BAIPHIL Market Watch – 29 June 2016 Page 1 of 12

BAIPHIL

MARKET WATCH

29 June

2016 Legend

Improvement / Up Deterioration / Down No Movement

FINANCIAL MARKETS AT A GLANCE

PHILIPPINES

Financial Rates Current Previous

USD/PHP 46.8950 47.0300

30-D PDST-R1 1.6450% 1.6350%

91-D PDST-R1 1.7517% 1.7567%

180-D PDST-R1 3.6033% 1.6160%

1-Y PDST-R1 3.2044% 1.7263%

10-Y PDST-R1 4.0753% 4.4350%

30-D PDST-R2 1.6450% 1.6350%

91-D PDST-R2 1.7517% 1.7567%

180-D PDST-R2 1.5458% 1.5431%

1-Y PDST-R2 1.8227% 1.7263%

10-Y PDST-R2 4.0753% 4.4350%

Stock Index Current Previous

PSEi 7,666.69 7,715.90

Market Cap (Php Trillion) 12.578 12.635

Total Value (Php Billion) 5.142 6.810

PSEi Performers Closing % Change

Top Gainers

Anchor Land Holdings, Inc 7.90 25.00%

TKC Metals Corp. 1.93 19.1%

SOCResources, Inc. 1.00 16.28%

Top Losers

Apex Mining Company “A” 3.50 -12.50%

Star Malls, Inc. 6.32 -11.48%

City & Land Developers, Inc

0.91 -9.90%

ASIA-PACIFIC

Stock Index Current Previous

NIKKEI 15,323.14 15,309.21

HANG SENG 20,172.46 20,257.53

SHANGHAI 2,912.56 2,878.76

STRAITS 2,756.53 2,725.41

SET 1,437.42 1,418.63

JAKARTA 4,882.17 4,814.44

Currency Exchange Current Previous

USD/JPY 102.4800 102.2100

USD/HKD 7.7587 7.7725

USD/CNY 6.6481 6.6241

USD/SGD 1.3534 1.3684

USD/THB 35.2450 35.3645

USD/IDR 13,188.00 13,384.25

REST OF THE WORLD

Stock Index Current Previous

FTSEuro First 300 1,252.49 1,223.15

FTSE 100 6,140.39 5,982.20

DAX 9,447.28 9,268.66

CAC 40 4,088.85 3,984.72

DOW JONES 17,409.72 17,140.24

S&P 500 2,036.09 2,000.54

NASDAQ 4,691.87 4,594.44

Various Current Previous

EUR/USD 1.1071 1.1017

GBP/USD 1.3354 1.3221

Gold Spot (USD/oz) 1,314.10 1,326.90

Brent Crude(USD/bbl) 48.66 47.53

3-M US Treasury Yield 0.26% 0.24%

10-Y US Treasury Yield 1.46% 1.46%

30-Y US Treasury Yield 2.28% 2.28%

PHILIPPINES

The local equities market fell as investors opted to take profit amid the global risk-off sentiment. The PSEi lost 49.21 points, or -0.64%, to

close at 7,666.69. All sectors ended in red, led by the industrial (-0.70%) and holding firms (-0.67%). Market breadth was negative with 94

declines outnumbering 82 advances, while 57 issues remained unchanged. Total value turnover reached Php5.14 billion. Foreigners were net seller at Php147.85 million.

On Tuesday, the Bureau of the Treasury sold Php25 billion worth of re-issued 4-year FXTNs. The auction was well-received, with total bids amounting to Php84.09 billion, more than three times the offer size. Average yield was at 2.698%, with a coupon rate of 3.375%.

The Peso traded sideways with a slight upward bias vis-a-vis the US Dollar today, tracking regional strength against the greenback, despite

Brexit-induced tension, and as exporters took profit on the Dollar's recent run up. The USD/PHP pair fell 13.5 centavos, or -0.29%, to

close today's trading at the 46.90 level. Inflation likely settled within the 1.5 percent to 2.4 percent range in June due to an increase in tuition and prices of rice and

vegetables, the central bank said Tuesday. Headline inflation quickened to 1.6 percent in May from 1.1 percent in April. A decline in electricity rates and oil prices could offset the spike in food costs, Bankgo Sentral ng Pilipinas Governor Amando Tetangco Jr. said in a text message. “Going forward, the BSP will continue to monitor evolving price trends to ensure price stability conducive to a balanced and sustainable economic growth,” Tetangco said. The BSP kept benchmark interest rates steady last week, but said it was ready to act

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against volatility that might stem from Britain’s decision to leave the European Union. Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said Tuesday there was no need to adjust monetary policy despite

uncertainty in the global markets triggered by Britain’s decision to leave the European Union. Tetangco said the country had “policy space” both on the monetary and fiscal fronts. Inflation was expected to settle “slightly below” the low end of this year’s 2 to 4 percent target and within forecasts for the next two years, he added. “I don’t see that right now. I don’t see the need to change the stance of

monetary policy right now,” Tetangco told ANC’s “Market Edge with Cathy Yang.” “We will, of course, continue to keep our ears close to the ground and act swiftly as necessary and as indicated by evolving conditions,” he said. Given policy space and strong macroeconomic fundamentals, Tetangco said monetary authorities have “confidence that we can weather the fallout from Brexit.” Aside from having leeway

to raise interest rates, the Philippines was also in a position to hike spending to boost the economy, Nomura chief economist for Asia Rob Subbaraman earlier told ANC. “It’s starting from a position of strength as we face a lot of global uncertainties following what looks like the UK ultimately leaving the EU,” he said of the Philippines. Nomura forecasts 6.3-percent growth for the Philippines this year, next only to India and higher than China and Indonesia, Subbaraman said. Gross domestic product grew 6.9 percent in the first quarter, beating analysts’

expectations.

The Bangko Sentral ng Pilipinas (BSP) has formally moved to allow banks to extend bigger loans to related parties engaged in big-ticket state infrastructure projects in a push to free up more funds for productive use. The BSP, through Circular 914 signed on June 23, raised limits for bank lending to related parties that are taking on projects under the government’s Philippine Development Plan

and Public Investment Program (PDP/PIP). Still, lending to bank directors, officers, stockholders, and related interests (DOSRI) must be “premised on the overarching principle that the transactions shall at all times be kept above board and conducted on an arm’s length basis,” with the BSP still vigilant for “sweetheart deals” which involve irresponsible lending. Exposures to subsidiaries and affiliates in

