-year Primary Education Development Plan to achieve universal basic education by 2006 - nine years ahead of the global target.
Good governance produced more government revenues, which quadrupled over the last eight years. In 2001, we received debt relief under the World Bank's enhanced HIPC (heavily indebted poor countries) Initiative. Subsequently, more donors put aid money directly into our budget or into a pooled fund for the Primary Education Development Program (PEDP).
The government's political will was evidenced by the fact that over the last five years the share of the national budget going to poverty reduction interventions rose by 130 percent. We abolished school fees in primary schools.
Then we ensured that all PEDP projects are locally determined, planned, owned, implemented and evaluated. This gave the people pride and dignity in what they were doing. After only two years of implementing PEDP, tremendous successes have been achieved:
Gender parity has been attained in primary schools; The number of children in primary school has increased by 50 percent; The gross enrollment ratio has risen from 77.6 percent to 105.2 percent, the net enrollment ratio has risen from 58.8 percent to 88.5 percent. 31,825 classrooms and 7,530 teachers' houses have been constructed through the direct participation of local communities; 17,851 new teachers have been recruited and 14,852 have been sent to upgrading courses;
More than 9,000 science-teaching kits have been supplied to schools; The pass rate in primary school examinations has risen from 19.3 percent in 1999 to 40.1 percent in 2003; Some 12,689 school committees have been trained to build capacity for local implementation of projects and management of the schools; PEDP implementation has been, and continues to be, predominantly based in the community. All resources are managed in total transparency, with all accounts being posted on the school notice board.
I have written this article to show that it is indeed possible to achieve the Millennium Development Goals if we are all committed to putting the right pillars in place.
We have achieved so much in only two years. Much more will be accomplished by 2006. This is a formula that can work for all the other Millenium Development Goal targets. It can be done if everyone plays his or her part.
Benjamin William Mkapa is president of the United Republic of Tanzania.
July 14 Philippine Stock Market Commentary
July 14 Philippine Stock Market Commentary
Piltel stole the limelight from parent PLDT on a speculative buying frenzy, significantly higher for the third consecutive session on a spectacular intraday surge of 11.21%. PLTL accounted for 22.65% of today’s activities making it the heaviest traded issue surpassing its heavyweight counterparts.
As noted before domestic punters are very much agog on boosting issues with ‘underlying stories’, hence while the simmering telltale of SMART’s buying into PLTL have practically entranced the market, the general sentiment fell prey to continued selling pressures as investors probably went into a portfolio reshuffling. The key Philippine benchmark Phisix fell .44% or 7.69 points on selloffs by three index heavyweights, particularly Ayala Land (-1.85%), Globe Telecoms (-1.8%) and Bank of the Philippine Islands (-1.17%). The other index heavyweights were unchanged for the day.
The Phisix fell for its fifth successive day while the broader market’s climate remained bearish for the 6th straight session, although on a more subdued scale as decliners edged advancers by 32 to 25. Industry indices were all down except for the Phi-All, whose gain came from Manulife, the largest market cap of the said index. Local investors accounted for the majority 54.7% of today’s trade.
Foreign money depicted a net outflow of P 43.597 million, however P 40.556 million of which came from the special block sales of Equitable banking shares. On the broader front foreign money have accumulated more shares than it sold indicative of improving outlook in the immediate future.
With the much constrained selling as evidenced by the narrowing advance-decline margins plus improving accumulations by foreign money on the broader scale, Friday’s activities could probably show some bounce from the series of declines envisaged this week.
The Phisix seemingly shares the same sentiment with that of our neighbors. As of this writing, only Sri Lanka has had meaningful gains while Pakistan and Singapore are trading marginally higher; the rest of the region are all in the red.
Of today’s most winning issues aside from Steniel (+50%) and Fil Hispano (+16.47%) which scored highs on a single trade, the other more liquid advancers were Yuchengco construction company EEI (+16.66%), Senator Villar’s real estate flagship C & P Homes (+13.63%), Semirara makeover story majority shareholder DM Consunji (+10.71%), Yuchengco holding company House of Investments (+8.82%), foreign buying spurred Security Bank (+6.84%), new mining revival deal Abacus Mining B (+6.66%) and PLDT’s Pangilinan real estate and shipping company Metro Pacific (+6.45%) surfing on PLTL’s wave.
Piltel stole the limelight from parent PLDT on a speculative buying frenzy, significantly higher for the third consecutive session on a spectacular intraday surge of 11.21%. PLTL accounted for 22.65% of today’s activities making it the heaviest traded issue surpassing its heavyweight counterparts.
As noted before domestic punters are very much agog on boosting issues with ‘underlying stories’, hence while the simmering telltale of SMART’s buying into PLTL have practically entranced the market, the general sentiment fell prey to continued selling pressures as investors probably went into a portfolio reshuffling. The key Philippine benchmark Phisix fell .44% or 7.69 points on selloffs by three index heavyweights, particularly Ayala Land (-1.85%), Globe Telecoms (-1.8%) and Bank of the Philippine Islands (-1.17%). The other index heavyweights were unchanged for the day.
The Phisix fell for its fifth successive day while the broader market’s climate remained bearish for the 6th straight session, although on a more subdued scale as decliners edged advancers by 32 to 25. Industry indices were all down except for the Phi-All, whose gain came from Manulife, the largest market cap of the said index. Local investors accounted for the majority 54.7% of today’s trade.
Foreign money depicted a net outflow of P 43.597 million, however P 40.556 million of which came from the special block sales of Equitable banking shares. On the broader front foreign money have accumulated more shares than it sold indicative of improving outlook in the immediate future.
With the much constrained selling as evidenced by the narrowing advance-decline margins plus improving accumulations by foreign money on the broader scale, Friday’s activities could probably show some bounce from the series of declines envisaged this week.
The Phisix seemingly shares the same sentiment with that of our neighbors. As of this writing, only Sri Lanka has had meaningful gains while Pakistan and Singapore are trading marginally higher; the rest of the region are all in the red.
Of today’s most winning issues aside from Steniel (+50%) and Fil Hispano (+16.47%) which scored highs on a single trade, the other more liquid advancers were Yuchengco construction company EEI (+16.66%), Senator Villar’s real estate flagship C & P Homes (+13.63%), Semirara makeover story majority shareholder DM Consunji (+10.71%), Yuchengco holding company House of Investments (+8.82%), foreign buying spurred Security Bank (+6.84%), new mining revival deal Abacus Mining B (+6.66%) and PLDT’s Pangilinan real estate and shipping company Metro Pacific (+6.45%) surfing on PLTL’s wave.
Forbes: Lee Kwan Yew on Islam and Democracy in Southeast Asia
Islam and Democracy in Southeast Asia
Lee Kuan Yew, 07.26.04
In March, Malaysia, with a population of 25.1 million (65% Malay and indigenous peoples; 35% Chinese, Indians and others), held its 11th peaceful general election since independence. The United Malays National Organization (UMNO), which has led the country continuously since independence in 1957, had suffered a serious setback in 1999's general election, when the Islamic opposition party (PAS) for the first time won more Muslim constituencies in the Malay heartland than UMNO. The spiritual head of PAS advocates Sharia law, which mandates the severing of hands of thieves, the stoning to death of adulterous women and a return to the purity of 7th-century Islam.
Against Terrorism and Muslim Extremism
Malaysia's constitution reflects its multiracial society. Article III states that Islam is the religion of the federation but that other religions may be practiced in peace and harmony. The rise of Islamic religiosity worldwide, however, has helped the Islamic opposition gain support for Malaysia's becoming an Islamic state.
When Abdullah Ahmad Badawi became prime minister in 2003, he neutralized this issue, declaring that Malaysia was an Islamic state--one that follows Islam Hadhari (progressive Islam), which stands against corruption and nepotism and encourages cooperation with other races and religions. Badawi, well liked for his honesty and fairness, has impeccable Islamic credentials. He is the son and grandson of respected Muslim scholars and holds a degree in Islamic studies. In this age of resurgent Islam, such credentials matter.
In the March elections Badawi won back the Muslim seats and the one state government that prime minister Mahathir Mohamad lost to PAS in 1999. Badawi's victory showed that Muslims will support a progressive Islamic government led by an honest leader over Islamists who present themselves as the only force able to prevent the corruption and debasement of Muslim societies. With the hard-core Islamic vote for PAS increasing from 15% to 15.8% it is clear, though, that future electoral contests will be about the nature of the Islamic state and whether a leader has the right Islamic attributes.
UMNO has taken a firm line with PAS, rooting out terrorists because they threaten its power base. Even a son of a PAS leader was detained under the Internal Security Act for being a member of a terrorist group.
A Different Approach
In April, Indonesia, with a population of 238 million (88% Muslim, 8% Christian, 2% Hindu, 2% Buddhist and other), held its second peaceful parliamentary elections since President Suharto resigned in 1998. The Muslim parties' vote increased by 1.3% to 38.9%, but 61% of the vote went to secular parties. (The three leading candidates in the presidential election are nationalists, but all three have chosen leading Muslim figures as vice presidential running mates in order to win the Muslim vote.)
The feared electoral strength of the Muslim extremist group Jemaah Islamiah (responsible for the bombings in Bali) did not warrant the government's kid-glove handling of Abu Bakar Baasyir, the group's spiritual leader. In Indonesia only those terrorists directly involved in bombings are prosecuted; their religious mentors are left untouched, even though they are the most crucial part of the terror chain. Because of this, madrassas (religious schools) that teach and promulgate extremist Islam continue to spawn new generations of suicide bombers.
Sobering Reality
Malaysia and Indonesia carry the promise that Muslims can run democratic systems of government. However, we must keep in mind that democratic elections in Indonesia are in their infancy. Moreover, Indonesia has yet to establish the rule of law, without which no constitutional rights are guaranteed or enforceable. Both countries have tolerant Muslim populations that have lived peacefully for hundreds of years with indigenous and immigrant peoples of different religions and races. Both have educated their people, including women. Many of their citizens work for multinational corporations and are comfortable with foreigners.
Can similar conditions be created in Arab countries? Though more secular, Iraqis are Arabs. Theirs is a male-dominant society. Iraqis are more intense in their faith, and Muslim clerics have more influence than political leaders. Over many long years it might be possible to create conditions like those in Malaysia, but it is doubtful U.S. forces will stay that long.
On June 28 American authorities restored Iraq's sovereignty under a UN Security Council Resolution, handing authority to a caretaker government led by interim Prime Minister Iyad Allawi. Elections for a representative government are to be held no later than Jan. 31, 2005. The result should be a better Iraq. But if U.S. forces leave precipitately because of terrorist attacks, Muslim terrorists throughout the world will be triumphant. Where the Vietnamese were content to see Americans leave and to concentrate on building socialism in Vietnam, Islamic militants will pursue departing Americans to all corners of the globe. If the militants succeed in thwarting the U.S. in Iraq, their zealousness to die in pursuit of an Islamic caliphate spanning the globe will reach new heights.
Lee Kuan Yew, senior minister of Singapore; Paul Johnson, eminent British historian and author; and Ernesto Zedillo, former president of Mexico, in addition to Forbes Chairman Caspar W. Weinberger, are now periodically writing this column. To see past Current Events columns, visit www.forbes.com/currentevents
Lee Kuan Yew, 07.26.04
In March, Malaysia, with a population of 25.1 million (65% Malay and indigenous peoples; 35% Chinese, Indians and others), held its 11th peaceful general election since independence. The United Malays National Organization (UMNO), which has led the country continuously since independence in 1957, had suffered a serious setback in 1999's general election, when the Islamic opposition party (PAS) for the first time won more Muslim constituencies in the Malay heartland than UMNO. The spiritual head of PAS advocates Sharia law, which mandates the severing of hands of thieves, the stoning to death of adulterous women and a return to the purity of 7th-century Islam.
Against Terrorism and Muslim Extremism
Malaysia's constitution reflects its multiracial society. Article III states that Islam is the religion of the federation but that other religions may be practiced in peace and harmony. The rise of Islamic religiosity worldwide, however, has helped the Islamic opposition gain support for Malaysia's becoming an Islamic state.
When Abdullah Ahmad Badawi became prime minister in 2003, he neutralized this issue, declaring that Malaysia was an Islamic state--one that follows Islam Hadhari (progressive Islam), which stands against corruption and nepotism and encourages cooperation with other races and religions. Badawi, well liked for his honesty and fairness, has impeccable Islamic credentials. He is the son and grandson of respected Muslim scholars and holds a degree in Islamic studies. In this age of resurgent Islam, such credentials matter.
In the March elections Badawi won back the Muslim seats and the one state government that prime minister Mahathir Mohamad lost to PAS in 1999. Badawi's victory showed that Muslims will support a progressive Islamic government led by an honest leader over Islamists who present themselves as the only force able to prevent the corruption and debasement of Muslim societies. With the hard-core Islamic vote for PAS increasing from 15% to 15.8% it is clear, though, that future electoral contests will be about the nature of the Islamic state and whether a leader has the right Islamic attributes.
UMNO has taken a firm line with PAS, rooting out terrorists because they threaten its power base. Even a son of a PAS leader was detained under the Internal Security Act for being a member of a terrorist group.
A Different Approach
In April, Indonesia, with a population of 238 million (88% Muslim, 8% Christian, 2% Hindu, 2% Buddhist and other), held its second peaceful parliamentary elections since President Suharto resigned in 1998. The Muslim parties' vote increased by 1.3% to 38.9%, but 61% of the vote went to secular parties. (The three leading candidates in the presidential election are nationalists, but all three have chosen leading Muslim figures as vice presidential running mates in order to win the Muslim vote.)
