BAIPHIL Market Watch – 03 October 2017Page 1 of 9

Go To Homepage

BAIPHILMARKETWATCH~ Scaling New Heights In Banking Excellence ~

03 Oct2017

LegendImprovement / UpDeterioration / DownNo Movement

FINANCIAL MARKETS AT A GLANCEPHILIPPINES Financial Rates Current Previous

USD/PHP 51.0800 50.8200

30-D PDST-R1 2.6714% 2.5036%91-D PDST-R1 2.0360% 2.0247%180-D PDST-R1 2.9589% 2.9071%1-Y PDST-R1 3.0457% 2.8702%10-Y PDST-R1 4.6086% 4.6065%

30-D PDST-R2 2.6714% 2.5036%91-D PDST-R2 2.0354% 2.0251%180-D PDST-R2 2.9589% 2.4988%1-Y PDST-R2 3.0457% 2.8674%10-Y PDST-R2 4.6127% 4.6085%

Stock Index Current PreviousPSEi 8,256.28 8,171.43Market Cap (Php Trillion) 13.890 13.817Total Value (Php Billion) 7.714 7.733

PSEi Performers Last Price % ChangeTop GainersTraveller’s International 4.20 9.09%Italpinas Development Corp 4.80 7.87%Apollo Global Capital 0.045 7.14%

Top LosersPhilippine Trust Company 116.00 -17.14%Panasonic Manufacturing 11.60 -14.33%Bogo- Medellin Milling 110.50 -7.92%

ASIA-PACIFIC Stock Index Current PreviousNIKKEI 20,400.78 20,356.28HANG SENG Closed 27,554.30SHANGHAI Closed 3,349.22STRAITS 3,253.26 3,219.91SET 1,689.93 1,673.16JAKARTA 5,925.19 5,900.85

Currency Exchange Current PreviousUSD/JPY 112.8700 112.4500USD/HKD Closed 7.8111USD/CNY Closed 6.6533USD/SGD 1.3608 1.3572USD/THB 33.4000 33.3200USD/IDR 13,543.00 13,461.00

REST OF THEWORLD

Stock Index Current PreviousFTSEuro First 300 1,539.41 1,524.79FTSE 100 7,438.84 7,372.76DAX 12,902.65 12,828.86CAC 40 5,350.44 5,329.81DOW JONES 22,557.60 22,405.09S&P 500 2,529.12 2,519.36NASDAQ 6,516.72 6,495.96

,

Various Current PreviousEUR/USD 1.1730 1.1812GBP/USD 1.3270 1.3396Gold Spot (USD/oz) 1,272.70 1,282.80Brent Crude(USD/bbl) 57.52 56.793-M US Treasury Yield 1.01% 1.03%10-Y US Treasury Yield 2.34% 2.32%30-Y US Treasury Yield 2.86% 2.85%

PHILIPPINES

The local stock barometer climbed back to the 8,200 level on Monday, riding on a regional upswing driven by upbeat factory gauge out ofChina and Japan. The main-share Philippine Stock Exchange index gained 84.85 points or 1.04 percent to close at 8,256.28.Regional risk-taking was supported by news that China’s September factory activity had expanded at the fastest pace in five years whileseveral indicators out of Japan likewise indicated a pick-up in manufacturing output. At the local market, the day’s upswing was led by theholding firm sub-index, which rose by 1.97 percent while the financial and property counters likewise advanced by 0.78 percent and 0.94percent, respectively. On the other hand, the industrial, services and mining/oil counters slipped. “Markets began their positioning to kick offfourth quarter 2017 by buying up the market once more,” said Regina Capital Development managing director Luis Gerardo Limlingan.“There was also a spillover as US stocks ended the month (of September) at a stronger note,” Limlingan added. Value turnover for the dayamounted to P7.41 billion. Domestic investors were the ones who mostly supported the day’s upswing as foreign investors were in a netselling position amounting to P271.46 million. There were 107 advancers that edged out 96 decliners while 52 stocks were unchanged.

The peso weakened versus the dollar on Monday, moving in sync with regional currencies as higher yields in the United States supportedthe currency amid continued bets of a December rate hike. The local unit closed at P51.08 yesterday, tumbling by 26.5 centavos from

BAIPHIL Market Watch – 03 October 2017Page 2 of 9

the P50.815-per-dollar finish logged on Friday. This is the peso’s worst showing in two weeks or since the P51.10 rate logged on Sept.18. The peso traded weaker throughout the session as it opened at P50.90, which also happened to be its best showing that day. It hitP51.10 as its intraday low.

BMI Research said it has adopted a neutral view on the Philippine peso over the next three to six months and raised its forecastfor the currency to close at 51 to $1 by the end of 2017. “Over the near-term, we hold a neutral view on the peso as upside anddownside pressures appear roughly balanced, informing our forecast for the currency to end the year at 51 to $1,” BMI Research said. Onthe downside, BMI said the local currency is still looking technically weak, and the ongoing rally in global oil prices could spell a negativeimpact on the Philippines in terms of trade. However, the research firm said it expects the peso to trade sideways in the near-term with theBangko Sentral ng Pilipinas seen to hike interest rates in the coming months, preventing the further narrowing of real interest differentialsbetween the US and the Philippines. “We forecast the BSP to hike interest rates by 25 basis points before end-2017 (versus zero US ratehikes for the rest of the year), and once again in 2018 and this will likely be supportive of the peso,” BMI said. The peso has been one ofthe worst performing currencies in Asia. Year-to-date, the currency weakened by around 2.4 percent against the dollar, BMI said.“However, in total terms, the peso has still outperformed the greenback,” BMI said. Over the long run, BMI said it continues to see the pesooutperform the greenback in total return terms, forecasting the currency to average 50.75 to $1 in 2018 and 50.37 to $1 in 2019. Theresearch firm said it expects the currency to slightly appreciate against the dollar in the coming quarters on the back of higher real interestrate (vis-à-vis the US), anchored inflation expectations and strong economic growth. “In addition, following the peso’s slide against thedollar over the last few quarters, the peso’s real effective exchange rate is now trading below its five-year moving average. This implies thatthe currency is trading at slightly below fair value and given the potential for valuations to mean-revert over time, this should act as atailwind for the currency,” BMI Research said.