PDP/PIP projects will be subject to higher individual and unsecured limits of 25% and 12.5%, respectively, of the net worth of the lending bank as compared with such ceilings previously set at 10% and 5%. “Loans, other credit accommodations and guarantees granted by a bank to its subsidiaries and affiliates engaged in, or for the purpose of undertaking infrastructure, energy and power generation, and other

priority programs and projects, including those under the Public-Private Partnership (PPP) Program of the government, consistent with the PDP/PIP of the national government, duly certified as such by the Secretary of Socioeconomic Planning, shall be subject to individual limit of 25% of the net worth of the lending bank,” the circular read, adding: “Provided that the unsecured portion thereof shall not exceed 12.5%

of such net worth: provided, further, that these subsidiaries and affiliates are not related interest of any of the director, officer, and/or stockholder of the lending bank: provided, finally, that the total outstanding loans, other credit accommodations and guarantees to all subsidiaries and affiliates shall be subject to the aggregate limits for related party transactions.” The BSP earlier said in a statement that

the move is meant to encourage more entities to participate in PDP/PIP-related initiatives that, in turn, support continued economic growth. The National Economic and Development Authority crafted the PDP and PIP which spell out investment targets from 2011 to 2016 to help achieve the goal of inclusive growth under President Benigno S.C. Aquino III, who ends his term this Thursday. Some P2.471 tr illion worth

of infrastructure development makes up more than half of the P4.186 trillion in total investments targeted under the PDP and PIP which were updated in 2014. The government shoulders 80.2% of total costs through revenues, loans, and grants, with the private sec tor picking up the tab for the balance. The government has sought to tap the private sector in its bid to make infrastructure development catch up with

a fast-growing economy, as highlighted by the launch of the public-private partnership program in the third quarter of 2010 shortly after Mr. Aquino took office. “The total outstanding loans, other credit accommodations and guarantees to each of the bank’s subsidiaries and affiliates shall not exceed 10% of the net worth of the lending bank: provided, that the unsecured loans, other credit accommodations and

guarantees to each of said subsidiaries and affiliates shall not exceed 5% of such net worth: provided, further, that the total outstanding loans, other credit accommodations and guarantees to all subsidiaries and affiliates shall not exceed 20% of the net worth of the lending bank: provided, finally, that these subsidiaries and affiliates are not related interest of any of the director, officer, and/or stockholder of the

lending bank.” Under the relaxed rules, loans extended to related parties for project financing will not be subject to the ce iling for unsecured loans while the project is in pre-operational phase, the circular said. It is only when the project is in full swing that the loan will be covered by such limit. The new rules also raised limits for loans granted to subsidiaries and affiliates undertaking PDP/PIP infrastructure projects.

However, the BSP said banks must still subject loan applications from related parties to internal risk management protocols t o comply with rules introduced by the BSP last December to prevent so-called sweetheart deals that could imperil their financial position. “Loans, other credit accommodations, and guarantees granted by a bank to its DOSRI for the purpose of project finance, shall be exempted fr om the

30% unsecured individual ceiling during the project gestation phase: provided, that: the lending bank shall ensure that standard prudential controls in project finance loans designed to safeguard creditors’ interests are in place, which may include pledge of the borrower’s shares, assignment of the borrower’s assets, assignment of all revenues and cash waterfall accounts, and assignment of project documents,” the

central bank said in its circular. The BSP also fine-tuned definitions of “related interest”, “subsidiary” and “affiliates” in order to calibrate prudential requirements with the perceived degree of potential abuse. To promote responsible lending, the central bank said banks have to deduct from their capital any credit extended to DOSRI which did not observe the “arm’s length” rule. “The Bangko Sentral res erves the

right to deploy its range of supervisory tools to promote adherence to the requirements set forth in the foregoing rules and bring about timely corrective actions and compliance with Bangko Sentral directives. The Bangko Sentral considers abuses in cred it to related parties (including credit to DOSRI, subsidiaries, and affiliates) as serious offenses and shall be dealt with severely. In this regard, abuse shall be

interpreted to include extending credit to related parties without adopting appropriate internal policies,” the circular read further. “For this purpose, the Bangko Sentral may among others, issue directives or sanctions on the bank and responsible persons, which may include restrictions or prohibitions of lending to related parties or from certain authorities/activities, restrictions or prohibitions on dividend

declarations; and warning reprimand, suspension, removal and disqualification of concerned bank directors, officers, and/or employees. In addition, the Bangko Sentral may apply the borrowing director/ officer/stockholder’s share in the bank’s profit sharing program against the excess of credit extended over any of the prescribed DOSRI ceilings.” Addressing the circular’s applicability to government financial

institutions, BSP said the same rules shall apply to loans, other credit accommodations, and/or guarantees granted to the national government, its political subdivisions and instrumentalities as well as government-owned and -controlled firms. A number of local banks are owned by conglomerates, some of which are also engaged in infrastructure development under the PPP scheme. These include listed

BDO Unibank, Inc. and China Banking Corp. which are both owned by the Sy family’s SM Investments Corp.; Metropolitan Bank and Trust Co. and its subsidiary Philippine Savings Bank under taipan George S.K. Ty’s GT Capital Holdings, Inc.; Ayala Corp.’s Bank of the Philippine Islands (BPI); Aboitiz Equity Ventures, Inc.’s Union Bank of the Philippines; East West Banking Corp. of the Gotianun’s Filinvest

Development Corp.; Rizal Commercial Banking Corp. of the Yuchengco Group of Companies; Robinsons Bank Corp. of Gokongwei-led JG Summit Holdings, Inc.; Asia United Bank of the Rebisco group; the San Miguel Corp. group’s Bank of Commerce; and Philippine National Bank of Lucio C. Tan’s LT Group, Inc.

Economic expansion this quarter is expected “at the very least” to have sustained the 10-quarter peak pace logged in 2016’s first

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three months on the back of lingering effects of election-related spending that added to the boost from continued strong state and household consumption, the government’s outgoing socioeconomic planning chief told reporters yesterday. Emmanuel F. Esguerra, director-general of the National Economic and Development Authority (NEDA), said gross domestic product (GDP) growth was

likely “almost the same” as the 6.9% rate recorded last quarter. That performance was the same as the pace logged in 2014’s last three months and was the fastest since the 7.0% clocked in July-September 2013. “I’m saying, at the very least, it could be as good as the first quarter. [It] could be better. I don’t see it being worse,” Mr. Esguerra said. “Second quarter last year was quite low. I think it will be better,”

he said at the sidelines of the Economic Journalists’ Association of the Philippines’ briefing on NEDA’s “AmBisyon Natin 2040” initiative, referring to the upwardly revised 5.8% seen in April-June 2015. “AmBisyon Natin 2040” is a general long-term development vision NEDA started working on early last year in hopes of helping ensure continuity of policies, programs and projects. While he would not give a range

of estimated second-quarter growth, saying “preliminary figures are not in yet,” Mr. Esguerra said he did not “see any drastic change between the first-quarter drivers and the second-quarter drivers.” The government is scheduled to report second-quarter GDP data on Aug. 18. “I don’t see the contributing factors being any different from the contributing factors for the first quarter,” Mr. Esguerra said. Last quarter

saw a particular boost from state spending and construction front-loaded ahead of the public works ban before the May 9 elections, as well as from money spent by candidates that seeped into the broader economy. Mr. Esguerra noted further that “domestic spending will be important, given that the external environment for trade is not as good as we would want it to be.” Sought for comment, President-elect

Rodrigo R. Duterte’s incoming Socioeconomic Planning Secretary Ernesto M. Pernia shared the view that economic expansion this quarter would be “probably more or less similar to Q1.” “Election spending would still have some effect, as well as government spending with funds already released,” Mr. Pernia said in a text message. Sought for comment separately, Nicholas Antonio T. Mapa, Bank of the Philippine

Islands research officer, said via e-mail that he was “looking at growth to be in the mid- to high-6% level again” amid “government spending, election boost and still-strong household consumption.” Rizal Commercial Banking Corp. said last week that it expected 7% growth this quarter.