The feared electoral strength of the Muslim extremist group Jemaah Islamiah (responsible for the bombings in Bali) did not warrant the government's kid-glove handling of Abu Bakar Baasyir, the group's spiritual leader. In Indonesia only those terrorists directly involved in bombings are prosecuted; their religious mentors are left untouched, even though they are the most crucial part of the terror chain. Because of this, madrassas (religious schools) that teach and promulgate extremist Islam continue to spawn new generations of suicide bombers.
Sobering Reality
Malaysia and Indonesia carry the promise that Muslims can run democratic systems of government. However, we must keep in mind that democratic elections in Indonesia are in their infancy. Moreover, Indonesia has yet to establish the rule of law, without which no constitutional rights are guaranteed or enforceable. Both countries have tolerant Muslim populations that have lived peacefully for hundreds of years with indigenous and immigrant peoples of different religions and races. Both have educated their people, including women. Many of their citizens work for multinational corporations and are comfortable with foreigners.
Can similar conditions be created in Arab countries? Though more secular, Iraqis are Arabs. Theirs is a male-dominant society. Iraqis are more intense in their faith, and Muslim clerics have more influence than political leaders. Over many long years it might be possible to create conditions like those in Malaysia, but it is doubtful U.S. forces will stay that long.
On June 28 American authorities restored Iraq's sovereignty under a UN Security Council Resolution, handing authority to a caretaker government led by interim Prime Minister Iyad Allawi. Elections for a representative government are to be held no later than Jan. 31, 2005. The result should be a better Iraq. But if U.S. forces leave precipitately because of terrorist attacks, Muslim terrorists throughout the world will be triumphant. Where the Vietnamese were content to see Americans leave and to concentrate on building socialism in Vietnam, Islamic militants will pursue departing Americans to all corners of the globe. If the militants succeed in thwarting the U.S. in Iraq, their zealousness to die in pursuit of an Islamic caliphate spanning the globe will reach new heights.
Lee Kuan Yew, senior minister of Singapore; Paul Johnson, eminent British historian and author; and Ernesto Zedillo, former president of Mexico, in addition to Forbes Chairman Caspar W. Weinberger, are now periodically writing this column. To see past Current Events columns, visit www.forbes.com/currentevents
Tuesday, July 13, 2004
Bloomberg's Mukherjee: Sri Lanka's Stocks Surge Defies Bearish Outlook
July 13 (Bloomberg) -- Without a whiff of good news supporting them, stocks in Sri Lanka, the teardrop island off India's southern coast, are the world's fifth-best performers this year.
There's no apparent reason for the 22 percent surge in the Colombo All-Share Index in U.S. dollar terms, a gain exceeded only by Colombian, Austrian, Egyptian and Hungarian equities. The increase is all the more puzzling because it follows a 30 percent spurt in shares last year and a 26 percent jump in 2002.
The exuberance ``is difficult to explain,'' says S. Jeyavarman, chief executive officer of National Asset Management Ltd., the country's largest unit trust company. ``It's a surprise to everyone in the market.''
If anything, there's plenty of bad news in the nation of 19 million people wracked by two decades of civil war. The Tamil guerillas, who have honored a cease-fire since February 2002, are threatening to resume fighting even as a three-month-old, Marxist- supported government consolidates power. The Marxists oppose regional autonomy for the minority Tamils, lowering the chances of a peace accord that looked in sight even a year ago.
A woman suicide bomber killed herself and four police officers in the capital of Colombo last week. Incidents like that could cripple tourism, which, along with tea and garment exports, supports the $18 billion economy. In June, 30,000 tourists were drawn to the sandy beaches and Buddhist temples of this former British colony, a 6 percent drop from a year ago. The full-year target of 600,000 tourists is becoming unattainable.
Best in Asia
Share prices have risen in Sri Lanka even as they have slumped elsewhere in Asia amid concerns high fuel prices will stoke inflation, and interest-rate increases by the U.S. Federal Reserve may pull investment dollars away from local bourses. Thai, Indian, Chinese and South Korean stocks are among the world's 10 worst-performing benchmarks this year.
And all these economies, with the exception of Korea, are forecast to grow faster than the 5.5 percent pace at which the Sri Lankan economy may expand in 2004.
So if you haven't already invested in the island's top shares, like John Keells Holdings Ltd., which runs hotels and a sea port, and makes foodstuff, are you missing out on a juicy market?
Too Bullish
One may look at Sri Lanka's surging stocks as evidence that investors are ruling out a return to civil war, interpreting the government's landslide win in Saturday's provincial polls as a sign that the United People's Freedom Alliance will attract some opposition lawmakers to switch sides, giving the coalition more stability and a better chance to take the peace process forward.
There's also a view that Western supporters of the Tamil Tigers have started investing in the island's north and east, another indication that fighting may not resume.
Investors, however, may be expecting too much too soon. In reality, the economy, which expanded 5.9 percent last year, is already slowing and local investors are putting up a brave face only because they have nowhere else to go.
Foreigners are largely staying out. On Friday, when the Colombo index rose 0.7 percent, purchases by overseas investors made up 6 percent of total stocks traded. That's a far cry from last year, when foreigners accounted for 23 percent of turnover.
No Choice
For local investors, parking money in government bonds isn't an option because inflation is quickening and may shoot up if global fuel prices remain high. The yield on a government bond maturing in August 2013 has risen more than a quarter percentage point in the past six months.
The Sri Lankan government borrowed 137 billion Sri Lankan rupees ($1.33 billion) by selling bonds in the local market last year. Total outstanding government debt was 1.86 trillion rupees at the end of last year, more than the country's annual gross domestic product.
Since the government restricts outflow of domestic capital, investors don't have too many options. If bombs start going off in Colombo like they used to with frightening regularity until three years ago -- the central bank was bombed in 1996, the business district in 1997 and the only international airport in 2001 -- real estate prices may not hold.
Nor does it make much sense to hold cash at a time when the benchmark interest rate is 7 percent, the lowest since 1997.
Jeyavarman of National Asset says he has kept 60 percent of his funds in stocks and the remaining in debt.
``The rise in the stock market may or may not sustain,'' he says, ``but it's been too big to ignore.''
Correction Due?
And Sri Lankan stocks are indeed cheap. The price-to-earnings ratio of Colombo-listed shares is 10.3, compared with 12.5 for the top 100 shares in India and 20.6 for Singapore. Brokers are advising investors to buy more.
``We renew our recommendation to accumulate fundamentally sound counters,'' researchers Inthi Mohammed and Ineka Dunuwille at Ceylinco Stock Brokers Pvt. in Colombo said in a note to clients yesterday. ``We expect the market to show upward movement although a correction is due anytime soon.''
Yet, bear in mind that Sri Lanka is also an illiquid market. In 2003, trading turnover was 28 percent of market capitalization. In neighboring India, the turnover-to-capitalization ratio was more than 50 percent last year.
For foreigners to bet on the island's fragile peace may not be such a good idea. True, there may be exceptional opportunities. Returns, however, are shrouded by a shadow of looming risks and are best left for local investors to savor.
There's no apparent reason for the 22 percent surge in the Colombo All-Share Index in U.S. dollar terms, a gain exceeded only by Colombian, Austrian, Egyptian and Hungarian equities. The increase is all the more puzzling because it follows a 30 percent spurt in shares last year and a 26 percent jump in 2002.
The exuberance ``is difficult to explain,'' says S. Jeyavarman, chief executive officer of National Asset Management Ltd., the country's largest unit trust company. ``It's a surprise to everyone in the market.''
If anything, there's plenty of bad news in the nation of 19 million people wracked by two decades of civil war. The Tamil guerillas, who have honored a cease-fire since February 2002, are threatening to resume fighting even as a three-month-old, Marxist- supported government consolidates power. The Marxists oppose regional autonomy for the minority Tamils, lowering the chances of a peace accord that looked in sight even a year ago.
A woman suicide bomber killed herself and four police officers in the capital of Colombo last week. Incidents like that could cripple tourism, which, along with tea and garment exports, supports the $18 billion economy. In June, 30,000 tourists were drawn to the sandy beaches and Buddhist temples of this former British colony, a 6 percent drop from a year ago. The full-year target of 600,000 tourists is becoming unattainable.
Best in Asia
Share prices have risen in Sri Lanka even as they have slumped elsewhere in Asia amid concerns high fuel prices will stoke inflation, and interest-rate increases by the U.S. Federal Reserve may pull investment dollars away from local bourses. Thai, Indian, Chinese and South Korean stocks are among the world's 10 worst-performing benchmarks this year.
And all these economies, with the exception of Korea, are forecast to grow faster than the 5.5 percent pace at which the Sri Lankan economy may expand in 2004.
So if you haven't already invested in the island's top shares, like John Keells Holdings Ltd., which runs hotels and a sea port, and makes foodstuff, are you missing out on a juicy market?
Too Bullish
One may look at Sri Lanka's surging stocks as evidence that investors are ruling out a return to civil war, interpreting the government's landslide win in Saturday's provincial polls as a sign that the United People's Freedom Alliance will attract some opposition lawmakers to switch sides, giving the coalition more stability and a better chance to take the peace process forward.
There's also a view that Western supporters of the Tamil Tigers have started investing in the island's north and east, another indication that fighting may not resume.
Investors, however, may be expecting too much too soon. In reality, the economy, which expanded 5.9 percent last year, is already slowing and local investors are putting up a brave face only because they have nowhere else to go.
Foreigners are largely staying out. On Friday, when the Colombo index rose 0.7 percent, purchases by overseas investors made up 6 percent of total stocks traded. That's a far cry from last year, when foreigners accounted for 23 percent of turnover.
No Choice
For local investors, parking money in government bonds isn't an option because inflation is quickening and may shoot up if global fuel prices remain high. The yield on a government bond maturing in August 2013 has risen more than a quarter percentage point in the past six months.
The Sri Lankan government borrowed 137 billion Sri Lankan rupees ($1.33 billion) by selling bonds in the local market last year. Total outstanding government debt was 1.86 trillion rupees at the end of last year, more than the country's annual gross domestic product.
Since the government restricts outflow of domestic capital, investors don't have too many options. If bombs start going off in Colombo like they used to with frightening regularity until three years ago -- the central bank was bombed in 1996, the business district in 1997 and the only international airport in 2001 -- real estate prices may not hold.
Nor does it make much sense to hold cash at a time when the benchmark interest rate is 7 percent, the lowest since 1997.
Jeyavarman of National Asset says he has kept 60 percent of his funds in stocks and the remaining in debt.
``The rise in the stock market may or may not sustain,'' he says, ``but it's been too big to ignore.''
Correction Due?
And Sri Lankan stocks are indeed cheap. The price-to-earnings ratio of Colombo-listed shares is 10.3, compared with 12.5 for the top 100 shares in India and 20.6 for Singapore. Brokers are advising investors to buy more.
``We renew our recommendation to accumulate fundamentally sound counters,'' researchers Inthi Mohammed and Ineka Dunuwille at Ceylinco Stock Brokers Pvt. in Colombo said in a note to clients yesterday. ``We expect the market to show upward movement although a correction is due anytime soon.''
Yet, bear in mind that Sri Lanka is also an illiquid market. In 2003, trading turnover was 28 percent of market capitalization. In neighboring India, the turnover-to-capitalization ratio was more than 50 percent last year.
For foreigners to bet on the island's fragile peace may not be such a good idea. True, there may be exceptional opportunities. Returns, however, are shrouded by a shadow of looming risks and are best left for local investors to savor.
July 13 Philippine Stock Market Commentary
July 13 Philippine Stock Market Commentary
Now we are seeing a more meaningful decline in the Phisix, as the key Philippine benchmark took a breather down by .83% or 13.22 points.
As mentioned in our previous postings, after attempting to cross the 1,600 psychological threshold, the Philippine market as measured by the Phisix have palpably been stalling. The overall market’s bearishness replicated yesterday’s performance albeit on a more intensified scale; losers beat winners by 37 to 20 or almost 2 to 1 (fifth straight session), the industry indices were all down except for the Banking and Financial Index, foreign money registered a net P 12.830 million of outflows and lastly foreign money sold more companies than bought them.
The stepped up ‘correction’ saw more volume in terms of Peso turnover at P 673.493 million up 69.84% from yesterday’s volume although cross trades took up 50% of the total turnover. In short, net of cross trades today’s Peso volume added only P 65.987 million or 30.42%.
Among the Index heavyweights, PLDT the market’s sole pillar has finally gotten its required break, after plodding to take the Phisix past the 1,600 level. PLDT was lower 2.03% and was accompanied by declines in SM Primeholdings down 1.63%, Ayala Land and Ayala Corp both lower by 3.57%. The advances in the Banking and Finance index were primarily due to gains from BPI higher 2.4% and Metrobank up 1.85% whom were outnumbered and outperformed by the decliners. Meanwhile Globe Telecoms and the San Miguel local and foreign shares closed unchanged.
Foreign investors accounted for 57.04% of today’s trade. First Philippine Holdings and PLDT, accounted for the most of the net outflows, a variance from its routine with Ayala Land taking up the third spot. On the other hand, the gist of the inflows were registered among Bank of the Philippine Islands, Globe Telecoms, Ayala Corp and Union Cement.
Again the domestic performance mirrors that of the region’s activities. Most Asian bourses as of these writing are trading lower, 8 out of 15 bourses are in the red including our close neighbors Indonesia and Malaysia with Thailand among the minority trading slightly higher.
Today’s darling is no other than PLDT’s subsidiary PLTL on news that a recent share swap has brought SMART’s, PLDT’s major wireless subsidiary, interests in PLTL to 32.7%. PLTL gapped up and vaulted 10.3%.