Inflation likely rose within the 2.8 percent to 3.6 percent range in September due to higher fuel, electricity and food prices, as wellas the further weakening of the peso, the Bangko Sentral ng Pilipinas (BSP) said. “The forecast of the BSP’s Department ofEconomic Research suggests that September 2017 inflation could settle within the 2.8 to 3.6 percent range,” the BSP said in a statement.Headline inflation climbed to 3.1 percent in August from 2.8 percent the previous month, and two percent in August last year. This broughtaverage inflation to 3.1 percent in the first eight months. The BSP’s economic research group said the expected uptick in inflation couldhave been driven by higher petroleum prices, increase in electricity rates, the rise in prices of rice during lean months, and the weakerpeso. “Higher prices of petroleum and rice, along with the increase in electricity rates in Meralco serviced areas and a more depreciatedpeso were seen to contribute to the upward prices pressures for the month,” the BSP said. Earlier, Meralco announced that electricity ratesin September went up P0.8642 per kilowatt hour to settle at P8.09 per kilowatt hour. Latest data from the Philippine Statistics Authority alsoshowed the farmgate price of palay as of the third week of September rose to P19.49 per kilogram as compared to P18.59 per kilogram inthe same period last year. The peso, meanwhile, continued to hover near the 51 to $1 level during the month in review. Despite theprojected pick up in inflation, the BSP said average inflation for 2017 is still expected to be within the government’s two to four percenttarget. Earlier, BSP Governor Nestor Espenilla said inflation is projected to settle near the mid-point of the target range between 2017 and2019. He further noted the within-target inflation gives the BSP the flexibility to assess its monetary tools and strengthen its responsivenessto the evolving requirements of the economy. During its latest meeting last Sept.20, the Monetary Board of the BSP kept interest ratessteady on the back of the manageable inflation environment. Espenilla said while balance of risks to the inflation continue to be on theupside due to the proposed tax reform program, various social safety nets and the resulting improvement in output and productivity areexpected to temper its impact on inflation.

The country’s international investment position (IIP) weakened as of end-June due to higher net liability position, according tothe Bangko Sentral ng Pillipinas (BSP). According to preliminary IIP data, the country’s net external liability position reached $33.8billion, higher than the end-March level of $29.2 billion. This came as external financial liabilities rose 3.2 percent to $198.3 billion as ofJune from $192.24 billion as of end-March, outpacing the 0.9 percent growth of external financial assets to $164.53 billion from $162.99billion. IIP is a stock estimate of the country’s foreign financial assets and foreign financial liabilities outstanding as of a certain period.According to the BSP, the growth in external financial liabilities during the quarter can be attributed to the positive price revaluation of non-residents’ holdings of domestic equity securities and equity capital. “Inflows of foreign direct and portfolio investments likewise contributedto the increase in the country’s external financial liability position,” the BSP said. As of end-June, foreign direct investments expanded 4.9percent to $70.11 billion from its end-March level on the back of the sustained economic growth performance and prospects of thePhilippines. Portfolio investments rose 4.8 percent to $78.82 billion over the same period, reflecting the 7.3 percent growth in the PhilippineStock Exchange Index. Meanwhile, the BSP said the increase in external financial assets for the period ending June was driven by theincrease in other investments, particularly those in the form of loans extended to non-residents, and the accumulation of the country’sreserve assets. Across sectors, the BSP said it is the only one that has maintained a net external asset position as of end-June. “The othermajor sectors – deposit-taking corporations except central banks, the general government, and other sectors – remained net users offoreign resources as they posted net external liability positions,” the central bank said. The BSP said it also continued to account for thelargest share of the country’s total external financial claims at 49.5 percent. As of end-June, the BSP’s external financial assets amountedto $81.4 billion, the bulk of which consisted of gross international reserves, which grew to $81.3 billion as of end-June.

Offshore gaming is expected to continue growing in the Philippines and further push demand for office space. Industry sourcessaid the Philippine Amusement and Gaming Corp. (Pagcor) has issued 45 Philippine Offshore Gaming Operation (POGO) licenses and isexpected to issue more because of strong demand. Megaworld senior vice president Jericho Go said demand for POGO office space hasindeed been growing. Property and real estate expert David Leechiu, CEO and president of Leechiu Property Consultants said the growthof this segment is making up for the softening demand from the business process outsourcing (BPO) industry. Current demand for officespace created by online gaming is pegged at 125,000 square meters as of the third quarter and is quickly catching up with BPO industrydemand which registered at 268,000 sqm. over the same period. Growth will continue, Leechiu said. He said robust growth of the onlinegaming segment would push demand for office space for the year to 750,000 sqm, up 19 percent from the 2016 figure despite weakeningtakeup from BPOs. In 2016, online gaming transactions registered at 56,700 sqm. It has since more than doubled with firms in this spacepreferring to be in the Manila Bay area and collectively accounting for 65,000 sqm., followed by Makati City at 27,000 sqm., BonifacioGlobal City at 21,000 sqm. and Alabang-Las Pinas, 14,000 sqm. “Metro Manila CBD transaction rates are at an all time high,” Leechiu said.He said the constant quest to increase the bottomline by controlling capital expenditure is reshaping the office industry. “It is pushing BPOsto seek alternate locations outside Metro Manila, encouraging online gaming firms to try Manila, and driving corporates seeking lessstringent lease terms towards flexible work spaces,” he said. As for other segments of the market, Leechiu said the industrial market isexperiencing a fresh surge of activity with local and foreign investors looking for industrial space and standard factory building sites mostlyin the Calabarzon area. This is due to its accessibility to international ports and infrastructure. Sustained demand for new warehouse spaceand the high occupancy rate of existing warehouses are also pushing up lease rates for warehouses. Similarly, the outlook for thePhilippine retail segment is positive with store-based retail sales still heavily responsible for double digit growth up to the end of the

BAIPHIL Market Watch – 03 October 2017Page 3 of 9

decade. Malling will also remain strong despite the growth of e-commerce in the Philippines, which is expected to experience a 34 percentannual growth over the next 10 years. “This is in stark contrast to the US where an oversupply of retail space has prodded the demise inthe next five years of over 20 percent of shopping malls,” Leechiu said. He said the Philippines is far from being in an oversupply situation.The retail gross leasable area per capita of the US is almost 15 times bigger than that of the Philippines,” he said.