The Philippines is strong enough to withstand volatility in the global markets, roiled by Britain’s decision to leave the European

Union, top Asian economists said Tuesday. Economic fundamentals are steady, the central bank has room to cut interest rates if

necessary, and the incoming government has leeway for stimulus spending, economists said. “It’s starting from a position of s trength as we face a lot of global uncertainties following what looks like the UK ultimately leaving the EU,” Nomura chief economist for Asia Rob Subbaraman told ANC’s “Market Edge with Cathy Yang.” Nomura forecasts 6.3-percent growth for the Philippines this year, next only to India and higher than China and Indonesia, Subbaraman said. Gross domestic product grew 6.9 percent in the first quarter, beating

analysts’ expectations. The growth forecast for the region was lowered to 5.6 percent from 5.9 percent with Hong Kong and Singapore expected to get hit “very hard” by fallout from the so-called “Brexit,” Subbaraman said. Philippine growth could be reduced by 0.2 percentage points, he added. President-elect Rodrigo Duterte, who will assume office on Thursday, may increase spending by as much as

50 percent to stimulate the economy, his economic managers said last week. Global markets tumbled while the sterling fell to three-decade lows on Friday after the United Kingdom voted to leave the EU and analysts predicted further volatility. While the results of the referendum caught investors “off guard,” the fallout was unlikely to trigger a meltdown as severe as the Lehman Brothers collapse in 2008, International

Monetary Fund country representative to the Philippines Shanaka Jayanath Peiris said. “It isn’t panic at the moment so we can watch and see what happens,” Peiris said in a separate interview on “Market Edge.” “The critical issue for us is, there is uncertainty, the more prolonged period of uncertainty will affect the real economy, and that’s where policy actions could also be taken,” he said. Unease over

Britain’s decision could trigger capital outflows from emerging markets, but the Philippines would be “less affected,” he said. “The Philippines is one of those economies where the fundamentals are very strong. They have a good reserve buffer. The Philippines can wait and take the first round effects,” he said.

The local financial market has enough liquidity to support government’s additional borrowings plan that will fund the proposed

higher deficit spending, the incoming finance chief said. According to incoming Carlos Dominguez, the government needs to initially

allow additional deficit spending to move the country’s economy to higher growth plane. “Our data shows we have enough liquid ity in the domestic market to support public borrowing,” Dominguez said in a recent speech. “A more aggressive spending plan will, in fact, help relieve our domestic banking system of excess liquidity problems.” Domestic liquidity or M3, which stands as the broadest measure of

money in an economy, grew at the fastest clip in over a year to P8.6 trillion as of April this year, data from the Bangko Sentral ng Pilipinas (BSP) showed. Under the Aquino administration, the Department of Finance (DOF) has been favoring local borrowing than overseas since the start of 2011 as the government wants to reduce country’s foreign currency-related risks. For 2016 alone, the government has furthered

reduced its foreign debt exposure in line with its goal of shielding the Philippine economy from external shocks. From an 84:16 borrowing mix last year, the DOF raised its local component to 86 this year. As of March this year, domestic loans account for 65 percent of the national government’s total debt portfolio. Dominguez along with incoming Budget Secretary Bejamin E. Diokno earlier said that the Duterte

administration will increase its government’s budget deficit ceiling to three percent of gross domestic product (GDP) from on ly two percent target. “Our economy can move to a higher growth plane. To achieve that, we need a bolder pump-priming plan that will initially involve allowing more headroom for deficit spending,” Dominguez said. Diokno, meanwhile, explained the government needs to raise its deficit

ceiling to allow higher spending on infrastructure. He also cited that the Philippines lags its neighbors in Southeast Asia in terms of public spending for infrastructure projects, adding the next administration now plans to spend at least six percent of the country’s GDP on infrastructure. The incoming budget chief, meanwhile, added that the government has no plan to have a balanced budget within the next

six years. “Balancing the budget at this time is out of discussion,” Diokno said. “We need to go on deficit spending for quite some time to make up for poor infrastructure.” But despite the plan, Diokno assured the government will not allow its budget deficit to excessively balloon during their administration. “Having a budget deficit is not necessarily bad if you put the money in the right things,” Diokno said. “But

definitely we won’t allow the deficit to balloon.” According to the incoming budget chief, the next government plans to spend P1 t rillion for infrastructure to generate more short-term jobs, but ultimately create “better future” in the long-term.

A typical Filipino household of four yearns for a monthly income of P100,000 to live a "simple and comfortable" life, the National Economic and Development Authority (NEDA) revealed on Tuesday. Under the current conditions, a simple and comfortable life would entail having a gross monthly income of P120,000 per family per month, according to NEDA data. The amount is premised on having a

comprehensive tax reform program in place. According to NEDA’s “Ambisyon Natin 2040 Report," 79.2 percent of Filipinos want to have a simple and comfortable life – described as holding a stable job and owning of a car and a house. The report is a result of public consultations, a national survey, and technical studies that were conducted to produce evidence-based inquiries as to what and how the

goals can be achieved as a nation in the next 25 years. The vision will serve as an anchor to the development planning across four administrations, beginning with that of President-elect Rodrigo Duterte. A "simple" and "comfortable" life described by the respondents is actually not a modest life, but points to the lifestyle of a middle-class family with middle-class income, outgoing Socioeconomic Planning

Secretary Emmanuel Esguerra said. "These are not modest aspirations... In fact these are middle class aspirations," he told r eporters

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during the joint forum organized by NEDA and the Economic Journalists Association of the Philippines. To attain such aspiration, a strong income growth would have to be sustained in run up to 2040, NEDA Deputy Director Rosemarie G. Edillon said. "If we grow like we did in the past, we will achieve this. But if not... majority of the Filipinos will not be able to achieve this," she said. "We need a strong income

growth and more inequality-reducing strategies," she emphasized. A P120,000 monthly income would also translate to an $11,000 per capita income that would address the poverty rate. Despite such "ambitious" target, Edillon said it may be achieved even before 2040 if issues are addressed along the way. "By 2030... mayabang tayong magsasabi na we have left no one behind, we have left no Filipino

behind," she said. A zero-percent poverty rate could be achieved by then, but that this one of the expectations in 2040, she added. The Department of Trade and Industry (DTI) yesterday downplayed the impact of the decision by Britain to leave the 28-member

states of the European Union on the Philippine trade and investments landscape saying this could even hasten more businesses for the Philippines in the near term. Incoming Trade and Industry Secretary Ramon Lopez, who was briefed by the incumbent Trade and Industry officials, told reporters that, if any, the Brexit impact would be minimal noting that exports to UK have been generally small while