Well there are varied analyses on the unfolding corporate developments in the Manny Pangilinan led companies. Of course, we have noted that the inherent culture of the Filipino mindset in investing is on the account of ‘stories’ investing, which makes Mr. Pangilinan’s companies very toothsome for investor plays. There are speculations that SMART, whom is required to be listed, will probably do a backdoor through PLTL. SMART has frequently issued a denial for the said intentions. However there are others who argue that the current ownership restructuring program of PLTL which would pave way for a shift of ownership from PLDT to SMART is for the purported NOLCO Net Operating Loss Carry Over of PLTL of which SMART would like to utilize for tax shield purposes. And this requires SMART to course some or most of its revenues to PLTL which would see an inflated bottom line or a ‘recovery’ story in short. But what of PLDT whose phenomenal growth is based mostly on SMART wireless revenues?
Another beneficiary of today’s activities is Metro Pacific (up 6.89%) another Pangilinan led company which is into shipping and real estate. The company has been riding on the coattails of PLTL’s climb, could another corporate prestidigitation be on hand?
DM Consunji’s 9.8% run today has been on streak since Semirara Mining Company announced of an ownership-restructuring program on June 16th of which DMC is the majority owner. DMC is now up 108% again on 'ownership restructuring tales'.
Finally the oil exploration companies saw another round of battering as the consortium at the Sulu Sea project have winded down operations in its second well. According to the final report issued by the Department of Energy “The operator likewise conducted wire-logging operations to determine the petrophysical properties of the drilled formation.” Case closed, wait for the next project, perhaps? Go Figure.
Now we are seeing a more meaningful decline in the Phisix, as the key Philippine benchmark took a breather down by .83% or 13.22 points.
As mentioned in our previous postings, after attempting to cross the 1,600 psychological threshold, the Philippine market as measured by the Phisix have palpably been stalling. The overall market’s bearishness replicated yesterday’s performance albeit on a more intensified scale; losers beat winners by 37 to 20 or almost 2 to 1 (fifth straight session), the industry indices were all down except for the Banking and Financial Index, foreign money registered a net P 12.830 million of outflows and lastly foreign money sold more companies than bought them.
The stepped up ‘correction’ saw more volume in terms of Peso turnover at P 673.493 million up 69.84% from yesterday’s volume although cross trades took up 50% of the total turnover. In short, net of cross trades today’s Peso volume added only P 65.987 million or 30.42%.
Among the Index heavyweights, PLDT the market’s sole pillar has finally gotten its required break, after plodding to take the Phisix past the 1,600 level. PLDT was lower 2.03% and was accompanied by declines in SM Primeholdings down 1.63%, Ayala Land and Ayala Corp both lower by 3.57%. The advances in the Banking and Finance index were primarily due to gains from BPI higher 2.4% and Metrobank up 1.85% whom were outnumbered and outperformed by the decliners. Meanwhile Globe Telecoms and the San Miguel local and foreign shares closed unchanged.
Foreign investors accounted for 57.04% of today’s trade. First Philippine Holdings and PLDT, accounted for the most of the net outflows, a variance from its routine with Ayala Land taking up the third spot. On the other hand, the gist of the inflows were registered among Bank of the Philippine Islands, Globe Telecoms, Ayala Corp and Union Cement.
Again the domestic performance mirrors that of the region’s activities. Most Asian bourses as of these writing are trading lower, 8 out of 15 bourses are in the red including our close neighbors Indonesia and Malaysia with Thailand among the minority trading slightly higher.
Today’s darling is no other than PLDT’s subsidiary PLTL on news that a recent share swap has brought SMART’s, PLDT’s major wireless subsidiary, interests in PLTL to 32.7%. PLTL gapped up and vaulted 10.3%.
Well there are varied analyses on the unfolding corporate developments in the Manny Pangilinan led companies. Of course, we have noted that the inherent culture of the Filipino mindset in investing is on the account of ‘stories’ investing, which makes Mr. Pangilinan’s companies very toothsome for investor plays. There are speculations that SMART, whom is required to be listed, will probably do a backdoor through PLTL. SMART has frequently issued a denial for the said intentions. However there are others who argue that the current ownership restructuring program of PLTL which would pave way for a shift of ownership from PLDT to SMART is for the purported NOLCO Net Operating Loss Carry Over of PLTL of which SMART would like to utilize for tax shield purposes. And this requires SMART to course some or most of its revenues to PLTL which would see an inflated bottom line or a ‘recovery’ story in short. But what of PLDT whose phenomenal growth is based mostly on SMART wireless revenues?
Another beneficiary of today’s activities is Metro Pacific (up 6.89%) another Pangilinan led company which is into shipping and real estate. The company has been riding on the coattails of PLTL’s climb, could another corporate prestidigitation be on hand?
DM Consunji’s 9.8% run today has been on streak since Semirara Mining Company announced of an ownership-restructuring program on June 16th of which DMC is the majority owner. DMC is now up 108% again on 'ownership restructuring tales'.
Finally the oil exploration companies saw another round of battering as the consortium at the Sulu Sea project have winded down operations in its second well. According to the final report issued by the Department of Energy “The operator likewise conducted wire-logging operations to determine the petrophysical properties of the drilled formation.” Case closed, wait for the next project, perhaps? Go Figure.
Monday, July 12, 2004
July 12 Philippine Stock Market Commentary
July 12 Philippine Stock Market Commentary
Lacking the proverbial ‘wall of worry to climb’ the market drifted lower today as both local and foreign investors eased up on their portfolio positions.
The Phisix closed 6.21 points or .39% down on thin volume with Peso turnover amounting to only P 396.555 million. Cross trades accounted for 45.3% of today’s output, thereby reducing actual board transactions net of cross trades to a scanty P 216.902 million.
Market breadth was overwhelming bearish. Four index heavyweight issues declined, namely BPI down 1.19%, San Miguel local or A shares lower .85%, Globe Telecoms declined .59%, and PLDT fell .4% while the rest of were unchanged. Declining issues drubbed advancing issues 32 to 19, while all of the industry indices, except for the Property Index, registered declines. Moreover, foreign money recorded a net outflow of P 11.655 million with 14 of the 25 issues, which reported foreign money movements, posting outflows. Overseas money accounted for 66.24% of today’s Peso turnover.
This is the first in seventeen sessions where number of companies traded fell below the 100-benchmark.
The lean volume, declining number of companies traded and the dominant activities of foreign capital meant that local investors were either selling today or staying on the sidelines, while foreign investors were likewise in an easing mode. The good thing is that the retracements come in light volume while the drop in the main index benchmark was contained, meaning that today’s market reflected a deceleration from its previous ascent or in technical lingo a ‘correction’.
On a wider picture, the activities of the Phisix seem to move in consonance with our close neighbors. As of these writing, Thailand, Malaysia and Indonesia are all trading slightly lower while on a region wide basis the bourses are trading mixed, 9 declining against 6 advancing.
Finally, the only noteworthy activity today amidst the sluggish backdrop is the apparent panic-stricken oil index which fell a hefty 11.18%, its second straight session of bloodbath. Oriental Petroleum local and foreign shares dived 15%, Philodrill foreign shares dropped 9.09% while its local shares were unchanged. Ostensibly, these reactions are related to the ongoing drilling project at the Sulu Sea by the UNOCAL led consortium, as other non oil index members but key players in the drilling project likewise suffered from steep price drops, Basic Consolidated crashed 16.66% while South China Resources tanked by 9.09%. Again we note that these violent reactions could probably stem from insider information driven actuations indicative of an unsuccessful mission of the consortium to discover commercially viable oil or gas fields. However, these have yet to be disclosed in the PSE, as the latest disclosures reflect that the project is still ongoing and has yet to reach its targeted depth.
Lacking the proverbial ‘wall of worry to climb’ the market drifted lower today as both local and foreign investors eased up on their portfolio positions.
The Phisix closed 6.21 points or .39% down on thin volume with Peso turnover amounting to only P 396.555 million. Cross trades accounted for 45.3% of today’s output, thereby reducing actual board transactions net of cross trades to a scanty P 216.902 million.
Market breadth was overwhelming bearish. Four index heavyweight issues declined, namely BPI down 1.19%, San Miguel local or A shares lower .85%, Globe Telecoms declined .59%, and PLDT fell .4% while the rest of were unchanged. Declining issues drubbed advancing issues 32 to 19, while all of the industry indices, except for the Property Index, registered declines. Moreover, foreign money recorded a net outflow of P 11.655 million with 14 of the 25 issues, which reported foreign money movements, posting outflows. Overseas money accounted for 66.24% of today’s Peso turnover.
This is the first in seventeen sessions where number of companies traded fell below the 100-benchmark.
The lean volume, declining number of companies traded and the dominant activities of foreign capital meant that local investors were either selling today or staying on the sidelines, while foreign investors were likewise in an easing mode. The good thing is that the retracements come in light volume while the drop in the main index benchmark was contained, meaning that today’s market reflected a deceleration from its previous ascent or in technical lingo a ‘correction’.
On a wider picture, the activities of the Phisix seem to move in consonance with our close neighbors. As of these writing, Thailand, Malaysia and Indonesia are all trading slightly lower while on a region wide basis the bourses are trading mixed, 9 declining against 6 advancing.
Finally, the only noteworthy activity today amidst the sluggish backdrop is the apparent panic-stricken oil index which fell a hefty 11.18%, its second straight session of bloodbath. Oriental Petroleum local and foreign shares dived 15%, Philodrill foreign shares dropped 9.09% while its local shares were unchanged. Ostensibly, these reactions are related to the ongoing drilling project at the Sulu Sea by the UNOCAL led consortium, as other non oil index members but key players in the drilling project likewise suffered from steep price drops, Basic Consolidated crashed 16.66% while South China Resources tanked by 9.09%. Again we note that these violent reactions could probably stem from insider information driven actuations indicative of an unsuccessful mission of the consortium to discover commercially viable oil or gas fields. However, these have yet to be disclosed in the PSE, as the latest disclosures reflect that the project is still ongoing and has yet to reach its targeted depth.
Sunday, July 11, 2004
Japan Times: Lack of continuity in English teaching hit
Lack of continuity in English teaching hit
Effort afoot to foster seamless progress from grade school to junior high
By AKEMI NAKAMURA
Staff writer
The introduction of English in elementary school classrooms to help improve fluency in later years is bringing to light a problem that has dogged Japanese educators for years -- how to provide continuity in teaching the language so that students can graduate from university with a conversant level.
Although English is not a formal subject at public elementary schools, the Central Council for Education will decide by the end of March whether to make it one.
At the same time, the council is looking at how to build a comprehensive language program that would follow students from grade school through university.
A rise in the number of elementary schools dabbling in English lessons has underscored the particular need for public elementary and junior high schools to cooperate in forming an integrated program that provides students with some continuity when they move from grade six to junior high school.
According to the Education, Culture, Sports, Science and Technology Ministry, 88 percent of the nation's 22,526 public elementary schools had English activities in fiscal 2003.
Since April, Shigeyo Ota, a veteran English teacher at Narita Junior High School in Narita, Chiba Prefecture, has been visiting Nakago Elementary School in the city every Thursday to help teach several of the 20-minute English classes the students take four times a week.
"I wasn't that familiar with the kind of (English) programs elementary schools were offering," Ota admitted. "But because we are now trying to hammer out a new curriculum that will provide integrated English education (for elementary and junior high school students), it's important to know."
In these classes, a Philippine assistant language teacher teaches English songs, games and simple conversation based on a program designed by the city's board of education.
Ota and the homeroom teachers help by demonstrating conversations and occasionally explaining in Japanese what the assistant language teacher says.
Educators are particularly keen on an English program encompassing both elementary and junior high schools.
In April 2003, Narita Junior High and Narita Elementary School began work on creating an integrated nine-year English curriculum.
"Academic guidelines are changing to provide programs that enable students to acquire necessary skills and knowledge," an education ministry official said. "Integrating curricula, including that of English education, from elementary schools to junior high schools to high schools to universities is one of our challenges."
When the students who studied English at elementary schools enter Narita Junior High, there is some progression in their course work, and they seem to enjoy the classes as they begin to better understand English conversation.
"In elementary school, I was speaking English without fully understanding" the words, said Yuma Yamazaki, a first-year student at the school. "But now I've learned how to use a dictionary and can look words up."
At Narita Junior High, the English course for first-year students includes rephrasing textbook conversations and using the English they learned at elementary school to form their own conversations, said Eiko Suzuki, another English teacher at the school.
She added that the junior high also plans to have the first-year students interview foreign visitors at Naritasan Shinshoji Temple in the city, a project similar to one many of the students did in elementary school.
But some students who once enjoyed studying English begin to lose interest as the lessons in reading, writing and grammar become more challenging, said teachers at Narita Junior High.
Elementary schools focus on speaking and listening skills, but junior high schools are required to teach writing and grammar so students can pass high school entrance exams.
And even for those who work hard, there is another roadblock.
First-year student Ayami Kurashige said there are few opportunities for her to speak English outside of school.
Teachers at the junior high say they are concerned about students' fluency levels because, while students often only get the chance to speak English at school, the upper grades allocate little time for conversation in class.
To keep students interested in English, the school has taken advantage of its status as a state-designated research and development school to improve its curriculum.
Beginning in April, it altered its curriculum to increase the number of English classes to four times a week from three. In addition, students were divided into three groups based on their English abilities.
"This enables us to provide more opportunities for students at advanced levels to speak English, while allowing others to devote more time to writing and grammar," Ota said. "We want to create an environment in which students can continue to enjoy studying English."
But some experts predict a rocky road ahead in trying to create a seamless English program spanning elementary and junior high schools.
Ken Kanatani, a professor of English education at Tokyo Gakugei University, noted that public schools have yet to create an English curriculum that successfully provides continuity from junior high to high schools, despite 40 years of trying to achieve this.
