US stocks dip as Hong Kong weighs on sentiment

NEW YORK–Wall Street stocks Monday finished lower as a heavy week of US economic data got under way while investors eyed political unrest in Hong Kong.

The Dow Jones Industrial Average dropped 41.93 points (0.25 percent) to 17,071.22, rallying somewhat from a low of 16,934.43 early in the day.

The broad-based S&P 500 lost 5.05 (0.25 percent) at 1,977.80, while the tech-rich Nasdaq Composite Index fell 6.34 (0.14 percent) to 4,505.85.

The Commerce Department reported that US consumer spending rose 0.5 percent in August, while personal income increased 0.3 percent. An index of US pending home sales dipped 1.0 percent to 104.7 in August.

Markets were unnerved by massive street protests in Hong Kong that sent equities in the Asian financial hub 1.9 percent lower.

Brent Schutte, market strategist at BMO Global Asset Management, predicted more big swings like that seen Monday and last week.

“We’re in a volatile period and it’s going to stay that way,” he said.

Apple dropped 0.6 percent following reports that the European Union plans to accuse the tech giant of receiving illegal tax deals in Ireland.

Ford Motor slumped 7.5 percent as the company projected 2014 profits of $6 billion, well below the $7-8 billion previously forecast.

Dow component Intel jumped 1.9 percent after Bank of America Merrill Lynch raised its price target for the stock, arguing that investors have underappreciated the strength of the personal computer (PC) market.

Action camera maker GoPro jumped 10.8 percent as it unveiled new models with improved definition and faster production capacities.

Athlon Energy soared 24.8 percent as Canadian energy company Encana unveiled a $7.1 billion deal to buy the Texas oil and gas producer. Encana rose 2.2 percent.

Tibco Software bolted 21.2 percent higher as it announced it would be acquired by private equity firm Vista Equity Partners for $4.3 billion.

Independent animated film studio DreamWorks Animation SKG jumped 26.0 percent on reports that Japanese telecoms group SoftBank plans a $3.4 billion takeover of the company.

Bond prices rose. The yield on the 10-year US Treasury fell to 2.49 percent from 2.54 percent Friday, while the 30-year dropped to 3.18 percent from 3.22 percent. Bond prices and yields move inversely.

Source: Philippine Daily Inquirer | 30 September 2014

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Foreigners cash in on PHL T-bill arbitrage, carry trade

SINGAPORE – In a classic arbitrage play, foreign investors are sweetening their returns on Philippine government bills by borrowing pesos in offshore currency derivative markets at half the rate they would pay onshore.

 

Emerging Asian assets have been top picks among investors as they used the cheap money flowing from major overseas central bank stimulus campaigns to buy into higher yields offered by borrowers in the Asia-Pacific region, and the Philippines has been one of the main beneficiaries.

 

Offshore peso interest rates are lower than onshore rates because offshore investors are holding large peso positions, betting the currency will rise on solid economic fundamentals, traders said.

 

This difference in the rates presents a greater opportunity for foreign investors, as central bank rules limit the amount domestic investors can borrow from the offshore market.

 

Investors can exchange dollars for pesos for three months at a total cost of between 0.4 and 0.8 percent via offshore currency forwards and then earn returns of 1.49 percent on three-month Philippine treasury bills.

 

Borrowing pesos for three months onshore costs between 1.3 percent and 1.5 percent, which would make the returns on three-month treasury bills hardly worth the effort.

 

Foreign investors are boosting their returns even further by borrowing pesos at the cheap one-month rate and rolling them over continuously in order to buy three-month bills, but avoiding the higher cost of three-month borrowing.

 

"The spread is very attractive," said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore.

 

Moreover, rising 1.0 percent from a 3-month low against the dollar struck on August 8 has increased the peso's appeal, which currency traders say has been boosted by demand from offshore hedge funds.

 

With inflation rising to a near three-year high of 4.9 percent in July there are expectations that the central bank could hike rates as early as this month.

 

Yields on long-term Philippine bond yields have jumped, reflecting inflation expectations. But short-term yields have risen by less and in recent weeks have even eased with the arbitrage trade.

 

Annual inflation in August is expected to accelerate to 5.0 percent, the upper limit of the central bank's target for the first time in nearly three years, a Reuters poll found.

 

Inflation puts the profitability of bonds at risk as it hurt debt prices, but the arbitrage play helped investors find higher returns in the Philippines over the short term.