British investments in the country are still relatively small. “Even OFW remittances from UK account for less than 5 percent of total,” Lopez told reporters. Data from the Bangko Sentral ng Pilipinas showed OFW remittances from UK account for 5 percent of total. In the first f our months this year, OFW remittances from UK reached more than $466 million or 0.3 percent down from $468 million in the same period

last year. DTI Undersecretary Ceferino Rodolfo, who is also managing head of the Board of Investments, noted that while the UK is the second biggest EU economy accounting for 17.6 percent of the union’s GDP, the country has smaller economic presence in the Philippines. UK accounts for 10 percent of the Philippine imports and 17 percent of exports to EU, Rodolfo said. “So far, we don’t see any

negative impact on investments,” he said although he admitted that “those who are investing in the Philippines because of the EU-GSP+ scheme, that EU equation will be foregone, but that will still be down the line.” The EU-GSP+ grants duty-free entry of major Philippine export products under the generalized scheme of preferences (GSP) covering 6,200 tariff lines including processed fruit and foodstuffs,

coconut oil, footwear, fish and textiles. But Rodolfo also noted of some economic potentials in the near term. “In the immediate term, that could be something good. Those who will take advantage of their current presence in the EU might accelerate businesses here for the near term while UK is still there in EU,” he said. “We’re hopeful because this is part of a process. This is a referendum, there are still lots of

processes down the line, mechanism on withdrawing from the EU, what are the conditions. These things still need to be seen,” he said. Analysts said it will take two years for UK to fully get out of EU membership because there are processes it has to go through. During this period, Rodolfo said, investors in the Philippines that are availing of the EU-GSP Plus are expected to accelerate their businesses with UK to be able to take advantage of that two-year window. In 2015, British investments generated by the government’s various investment

promotion agencies reached P4.13 billion. In the first quarter of 2016, British businessmen invested P1.84 billion, or 52 percent higher than P1.2 billion generated in the same period in 2015. In the meantime, Rodolfo said, “We will try to maintain as much as possible the status quo, enhance relationship with the UK, which could be bilateral or whatever means.” Rodolfo also downplayed that ASEAN will go the way

of EU where a member country might just walk away one day. “ASEAN and EU are two different regional economic models, have different levels of integration. We have learned our lessons when EU had a euro crisis in 2007 and 2008. ASEAN will not adopt a one ASE AN currency, that is why the ASEAN model of slowly but surely is more okay,” he said.

President-elect Rodrigo Duterte is seriously considering installing cable cars in Metro Manila to ease crippling traffic jams, his

incoming transportation secretary said Tuesday. Initial talks are ongoing with a company that supplies 35-seater cable cars for

commuters in South America and once approved, the new mode of transportation for the capital’s 12 million people will be operational in 18 months, incoming minister Arthur Tugade said. “Pag nagdagdag tayo ng kalsada at nag-construct tayo, lalong makaka-traffic. Kung gusto mo ng additional capacity, pumunta ka sa itaas,” Tugade told ANC’s “Headstart.” "Suffice to say, for the moment, that is seriously being

looked into," he said, adding the project could be implemented first in the Pasig and Makati business districts. Duterte, who will assume office on Thursday, will ask Congress for “special powers” to solve traffic congestion that has reached “crisis” proportions. This includes opening subdivision roads to traffic and doing away with public bidding for some infrastructure projects. The Philippines los es an estimated

2.4 billion pesos a day due to traffic congestion, according to a study by the Japan International Cooperation Agency (JICA). The Bureau of Customs (BOC) is targeting as much as P23.5 million from the auction of forfeited goods at the Manila

International Container Port (MICP). “We anticipate another successful public auction. This is our way of contributing to the revenues of the agency," Gerry Macatangay, chief of MICP-Auction and Cargo Disposal Division (ACDD), said in a statement. The auction Tuesday will include four lots and 62 containers of various goods. In line with provisions of Section 2601 to 2610 of the Tariff and Customs Code of the

Philippines, MICP's ACDD will put refined sugar with a total floor price of P21.502 million on the auction block. Expanded piocelan beads, polyethylene beads, expandable polystyrene beads kane pearl, and expanded polyprophylene beads with a total floor price of P1.728 million are also up for auction. Footwear, plastic shoe mold, wiper blade, and piston with a floor price of P300,000 are avai lable for bidding.

The refined is registered with the Sugar Regulatory Administration as “B” or designated for the domestic market, the BOC said. It’s a corporation’s activities, not its registration as a nonprofit entity, that entitles it to tax exemption, the Bureau of Internal

Revenue clarified in a circular. Revenue Memorandum Circular No. 64-2016, dated June 20, states that registration with the Securities and Exchange Commission as a nonstock, nonprofit corporations does not automatically entitle an entity to the perk. “This only refers to its organization. The operations of a corporation generally refer to its regular activities,” the Bureau of Internal Revenue (BIR) said. The

revenue circular added that tax exemption is not absolute, as it covers “only the income received by the corporation organized and operated” under the provisions of Section 30 of the National Internal Revenue Code. As for other income derived from real or personal properties and activities conducted for profit, these are still subject to corresponding taxes. At the same time, the circular also imposed a

stricter implementation of the limitation on inurement, stating that to qualify as a true non-profit entitled to income tax exemption, a corporation’s earnings “shall not inure to the benefit of any... members or any specific person.” This led the Tax Management Association of the Philippines (TMAP) to criticize the circular as an “illegal administrative legislation” that supposedly went beyond the law. Eight pages

of the 18-page circular specify operations that would characterize and define a corporation as among those entitled to tax exemption provided by Section 30 of the National Internal Revenue Code. The so-called “Section 30 corporations” are: labor, agricultural or horticultural organizations; mutual savings banks not having capital stock represented by shares, and cooperative banks without capital

stock organized and operated for mutual purposes and without profit; beneficiary societies, orders or associations, operating for the exclusive benefit of the members; cemetery companies operated exclusively for its members; nonstock corporations or associations operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans; business leagues,

chambers of commerce, boards of trade not organized for profit; civic leagues or those organized exclusively for the promotion of social welfare; nonstock and nonprofit educational institutions; government educational institutions; farmers’ or other mutual typhoon or fire insurance company, mutual ditch or irrigation companies, mutual or cooperative telephone companies; as well as farmers’, fruit growers’, or

associations operated as a sales agent for the purpose of marketing the products of its members. The new circular requires “Section 30