Junior high and high school teachers do not make sufficient efforts to teach in a progressive way so students can build on their existing knowledge, Kanatani added.
The key will be whether schools can construct syllabuses in ways that enable students to develop their skills consistently, he said.
He added that even if a coherent curriculum is introduced, the number of competent speakers will not rise significantly unless junior high school classes are increased from the current three a week.
"We can't expect much improvement (in English education) as long as the number of classes is so limited," he said. "I think this is one reason why few Japanese acquire a good command of English."
Kensaku Yoshida, a professor of English at Sophia University, would like to see more focus on the junior high and high school connection.
He believes high school and university entrance exams obstruct the creation of an English curriculum that links junior high and high school learning.
"If a curriculum from elementary to junior high school can be created, it would also provide more incentive to review current English education programs at the junior high and high school levels," he said.
The Japan Times: July 8, 2004
(C) All rights reserved
***
The Prudent Investor:
Japan’s ageing population will eventually compel for the opening of its economy to foreign workers. According to recent reports, the country is now considering the services of Filipino nurses.
In the same context, Japan’s push for more intensive English education to its primary schools could provide economic opportunities for Filipino labor and domestic industries specializing in the field of education. Educators, translators, publishers, educational software developers/programs and other adjunct skills or products are possible candidates for these opportunities, i.e. manpower deployment, ‘offshoring’ or exports. Through bilateral cooperation, the Philippine Government must take the first steps and be ahead of other countries in offering the required educational services and negotiate for the permissibility of the flow of labor to its highly regulated economy.
On the other hand, by identifying the opportunities presented by the rapid integration of global economies due to the IT enabled globalization, the Philippine Government must lead its entrepreneurs and workers to benefit from the continuing economic evolution by establishing the requisite framework for trade and flow of its manpower services, as well as, retooling the skills of the populace to that of where opportunities abound.
Effort afoot to foster seamless progress from grade school to junior high
By AKEMI NAKAMURA
Staff writer
The introduction of English in elementary school classrooms to help improve fluency in later years is bringing to light a problem that has dogged Japanese educators for years -- how to provide continuity in teaching the language so that students can graduate from university with a conversant level.
Although English is not a formal subject at public elementary schools, the Central Council for Education will decide by the end of March whether to make it one.
At the same time, the council is looking at how to build a comprehensive language program that would follow students from grade school through university.
A rise in the number of elementary schools dabbling in English lessons has underscored the particular need for public elementary and junior high schools to cooperate in forming an integrated program that provides students with some continuity when they move from grade six to junior high school.
According to the Education, Culture, Sports, Science and Technology Ministry, 88 percent of the nation's 22,526 public elementary schools had English activities in fiscal 2003.
Since April, Shigeyo Ota, a veteran English teacher at Narita Junior High School in Narita, Chiba Prefecture, has been visiting Nakago Elementary School in the city every Thursday to help teach several of the 20-minute English classes the students take four times a week.
"I wasn't that familiar with the kind of (English) programs elementary schools were offering," Ota admitted. "But because we are now trying to hammer out a new curriculum that will provide integrated English education (for elementary and junior high school students), it's important to know."
In these classes, a Philippine assistant language teacher teaches English songs, games and simple conversation based on a program designed by the city's board of education.
Ota and the homeroom teachers help by demonstrating conversations and occasionally explaining in Japanese what the assistant language teacher says.
Educators are particularly keen on an English program encompassing both elementary and junior high schools.
In April 2003, Narita Junior High and Narita Elementary School began work on creating an integrated nine-year English curriculum.
"Academic guidelines are changing to provide programs that enable students to acquire necessary skills and knowledge," an education ministry official said. "Integrating curricula, including that of English education, from elementary schools to junior high schools to high schools to universities is one of our challenges."
When the students who studied English at elementary schools enter Narita Junior High, there is some progression in their course work, and they seem to enjoy the classes as they begin to better understand English conversation.
"In elementary school, I was speaking English without fully understanding" the words, said Yuma Yamazaki, a first-year student at the school. "But now I've learned how to use a dictionary and can look words up."
At Narita Junior High, the English course for first-year students includes rephrasing textbook conversations and using the English they learned at elementary school to form their own conversations, said Eiko Suzuki, another English teacher at the school.
She added that the junior high also plans to have the first-year students interview foreign visitors at Naritasan Shinshoji Temple in the city, a project similar to one many of the students did in elementary school.
But some students who once enjoyed studying English begin to lose interest as the lessons in reading, writing and grammar become more challenging, said teachers at Narita Junior High.
Elementary schools focus on speaking and listening skills, but junior high schools are required to teach writing and grammar so students can pass high school entrance exams.
And even for those who work hard, there is another roadblock.
First-year student Ayami Kurashige said there are few opportunities for her to speak English outside of school.
Teachers at the junior high say they are concerned about students' fluency levels because, while students often only get the chance to speak English at school, the upper grades allocate little time for conversation in class.
To keep students interested in English, the school has taken advantage of its status as a state-designated research and development school to improve its curriculum.
Beginning in April, it altered its curriculum to increase the number of English classes to four times a week from three. In addition, students were divided into three groups based on their English abilities.
"This enables us to provide more opportunities for students at advanced levels to speak English, while allowing others to devote more time to writing and grammar," Ota said. "We want to create an environment in which students can continue to enjoy studying English."
But some experts predict a rocky road ahead in trying to create a seamless English program spanning elementary and junior high schools.
Ken Kanatani, a professor of English education at Tokyo Gakugei University, noted that public schools have yet to create an English curriculum that successfully provides continuity from junior high to high schools, despite 40 years of trying to achieve this.
Junior high and high school teachers do not make sufficient efforts to teach in a progressive way so students can build on their existing knowledge, Kanatani added.
The key will be whether schools can construct syllabuses in ways that enable students to develop their skills consistently, he said.
He added that even if a coherent curriculum is introduced, the number of competent speakers will not rise significantly unless junior high school classes are increased from the current three a week.
"We can't expect much improvement (in English education) as long as the number of classes is so limited," he said. "I think this is one reason why few Japanese acquire a good command of English."
Kensaku Yoshida, a professor of English at Sophia University, would like to see more focus on the junior high and high school connection.
He believes high school and university entrance exams obstruct the creation of an English curriculum that links junior high and high school learning.
"If a curriculum from elementary to junior high school can be created, it would also provide more incentive to review current English education programs at the junior high and high school levels," he said.
The Japan Times: July 8, 2004
(C) All rights reserved
***
The Prudent Investor:
Japan’s ageing population will eventually compel for the opening of its economy to foreign workers. According to recent reports, the country is now considering the services of Filipino nurses.
In the same context, Japan’s push for more intensive English education to its primary schools could provide economic opportunities for Filipino labor and domestic industries specializing in the field of education. Educators, translators, publishers, educational software developers/programs and other adjunct skills or products are possible candidates for these opportunities, i.e. manpower deployment, ‘offshoring’ or exports. Through bilateral cooperation, the Philippine Government must take the first steps and be ahead of other countries in offering the required educational services and negotiate for the permissibility of the flow of labor to its highly regulated economy.
On the other hand, by identifying the opportunities presented by the rapid integration of global economies due to the IT enabled globalization, the Philippine Government must lead its entrepreneurs and workers to benefit from the continuing economic evolution by establishing the requisite framework for trade and flow of its manpower services, as well as, retooling the skills of the populace to that of where opportunities abound.
Friday, July 09, 2004
The Economist: Keep an eye on it (The US Dollar)
Keep an eye on it
Jul 8th 2004
From The Economist print edition
After a buoyant start to the year, the dollar seems headed for a tumble
THERE was a time, not long ago, when economists and those who dabble in the foreign-exchange market could find scarcely a good thing to say about the dollar. Last year, John Snow, America's treasury secretary, even managed to transform his country's long-standing strong-dollar policy into a weak-dollar one. All this greatly irritated Europeans, especially; as the euro rose, international meetings of the great and the good were dominated by cross discussions about the beleaguered buck. Newspapers, including this one, were full of gloomy headlines suggesting that the greenback would, indeed should, fall farther.
So it did, for a while: by early January, the dollar was worth a quarter less, in trade-weighted terms, than it had been two years before. But when everyone is betting that a market will go one way, it often goes the other. By mid-May, the dollar had risen by 8%, bucked up, as it were, by the Bank of Japan, which bought ¥14.8 trillion ($138 billion) of foreign exchange in the first quarter, almost all of it dollars, in comfortably the largest-ever act of intervention by a central bank. Then, quietly, the dollar started to drop. By July 6th, it had fallen by 4.3% from its high. Not surprisingly, perhaps: the dollar's prospects look even worse now than they did last year.
The dollar's recent decline may seem puzzling, for it began while expectations were mounting that the Federal Reserve was about to put up interest rates. The decline has continued since those expectations were confirmed on June 30th. Rising interest rates, you might have thought, would halt any such decline.
That is true only up to a point. As the American economy brought forth jobs in the spring, and the markets started to expect that the Fed would increase rates sooner rather than later, the dollar was boosted. A prime reason was that traders who had previously borrowed greenbacks in order to exchange them for other, higher-yielding currencies now needed to buy them back in a hurry. Lately, however, softer economic data have sown the idea that the Fed might not have to raise rates so far and fast after all. That has done the dollar no favours in recent days.
In the longer term, though, higher interest rates may be a curse for the dollar, not a blessing. To see why, look at that large and growing thing that goes under the name of America's current-account deficit. A country's current-account essentially comprises two things: the trade balance and net income from foreign investments. America runs a trade deficit that in April amounted to $48.3 billion, up from $46.6 billion in March. This alone implies an annual deficit pushing $600 billion, or 6% of GDP. The current-account deficit would be greater still if America did not make more money on its investments abroad than foreigners earn in the United States.
That it makes a profit is odd, because it has net foreign liabilities (ie, the value of Americans' assets abroad is less than that of foreign claims on America). According to the Department of Commerce's Bureau of Economic Analysis, net liabilities amounted to 24% of GDP last year. America has an investment-income surplus because yields are much lower at home than abroad. All things equal, says Goldman Sachs, a yield of 6% on ten-year Treasuries would add 1% of GDP to the current-account deficit within a few years.
Economists fret about America's current-account deficit because it is a measure both of America's ability (or inability) to save and its attractiveness to foreign investors. The country's heady growth of recent years has relied on foreigners' willingness to invest there: Americans, in effect, spend other people's money. That need not matter when the sums are small, but it does when they are large and getting larger. Most economists believe that at some point the dollar will need to get cheaper, maybe much cheaper, to encourage foreigners to finance the deficit. That point may be at hand.
There are two weighty pieces of evidence to support this view. The first is that America started this latest recovery much deeper in hock to the rest of the world than it did previous ones, says John Llewellyn, the chief economist at Lehman Brothers. As the chart overleaf shows, America has usually started to pull out of recession with its current account roughly in balance. This time, it began with a deficit of 3.2% of GDP. Because growth tends to increase the deficit—America has sucked in imports and borrowed more—the deficit has widened. “I can easily imagine it going to 7% and beyond,” says Mr Llewellyn.
The second piece of evidence comes from investors' behaviour. Some say that the deficit is not a problem, but simply reflects foreigners' boundless desire to invest in a vibrant economy. This may have been true once, but not any more. Net foreign direct investment (FDI) was negative, to the tune of $155 billion, in the past 12 months, says Goldman Sachs. This ought to be no surprise: in the first quarter returns on FDI in America were 5.5%, while those on FDI abroad were 11.7%.
In recent years, the current-account deficit has instead been financed by (less stable) portfolio flows into stocks and bonds. In the past year, three-quarters of such investment in America has gone into bonds. The biggest buyers have been Asian central banks, trying to keep their currencies from rising too swiftly against the dollar (or maintaining a fixed rate, in China) and parking the money in Treasuries.
But this intervention has had a cost: inflation. Because the central banks bought the dollars with newly minted local currency, inflationary pressures have risen throughout Asia. This is fine for Japan, which has deflation, but not for its neighbours. Intervention thus seems to have stopped; even Japan turned off the tap in March. The central banks might, of course, wade back in if their currencies rose too much. But given the risk of inflation, it would be brave to bet on this. And if they do not buy the buck, who will?
Jul 8th 2004
From The Economist print edition
After a buoyant start to the year, the dollar seems headed for a tumble
THERE was a time, not long ago, when economists and those who dabble in the foreign-exchange market could find scarcely a good thing to say about the dollar. Last year, John Snow, America's treasury secretary, even managed to transform his country's long-standing strong-dollar policy into a weak-dollar one. All this greatly irritated Europeans, especially; as the euro rose, international meetings of the great and the good were dominated by cross discussions about the beleaguered buck. Newspapers, including this one, were full of gloomy headlines suggesting that the greenback would, indeed should, fall farther.
So it did, for a while: by early January, the dollar was worth a quarter less, in trade-weighted terms, than it had been two years before. But when everyone is betting that a market will go one way, it often goes the other. By mid-May, the dollar had risen by 8%, bucked up, as it were, by the Bank of Japan, which bought ¥14.8 trillion ($138 billion) of foreign exchange in the first quarter, almost all of it dollars, in comfortably the largest-ever act of intervention by a central bank. Then, quietly, the dollar started to drop. By July 6th, it had fallen by 4.3% from its high. Not surprisingly, perhaps: the dollar's prospects look even worse now than they did last year.
The dollar's recent decline may seem puzzling, for it began while expectations were mounting that the Federal Reserve was about to put up interest rates. The decline has continued since those expectations were confirmed on June 30th. Rising interest rates, you might have thought, would halt any such decline.