Housing prices declined in the second quarter due to lower cost of single detached units, according to a survey conducted bythe Bangko Sentral ng Pilipinas (BSP). The Residential Real Estate Price Index (RREPI) during the quarter ending June decreased 4.6percent to 116.6 from 122.2 a year ago, the BSP said. The index was unchanged on a quarter-on-quarter basis. RREPI measures the ave-rage change in prices of various types of housing units over a period of time across geographical areas where the growth rate of the indexmeasures house price inflation. BSP data showed the 9.9-percent decline in the pri-ces of single detached housing units pulled down theindex during the second quarter. On the other hand, duplex and condominium units during the period both registered a 5.1 percentincrease in prices year-on-year. Cost of townhouses also climbed 2.9 percent over the same period. By area, the BSP said the RREPI inthe National Capital Region rose 2.5 percent to 120.1 from 117.9 in the same quarter in 2016. “In NCR, the higher growth in prices ofcondominium units offset the decline in prices of single detached houses and townhouses,” the BSP said. Prices of duplex andcondominium units in the NCR grew 11.9 percent and 5.2 percent, respectively, while single detached units and townhouses declined 6.1percent and 0.9 percent. In areas outside of NCR, the RREPI went down 8.2 percent to 114.7 from 116 a year ago as the drop in prices ofsingle detached houses outweighed the increases in prices of condominium units and townhouses. Meanwhile, the BSP said about eightout of 10 real estate loans extended by banks in the second quarter were used for the purchase of new housing units. About 45.3 percentof this was for the acquisition of single detached units, 44.8 percent for condominium units and 9.6 percent for townhouses. NCRaccounted for 44.9 percent of the total residential real estate loans during the quarter, with condominium units as the most commonpurchases. Based on the latest data from the BSP, the share of real estate exposures from the bank’s total loan portfolio stood at 20.79percent as of end-June this year. Real estate loans rose 18.4 percent to P1.64 trillion in the first half due to strong demand. Residentialloans, in particular, accounted for P561.31 billion, up 21.3 percent from the same period last year. To monitor the risks in this growingsector, the BSP earlier tightened its reporting requirements for the real estate loan (as well as project financing) exposure of banks. FitchRatings welcomed the move, noting that it would strengthen the oversight on the banking system’s exposure to real estate loans andproject financing. However, the credit watcher said the new measure does not provide prudential standards to curb growth in these sectors.

Legislative action is needed to lift foreign ownership restrictions in certain industries and this is expected to commence nextyear, the Department of Finance (DOF) told Japanese investors recently. During a recent forum held in Tokyo, Finance SecretaryCarlos Dominguez III said one of the ways to open the economy to foreign investors is to introduce amendments to the Constitution, whichwill be undertaken starting 2018, or in about 12 months. “The President has called for a revision of our Constitution, which we believe willstart probably next year or in about 12 months,” Dominguez said, adding that the administration would need the support of Congress topush for legislative reforms. Dominguez also told Japanese businessmen the administration is reviewing its Foreign Investment NegativeList (FINL). “A window opened for us to review that list. We are currently reviewing it with the idea of opening areas such as constructionand other areas to foreign investments,” he said. Amendments to the FINL are made once every two years, promulgated through executiveorders from the President. The FINL was last updated in 2015. It determines areas or sectors where foreign participation is prohibited orlimited. Several prohibitions on foreign ownership need legislative action and cannot be lifted administratively. Dominguez had earlier saidhe is in favor of lifting limitations on foreign ownership for certain sectors to generate more investments. Citing the 2016 ASEAN InvestmentReport, the DOF said the Philippines continues to lag behind most of its fellow members in the Association of Southeast Asian Nations interms of foreign direct investment inflows. The DOF said the Philippines had a net FDI inflow of $5.724 billion in 2015, accounting for only4.7 percent of the total net FDI inflows in the region. Earlier, Socioeconomic Planning Secretary Ernesto Pernia also said the government ispushing for the “highest possible or approvable” easing of foreign control in industries, such as retail, trade, practice of professions, publicutilities and contractors. Pernia also said steps are being taken to ease restrictions on foreign contractors and allow them to fully participatein big-ticket infrastructure projects under the government’s Build Build Build program. The economic planning chief is also intent on liftingrestrictions on highly-skilled academic workers to improve the competitiveness of local universities.

State-run Social Security System (SSS) will push through with the planned increase in its members’ contributions in 2018, a yearafter President Duterte granted a P1,000 hike in benefits to its pensioners. In an interview Friday night, SSS president and chiefexecutive officer Emmanuel Dooc said the proposed hike in members’ contributions would be rolled out next year, after it gets the neededamendments in its charter, in time for the implementation of the Tax Reform for Acceleration and Inclusion Act (TRAIN). A bill seeking toamend the SSS Charter, as provided in Republic Act 1161 or the Social Security Act, is currently being deliberated in the Senate. TheTRAIN bill is also being discussed in the Senate. Dooc said among the provisions of the new SSS bill is to empower the state fund toincrease its members’ contributions. “It won’t need a Presidential Decree anymore, it is being fixed in the (charter) amendments...That willempower us to increase the contributions,” Dooc said. The SSS chief said the bill is expected to be passed before the end of the year withthe Legislative-Executive Development Advisory Council (LEDAC) including the bill in its priority measures. ct. 3 we’ll have a hearing.Hopefully, there will be a committee report after that. Then we go to the plenary then bicam (bicameral committee),” he said. The increasein members’ contributions was announced last January, together with President Rodrigo Duterte’s approval of the P1,000 pension hike forretired SSS members. The additional pension was released last March, with the January and February tranches given retroactively. Dooc,as well as the economic managers in the Cabinet maintained that additional contributions are necessary to keep the state fund running,even with the pension increase. Under the original proposal, the premium hike of active SSS members will be implemented in tranchesuntil 2022, starting with a 1.5 percent increase in May this year. The SSS earlier said members’ premium could go up to 17 percent fromthe current 11 percent until 2022. The maximum salary credit was also supposed to be increased to P20,000 from P16,000 last May.However, since the contribution hike was deferred to next year, Dooc said the SSS would need to catch up with the foregone revenues itcould have collected if it implemented the increase on schedule. He, however, declined to to give the new rate of the increase to beimposed in 2018. “Had we implemented the 1.5 percent increase this year, plus the maximum salary credit increasing it from P16,000 toP20,000, that would have fetched us P23 billion additional contribution this year. We will chase that because that’s in our equation. We willtry to collect everything,” he said. Dooc said the premium hike would help extend the life of the pension fund up to 2051 from the currentactuarial life of until 2042. He said this could be further prolonged with more members expected to enter the system with the introduction ofnew amendments, including the mandatory contribution of new overseas Filipino workers.