 

"These trades are always there and may become more popular because the BSP (Bangko Sentral ng Pilipinas) has a slightly hawkish stance now," said Saktiandi Supaat, head of FX research at Maybank in Singapore.

 

Traders said that while sharply higher inflation could scuttle this trade by eroding the value of peso bonds, it was not yet a significant enough threat to do so. Arbitrage demand and higher rates would likely support the peso despite inflation concerns, they said. – Reuters

Vista Land unit taps largely foreign investors in P5.45-B notes issuance

Vista Land & Lifescapes Inc., the listed property firm of former Senator Manuel Villar, has tapped largely foreign investors to raise P5.45 billion ($125 million) by selling a subsidiary's five-year notes to finance capital spending next year.

 

The order book went over $300 million, mostly from foreign investors, showing the strong demand for VLL International Inc.'s $125 million guaranteed notes due 2019, Vista Land investor relations officer Brian Edang told GMA News Online.

 

"Only about 9 percent were local demand," he said.

 

In a disclosure to the Philippine Stock Exchange Thursday, Vista Land said DBS Bank Ltd. distributed 91 percent of the notes outside of the Philippines to a broad range of international investors.

 

DBS Bank Ltd. is the sole global coordinator and sole lead manager of the issuance.

 

Vista Land said VLL International will issue the notes on September 11, at an issue price of 102 percent of their principal amount plus accrued interest, representing a yield-to-maturity of 6.935 percent.

 

The five-year notes are guaranteed by Vista Land and its subsidiaries Brittany Corp., Crown Asia Properties Inc., Camella Homes Inc., Communities Philippines Inc., and Vista Residences Inc.

 

Edang said the money will be used to finance the capital expenditures for next year. "We're already finished with the requirements this year," he added.

 

The latest offering completes the $225 million, 7.45 percent senior guaranteed notes due 2019 which the VLL International started last April 23, and brought the total offering to $350 million. 

 

Edang said the company was able to reduce the yield rate to 6.935 percent from 7.45 percent. "It's good for the company," he said.

 

VLL International intends to list the notes on the Singapore Exchange Securities Trading Limited. 

PH jumps 7 notches in WEF rankings

WEF global competitiveness ranking 2014-2015.

The Philippines continued to improve its competitiveness on the global stage amid reforms that have allowed the country to gain some ground against its better-placed neighbors.

Results of the World Economic Forum’s (WEF) Global Competitiveness Report for 2014 to 2015 showed the Philippines climbed seven places to 52nd out of 140 countries in the world. Since 2010, the country has climbed 33 spots, making it among the biggest gainers among the nations surveyed.

WEF’s flagship publication ranks countries based on 12 pillars that look at areas such as government efficiency and infrastructure.

“The results suggest that the reforms of the past four years have bolstered the country’s economic fundamentals. The trends across most of the 12 pillars are positive, and in some cases truly remarkable,” WEF said in its report, which will be published Wednesday, Sept. 3.

With its new rank, the Philippines has moved closer to the government’s goal of bringing the country inside the upper third of the list of countries.

Among major Southeast Asian economies, the Philippines was the biggest gainer this year. Malaysia gained four places, Thailand went up six, Indonesia climbed four while Vietnam was up by two.

Of the 12 criteria, the country posted strongest results in macroeconomic environment (26th), market size (35th) and business sophistication (46th).

The Philippines is the second-most populated country in Southeast Asia as well as the region’s fastest-growing economy.

Strong scores were also posted in financial market development (49th) and innovation (52nd). In terms of technological readiness, WEF ranked the Philippines at 69th. “The country is one of the best digitally connected developing Asian nations, close behind Malaysia (60th) and Thailand (65th),” WEF said.

The same cannot be said of infrastructure, however, which remained poor (91st).

WEF global competitiveness ranking 2013-2014.

In the institutions pillar (67th), the Philippines has leapfrogged some 50 places since 2010. In particular, there were signs that the efforts made against corruption have started bearing fruit. In terms of ethics and corruption, the country has moved from 135th in 2010 to 81st this year.

The recent success of the government in tackling some of the most pressing structural issues provided evidence that bold reforms could yield positive results relatively quickly. A similar pattern was observed in terms of government efficiency (69th) and the protection of property rights (63rd).

The Philippines’ weakest areas were the labor market, which suffers from rigidities and inefficiencies. The Philippines ranked a “mediocre” 91st in this dimension “and almost no progress has been made since 2010.”

Finally, security remained an issue (89th), in particular in terms of costs that the threat of terrorism imposes on businesses (110th).

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