That is true only up to a point. As the American economy brought forth jobs in the spring, and the markets started to expect that the Fed would increase rates sooner rather than later, the dollar was boosted. A prime reason was that traders who had previously borrowed greenbacks in order to exchange them for other, higher-yielding currencies now needed to buy them back in a hurry. Lately, however, softer economic data have sown the idea that the Fed might not have to raise rates so far and fast after all. That has done the dollar no favours in recent days.
In the longer term, though, higher interest rates may be a curse for the dollar, not a blessing. To see why, look at that large and growing thing that goes under the name of America's current-account deficit. A country's current-account essentially comprises two things: the trade balance and net income from foreign investments. America runs a trade deficit that in April amounted to $48.3 billion, up from $46.6 billion in March. This alone implies an annual deficit pushing $600 billion, or 6% of GDP. The current-account deficit would be greater still if America did not make more money on its investments abroad than foreigners earn in the United States.
That it makes a profit is odd, because it has net foreign liabilities (ie, the value of Americans' assets abroad is less than that of foreign claims on America). According to the Department of Commerce's Bureau of Economic Analysis, net liabilities amounted to 24% of GDP last year. America has an investment-income surplus because yields are much lower at home than abroad. All things equal, says Goldman Sachs, a yield of 6% on ten-year Treasuries would add 1% of GDP to the current-account deficit within a few years.
Economists fret about America's current-account deficit because it is a measure both of America's ability (or inability) to save and its attractiveness to foreign investors. The country's heady growth of recent years has relied on foreigners' willingness to invest there: Americans, in effect, spend other people's money. That need not matter when the sums are small, but it does when they are large and getting larger. Most economists believe that at some point the dollar will need to get cheaper, maybe much cheaper, to encourage foreigners to finance the deficit. That point may be at hand.
There are two weighty pieces of evidence to support this view. The first is that America started this latest recovery much deeper in hock to the rest of the world than it did previous ones, says John Llewellyn, the chief economist at Lehman Brothers. As the chart overleaf shows, America has usually started to pull out of recession with its current account roughly in balance. This time, it began with a deficit of 3.2% of GDP. Because growth tends to increase the deficit—America has sucked in imports and borrowed more—the deficit has widened. “I can easily imagine it going to 7% and beyond,” says Mr Llewellyn.
The second piece of evidence comes from investors' behaviour. Some say that the deficit is not a problem, but simply reflects foreigners' boundless desire to invest in a vibrant economy. This may have been true once, but not any more. Net foreign direct investment (FDI) was negative, to the tune of $155 billion, in the past 12 months, says Goldman Sachs. This ought to be no surprise: in the first quarter returns on FDI in America were 5.5%, while those on FDI abroad were 11.7%.
In recent years, the current-account deficit has instead been financed by (less stable) portfolio flows into stocks and bonds. In the past year, three-quarters of such investment in America has gone into bonds. The biggest buyers have been Asian central banks, trying to keep their currencies from rising too swiftly against the dollar (or maintaining a fixed rate, in China) and parking the money in Treasuries.
But this intervention has had a cost: inflation. Because the central banks bought the dollars with newly minted local currency, inflationary pressures have risen throughout Asia. This is fine for Japan, which has deflation, but not for its neighbours. Intervention thus seems to have stopped; even Japan turned off the tap in March. The central banks might, of course, wade back in if their currencies rose too much. But given the risk of inflation, it would be brave to bet on this. And if they do not buy the buck, who will?
July 9 The Philippine Stock Market Review
July 9 The Philippine Stock Market Review
Local investors were on selling spree as the Philippine equity market resumed its consolidation. The 30 company composite bellwether slipped a slight on .19% or 3.01 points as three index heavyweights decliners, namely Metrobank (-1.81%), SM Primeholdings (-1.61%) and San Miguel foreign or B shares (-1.42%) pounded on the sole advancer Ayala Corp (+1.81%). Ayala Land, Globe Telecoms, San Miguel local or A shares, Bank of the Philippine Islands and PLDT closed unchanged.
Declining issues led advancing issues 44 to 27, while industry indices were all in the red except for the mining index, portraying a broad market sell off in today’s trading. Aside, foreign capital saw more liquidations than accumulations although net foreign capital reported a positive P 36.149 million of inflows mostly due to the large acquisitions PLDT shares. Foreign trading activities contributed nearly three-fourths or 74.5% of today’s aggregate output, which suggests that foreign buying on select issues buoyed the market as most local investors reduced their portfolio positions or stayed on the sidelines.
The most conspicuous losers were the oil issues represented by its index that dived by a horrid 11.05%. Oriental Petroleum the index’s largest market cap crumbled by 9.09% while its Foreign or B shares collapsed by 13.04%. Philodrill, the second largest component of the index, saw its local shares stumble by 9.09% while its foreign shares crashed by 18.51%. Both of these companies are participants in the latest oil drilling project the Service Contract 41 led by the US energy company UNOCAL consortium at the Sandakan Basin in the Sulu Sea. Basic Consolidated another key participant likewise saw its shares shrivel by 11.76%. The frenetic selling could probably be due to insider information on the status of the oil drilling. This could be interpreted as a possible negative find in its second well, the Rhino-1. Curiously though, while the drilling has yet to hit its desired depth, as of July 7th, according to the DOE, “gas readings of 67,200 ppm or 336 units and 74,600 ppm or 382 units were encountered while drilling the well at a measured depth of 4,500 and 4,454 feet, respectively”, since these are engineering data and beyond our ambit of expertise for discernment, by the market’s response to the news, it may be well assumed that the disclosure probably signifies insufficient or non-commercial quantity of gas finds. However, once again, the targeted distance has yet to be reached by the consortium.
Local investors were on selling spree as the Philippine equity market resumed its consolidation. The 30 company composite bellwether slipped a slight on .19% or 3.01 points as three index heavyweights decliners, namely Metrobank (-1.81%), SM Primeholdings (-1.61%) and San Miguel foreign or B shares (-1.42%) pounded on the sole advancer Ayala Corp (+1.81%). Ayala Land, Globe Telecoms, San Miguel local or A shares, Bank of the Philippine Islands and PLDT closed unchanged.
Declining issues led advancing issues 44 to 27, while industry indices were all in the red except for the mining index, portraying a broad market sell off in today’s trading. Aside, foreign capital saw more liquidations than accumulations although net foreign capital reported a positive P 36.149 million of inflows mostly due to the large acquisitions PLDT shares. Foreign trading activities contributed nearly three-fourths or 74.5% of today’s aggregate output, which suggests that foreign buying on select issues buoyed the market as most local investors reduced their portfolio positions or stayed on the sidelines.
The most conspicuous losers were the oil issues represented by its index that dived by a horrid 11.05%. Oriental Petroleum the index’s largest market cap crumbled by 9.09% while its Foreign or B shares collapsed by 13.04%. Philodrill, the second largest component of the index, saw its local shares stumble by 9.09% while its foreign shares crashed by 18.51%. Both of these companies are participants in the latest oil drilling project the Service Contract 41 led by the US energy company UNOCAL consortium at the Sandakan Basin in the Sulu Sea. Basic Consolidated another key participant likewise saw its shares shrivel by 11.76%. The frenetic selling could probably be due to insider information on the status of the oil drilling. This could be interpreted as a possible negative find in its second well, the Rhino-1. Curiously though, while the drilling has yet to hit its desired depth, as of July 7th, according to the DOE, “gas readings of 67,200 ppm or 336 units and 74,600 ppm or 382 units were encountered while drilling the well at a measured depth of 4,500 and 4,454 feet, respectively”, since these are engineering data and beyond our ambit of expertise for discernment, by the market’s response to the news, it may be well assumed that the disclosure probably signifies insufficient or non-commercial quantity of gas finds. However, once again, the targeted distance has yet to be reached by the consortium.
CATO Institute: Good as Gold
Good as Gold
by Gerald P. O'Driscoll, Jr.
Gerald P. O'Driscoll, Jr., former vice president of the Federal Reserve Bank-Dallas, is a senior fellow at the Cato Institute.
"It is not easy to be born again." H. David Willey, a retired official with the New York Fed, framed the central problem confronting advocates of a return to a gold standard: how to effect a rebirth of gold. The occasion was a recent conference at the American Institute for Economic Research (AIER), nestled in the Berkshire Mountains of Western Massachusetts.
For 70 years, AIER has advocated a return to the classical gold standard, one in which gold coin actually circulates. What is surprising, however, is that a diverse group of academics, businessmen, and investors-- including at least our retired officials of the Federal Reserve System--gathered at AIERs campus to seriously discuss an issue with no apparent policy traction.
Inflation has been benign for a decade. We have been on the Greenspan standard, which until recently has been viewed "as good as gold." Chairman Greenspan's recent suggestion to bankers that the Fed might need to move aggressively to combat inflation called that conviction into question.
Financial markets have been fretting for some time about inflation. In a nation at war, the federal budget is bloated by a "guns and butter" policy of a president with an ambitious domestic agenda coupled with a forward defense posture. Monetary policy has been expansionary. Oil prices are setting records, at least in nominal terms, and there is a serious threat of further supply disruptions.
In short, many of the problems confronting Ronald Reagan when he took office as the nation's 40th president in 1981 are now present or anticipated. The Reagan administration is the last time a gold standard was seriously considered. In 1981, Congress agreed to an increase in the U.S. quota to the International Monetary Fund on the condition that a gold commission be appointed Senator Jesse Helms crafted that compromise.
Professor Anna J. Schwartz, who served as staff director of the U.S. Gold Commission, provided a concise history of the deliberations of that commission. The commission was highly politicized; the Fed was adamantly opposed to a return to gold; and the Reagan administration never backed a gold option. The commission issued an inconclusive report to Congress on March 31, 1982.
Gold proponents have long been critical of Professor Schwartz for having been hostile to gold, a charge she vigorously denied at the conference. Indeed, she buoyed the spirits of gold adherents by saying that it was time once again to seriously look at the operation of the gold standard.
There was consensus among the participants at the AIER gold conference on two points. First, monetary reform comes only as a consequence of economic and financial crisis. No one wished for such a crisis, but some feared we may be on the cusp of one. Second, the price at which gold and the dollar were pegged would be critical for the success or failure of any return to gold.
On the second point, there was no agreement on a figure for the peg. In a paper provocatively titled "Will the Gold in Ft. Knox be Enough?" Professor Lawrence H. White argued that, at a price of $400 per ounce of gold, there would be more than enough gold reserves for a return to the gold standard. Other participants suggested a much higher price would be required.
On the first point, Lee Hoskins, a former president of the Cleveland Fed, articulated the concerns of many. The central bank is once again behind the policy curve. The federal funds rate, the short-term interest rate at which commercial banks borrow from each other and which the Fed targets, is too low - perhaps two hundred basis points (two percentage points) too low.
The Fed has signaled that it will follow a gradualist approach to raising the federal funds rate. If past is prologue, then what economists call the "equilibrium" interest rate will rise more rapidly than the Fed ratchets up the funds rate. (The equilibrium interest rate is one at which is there is no inflationary pressure.) If that occurs, inflation will accelerate. The answer to Professor White's question might then become more than an academic exercise.
by Gerald P. O'Driscoll, Jr.
Gerald P. O'Driscoll, Jr., former vice president of the Federal Reserve Bank-Dallas, is a senior fellow at the Cato Institute.
"It is not easy to be born again." H. David Willey, a retired official with the New York Fed, framed the central problem confronting advocates of a return to a gold standard: how to effect a rebirth of gold. The occasion was a recent conference at the American Institute for Economic Research (AIER), nestled in the Berkshire Mountains of Western Massachusetts.
For 70 years, AIER has advocated a return to the classical gold standard, one in which gold coin actually circulates. What is surprising, however, is that a diverse group of academics, businessmen, and investors-- including at least our retired officials of the Federal Reserve System--gathered at AIERs campus to seriously discuss an issue with no apparent policy traction.
Inflation has been benign for a decade. We have been on the Greenspan standard, which until recently has been viewed "as good as gold." Chairman Greenspan's recent suggestion to bankers that the Fed might need to move aggressively to combat inflation called that conviction into question.
Financial markets have been fretting for some time about inflation. In a nation at war, the federal budget is bloated by a "guns and butter" policy of a president with an ambitious domestic agenda coupled with a forward defense posture. Monetary policy has been expansionary. Oil prices are setting records, at least in nominal terms, and there is a serious threat of further supply disruptions.
In short, many of the problems confronting Ronald Reagan when he took office as the nation's 40th president in 1981 are now present or anticipated. The Reagan administration is the last time a gold standard was seriously considered. In 1981, Congress agreed to an increase in the U.S. quota to the International Monetary Fund on the condition that a gold commission be appointed Senator Jesse Helms crafted that compromise.
Professor Anna J. Schwartz, who served as staff director of the U.S. Gold Commission, provided a concise history of the deliberations of that commission. The commission was highly politicized; the Fed was adamantly opposed to a return to gold; and the Reagan administration never backed a gold option. The commission issued an inconclusive report to Congress on March 31, 1982.
Gold proponents have long been critical of Professor Schwartz for having been hostile to gold, a charge she vigorously denied at the conference. Indeed, she buoyed the spirits of gold adherents by saying that it was time once again to seriously look at the operation of the gold standard.
There was consensus among the participants at the AIER gold conference on two points. First, monetary reform comes only as a consequence of economic and financial crisis. No one wished for such a crisis, but some feared we may be on the cusp of one. Second, the price at which gold and the dollar were pegged would be critical for the success or failure of any return to gold.
On the second point, there was no agreement on a figure for the peg. In a paper provocatively titled "Will the Gold in Ft. Knox be Enough?" Professor Lawrence H. White argued that, at a price of $400 per ounce of gold, there would be more than enough gold reserves for a return to the gold standard. Other participants suggested a much higher price would be required.