The Bangko Sentral ng Pilipinas has shuttered Cabanatuan City Rural Bank Inc. for insolvency, the seventh lender shut down sofar this year. The state-run Philippine Deposit Insurance Corp. (PDIC) said the Monetary Board, the BSP’s policymaking body, on Sept. 28stopped Cabanatuan City Rural Bank from doing business. The PDIC was designated as receiver to take over and liquidate the rural bankbased in Barangay Padre Burgos (Poblacion), Cabanatuan City. The bank has six branches, which are located in San Jose City and in themunicipalities of Bongabon, Rizal, San Antonio, Talavera and Zaragoza in Nueva Ecija province. “The PDIC took over the bank and all itsbranches, assets, records and affairs on Sept. 29,” it said. “Under Section 13 of Republic Act (RA) No. 3591 (PDIC Charter), as amended

BAIPHIL Market Watch – 03 October 2017Page 4 of 9

by RA 10846, a bank that has been placed under liquidation shall in no case be reopened and permitted to resume banking business.Furthermore, Section 12 thereof expressly provides that banks closed by the Monetary Board shall no longer be rehabilitated,” it added.“Moreover, all assets of the bank are deemed to be in custodia legis in the hands of the receiver and may not be subject to attachment,garnishment, execution, levy or any other court processes,” the PDIC said. Cabanatuan City Rural Bank was the sixth rural lender closedthis year, after Rural Bank of Iligan City Inc., Rural Bank of Ragay (Camarines Sur) Inc., Rural Bank of Goa (Camarines Sur) Inc., RuralBank of Barotac Viejo (Iloilo) Inc. and Cooperative Rural Bank of Batangas. The BSP also shuttered San Pedro, Laguna-based thrift lenderWorld Partners Bank (A Thrift Bank) Inc. in August.

Infrastructure giant Metro Pacific Investments Corp. said it would invest more in the troubled Metro Rail Transit Line 3 afterrecently bagging a coveted original proponent status. Metro Pacific president Jose Lim told reporters Friday that it could invest aroundP20 billion on the MRT-3 when factoring in the “equity requirement.” “The required investment amount is larger,” Lim told reporters at thesidelines of the unified railway station groundbreaking event in Quezon City on Friday. Earlier, Metro Pacific said it would spend P12.5billion to rehabilitate MRT-3, which runs along Edsa and serves about half a million passengers a day. An original proponent status gives afirm a big advantage should the project be auctioned off under a Swiss challenge, a type of bidding process that allows rivals to submitcompeting offers. In case another group submits a better offer, the original proponent has the right to match those terms and win theproject. The next step is securing the approval from the National Economic and Development Authority (Neda). “We are waiting for Neda toinform us when they want to have the first meeting to review the terms,” Lim said. The offer comes amid an ongoing row between theDepartment of Transportation and Busan Universal Rail Inc., MRT-3’s maintenance provider since January 2016. The railway system,which opened in 1999, suffers from frequent breakdowns, disrupting the commute of its riders. The DOTr had already signaled it wanted tocancel Busanís three-year contract. Busan, for its part, accused the government of withholding fees over the past 11 months and scoredthe DOTr for its alleged inaction on a needed rail replacement project. “We are coming up with a transition team for MRT,” MRT-3 generalmanager Rodolfo Garcia said on Friday. “We’re preparing just in case the [Busan] contract is canceled.” Metro Pacific has had its eye onthe MRT-3 since 2011 when it first made an offer to take over the railway line. At that time, it also sealed a ìcooperation agreementî withvarious groups with interests in MRT-3. This would allow the company to exercise options to gain a stake in private sector owner Metro RailTransit Corp. Metro Pacific’s offer at that time was rejected. The Department of Transportation under President Aquino decided to pursuethe buyout itself, although the endeavor was unsuccessful because it failed to secure funding from Congress. Metro Pacific is also planningto buy out MRTC’s government shareholders. The state-owned Development Bank of the Philippines and Land Bank of the Philippineshold about 77 percent of MRTCís economic rights, acquired through bondholders, and about a fifth of its voting shares. Metro Pacific,whose portfolio spans water distribution, power, toll roads and hospitals, has exposure in the railway sector through Light Rail ManilaCorp., a consortium with Ayala Corp. that operates and is expanding the Light Rail Transit Line 1 to Cavite province.

Aboitiz-led Union Bank of the Philippines is preparing for expansion by hatching two funding instruments that could raise asmuch as P70 billion in the coming years. In a disclosure to the Philippine Stock Exchange on Monday, Union Bank said its board hadapproved the issuance of long-term negotiable certificates of deposit (LTNCDs) amounting to as much as P20 billion, subject to approvalby the Bangko Sentral ng Pilipinas. The board has also approved the setting up of a euro medium term note (MTN) program amounting toas much as $1 billion (P50 billion). “We have one year to issue the LTNCD,” Union Bank president Edwin Bautista said in a text messageon Monday. “Proceeds will help lengthen our funding maturity profile and allow us to meet our customers’ need for longer tenor loans.”LTNCDs are time deposits but they have longer maturity and carry higher yields. While they cannot be pre-terminated unlike regular timedeposits, they are negotiable so they can be sold in the secondary market to other investors. Interest income on these LTNCDs is tax-freeif held for at least five years. They are also covered by deposit insurance up to a maximum of P500,000 per depositor. On the other hand,MTN is type of medium-term, flexible debt program that allows an issuer like Union Bank to tailor its debt issuance to meet its financingneeds. A euro MTN is traded and issued outside of the United States and Canada. “The euro MTN is a continuous program. (There’s) notime limit – until the $1 billion total amount is exhausted,” Bautista said.