BAIPHIL Market Watch – 29 June 2016 Page 5 of 12

corporations” to file an Account Information Form (BIR Form No. 1702-AIF) for the first three years of operations, together with the annual income tax return. “Section 30 corporations” with mixed income -- derived from other activities involving the sale of goods and/or services not in connection with its primary purpose -- are required to also submit monthly and quarterly value-added tax and percentage tax returns,

as well as quarterly and annual income tax returns. It’s the stricter implementation on the limitation on inurement, however, that TMAP specifically criticized about RMC 64-2016. TMAP President Benedict R. Tugonon said his group will ask the incoming administration of President-elect Rodrigo R. Duterte to include RMC 64-2016 on the “list of BIR issuances” to withdraw or amend. Mr. Tugonon cited the lack

of public consultation or effort to seek comment from parties affected. He also said that a number of provisions in the RMC c an be considered ultra vires, or issued beyond the bounds of the law. He said the BIR extended the limitation on inurement to educational institutions and cemetery companies, when their Section 30 provisions did not state so. Mr. Tugonon deemed “too narrow” the c ircular’s

definition of payments not covered by tax exemption: compensation, salaries and honoraria for trustees and organizers; “exorbitant or unreasonable” compensation for employees; welfare aid and financial assistance for members; donation to any entity other than similar organizations; purchase of goods above fair market value; and the distribution of a dissolved firm’s remaining assets to members. “The

definition of ‘inurements’ in the RMC is too restrictive, a clear example of over-regulation wherein the BIR is already interfering with management prerogative,” Mr. Tugonon said in a mobile chat message. He said this interpretation would pose a “stumbling block” for schools, foundations and non-government organizations in hiring experienced administrators.” “We take this opportunity to appeal to the

current commissioner to recall or withdraw the recent interpretations and circulars she issued so as not to further confuse taxpayers, and also as a courtesy to the next administration.”

The Philippine Statistics Authority (PSA) is reviving the conduct of seven key agriculture surveys this year to help policy makers have a better grasp of the country’s food supply, demand, stocks, production and inventory. Surveys that would be renewed for

nationwide taking this year are the following: Palay Production Survey (PPS),Corn Production Survey (CPS), Crops Production Survey (CrPS), Monthly Palay and Corn Situation Reporting System (MPCSRS), Palay and Corn Stocks Survey (PCSS1), Backyard Livestock and Poultry Survey (BLPS) and Commercial Livestock and Poultry Survey (CLPS). The PSA said the information generated by the surveys

would help policy and decision makers implement the appropriate interventions to maintain food security in the country. The 2016 PPS and CPS would generate estimates and forecasts of cultivations areas for the staples and the corresponding yield expectations in 80 provinces including Batanes. The surveys would be conducted one month after each reference quarter. For example, the survey for April 1 to June

30 would be conducted in July while the survey for July to Sept. 30 would be conducted in October. The CrPS, which would also be undertaken on a quarterly basis, would generate basic production statistics for more than 200 crops other than palay (unhusked rice) and corn. This would contain information on the volume of production, area planted and harvested, number of bearing trees, yield per hectare,

yield per bearing tree, and bearing trees per hectare. Meanwhile, the 2016 MPCSRS would draw monthly updates from the PPS and CPS to provide timely updates on the growing conditions and actual plantings of palay and corn.

The hardline stance against criminality of the incoming Duterte administration is expected to ensure safety of businesses in the country and will encourage foreign investors to pour their capital in a secure area, according to the Philippine Economic Zone Authority (PEZA). PEZA Director-General Lilia B. De Lima told reporters that President-elect Rodrigo Duterte’s policy on peace and order

will be a big boost on the confidence among businessmen in the country and those still exploring the idea of relocating in the Philippines. “With Duterte concentrating on peace and order, that is good for the business community,” De Lima stressed. PEZA hosts the country’s export-oriented investors. PEZA’s exports account for 70 percent of the country’s total exports. As a government one-stop shop investment

generation agency, PEZA grants income tax incentives to investors for a certain number of years in a graft-free government agency. According to De Lima, she gathered from PEZA locators that Duterte’s policy against criminals and drug syndicates has gained strong support. De Lima said she expects PEZA investors to revise upwards their growth projections. PEZA alone is also expected to r eview its

growth targets, which are normally adjusted in the third and quarters of each year. For this year, PEZA expects a 5-5-5 percent growth each for investments, exports and employment. PEZA investments grew 18.65 percent in the January-April period this year on strong investments in IT parks for BPO operations. This growth translated into total approved committed investments of P48.759 billion as against

P41.093 billion approved project registrations in the same period last year. The investments in the first four months represent the combined project cost of 208 approved projects, which number also grew 11.23 percent compared to the 187 projects registered in the same period last year. The higher number of projects also boosted PEZA’s cumulative direct employment level to 1,255.476 jobs as of February this

year from 1,187,505 in the same period last year. Exports, which data reporting has a two-month lag time, also posted a slight growth of 0.73 percent to $7.064 billion in the January-February period this year from $7.013 billion in the same period last year. Among the sectors, De Lima said, the IT sector posted the fastest growth in terms of investments although in value the electronics still remained the biggest.

The IT sector posted the highest growth in investment at 129 percent to P8.987 billion from P3.922 billion in the same period last year. There were 85 IT projects approved or 28.79 percent increase from only 66 projects approved in the January-April 2015. Cumulative employment in the IT sector rose 12.11 percent to 581,565 from only 518,739 in the same period last year. The IT sector alone has

contributed exports of $1.753 billion in the first two months or a significant 21.39 percent growth than the $1.444 billion in the same period last year. The biggest IT investments were mostly in the IT Parks and Buildings led by Daiichi Properties, a 20 percent Singaporean-owned that invested P2.92 billion to build a 42-storey IT finance building. Big IT investors include Araneta Center (P2.9 B) for its Araneta Cyber

Park Tower 2; Property of Company of Friends (P2.64B) for its Suntec IT Park in Imus, Cavite; Eton Properties (P1.861 B) for its Eton Centris in Diliman, Quezon City; EK Holdings, Inc. (P1.549 billion) for the expansion of its Enchanted Kingdom into a tourism facility expanding into 29 hectares all.

The United Kingdom’s (UK) vote leaving the European Union (EU) may impact on the country’s targeted shipment this year of

abaca fiber to the UK, the Philippines’ top export destination for the commodity. “That might be the consequence... hope the

decrease will not exceed by a tenth,” said Clarito M. Barron, OIC executive director of the Philippine Fiber Industry Development Authority (PhilFIDA) in a mobile message when asked about a possible decline in exports this year following the so-called “Brexit.” The UK has the biggest inward shipment of abaca fiber from the Philippines last year with demand reaching 46,540 bales of 125 kilograms which make up

48.4% of total abaca fiber exports. Still, PhilFIDA is targeting this year to export some 72,000 bales of 125 kilograms to the UK, higher by 54.71% from total exports recorded last year. A 10% decrease in said target will cut the figure to 64,800 bales which is stil l higher with a 39.23% climb from last year’s export levels. Mr. Barron added that the UK decision may pose an “adverse effect” on outward shipments of

abaca fiber on the back of the depreciation of the UK currency, thus weakening the demand for the product. “But this I think will not last long since UK will be doing its best to restructure the currency,” Mr. Barron added. The UK is also the second top importer of abaca pulp next to Germany. It imported last year 6,385 metric tons (MT) or 28.8% of total abaca pulp exports while Germany’s abaca pulp imports

reached 8,630.59MT, cupping the lion’s share of 38.9%. In addition, the UK’s demand for abaca cordage was recorded the highest in Europe booking 201MT or 4.5% of Europe’s 9.3% take in abaca cordage exports last year.