On the first point, Lee Hoskins, a former president of the Cleveland Fed, articulated the concerns of many. The central bank is once again behind the policy curve. The federal funds rate, the short-term interest rate at which commercial banks borrow from each other and which the Fed targets, is too low - perhaps two hundred basis points (two percentage points) too low.
The Fed has signaled that it will follow a gradualist approach to raising the federal funds rate. If past is prologue, then what economists call the "equilibrium" interest rate will rise more rapidly than the Fed ratchets up the funds rate. (The equilibrium interest rate is one at which is there is no inflationary pressure.) If that occurs, inflation will accelerate. The answer to Professor White's question might then become more than an academic exercise.
Thursday, July 08, 2004
World Bank: In Latin America, Civil Society Mobilizes Against Corruption
In Latin America, Civil Society Mobilizes Against Corruption. Transparency International estimates that bribes represent 10 percent of the value of public contracts in Latin America, reports Le Figaro (France). In central America, from Guatemala to Panama, the population is increasingly expressing its exasperation with the endemic phenomenon of corruption.
Salvador is currently rocked by the Anda affair, the French daily explains. The director of Anda, the national company in charge of the distribution of water, was arrested on charges of embezzlement of $6.1 million. Alfonso Portillo, ex-president of Guatemala, is under investigation for the creation of fourteen bank accounts in Panama and the embezzlement of $50 million in public funds. And Arnoldo Aleman, Nicaragua’s president between 1997 and 2002, was condemned to 20 years in prison for having organized a financial bridge between fifteen ministries and Panama, through which transited $97.2 million.
Meanwhile, the World Bank notes that corruption can cut a country’s GDP growth by 0.5 to 1 point. According to Transparency International’s annual Global Corruption Report, Honduras scored the lowest in 2003 with a score of 2.3 (out of 10, meaning complete transparency). Guatemala scored 2.4, Nicaragua 2.6, Panama 3.4, lower than Mexico’s 3.6 and Brazil’s 3.9 scores. Jaime Lopez, director of the association “Probidad,” based in Salvador, explains the paradox : “When a Brazilian politician embezzles $50 million, he doesn’t affect the economic stability of his country. In Central America, the impact is much stronger - $50 million is the budget of a ministry. A scandal like that of Anda in Salvador, compromised the production of drinkable water for a fourth of the country’s population.” The daily explains that an additional problem is that given the small size of the Central American states, corruption networks tend to melt into each other, as the Aleman affair demonstrates. This internationalization invalidates national audits.
Meanwhile, in a related piece, Le Figaro writes that in Mexico, corruption is costing more than national education. The World Bank estimates that corruption is engulfing 9 percent of Mexico’s GDP, compared to the 6.8 percent dedicated to national education. But Eduardo Romero-Ramos, director of the government’s anti-corruption program, explains that the situation has been getting better since 1997. He cites examples of an initiative the government is taking to curb corruption: by giving greater access to new technologies to the population, the government hopes to reduce the number of encounters between individuals and officials, and hence the temptation of bribery.
Furthermore, thanks to the adoption of a law on transparency one year ago, any citizen can access the government’s internet portal and request justifications of the government’s expenditures. This operation was funded by loans from the World Bank, amongst other lending bodies.
As for the financing of political parties, legislation is gradually limiting candidates’ access to private funds. Romero-Ramos points out that Federal Electoral Commission condemned Mexican President Vicente Fox’s party to very high fines for the irregularities in the financing of his campaign.
Salvador is currently rocked by the Anda affair, the French daily explains. The director of Anda, the national company in charge of the distribution of water, was arrested on charges of embezzlement of $6.1 million. Alfonso Portillo, ex-president of Guatemala, is under investigation for the creation of fourteen bank accounts in Panama and the embezzlement of $50 million in public funds. And Arnoldo Aleman, Nicaragua’s president between 1997 and 2002, was condemned to 20 years in prison for having organized a financial bridge between fifteen ministries and Panama, through which transited $97.2 million.
Meanwhile, the World Bank notes that corruption can cut a country’s GDP growth by 0.5 to 1 point. According to Transparency International’s annual Global Corruption Report, Honduras scored the lowest in 2003 with a score of 2.3 (out of 10, meaning complete transparency). Guatemala scored 2.4, Nicaragua 2.6, Panama 3.4, lower than Mexico’s 3.6 and Brazil’s 3.9 scores. Jaime Lopez, director of the association “Probidad,” based in Salvador, explains the paradox : “When a Brazilian politician embezzles $50 million, he doesn’t affect the economic stability of his country. In Central America, the impact is much stronger - $50 million is the budget of a ministry. A scandal like that of Anda in Salvador, compromised the production of drinkable water for a fourth of the country’s population.” The daily explains that an additional problem is that given the small size of the Central American states, corruption networks tend to melt into each other, as the Aleman affair demonstrates. This internationalization invalidates national audits.
Meanwhile, in a related piece, Le Figaro writes that in Mexico, corruption is costing more than national education. The World Bank estimates that corruption is engulfing 9 percent of Mexico’s GDP, compared to the 6.8 percent dedicated to national education. But Eduardo Romero-Ramos, director of the government’s anti-corruption program, explains that the situation has been getting better since 1997. He cites examples of an initiative the government is taking to curb corruption: by giving greater access to new technologies to the population, the government hopes to reduce the number of encounters between individuals and officials, and hence the temptation of bribery.
Furthermore, thanks to the adoption of a law on transparency one year ago, any citizen can access the government’s internet portal and request justifications of the government’s expenditures. This operation was funded by loans from the World Bank, amongst other lending bodies.
As for the financing of political parties, legislation is gradually limiting candidates’ access to private funds. Romero-Ramos points out that Federal Electoral Commission condemned Mexican President Vicente Fox’s party to very high fines for the irregularities in the financing of his campaign.
July 8 The Philippine Stock Market Review
The Phisix continued with its sideways movement as the declines of the FOUR major index heavyweights led to the Philippine benchmark index to close marginally lower by .18% or 2.92 points. Streaking hot PLDT finally saw some reprieve and closed 1.2% lower today accompanied by declines in Ayala Land down by 1.75%, Bank of the Philippine Islands lower by 1.17% and San Miguel foreign or B shares likewise lower by .71%. Cushioning the declines were advances in SM Primeholdings up by 1.63% and Metrobank higher by 1.85%. Globe Telecoms, Ayala Corp and San Miguel local shares closed unchanged for today.
The two major Telecom issues accounted for more than half or 54% of today’s output, although it seems that today’s stock darlings, a carry over from yesterday, were the still the cement issues led by Bacnotan Consolidated (surged by 29.29%), and Union Cement Corp (soared by 15%) on continued speculations arising from the recent buyout deals.
Market breadth indicated overall bearishness as decliners led advancers 38 to 21, while industry indices were mostly down except for the oil and banking and financing indices and lastly foreign money registered a puny P 3.369 million worth of outflows.
Moreover, foreign participation relative to today’s total output increased to about 70% while overseas investors bought one more company than it sold by 14 to 13, these suggests that foreign money had mixed sentiment over today’s trading activities and were cautiously positioning in select issues.
The load of today’s foreign selling was still directed to GLO, with Meralco B and Ayala Land among the top companies that recorded the largest outflows. On the other hand, SM Primeholdings one of today’s index heavyweight winners registered the largest inflows from foreign capital while Union Cement and First Philippine Holdings were also among the top shopping items for foreign investors.
Our market seems to reflect the sentiments of the region which as of these writing are mostly trading lower. Except for Pakistan whose remarkable gains upstages all the bourses in the region, India, Australia and Thailand are the other minor gainers whom defied the rather glum outlook.
It does seem that local investors, whom were the market movers for the past sessions over the week, were less active in today’s trades and were mostly on the selling side of the trade equation.
The major composite benchmark index has been attempting to encroach the 1,600-level barrier during the past sessions but has met considerable selling. One probable reason for the apparent inability to push beyond the said resistance level is that local investors have been unable to muster the sufficient force to drive the other index heavyweights higher. The market’s current “animal force” has been the foreign driven PLDT while the other heavyweights have variably performed. Local investors have seemingly been content to push second and third tier issues instead, which again highlights the namby-pamby speculative proclivities by most of the local investors.
The two major Telecom issues accounted for more than half or 54% of today’s output, although it seems that today’s stock darlings, a carry over from yesterday, were the still the cement issues led by Bacnotan Consolidated (surged by 29.29%), and Union Cement Corp (soared by 15%) on continued speculations arising from the recent buyout deals.
Market breadth indicated overall bearishness as decliners led advancers 38 to 21, while industry indices were mostly down except for the oil and banking and financing indices and lastly foreign money registered a puny P 3.369 million worth of outflows.
Moreover, foreign participation relative to today’s total output increased to about 70% while overseas investors bought one more company than it sold by 14 to 13, these suggests that foreign money had mixed sentiment over today’s trading activities and were cautiously positioning in select issues.
The load of today’s foreign selling was still directed to GLO, with Meralco B and Ayala Land among the top companies that recorded the largest outflows. On the other hand, SM Primeholdings one of today’s index heavyweight winners registered the largest inflows from foreign capital while Union Cement and First Philippine Holdings were also among the top shopping items for foreign investors.
Our market seems to reflect the sentiments of the region which as of these writing are mostly trading lower. Except for Pakistan whose remarkable gains upstages all the bourses in the region, India, Australia and Thailand are the other minor gainers whom defied the rather glum outlook.
It does seem that local investors, whom were the market movers for the past sessions over the week, were less active in today’s trades and were mostly on the selling side of the trade equation.
The major composite benchmark index has been attempting to encroach the 1,600-level barrier during the past sessions but has met considerable selling. One probable reason for the apparent inability to push beyond the said resistance level is that local investors have been unable to muster the sufficient force to drive the other index heavyweights higher. The market’s current “animal force” has been the foreign driven PLDT while the other heavyweights have variably performed. Local investors have seemingly been content to push second and third tier issues instead, which again highlights the namby-pamby speculative proclivities by most of the local investors.
Wednesday, July 07, 2004
July 7 The Philippine Stock Market Review
July 7 The Philippine Stock Market Review
Rampaging PLDT once again lifted the Philippine benchmark index, the Phisix near its psychological 1,600 resistance level (less than two points away) to close up .47% or 7.44 points. PLDT up 2.04% was supported by gains from SM Primeholdings higher 1.66% and counterbalanced the declines seen in other index heavyweights such as Metrobank declined by 1.81%, Ayala Corp lower 1.78% and San Miguel foreign or B shares down .7%. The other index heavyweights as Bank of the Philippine Islands, Globe Telecoms, San Miguel local or A shares and Ayala Land closed unchanged for the day. These eight index heavyweights constitutes more than 75% of the Phisix benchmark, meaning that most of the index’s moves are determined by the price changes of the 8 largest publicly listed companies.
Inflows of foreign capital to PLDT was an astounding 80% of the firms output and has practically imbued the largest chunk of overseas investments which recorded a net P 20.541 million for the entire market today.
Market sentiment despite closing higher had a generally bearish backdrop, decliners led advancers 39 to 24, while companies that registered foreign capital outflows were more than inflows by 18 to 15, and lastly, on per industry index, only the PLDT led commercial and industrial index and the property index accounted for gains while three indices the Banking and Finance, the extractive industries, oil and mining posted losses.
Our market’s performance probably mirrors that of the region as most of our neighboring bourses are now trading mixed on moderate levels, meaning that gains or losses are not substantial and could be construed as in consolidation, except for the sizable drop in Sri Lanka.
Cement companies were today’s top gainers as Bacnotan Consolidated hit the 50% ceiling after declaring a P 9 special cash dividend which represents 36.36% of its closing price at P 24.75. The frenetic buying of Bacnotan spilled over Union Cement up 42.85% and Republic Cement higher 31.03%. Recent news reports that Bacnotan Consolidated and Phinma sold their combined 51% stake at Union Cement to Cemco Holdings for $214 million.
Rampaging PLDT once again lifted the Philippine benchmark index, the Phisix near its psychological 1,600 resistance level (less than two points away) to close up .47% or 7.44 points. PLDT up 2.04% was supported by gains from SM Primeholdings higher 1.66% and counterbalanced the declines seen in other index heavyweights such as Metrobank declined by 1.81%, Ayala Corp lower 1.78% and San Miguel foreign or B shares down .7%. The other index heavyweights as Bank of the Philippine Islands, Globe Telecoms, San Miguel local or A shares and Ayala Land closed unchanged for the day. These eight index heavyweights constitutes more than 75% of the Phisix benchmark, meaning that most of the index’s moves are determined by the price changes of the 8 largest publicly listed companies.
Inflows of foreign capital to PLDT was an astounding 80% of the firms output and has practically imbued the largest chunk of overseas investments which recorded a net P 20.541 million for the entire market today.
Market sentiment despite closing higher had a generally bearish backdrop, decliners led advancers 39 to 24, while companies that registered foreign capital outflows were more than inflows by 18 to 15, and lastly, on per industry index, only the PLDT led commercial and industrial index and the property index accounted for gains while three indices the Banking and Finance, the extractive industries, oil and mining posted losses.
Our market’s performance probably mirrors that of the region as most of our neighboring bourses are now trading mixed on moderate levels, meaning that gains or losses are not substantial and could be construed as in consolidation, except for the sizable drop in Sri Lanka.
Cement companies were today’s top gainers as Bacnotan Consolidated hit the 50% ceiling after declaring a P 9 special cash dividend which represents 36.36% of its closing price at P 24.75. The frenetic buying of Bacnotan spilled over Union Cement up 42.85% and Republic Cement higher 31.03%. Recent news reports that Bacnotan Consolidated and Phinma sold their combined 51% stake at Union Cement to Cemco Holdings for $214 million.