Lucio Tan Jr., the son and namesake of taipan Lucio Tan, said his group is out to change the telecommunications landscape inthe Philippines through its newly acquired Philippine Telegraph & Telephone Corp. (PT&T), stressing that the environment hasso much room to grow and improve. The younger Tan, or “Bong” as he is known in the business community, is part of PT&T’s newcontrolling shareholder Menlo Capital, together with mining mogul Salvador “Buddy” Zamora and businessman Benjamin Bitanga. Tan,among the country’s younger and innovative tycoons, said there is a need to improve the telecommunications environment in the country.“In the Philippines, you cannot even download a song… straight without interruption,” he told The STAR in an interview at Century Park.“So I just feel that we need to improve our telecommunications network in the Philippines. There are too many drop-calls. Your MBPS oftengoes down to one. Sometimes zero. PT&T wants to be a game changer. We want significant improvements in customer experience –increase data speed, reduce congestion and enhance coverage,” he said. However, he said PT&T is not looking to be a third telco player inthe industry which is dominated by the two giants – Ayala-led Globe Telecom and Manuel V. Pangilinan’s PLDT. “It will saturate things.We’re not going to be a third player but a conduit that will give them advantages and unlock the Gordian knot here so that everybodybenefits. The consumers will be happier,” Tan said. Tan is not prepared to disclose how PT&T would work with the two existing telcoplayers in the country but assured that it’s a “win, win, win,” solution. “I can give them a very good win-win-win situation. It’s a 110 percentwin-win-win solution for the 110-million population, which, if they agree to, will improve the entire network and benefit all consumers. Icannot disclose yet what it is but I will approach them, and if their mission is service to the people, they will agree to my win-win-winsolution,” Tan said. The end goal is to dramatically improve efficiency and bring a faster network to the consumers, he said. Tan, a CivilEngineering graduate from the University of California, Davis said he likes to formulate solutions to problematic situations. He was knownduring his student years as “Mr. Solution.” As head of Tanduay Distillers Inc., one of the companies in Lucio Tan’s vast empire, the youngerTan is credited for not only turning around Tanduay to its highest profitable year in 2016 -- P908 million or more than double the P422million in 2015 – but also for making it an environment friendly firm with its globally recognized bioethanol plant. He turned it around byimplementing sustainable practices in all its operations, underscored by its Clean Development Mechanism project with Mitsubishi Corp, itsmulti-awarded liquid fertilization program and a solar power plant inside a distillery. Tanduay was a recipient of the Green Apple Award inLondon, the first distillery to receive such a distinction, Tan said. The younger Tan is a maverick in the environmental field, supportingprojects such as mangroves rehabilitation in Boracay Island, bioethanol and CO2 plants and also rubber plantations and he believes thatsuch innovative ways of resolving problems will also be useful in the telecommunications industry. Thus, he said, his planned “win, win, winsolution” could benefit consumers, the country and telco players.

Philippines AirAsia Inc. is planning to hold its initial public offering (IPO) in the middle of next year, with the proceeds to be usedto support the expansion of operations. “Hopefully, we can have it in the middle of next year,” Philippines AirAsia chief executive officerDexter Comendador told reporters. The plan is to raise $250 million from the IPO. Comendador said the proceeds would be used toexpand operations, particularly for planes and new facilities. “To be able to beat competition, you should have same number of planes,” hesaid. For next year, he said the aim is to have 26 aircraft, with 25 to be used for flights and one as reserve. For this year, the carrier

BAIPHIL Market Watch – 03 October 2017Page 5 of 9

expects to have 17 aircraft by yearend from just 13 at the beginning of the year. Comendador said the carrier is increasing its fleet to beable to launch new flights. Following the launch of the Manila to Iloilo service on Sunday, he said the carrier is set to start offering theManila to Saigon service in November. Within the January to February period, he said the carrier would be launching the Clark to Incheonin South Korea service, as well as flights from Manila to Bali and Jakarta in Indonesia. He said Philippines AirAsia is likewise planning tostart flying from Manila to Osaka in Japan within the first quarter of next year. Apart from increasing planes being used for flights,Philippines AirAsia would use proceeds from the IPO to build new facilities. “We need hangars. We need a new office building,”Comendador said. He said the new facilities would be built in Clark. The carrier is developing Clark as a hub, in line with government’sthrust to promote the Clark International Airport as an alternative to the congested Ninoy Aquino International Airport.

Tanco group-led private school network operator STI Education Systems Holdings Inc. has adopted a new policy to declare atleast 25 percent of its core income from the previous fiscal year as dividends to stockholders each year. The new dividend policy,which will start with fiscal year 2017-2018, was recently approved by STI board. The annual dividend declaration is subject to compliancewith the requirements of applicable laws and regulations, statutory limitations and/or restrictions, terms and conditions which may beimposed on STI by lenders or other financial institutions, alongside the company’s investment plans and financial condition. Core incomeis defined as consolidated net income derived from the company’s main business-education and other recurring income. “The amount ofdividends will be reviewed periodically by the board in light of the company’s earnings, financial conditions, cash flows, capitalrequirements and other considerations, while maintaining a level of capitalization that is commercially sound and sufficient to ensure thatthe Company can operate on a standalone basis,” STI said in a disclosure to the Philippine Stock Exchange on Monday. STI hascommitted to declare dividends out of the company’s unrestricted retained earnings in the form of cash, property or stock to allshareholders on the basis of outstanding stock.