BAIPHIL Market Watch – 29 June 2016 Page 6 of 12

The non-life sector will push anew the proposal to lower taxes imposed on its premiums after failing to secure approval from the

outgoing administration. The Insurance Commission (IC) was batting to reduce the taxes imposed on non-life insurance premiums to 8%

from the current high of 27%, in a bid to increase asset coverage in the country. “There were so many things that were started before that never really got finished... the tax bill is number one on our list, it’s going to be refiled. The [IC] commissioner already reiterated his support for the tax and said it is one of the priorities going forward,” non-life industry group Philippine Insurers and Reinsurers Association, Inc.

(PIRA) former chairman Michael F. Rellosa recently told reporters. “For non-life, the lowering of taxes is our number one priority. It will be refiled. We don’t know what the Congress looks like yet, according to initial pronouncements of the secretary, it looks like he is in favor of it,” he added, referring to incoming Finance Secretary Carlos G. Dominguez. House Bill (HB) 3235 eyed to trim taxes imposed on non-life

insurance premiums to as low as 2% by exempting it from the 12% value-added tax (VAT) plus a documentary stamp tax ranging from P10 to P100 per year. “The incoming admin[istration] looks like they are in favor of bringing income taxes down, and they really have to harmonize that with non-life taxes because of the integration so it has to be done... but we are guessing. We’ll refile it and see how it goes,”

Mr. Rellosa added. IC Commissioner Emmanuel F. Dooc backed the plan to lower taxes on non-life premiums but put forward a proposal to put a fixed premium tax on these insurance packages instead of the current tax rates “to avoid arbitrage.” Mr. Dooc said instead of the provisions under the bill, non-life insurance should be subject to a 5% VAT which will be called a premium tax, and to a 0.5% documentary

stamp tax. On top of the 5.5% duty, a 2% tax would be collected for fire service tax, and an additional levy will be paid to local government units, which range from 0.15% to 0.75%. At present, the government collects the following taxes from non-life insurance holders: 12% VAT, a 12.5% documentary stamp tax, a 2% fire service tax, and a 0.15% to 0.75% local government tax. Non-life insurers are also hopeful that

the incoming administration would be supportive of another proposal from the sector to provide for a mandatory insurance coverage to households and small businesses to protect them from damage arising from natural calamities, Mr. Rellosa said. The payment for the coverage can be done along with realty taxes or business permits.

Security Bank Corp. on Tuesday listed on the Philippine Stock Exchange the 150,707,778 new common shares it issued to the

Bank of Tokyo-Mitubishi UFJ Ltd. (BTMU). The listing brought the Security Bank's total listed stock to 753,538,887 common shares, it

noted in a disclosure to the exchange. They Dy Group remained Security Bank's major shareholder with majority voting rights, with the Bank of Tokyo-Mitsubishi the second largest equity holder. "The bank's market capitalization, or how much the investor market values the bank, is around P150 billion (equivalent to $ 3.2 billion) given its stock price trading in P198 to P200 per share range in r ecent days," Security Bank said. Its shareholders' capital is at P92.9 billion, making it the fifth largest private universal bank in the country. “We thank

the Bangko Sentral ng Pilipinas and PSE for their vital support of the Security Bank-BTMU strategic partnership. The partnership gives Security Bank as an equity affiliate of BTMU additional capabilities to service key critical requirements of our economy," said Alberto S. Villarosa, Security Bank's chairman of the board. "These capabilities are in the areas of infrastructure and project finance, retail finance,

international banking, and wealth management," Villarosa added. In January, the bank sold 20 percent of its equity to BTMU for P36.943 billion. The deal was completed on April 1. Security Bank issued to BTMU 150.7 million common shares at P245 a piece and 200 million preferred share at P0.10 per share. "This equity investment is to-date the largest foreign direct investment in a Philippine financial

institution," the bank said. Mitsubishi UFJ Financial Group, BTMU's parent, is one of the world's largest and most diversified financial groups with core strengths in infrastructure and retail financing, according to Security Bank. Security Bank's book value was P123.29 per share as of April 1.

Outgoing Social Security Commission Chairman Juan B. Santos and Centro Escolar University (CEU) School of Accountancy

and Management Dean Melito Salazar have joined the board of Rizal Commercial Banking Corp (RCBC). They are joining former

Insurance Commissioner Atty. Adelita Vergel De Dios, who was named independent director and outgoing Development Bank of the Philippines (DBP) CEO Gil Buenaventura, who was appointed RCBC president and CEO. Buenaventura replaces Lorenzo Tan, who stepped down amid the $81-M money laundering scandal involving funds allegedly stolen from the Bank of Bangladesh. RCBC said it has

since instituted reforms to tighten banking security, including lowering the threshold for remittances before reports are generated, and strengthening the process of escalating and reporting unusual transactions.

Ayala Corp. will issue P10 billion in seven-year bonds next week, proceeds of which will be used to refinance peso-denominated debt, the conglomerate said Tuesday. The bonds, to be issued on July 7, will carry an interest rate of 3.92 percent per annum, Ayala Corp. told the stock exchange. The Securities and Exchange Commission earlier authorized the company to issue P20 billion in bonds over

the next three years. The bonds were given the highest rating of "PRS Aaa" by Philippine Ratings Services Corp. with a stable outlook. Ayala Corp. has set capital expenditures this year at P174 billion, 34 percent higher than actual spending in the previous year. It also hopes to double net profit to P50 billion by 2020.