Prudent Investor Comments on Businessworld's SEC urges bourse to sell derivatives, other products
SEC urges bourse to sell derivatives, other products
In order to boost profitability
By JENNEE GRACE U. RUBRICO, Senior Reporter
The Philippine Stock Exchange (PSE) can start selling derivatives and other products to boost its profitability, an official of the Securities and Exchange Commission (SEC) said.
The official said the bourse should start looking beyond the products it is currently selling and "discover" if derivatives would sell.
Derivatives are highly complicated tools mainly used to hedge against financial risks. They are so named because they derive their value from the price of an underlying asset such as bonds, common stocks, currencies or an index.
A holder of this kind of security can buy or sell an underlying security or commodity at some point in the future for a predetermined price. If the price of the underlying security or commodity moves in the right direction, the owners of the derivative make money; otherwise, they lose money.
Derivatives include stock options, interest rate swaps, futures, foreign exchange forwards or options, and credit default swaps.
Earlier, SEC Chairman Lilia R. Bautista suggested the PSE expand its products to include products sold by overseas bourses.
At present, the local exchange sells equities -- namely stocks, warrants, and Philippine deposit receipts -- and trading data. The exchange has also been selling small denominated treasury bonds, but these are set to mature this month.
"It's about time that they [PSE] consider selling derivatives they will only discover whether or not there is a market for this if they try to sell the products," the SEC official said.
She said other stock exchanges sell such products, but did not specify what kind of derivative products the PSE should sell.
An official of the PSE said the bourse is currently not selling derivative products.
But she said that rules for listing exchange-traded funds and real estate investment trust (REIT) are being studied.
A real estate investment trust is typically a closed-end investment trust that trades on an exchange and uses the pooled capital of investors to purchase and manage income properties. Equity REITs primarily own commercial real estate, such as shopping centers, apartments and industrial buildings.
Exchange-traded funds are similar to mutual funds, but are traded like stocks. They represent a basket of securities that are traded on an exchange.
The stock exchange is looking at ways of increasing its profitability and is currently working with a consultant that was tapped by the Asian Development Bank (ADB) to come up with ways to make the bourse an "earning exchange."
The consultant was tapped by the ADB as part of the technical assistance package it extended to strengthen the Philippine financial market, improve the PSE corporate governance, and identify steps to enhance the bourse' profitability profile to attract both local and foreign investors and eventually diversify ownership of the exchange.
***
The Prudent Investor:
The SEC has allowed the Philippine Stock Exchange to boost its profitability by expanding its product ranges to include that of the derivatives, Exchange Trade Funds, Real Estate Investment Trust (REIT) and others. While the intention to allow for a wide range of products to market to the public is ideal, what seems to be amiss is the fundamental cause of the underdevelopment of the Philippine Capital Markets.
Principally, the dynamics of the Capital markets are simply basic economics; demand and supply. An elementary representation of the capital market is the Stock Market, which simply is about equity. Companies raise capital through the market via the traditional route the initial public offering or the secondary offering or through the non-traditional route via backdoor, mergers and/or acquisitions. Moreover, the stock exchange functions to allow the market to value publicly listed companies as measured by the movements of its share prices.
The Philippine Stock Exchange, according to its website, “PSE traces its roots from the country's two former bourses: the Manila Stock Exchange (MSE) and the Makati Stock Exchange (MkSE). Founded in March 1927, the MSE was the first stock exchange in the Philippines and one of the oldest in the Far East.” While it is one of the oldest market in the Far East the harsh reality is that it remains as one of the smallest in the world in terms of market capitalization and in volume turnover.
In terms of market capitalization, the Phisix Composite Index is about $ 20 billion, while the entire Philippine Market excluding the International Insurance giants Manulife and Sunlife shares is about $25 billion. Neighboring Indonesia has a market cap of about $ 49 billion, while the Philippines only leads that of Pakistan, Sri Lanka and Vietnam.
In terms of volume turnover, for the first semester of the year, the Phisix averaged $12.865 million a day with foreign investors taking up 62.2% of the daily output. In other words, overseas investors invest more than Filipinos whose investments constitute only about $ 4.862 million a day or P 273 million a day. Yet the volume cited above includes the Special Block Sales which are negotiated special sales but are also reported as part of the market’s turnover. In comparison to our neighbors, Indonesia trades at no less than $100 million a day or even Argentina whose turnover is incrementally better than ours at least $15 million a day.
Simple arithmetic will tell you that if an average volume for a local investor, retail and institutional, would be around P 100,000 or about $ 1,800 per investor, this would translate to 2,730 investors. In 20 trading days a month assuming that an investor trades only once a month would mean 54,600 investors a month. Also assuming that an investor trades only once a year would mean an annualized 655,200 investors. Since the above assumptions limits investors to enter once a year, and is very restrictive the annualized figure would probably show a considerably lower stock market penetration level probably around the 300,000 level or lower.
The Philippines is said to have a population of about 82 million people. Five percent of these are reportedly the wealthy class or 4.1 million elite people, given the above figures, it is noteworthy that less than 10% of them are even invested in the stock market. Yet in perverse manner news reports show that some 1 million investors saw their investments of more than P 100 billion dissipate or lost to the recent pyramiding scams.
Question is why the low penetration level of the stock market? Could the poor turnover be attributed to fear arising from direct experience of loss? Or could distrusts emanating from the past anomalies be the factor that led to continued investor cynicism of the local stock market? Or could it be due to misplaced notions/impressions or the lack of information of the mechanics of stock market investing? In short, could demand be stimulated if these issues were promptly addressed? Or is it because of the lack of supply of investible instruments?
Considering that since the financial crisis in 1997, no Peso denominated assets appreciated despite the continued expansion of our money supply, where have all the money gone?
If the stock market is the elementary representation of the capital markets, of which local investors are seen as averse to invest, how will investors deal with even more complex markets as the derivatives, REIT’s, ETFs other products that came about as byproducts of mature markets?
Volume is the key to the diversification of product lines, when volume hardly exists supply side solutions are most likely bound to fail. Furthermore, lean volumes with loose controls are prone to manipulations like the defunct Manila International Futures Exchange (MIFE) experience.
If the SEC truly wants to augment the PSE’s profitability it should reform the stock market’s framework to that of global standards, in addition, institute parallel programs such as cross border listings, as the Mexico experience, or consider an intensive marketing program to tap the overseas Philippine workers and migrants to invest locally, as the Pakistan experience.
In order to boost profitability
By JENNEE GRACE U. RUBRICO, Senior Reporter
The Philippine Stock Exchange (PSE) can start selling derivatives and other products to boost its profitability, an official of the Securities and Exchange Commission (SEC) said.
The official said the bourse should start looking beyond the products it is currently selling and "discover" if derivatives would sell.
Derivatives are highly complicated tools mainly used to hedge against financial risks. They are so named because they derive their value from the price of an underlying asset such as bonds, common stocks, currencies or an index.
A holder of this kind of security can buy or sell an underlying security or commodity at some point in the future for a predetermined price. If the price of the underlying security or commodity moves in the right direction, the owners of the derivative make money; otherwise, they lose money.
Derivatives include stock options, interest rate swaps, futures, foreign exchange forwards or options, and credit default swaps.
Earlier, SEC Chairman Lilia R. Bautista suggested the PSE expand its products to include products sold by overseas bourses.
At present, the local exchange sells equities -- namely stocks, warrants, and Philippine deposit receipts -- and trading data. The exchange has also been selling small denominated treasury bonds, but these are set to mature this month.
"It's about time that they [PSE] consider selling derivatives they will only discover whether or not there is a market for this if they try to sell the products," the SEC official said.
She said other stock exchanges sell such products, but did not specify what kind of derivative products the PSE should sell.
An official of the PSE said the bourse is currently not selling derivative products.
But she said that rules for listing exchange-traded funds and real estate investment trust (REIT) are being studied.
A real estate investment trust is typically a closed-end investment trust that trades on an exchange and uses the pooled capital of investors to purchase and manage income properties. Equity REITs primarily own commercial real estate, such as shopping centers, apartments and industrial buildings.
Exchange-traded funds are similar to mutual funds, but are traded like stocks. They represent a basket of securities that are traded on an exchange.
The stock exchange is looking at ways of increasing its profitability and is currently working with a consultant that was tapped by the Asian Development Bank (ADB) to come up with ways to make the bourse an "earning exchange."
The consultant was tapped by the ADB as part of the technical assistance package it extended to strengthen the Philippine financial market, improve the PSE corporate governance, and identify steps to enhance the bourse' profitability profile to attract both local and foreign investors and eventually diversify ownership of the exchange.
***
The Prudent Investor:
The SEC has allowed the Philippine Stock Exchange to boost its profitability by expanding its product ranges to include that of the derivatives, Exchange Trade Funds, Real Estate Investment Trust (REIT) and others. While the intention to allow for a wide range of products to market to the public is ideal, what seems to be amiss is the fundamental cause of the underdevelopment of the Philippine Capital Markets.
Principally, the dynamics of the Capital markets are simply basic economics; demand and supply. An elementary representation of the capital market is the Stock Market, which simply is about equity. Companies raise capital through the market via the traditional route the initial public offering or the secondary offering or through the non-traditional route via backdoor, mergers and/or acquisitions. Moreover, the stock exchange functions to allow the market to value publicly listed companies as measured by the movements of its share prices.
The Philippine Stock Exchange, according to its website, “PSE traces its roots from the country's two former bourses: the Manila Stock Exchange (MSE) and the Makati Stock Exchange (MkSE). Founded in March 1927, the MSE was the first stock exchange in the Philippines and one of the oldest in the Far East.” While it is one of the oldest market in the Far East the harsh reality is that it remains as one of the smallest in the world in terms of market capitalization and in volume turnover.
In terms of market capitalization, the Phisix Composite Index is about $ 20 billion, while the entire Philippine Market excluding the International Insurance giants Manulife and Sunlife shares is about $25 billion. Neighboring Indonesia has a market cap of about $ 49 billion, while the Philippines only leads that of Pakistan, Sri Lanka and Vietnam.
In terms of volume turnover, for the first semester of the year, the Phisix averaged $12.865 million a day with foreign investors taking up 62.2% of the daily output. In other words, overseas investors invest more than Filipinos whose investments constitute only about $ 4.862 million a day or P 273 million a day. Yet the volume cited above includes the Special Block Sales which are negotiated special sales but are also reported as part of the market’s turnover. In comparison to our neighbors, Indonesia trades at no less than $100 million a day or even Argentina whose turnover is incrementally better than ours at least $15 million a day.
Simple arithmetic will tell you that if an average volume for a local investor, retail and institutional, would be around P 100,000 or about $ 1,800 per investor, this would translate to 2,730 investors. In 20 trading days a month assuming that an investor trades only once a month would mean 54,600 investors a month. Also assuming that an investor trades only once a year would mean an annualized 655,200 investors. Since the above assumptions limits investors to enter once a year, and is very restrictive the annualized figure would probably show a considerably lower stock market penetration level probably around the 300,000 level or lower.
The Philippines is said to have a population of about 82 million people. Five percent of these are reportedly the wealthy class or 4.1 million elite people, given the above figures, it is noteworthy that less than 10% of them are even invested in the stock market. Yet in perverse manner news reports show that some 1 million investors saw their investments of more than P 100 billion dissipate or lost to the recent pyramiding scams.
Question is why the low penetration level of the stock market? Could the poor turnover be attributed to fear arising from direct experience of loss? Or could distrusts emanating from the past anomalies be the factor that led to continued investor cynicism of the local stock market? Or could it be due to misplaced notions/impressions or the lack of information of the mechanics of stock market investing? In short, could demand be stimulated if these issues were promptly addressed? Or is it because of the lack of supply of investible instruments?
Considering that since the financial crisis in 1997, no Peso denominated assets appreciated despite the continued expansion of our money supply, where have all the money gone?
If the stock market is the elementary representation of the capital markets, of which local investors are seen as averse to invest, how will investors deal with even more complex markets as the derivatives, REIT’s, ETFs other products that came about as byproducts of mature markets?
Volume is the key to the diversification of product lines, when volume hardly exists supply side solutions are most likely bound to fail. Furthermore, lean volumes with loose controls are prone to manipulations like the defunct Manila International Futures Exchange (MIFE) experience.
If the SEC truly wants to augment the PSE’s profitability it should reform the stock market’s framework to that of global standards, in addition, institute parallel programs such as cross border listings, as the Mexico experience, or consider an intensive marketing program to tap the overseas Philippine workers and migrants to invest locally, as the Pakistan experience.
Tuesday, July 06, 2004
Bloomberg's Andy Mukherjee: India Gets Serious About Paring Budget Deficit
July 6 (Bloomberg) -- India's new government has given a strong hint that its annual budget on Thursday may turn out to be the country's much-awaited first step on the long, arduous -- and ultimately rewarding -- road to fiscal prudence.
On Friday, the finance ministry vowed to cut the budget deficit by 0.3 percent of gross domestic product annually. The pledge has been included in a law, the Fiscal Responsibility and Budget Management Act, which came into force yesterday.
There's more. If by mid-year, the deficit is more than 45 percent of the annual target, the government will be required to take corrective action, and make a statement in parliament. From April 1, 2006, the government can't borrow from the central bank.
For investors, who have driven down the Sensex stock index by 17 percent this year, and caused 10-year bond yields to rise as much as two-thirds of a percentage point, it's the first good news since a communist-supported alliance came to power in May, raising concerns of higher public spending, bigger budget gaps, lower sovereign ratings, and costlier capital for companies.
Standard & Poor's made it clear as early as May 31 that the government had no choice. ``The 2004 budget,'' the rating company said, ``will be the litmus test of either fiscal consolidation or the continuation of India's parlous fiscal record.''