Splash Corp. has grown four times faster than the industry because of new products recently launched in the market. Revenuesfrom the firm’s domestic personal care business reached P1.7 billion in the first semester, up seven percent year on year. On the otherhand, market research firm Kantar estimates that total personal care growth was a flat at two percent. Maxi-Peel Zero, an exfoliant productlaunched only in January this year, was among the firm’s major growth drivers. “The growth in sales of Maxi-Peel Zero in just sevenmonths has been phenomenal. We attribute this success to Splash Corp.’s deep affinity with the Filipino consumer, built over many years,which allows us to continuously anticipate and provide the products that Filipino consumers need,” said Marco Nieto, general manager ofthe Splash Philippine operations division. Splash originally had just a conservative forecast for Maxi-Peel Zero but sales reached four timesthe forecast. Other products launched that were also well received in the market include Hygienix soap, Splash’s first foray into themainstream soap market. This product has showing gratifying growth in the germicidal soap sector. Other new products launched wereFlawlessly U Kojic-Gluta Soap, and Vitress Hair Freshener, the first ever hair freshener product in the Philippine market. Splash providesproducts and services that cater to the universal desire of people to look good and live well. From a leadership position in the Philippines,the company ventured into high-growth markets in Southeast Asia, Africa, the Middle East and North America.