The University of the Philippines (UP) and Vista Land & Lifescapes, Inc. are teaming up to develop the country’s first School of

Technopreneurship, to be located in Vista City’s University Town. “A UP campus in Vista City is envisioned to become the birthplace

of local tech start-ups that will ensure that the Philippines will remain competitive in today’s global economy,” said Vista Land Chairman Manuel B. Villar Jr. The Villar family donated the land where the facilities will be built. The Vista City, now being developed into a first-class mixed-use community, comprises more than 2,000 hectares straddling the cities of Las Piñas and Bacoor in Cavite. The partnership is set

to begin with the development of a 5-hectare property, with Vista Land building the initial campus facilities and UP designing the programs to be offered in the campus. The initial development timeline projects the construction of an Enterprise Center and Classroom Complex that will offer post-graduate and undergraduate programs in Technopreneurship and Design Engineering for UP students. “With the signing of

the Memorandum of Agreement between the UP and Vista Land, doors are opened to aspiring technopreneurs and big tech industry players alike,” said Vista Land President & CEO Paolo A. Villar, adding “The Philippines takes one step closer to making this economically progressive future a reality.” “The UP Technopreneurship Campus in Vista City’s University Town can give its student-technopreneurs a

better shot at bringing discoveries, inventions, and designs to the innovation s tage and competing on the bigger world stage,” said UP President Alfredo E. Pascual. The idea of having such facility was taken from a “think paper” published by the University of the Philippines (UP), which noted that investment in knowledge capital development is a key to a nation’s economic progress and to sustaining inclusive

growth. It argued that the Philippines needs to begin investing not only in education infrastructure, but in a “Knowledge Suprastructure” which allows the development of technopreneurs who are multi-disciplinary experts, trained specifically in technology and business. This suprastructure requires investment of both public and private sectors in smart classroom facilities, business incubation spac es, tech

innovation zones that allow technopreneurs to thrive in a supportive ecosystem — such as the Silicon Valley in California. Vista City is located in Region IV-A, dubbed the “Metro South” because of its rapid development as an extension of Metro Manila. Nearby are several industrial zones whose technology companies can support the further development of the UP campus and its programs. Former Senator

Manuel Villar and wife Senator Cynthia Villar met in UP where they both earned the BS Business Administration degrees.

BAIPHIL Market Watch – 29 June 2016 Page 7 of 12

Mitsubishi Motors Corp. of Japan is betting big on its operations in the Philippines as it targets to make the country one of its

export hubs in the region. MMC chair and CEO Osamu Masuko told reporters here that the company wanted to ramp up the factory

output of Mitsubishi Motors Philippines Corp. to about 100,000 units yearly to enable it to export the Mirage and Mirage G4 to the rest of the region. “If there is an opportunity, we’d like to export. But in order to export, we need [scale]. We have confidence that we can accomplish this [export plan] but the cost of producing cars must be competitive enough and that means that the volume product ion has to

go up as well. With one model, we can produce 50,000 units … When the export competitiveness in terms of cost will improve and if the Philippine economy will continue to grow, then the plans to export can come at an earlier stage,” Masuko said. Masuko also st ressed the need to strengthen the local parts suppliers, adding that they also have to invest to supply the requirements of assemblers. “We have great

expectations for the Philippines. So definitely, we want the Philippines and its players to respond to the great expectations we have,” he said. MMPC is enrolled under the Philippines’ Comprehensive Automotive Resurgence Strategy, under which a total of P27 billion worth of incentives will be granted. MMPC is investing P4.3 billion to produce 200,000 units of the Mirage over six years. “Following the

government’s approval for our entry into the program on June 15, we held a groundbreaking ceremony of MMPC’s new stamping plant on June 17. MMPC is planning to invest P4.3 billion to build this new stamping plant and to add capacity to the passenger car production lines. In January 2017, Mirage G4 followed by Mirage will be brought into production,” Masuko said. He added: “The Philippines will see a

change in government in July but our commitment to the country remains unchanged. By keeping good communication with the new administration, we are determined to continue contributing to the growth of the Philippines through further development of the auto industry, increased local production, and job creation. MMPC currently employs about 1,000 people. Through the CARS program, [we expect to

generate] another 4,000 jobs [for MMPC and its tier 1, 2 and 3 suppliers].” And coming soon: Free Wifi in sari-sari stores…

A tech start-up company is planning to roll out free Wi-Fi services using small convenience stores across the country. Philip Zulueta, the president and founder of Wi-Fi Interactive Network, said it is now testing the technology in several bars and restaurants in

Metro Manila before introducing the service to "sari-sari" stores nationwide. Wi-Fi Interactive Network recently won seed funding from Microsoft to use sari-sari stores as Wi-Fi hotspots by using TV White Space technology, or the frequency of unused TV channels. Zulueta said the advantage of using broadcast TV frequency for Wi-Fi is its capability to provide signal within 10 kilometers, compared to Wi-Fi's

range of 600 feet only. He said the service is at no cost to sari-sari stores, and will be bundled with products sold at the stores. If you buy a sachet of shampoo, for example, it will come with 30-minute Wi-Fi service. "Affordability ang issue natin sa Pilipinas, mahal ang access sa internet. So ang mga tao hindi nagda-data plan dahil mahal," Zulueta told dzMM on Monday. He said the company is planning to launch

the service in hundreds of sari-sari stores this year. Around 10,000 stores are expected to use the service within the next three years.

ASIA-PACIFIC

Japanese stocks edged higher in volatile trade on Tuesday as a pause in sterling's fall offered some respite, but gains were capped by weakness in automakers. Investors remained cautious on growing worries about the global economic fallout from Britain's vote to leave the European Union. The Nikkei ended 0.1 percent higher at 15,323.14 after falling to as low as 14,987.79 earlier. The broader Topix shed 0.1

percent to 1,224.62 and the JPX-Nikkei Index 400 declined 0.1 percent to 11,057.32. China stocks rebounded to a three-week closing high on Tuesday, led by small-caps, as the country's leaders sought to calm

investors rattled by Britain's vote to leave the European Union. The blue-chip CSI300 index rose 0.5 percent to 3,136.40 points, while the Shanghai Composite Index gained 0.6 percent to 2,912.56. China's strict capital controls have helped shield Chinese stocks from the worst of the global market turmoil which was triggered by the Brexit vote on Thursday, but confidence remains shaky. Premier Li Keqiang sought

to reassure nervous investors on Tuesday. "It's hard to avoid short-term volatility in China's capital markets, but we won't allow roller-coaster rides and drastic changes in the capital markets," said Li, speaking at the World Economic Forum (WEF) in the city of Tianjin. The People's Bank of China said late on Monday that the country's debt and financial risks were under control, although it pointed out the

country's listed companies face growing operational pressure. Most sectors rose. Shenzhen's start-up board ChiNext rose 1.2 percent. Hong Kong shares fell for the third session in a row on Tuesday as investors worried about the global financial and economic fallout

from Britain's vote to leave the European Union. The Hang Seng index fell 0.3 percent to 20,172.46 points, while the China Enterprises Index lost 0.4 percent to 8,536.16. The shock from Britain's decision on Thursday continues to reverberate across global markets, with Wall Street seeing its worst two-day drop in about 10 months. Most sectors in Hong Kong fell. The financial sector was weak, dragged lower by

HSBC. Europe's biggest bank fell 0.8 percent as analysts downgraded earnings forecasts for the sector. Hong Kong-listed shares of China Vanke Co Ltd fell 1.9 percent to a four-month low, after the developer said newly unveiled plans by its largest shareholder to oust its board were threatening the health of the company.