Why are investors and credit rating companies making such a big deal of the deficit when the Indian economy grew 8.2 percent in the first quarter of this year, a rate second only to China's 9.8 percent among the world's top 20 economies?
Deficit Poses Risks
For an appreciation of the risks, recall India's 1991 balance-of-payment crisis, when the country's foreign currency reserves were almost depleted.
In the year to March 31, 1991, the combined budget deficit of India's federal and provincial governments was 9.4 percent of GDP. Today's situation is no different. The total deficit for the year ended March 2004 is expected to have been 9.1 percent. Meanwhile, the government's indebtedness has risen: Public debt now equals 77 percent of GDP, versus 62 percent in 1991.
What may be preventing another crisis is that unlike in the mid-1980s, when India started running large current account deficits possibly as a result of high budget deficits, the country now has the comfort of a record current account surplus, thanks, largely to booming software exports. India now has foreign exchange reserves that can pay for 19 months of imports.
Many economists say that a developing country like India should run a small current account deficit, and finance it by foreign capital. A current account surplus and rising foreign currency reserves are signs an undervalued domestic currency may be curbing private consumption and investment.
Drag on Rupee
However, for the authorities to allow the rupee to appreciate, the budget deficit must narrow. Else, we could again see a crisis of confidence among investors. There's already some nervousness that a part of the unprecedented $22.7 billion of capital inflows into India last year may reverse once the U.S. Federal Reserve raises interest rates further.
Thus, by adopting the Fiscal Responsibility law days before the budget, Finance Minister P. Chidambaram may be seeking to lessen investor concerns, and at the same time laying the foundation for higher economic growth.
The promise is ``likely to reassure jittery investors,'' says Rajeev Malik, an economist at J.P. Morgan Chase & Co. in Singapore. The federal government's deficit in the year to March 31, 2005, will be brought down to 4.2 percent of GDP, from 4.5 percent in the previous 12 months, Malik estimates.
Investors' attention will shift to the mechanics of how Chidambaram will meet his goal. Will he focus on the numerator of the deficit ratio, or take refuge in the denominator? In other words, will the government's debt sales reduce? Or will economic growth coupled with quickening inflation increase the nominal GDP, so that the deficit ratio falls even with higher borrowings?
Bond Market
The difference will matter to the bond market.
``A modest rise in the borrowing program has already been discounted,'' S.P. Prabhu, head of fixed-income research at IDBI Capital Market Services Ltd., a primary dealer in Mumbai, said on Saturday. ``However, if the rise in the borrowing program is large, concerns of oversupply of paper will dominate the sentiment,'' Prabhu said in a research note to clients.
If the finance minister is serious about keeping a tight rein on borrowings, the only option before him is to raise tax revenue. A surcharge on personal and corporate income taxes to finance education is widely expected, as is a plan to raise the tax rate on banking, railway, insurance and other services.
It'll be interesting to see how Chidambaram proposes to increase -- in the eight remaining months of the current fiscal year -- revenue from services, which account for more than half of GDP and yield just 3 percent of the government's total taxes.
The finance minister has set himself a tough target. If he fails, ``it will be a loss of credibility for him,'' says Saumitra Chaudhuri, economic adviser at New Delhi-based credit rating company ICRA Ltd. ``It would be difficult to explain why the targets can't be met in the first year itself.''
On Friday, the finance ministry vowed to cut the budget deficit by 0.3 percent of gross domestic product annually. The pledge has been included in a law, the Fiscal Responsibility and Budget Management Act, which came into force yesterday.
There's more. If by mid-year, the deficit is more than 45 percent of the annual target, the government will be required to take corrective action, and make a statement in parliament. From April 1, 2006, the government can't borrow from the central bank.
For investors, who have driven down the Sensex stock index by 17 percent this year, and caused 10-year bond yields to rise as much as two-thirds of a percentage point, it's the first good news since a communist-supported alliance came to power in May, raising concerns of higher public spending, bigger budget gaps, lower sovereign ratings, and costlier capital for companies.
Standard & Poor's made it clear as early as May 31 that the government had no choice. ``The 2004 budget,'' the rating company said, ``will be the litmus test of either fiscal consolidation or the continuation of India's parlous fiscal record.''
Why are investors and credit rating companies making such a big deal of the deficit when the Indian economy grew 8.2 percent in the first quarter of this year, a rate second only to China's 9.8 percent among the world's top 20 economies?
Deficit Poses Risks
For an appreciation of the risks, recall India's 1991 balance-of-payment crisis, when the country's foreign currency reserves were almost depleted.
In the year to March 31, 1991, the combined budget deficit of India's federal and provincial governments was 9.4 percent of GDP. Today's situation is no different. The total deficit for the year ended March 2004 is expected to have been 9.1 percent. Meanwhile, the government's indebtedness has risen: Public debt now equals 77 percent of GDP, versus 62 percent in 1991.
What may be preventing another crisis is that unlike in the mid-1980s, when India started running large current account deficits possibly as a result of high budget deficits, the country now has the comfort of a record current account surplus, thanks, largely to booming software exports. India now has foreign exchange reserves that can pay for 19 months of imports.
Many economists say that a developing country like India should run a small current account deficit, and finance it by foreign capital. A current account surplus and rising foreign currency reserves are signs an undervalued domestic currency may be curbing private consumption and investment.
Drag on Rupee
However, for the authorities to allow the rupee to appreciate, the budget deficit must narrow. Else, we could again see a crisis of confidence among investors. There's already some nervousness that a part of the unprecedented $22.7 billion of capital inflows into India last year may reverse once the U.S. Federal Reserve raises interest rates further.
Thus, by adopting the Fiscal Responsibility law days before the budget, Finance Minister P. Chidambaram may be seeking to lessen investor concerns, and at the same time laying the foundation for higher economic growth.
The promise is ``likely to reassure jittery investors,'' says Rajeev Malik, an economist at J.P. Morgan Chase & Co. in Singapore. The federal government's deficit in the year to March 31, 2005, will be brought down to 4.2 percent of GDP, from 4.5 percent in the previous 12 months, Malik estimates.
Investors' attention will shift to the mechanics of how Chidambaram will meet his goal. Will he focus on the numerator of the deficit ratio, or take refuge in the denominator? In other words, will the government's debt sales reduce? Or will economic growth coupled with quickening inflation increase the nominal GDP, so that the deficit ratio falls even with higher borrowings?
Bond Market
The difference will matter to the bond market.
``A modest rise in the borrowing program has already been discounted,'' S.P. Prabhu, head of fixed-income research at IDBI Capital Market Services Ltd., a primary dealer in Mumbai, said on Saturday. ``However, if the rise in the borrowing program is large, concerns of oversupply of paper will dominate the sentiment,'' Prabhu said in a research note to clients.
If the finance minister is serious about keeping a tight rein on borrowings, the only option before him is to raise tax revenue. A surcharge on personal and corporate income taxes to finance education is widely expected, as is a plan to raise the tax rate on banking, railway, insurance and other services.
It'll be interesting to see how Chidambaram proposes to increase -- in the eight remaining months of the current fiscal year -- revenue from services, which account for more than half of GDP and yield just 3 percent of the government's total taxes.
The finance minister has set himself a tough target. If he fails, ``it will be a loss of credibility for him,'' says Saumitra Chaudhuri, economic adviser at New Delhi-based credit rating company ICRA Ltd. ``It would be difficult to explain why the targets can't be met in the first year itself.''
Bloomberg: Brazil Stock Market Has 1st Foreign Outflow in Year
July 5 (Bloomberg) -- Brazil's stock market, the largest in Latin America, had its first outflow of foreign capital in June in more than a year as investors anticipated higher U.S. interest rates would damp demand for Brazilian equities.
The Sao Paulo stock exchange reported 572 million reais ($189 million) of foreign capital moved out of the market in June as international investors bought 5.723 million reais in shares and sold 6.295 million reais worth, according to its Web site. The Bovespa hasn't had an outflow since May 2003.
Investors such as Urban Larson at Baring Asset Management cut back holdings in Brazil before the U.S. Federal Reserve on June 30 raised its benchmark lending rate to 1.25 percent from 1 percent. Brazil's benchmark Bovespa stock index, the world's second-best performer last year after China, has dropped about 7 percent in dollar terms this year.
``We reduced our assets in Brazil gradually over the last few months as we expected the market to underperform in a tightening cycle of rates in the U.S.,'' said Larson, who helps manage about $250 million in Latin American equities at Baring Asset Management in Boston. Brazil's stock market has a value of $212 billion compared with $160 billion for Mexico's, according to Bloomberg data. Brazil is among developing nations that rely on funding from international bondholders and may have to pay higher borrowing rates because of rising rates in the U.S., the Bank for International Settlements said in June.
Brazil's Debt Brazil has $400 billion of government debt, more than any other developing nation.
Net Servicos de Comunicacao SA, the country's largest cable television operator, was the worst performer on the Sao Paulo stock exchange last month, falling 17 percent. The Sao Paulo-based company, which has made only one quarterly profit in more than nine years, is in talks with creditors after defaulting on $870 million of bonds in December 2002.
Telefonos de Mexico SA, Mexico's largest fixed-line telephone company, said on June 28 it may buy as much as 60 percent of Net Servicos. As part of the transaction, Net Servicos would sell as many as 1.83 billion new voting and non- voting shares.
The Bovespa index rose 12 percent in dollar terms in June, after falling the previous two months, as government data showed the economy pulling out of last year's recession. Bank lending increased by the most in at least 18 months in May and Brazil's unemployment rate fell from a three-year high. The nation's trade surplus surged to a record $3.8 billion in June.
Growth Forecast
The government forecasts the economy will expand 3.5 percent this year. ``If you look at Brazil in isolation it looks great,'' Larson said. ``If you look in the global context there are more causes for concern.''
The Bovespa index today rose 0.5 percent to 21,670.29.
The pullout from Brazil's stock market may have been overdone ahead of the Fed's decision on rates said Adriano Fontes, who helps manage about 1.2 billion reais of stocks and bonds at Arx Capital Management in Rio de Janeiro.
``There was more defensive behavior from investors at the beginning of the month with doubts on what the Fed would do,'' Fontes said. ``But the good mood came back with the improving economic numbers.''
Brazilian companies also are beginning to tap equity markets for financing, with the first initial public offerings in more than two years. On May 26, Natura Cosmeticos SA, Brazil's biggest cosmetics company, started trading at the exchange in the first IPO in Brazil since Cia. De Concessoes Rodoviarias, a Brazilian toll road operator, listed shares in February 2002.
Gol Linhas Aereas Inteligentes SA, Brazil's third-largest airline, and America Latina Logistica, Latin America's largest railroad operator, both started trading in June.
The Sao Paulo stock exchange reported 572 million reais ($189 million) of foreign capital moved out of the market in June as international investors bought 5.723 million reais in shares and sold 6.295 million reais worth, according to its Web site. The Bovespa hasn't had an outflow since May 2003.
Investors such as Urban Larson at Baring Asset Management cut back holdings in Brazil before the U.S. Federal Reserve on June 30 raised its benchmark lending rate to 1.25 percent from 1 percent. Brazil's benchmark Bovespa stock index, the world's second-best performer last year after China, has dropped about 7 percent in dollar terms this year.
``We reduced our assets in Brazil gradually over the last few months as we expected the market to underperform in a tightening cycle of rates in the U.S.,'' said Larson, who helps manage about $250 million in Latin American equities at Baring Asset Management in Boston. Brazil's stock market has a value of $212 billion compared with $160 billion for Mexico's, according to Bloomberg data. Brazil is among developing nations that rely on funding from international bondholders and may have to pay higher borrowing rates because of rising rates in the U.S., the Bank for International Settlements said in June.
Brazil's Debt Brazil has $400 billion of government debt, more than any other developing nation.
Net Servicos de Comunicacao SA, the country's largest cable television operator, was the worst performer on the Sao Paulo stock exchange last month, falling 17 percent. The Sao Paulo-based company, which has made only one quarterly profit in more than nine years, is in talks with creditors after defaulting on $870 million of bonds in December 2002.
Telefonos de Mexico SA, Mexico's largest fixed-line telephone company, said on June 28 it may buy as much as 60 percent of Net Servicos. As part of the transaction, Net Servicos would sell as many as 1.83 billion new voting and non- voting shares.
The Bovespa index rose 12 percent in dollar terms in June, after falling the previous two months, as government data showed the economy pulling out of last year's recession. Bank lending increased by the most in at least 18 months in May and Brazil's unemployment rate fell from a three-year high. The nation's trade surplus surged to a record $3.8 billion in June.
Growth Forecast
The government forecasts the economy will expand 3.5 percent this year. ``If you look at Brazil in isolation it looks great,'' Larson said. ``If you look in the global context there are more causes for concern.''
The Bovespa index today rose 0.5 percent to 21,670.29.
The pullout from Brazil's stock market may have been overdone ahead of the Fed's decision on rates said Adriano Fontes, who helps manage about 1.2 billion reais of stocks and bonds at Arx Capital Management in Rio de Janeiro.
``There was more defensive behavior from investors at the beginning of the month with doubts on what the Fed would do,'' Fontes said. ``But the good mood came back with the improving economic numbers.''
Brazilian companies also are beginning to tap equity markets for financing, with the first initial public offerings in more than two years. On May 26, Natura Cosmeticos SA, Brazil's biggest cosmetics company, started trading at the exchange in the first IPO in Brazil since Cia. De Concessoes Rodoviarias, a Brazilian toll road operator, listed shares in February 2002.
Gol Linhas Aereas Inteligentes SA, Brazil's third-largest airline, and America Latina Logistica, Latin America's largest railroad operator, both started trading in June.
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