ASIA-PACIFIC

~~~ The Financial Markets of China and Hongkong were closed yesterday due to holiday. ~~~

Japan’s Nikkei share average rose on Monday, buoyed by Wall Street’s increases and upbeat domestic data, although caution towardsan upcoming general election limited gains. The Nikkei ended Monday 0.2 percent higher at 20,400.78. The index rose to a 25-monthhigh of 20,481.27 on Sept. 21 as the yen weakened against the dollar following hawkish monetary policy hints from the Federal Reserve.While North Korea concerns have helped capped the index, it has managed to stay close to that peak. Of Tokyo’s 33 sub indexes, 15 rose,led by the precision machinery sector’s 0.45 percent gain. The losers were led by sea transport, which fell 0.9 percent. “The market drewsupport from three factors: stronger U.S. stocks, continuing ebb in strong yen concerns and the upbeat tankan,” said Masahiro Ichikawa,senior strategist at Sumitomo Mistui Asset Management. The S&P 500 and the Nasdaq advanced to record levels on Friday while the Bankof Japan’s “tankan” survey released on Monday showed the mood among big domestic manufacturers reach a decade high. “On the otherhand, uncertainty towards how the political situation develops ahead of the election is a negative factor. The equity market will be watchinghow currencies respond and what kind of policies are brought up as agendas,” Ichikawa said. Japanese Prime Minister Shinzo Abe lastweek dissolved the parliament’s lower house and called a snap election for Oct. 22. Abe’s ruling Liberal Democratic Party (LDP) wasinitially expected to win the election with relative ease. An easy win, however, is looking less assured with popular Tokyo governor YurikoKoike forging an alliance of opposition parties to challenge the LDP. Shares of Nissan Motor Co dropped as much as 5.3 percent to theirlowest since April 28 after the automaker said on Friday that it is unable to sell 60,000 new vehicles made in Japan as checks had beenconducted by unqualified inspectors. Technology shares drew a lift from gains by their U.S. counterparts. Electrical equipment makerYaskawa Electric Corp rose 1.55 percent, factory automation machinery maker Fanuc Corp added 2.15 percent and Hitachi Ltd gained 1.3percent. Ono Pharmaceutical Co advanced 3.2 percent amid speculation that a researcher that took part in developing Ono’s cancertreating drug Opdivo could win a Nobel prize this week. Bookseller Bunkyodo Group Holdings also received a Nobel-related lift, rising 0.9percent, on expectations that novelist Haruki Murakami, a perennial favourite for the literature prize, would finally win this year. Godo SteelLtd rose 8.7 percent after the steel manufacturer revised up its April-September net profit forecast to 2 billion yen ($17.75 million) from 700million yen. Adastria Co shed 7.4 percent after the clothing retailer revised down its net profit forecast for the year through February 2018to 11.0 billion yen from 11.9 billion yen following lacklustre sales of summer items.

Japanese manufacturing activity in September expanded at the fastest pace in four months, a revised survey showed on Monday,as domestic and export orders picked up in a sign of strengthening economic momentum. The Markit/Nikkei Japan ManufacturingPurchasing Managers’ Index (PMI) was a seasonally adjusted 52.9, versus a preliminary 52.6 and a final 52.2 in August. The indexremained above the 50 threshold that separates expansion from contraction for the 13th consecutive month and reached the highest level

BAIPHIL Market Watch – 03 October 2017Page 6 of 9

since May. “September data signaled further improvement to the Japanese manufacturing sector, led by strong increases in output andnew orders,” said Joe Hayes, economist at IHS Markit, which compiles the survey. “Stronger international client demand provided a keysource of growth, as shown by export sales expanding at the quickest pace in seven months.” The final index for new export orders rose to53.5, more than the preliminary reading of 53.1 and above a final 51.3 in the previous month, highlighting how Japan’s economy hasbenefited from an upturn in global demand this year. That was underscored further by the new orders index rising to 53.4, versus apreliminary 52.5 and more than the 51.9 in August. The PMI survey follows recent government data showing rising exports, industrialproduction and a mild rebound in consumer spending, raising confidence the economy will continue to grow at a health clip. Japan’seconomy expanded at an annualized 2.5 percent in the second quarter, marking the sixth consecutive quarter of growth, as consumer andcompany spending picked up.

Big manufacturers have more confidence in Japan’s business conditions than they have had for a decade as a weak yen androbust global demand add momentum to the economic recovery, a closely watched central bank survey showed on Monday. In asign the recovery was broadening, small manufacturers’ business confidence also hit a decade-high and the ratio of companiescomplaining of labor shortages was at a 25-year high, according to the Bank of Japan’s “tankan” quarterly survey. The upbeat data couldhelp premier Shinzo Abe as he tries to convince voters in an Oct. 22 election that his “Abenomics” stimulus policies have improved theirlivelihoods. It also supports Bank of Japan (BOJ) policymakers’ hopes that a sustained economic recovery will boost wages and householdspending, though many analysts expect inflation to remain distant from the central bank’s 2 percent target. “Big manufacturers’ sentimentwas probably driven by a weaker yen and hefty corporate profits,” said Yuichiro Nagai, economist at Barclays Securities Japan. “Thetankan results were in line with or even stronger than the BOJ’s scenario. But the price trend remains weak,” he said, adding he expectsthe central bank to cut its inflation forecasts again at a rate review this month. The headline index for big manufacturers’ sentiment stood atplus 22 in September, handily exceeding a median market forecast of plus 18 to mark the highest level since September 2007. It washigher than plus 17 seen in the previous survey in June, posting a fourth straight quarter of improvement, the tankan survey showed. Thebig non-manufacturers’ sentiment index stood at plus 23, unchanged from June and matching a median market forecast.Both bigmanufacturers and non-manufacturers expect business conditions to deteriorate in the next three months, the survey found, reflecting theirconcerns about uncertain outlook. But big firms expect to increase capital expenditure by 7.7 percent in the current fiscal year ending inMarch 2018, roughly unchanged from their plans in June. “The tankan shows that capital expenditure plans are on solid footing,” said NorioMiyagawa, senior economist at Mizuho Securities. “A lot of firms are upgrading equipment or investing in labor-saving technology.”

RESTOF THEWORLD

Spanish stocks sank on Monday after violence surrounding Catalonia’s independence referendum fuelled political worries andleft Madrid’s bourse missing out as European shares hit a three-months high and Wall Street fresh new records. The pan-European STOXX 600 began the fourth quarter with a 0.5 percent gain, boosted by a weaker euro. But Spain’s IBEX fell 1.5 percent afterCatalans defied a police crackdown to vote for independence in a referendum the Spanish government said was unconstitutional. Spain’sIBEX has been a strong performer among European benchmarks, up 10 percent in the year to date, but lost some of its shine leading intothe referendum. Shares in Catalonia-headquartered Banco Sabadell and Caixabank were the worst-performing within the Spanish index,down 4.4 and 4.5 percent each. Euro zone lenders felt some of their Spanish counterparts’ pain, and lost 0.7 percent. “There is clearly aCatalan effect” for financial shares, said Stephane Barbier de la Serre, a strategist at Makor Capital Markets. In the longer run, theCatalonian crisis is unlikely to derail the bullish trend of the sector, he said, explaining tighter monetary policies would gradually push rateshigher, benefiting lenders.

Prime Minister Theresa May’s top ministers are all frustrated by the slow pace of Brexit negotiations, but her team owes her itsloyalty as she negotiates Britain’s departure from the European Union, finance minister Philip Hammond said on Monday. At theConservative Party’s conference in Manchester, northern England, Hammond played down the importance of four new red lines set downby foreign minister Boris Johnson in a British newspaper that underlined the rifts in cabinet. “We’re all frustrated by the slow progress thatwe’ve made over the last few months with the European Union negotiations, that’s why the prime minister went to Florence 10 days agoand made a key speech which was designed specifically to unstick the logjam in the negotiations and move them forward,” he told ITVtelevision. “Boris’ position on these issues are well known. I back the prime minister in what is a very complex and delicate negotiation withour European Union partners to deliver Britain’s exit in the way the British people have mandated us to do.”

European producers of electronic bikes (e-bikes) have filed a complaint with the European Commission against cheap Chinese e-bike imports, saying that they are sold in the bloc at excessively low prices with the help of unfair subsidies. The European BicycleManufacturers Association (EBMA) lodged the complaint alleging dumping of e-bikes by Chinese companies which they say are floodingthe market at prices sometimes below the cost of production. The Commission has until late October to determine whether to start aninvestigation. The EBMA is also preparing a related complaint alleging illegal subsidies and asking for registration of Chinese e-bikeimports, which could allow eventual duties to be backdated. Such an investigation would be the latest in a string of probes into Chineseexports ranging from solar panels to steel and could raise trade tensions with Beijing, particularly with a subsidy inquiry into the supportprovided by the Chinese state. Bicycles have already been a flashpoint. The EU blamed China last December for scuppering a globalenvironmental trade deal by insisting that bicycles be included as a tariff-free green product. Chinese conventional bicycles have beensubject to EU anti-dumping duties since 1993. The EBMA says more than 430,000 Chinese e-bikes were sold in European Union in 2016,a 40 percent increase on the previous year, and forecasts the figure will rise to around 800,000 in 2017. EBMA secretary-general MorenoFioravanti said Europeans buy some 20 million bicycles per year, of which about 10 percent are now e-bikes, with the potential to rise to aquarter within five years. European companies had pioneered the pedal-assist technology that e-bikes use and had invested about 1 billioneuros ($1.2 billion) last year, he said, but was risking losing its industry to China. “Today the European bikes are the best in the world andwe have to invest every year to renew the range. The Chinese are getting the money from the government and the subsidies have animpact of 30, 40, even 50 percent of the price of the product,” Fioravanti said. “You have subsidies, which generate overcapacity, which

BAIPHIL Market Watch – 03 October 2017Page 7 of 9

generate dumping,” he said.

Federal Reserve policy makers are embarking on a subtle shift in strategy with potentially big implications for investors: usinginterest rates as a tool to contain the knock-on effects of lofty stock and asset prices on financial stability and the economy. Thesharpened focus on asset values evident in Fed officials’ public and private remarks suggests the central bank will be more inclined to raiseinterest rates than otherwise, even if inflation is low. It also means that financial markets can no longer expect – in the words of Allianz SEchief economic adviser Mohamed El-Erian – the Fed to be their BFF, or best friend forever, providing them with unstinting support. “Thefinancial stability argument for tightening is getting more weight,” said Jonathan Wright, an economics professor at Johns HopkinsUniversity in Baltimore and a former Fed economist. Led by former chairman Alan Greenspan, central bankers had long argued that theywere ill-equipped to spot bubbles in the making and the best approach to tackling them was to let them burst and clean up the messafterwards. But behind the latest shift is a recognition by officials that the last two recessions were at least partly prompted by declines inmarkets that had gotten too frothy – technology stock prices in 2001 and housing in 2007. Fed Chair Janet Yellen hinted at the change lastweek in laying out her argument for further, gradual interest-rate increases. Not only does “persistently easy monetary policy” raise the riskof an overheated economy, it “might also eventually lead to increased leverage and other developments, with adverse implications forfinancial stability,” she said in a speech in Cleveland. Fed research has shown that such buildups in leverage often occur when risk-takingin markets is elevated – as central bank staffers deem is the case now. New York Fed President William Dudley, a close ally of Yellen’s,has been more explicit in tying policy to market developments, though his focus has been on their impact on the economy, not financialstability. Even with three rate hikes since December, stock prices have risen by more than 10% and the dollar has fallen by about 8%,contributing to an easing in financial conditions that’s helped spur growth. Dudley has repeatedly argued that strengthens the case forpressing ahead with rate increases to keep the economy in balance. Policy makers have penciled in one more rate hike for 2017 and threemore for 2018, according to the median projection in forecasts released last month. There are dangers to the Fed’s approach. With inflationat 1.4% in August, continuing to raise rates would risk cementing expectations that price gains will stay permanently below the centralbank’s 2% target. Officials generally agree that the first line of defense against financial instability is so-called macro-prudential tools, suchas changes in bank capital requirements or warnings to lenders about risky practices. Monetary policy is to be kept in reserve, only used to,in economists’ parlance, “lean against the wind” to avert imbalances when other measures haven’t worked.

Training the Bank Trainers – 05 & 06 October 2017 A Regulatory Perspective on Trust Activities and Administration – 06 & 13 October 2017 Updated Guidelines on Sound Credit Risk Management (Includes BSP Cir. No. 908: Agricultural Value Chain

Financing Framework and BSP Cir. No. 941: Amendments to the Regulations on Past Due and Non-Performing Loans) – 07 October 2017

Bootstrapping – 07 October 2017 Currency Swaps / Forward Rate Agreement – 14 October 2017 BSP Cir 706 as Amended by BSP Cir 950, AMLA Law and the AML Risk Rating System – 20 October 2017 Supervisory Expectations on the ICAAP – 20 October 2017 Financial Options – 21 October 2017 Project Management Framework – 21 October 2017 Introduction to International Trade Settlement – 21 October 2017 Code of Champions (A Leadership Effectiveness Program for Bankers) – 27 October 2017 Cybersecurity in Banking – 27 October 2017 Fraud Risk Management – 28 October 2017 Professional Selling Skills – 09 & 10 November 2017 Operational Risk Management Guidelines – 10 November 2017 (CEBU CITY) Related Party Transactions – 11 November 2017 (CEBU CITY) Effective Business Communication – 16 & 17 November 2017 BSP Cir 706 as Amended by BSP Cir 950, AMLA Law and the AML Risk Rating System – 17 November 2017 Signature Verification & Forgery Detection – 18 November 2017 Accounting for Non-Accountants with Financial Statements Analysis – 23 & 24 November 2017 BSP Supervisory Process and CAMELS Rating System – 24 November 2017 Fraud Risk Management – 25 November 2017 BSP Cir 706 as Amended by BSP Cir 950, AMLA Law and the AML Risk Rating System – 01 December 2017 How to Spot Fake IDs and Money Mules – 02 December 2017 Professional Image and Values Enhancement – 19 January 2018 Effective Presentation Skills – 09 February 2018

For details, please contact BAIPHIL via telephone (853-4457/519-2433) or email (training@baiphil.org).

BAIPHIL Market Watch – 03 October 2017Page 8 of 9

OCTOBER 1-1502 Teresita S. Galvadores - Past President02 Emma B. Co - PS Bank04 Evangeline L. Salazar-Nevado - PDS04 Rene S. Natividad - Bancnet Inc06 Maria Victoria P. Ronquillo - UCPB09 Zenaida P. Molina - Past President09 Maria Elena S. Guce – Standard Chartered Bank10 Maria Daisy B. Posadas - ING Bank NV11 Mary Joyce M. Sasan - UBP12 Nestor A. Espenilla, Jr. - BSP14 Ma. Teresa R. Tan - Standard Chartered Bank15 Teresa O. Limqueco - Secretariat

BAIPHIL Market Watch – 03 October 2017Page 9 of 9

LAW OF SUPPLY - The law of supply is the microeconomic law that states that, all other factorsbeing equal, as the price of a good or service increases, the quantity of goods or services thatsuppliers offer will increase, and vice versa. The law of supply says that as the price of an item goesup, suppliers will attempt to maximize their profits by increasing the quantity offered for sale.

AIX - Stands for "Advanced Interactive Executive," though some Linux fans have been known to referto it as "Ain't UNIX." AIX is an operating system developed by IBM and is in fact Unix-based. It istypically used for enterprise servers and comes with a robust set of security options such asKerberos V5 network authentication and dynamic secure tunnel authentication. AIX allows thesystem administrator to divide memory, CPU, and disk access between various jobs. The systemsupports IBM's 64-bit POWER processor and is backwards-compatible with 32-bit applications. Italso runs most Linux applications (after recompiling them) and has full support for Java 2. If all thatjargon makes no sense to you, relax -- AIX is not your typical consumer operating system. It ismainly used for servers in large businesses where IT geeks get to work with it.

REFERENCE COMPILED AND PREPARED BY: RESEARCH AND INFORMATION COMMITTEE FY 2017-2018

BPI Asset Management Business World Philippine Daily Inquirer Philippine Star GMA News ABS-CBN News Philippine Stock Exchange Philippine Dealing System Reuters Financial Times

Bloomberg CNN / CNBC SCMP / Japan Times Wall Street Journal Investopedia Goodreads TechTerms IT Information Exchange Life Hacks

Director: Maria Teresita R Dean (ChinaBank Savings)Chair: Carlota A. Bacani (ANZ Bank)Members: Sheryll K. San Jose (Equicom Savings Bank)

Rachelle A Fajatin (Equicom Savings Bank)

DISCLOSURE: The BAIPHIL Market Watch (BMW) is for informational purposes only. The content of the BMW is sourcedfrom third party websites and may be subject to change without notice. Although the information was compiled from sourcesbelieved to be reliable, no liability for any error or omission is accepted by BAIPHIL or any of its directors, officers oremployees, and BAIPHIL is not under any obligation to update or keep current this information

Go To Homepage