Southeast Asian stock markets regained some footing on Tuesday, as investors snapped up hammered assets after Britain's surprise

decision to leave the European Union last week. But in a sign that sentiment remained fragile, trading volumes were light and price action

was choppy across markets. Markets seesawed as one group looks at Brexit sell-off as an opportunity to come in and then there are those who are risk averse because of volatility and the potential negative impact on assets values, said Jose Vistan, an analyst wi th Manila-based AB Capital Securities. Indonesian shares rose 0.5 percent, led by consumer cyclicals and financial stocks such as Astra

International Tbk PT and Bank Central Asia Tbk PT. Sentiment was also buoyed after a parliamentary commission approved a tax amnesty bill on Monday, ensuring that the government's plan to offer low rates for taxpayers who declare untaxed wealth will go into effect soon.

BAIPHIL Market Watch – 29 June 2016 Page 8 of 12

Parliament votes on the bill on Tuesday. Finance Minister Bambang Brodjonegoro has said the programme can bring in 165 trilli on rupiah ($12.44 billion) in additional income this year, which can help offset falling revenue from resource-related sectors. Singapore shares were up 0.8 percent, on track for their first gain in three sessions, helped by telecom stocks. Asian stocks markets opened weaker on Tuesday,

with MSCI's Asia ex-Japan index marginally higher at 0500 GMT after two consecutive sessions of losses. World oil prices rebounded in Asia Tuesday on bargain hunting but tremors from Britain's shock vote last week to leave the

European Union continue to weigh on sentiment. Financial markets are still reeling from Brexit's fallout as investors sell riskier assets and flock to safe bets amid global economic uncertainty. Asian stock markets resumed their losses early Tuesday, extending another sharp sell-off in Europe and New York. At around 0330 GMT, US benchmark West Texas Intermediate for delivery in August was up 64 cents, or

1.38 percent, to $46.97 and Brent crude for August gained 60 cents, or 1.27 percent, to $47.76 a barrel. Both contracts closed lower on Monday. "The turmoil in the financial markets, triggered by the UK referendum results, is keeping the pressure on oil prices, which look set to clock a monthly loss in June," said IG Markets Singapore analyst Bernard Aw. "The lack of guidance from the UK government and the

prospects of a leadership struggle continued to dampen investors’ appetite, and this should persist through the week," he told AFP. British Prime Minister David Cameron quit in the wake of the vote and the race is on to find his successor as party leader who would take over as prime minister. Former London mayor Boris Johnson and Interior Minister Theresa May are considered to be the front-runners in the

leadership race. Policy makers in Europe are trying to calm global markets but analysts said uncertainty remains. "Apart from economic considerations, concerns are that the Brexit vote could encourage other EU countries to seek their own referendums, including Netherlands, France, Spain and Greece," DBS Bank said in a note. It said "this could potentially revisit the EU breakup fears that plagued

the region" a few years back. A strengthening US currency – considered a safe investment in times of turmoil – will likely continue to dampen demand for dollar-priced oil which would become more expensive for holders of weaker units, Aw added.

China's economy will grow at about 6.6 percent this year, and will need to be underpinned by policy support in the second half to counter downward pressures, according to the China Academy of Social Sciences (CASS). The forecast from one of China's top government think-tanks was reported by the official Shanghai Securities Journal newspaper on Tuesday, and marked a slightly more

downbeat outlook that one given in May, when CASS had forecast growth of 6.6 percent to 6.8 percent for the year. Consumer price inflation will likely rise 2 percent for the year, while the decline in producer prices will slow, according to the CASS forecasts. Inflation was running at 2.1 percent for the first five months of the year. Retail spending growth will be stable, but money supply growth will slow, as will growth in investment in fixed assets and property development. CASS said China should deepen economic reform and restructuring in the

second half of the year, optimize leverage levels, and clean up zombie firms. Japan's national tax revenue for the last fiscal year that ended in March has been confirmed at 56.3 trillion yen ($553.75 billion),

undershooting the government's earlier estimate as yen rises hurt corporate profits, government sources told Reuters. Lower tax receipts will likely affect funding for the additional spending the government is planning to compile later this year to support the economy, which is struggling with weak domestic demand, a stronger yen and external risks such as Brexit. In recent years the government has

tapped bigger-than-expected tax revenues for financing extra stimulus budgets. The confirmed tax revenue for last fiscal year compares with the earlier estimate of 56.4 trillion yen.

South Korea plans a fiscal stimulus package of more than 20 trillion won ($17 billion) to cushion risks from corporate restructuring as external uncertainties grow with the U.K.’s vote to leave the European Union. The package will include an extra budget of about 10 trillion won that mainly would be used to create jobs and support regional economies that would be hurt by corporate

restructuring, according to government statements on policy outlook for the second half. The growth outlook for 2016 was reduced to 2.8 percent from 3.1 percent, while the government’s inflation projection was cut to 1.1 percent from 1.5 percent. About 10 trillion won in extra budget will be financed by funds left over from 2015 -- about 1.2 trillion won -- and excess tax revenue expected for this year, according to

Lee Ho Seung, a director general of economic policy at the finance ministry. No government debt will be issued, he said. The other spending of more than 10 trillion won in the stimulus package will come from public funds and investments from state-owned companies. “Brexit is a downside risk to the Korean economy, but the issue wasn’t reflected in this revised outlook as it’s difficult to quantify the

impact,” Lee said in a press briefing. “Brexit would increase market volatility in the near term and then affect the real economy through changes in Europe and the U.K.’s growth rate.” The stimulus including extra budget would have the effect of raising this year’s growth by 0.2 to 0.3 percentage points, according to Lee. Korea’s exports fell for a 17th consecutive month in May, while job growth in the

manufacturing sector fell to one third of last year’s pace as companies have downsized amid the government’s restructuring push. The government projects exports to fall 4.7 percent this year from 2015 and imports to decline 6 percent. The nation’s current account surplus is expected at $98 billion this year, before contracting to $84 billion in 2017. Growth and inflation expectations have been lowered several

times in recent years. The economy was projected to expand by 3.5 percent in 2016 when the government first released estimates in June 2015. Tuesday’s outlook revision puts the government on par with the central bank, which forecast 2.8 percent growth in April. And the BOK may be on track for another downward revision in July, as Governor Lee Ju Yeol signaled after a surprise rate cut in June. The

government also pledged bold and timely action to stabilize markets through measures including smoothing operations as U.K.’s vote to leave EU sent shock waves through global financial markets. The won posted the biggest daily drop since 2011 on June 24 as the Brexit vote was announced, while sovereign yields fell to record lows. To boost consumption and address environmental concerns, the

government plans to offer tax breaks to those who scrap old diesel cars to buy new vehicles. The government said it also will announce plans to increase overseas sales of premium consumer goods like furniture.

Indonesia’s parliament approved a tax amnesty that the government says will draw in billions of dollars needed to finance a widening budget as it steps up infrastructure spending to spur economic growth. Lawmakers voted in favor of the bill during a plenary session in Jakarta on Tuesday, among the final steps before it becomes law. Individuals who repatriate undeclared ass ets held

abroad will face a penalty of 2 percent to 5 percent, according to the bill. President Joko Widodo is facing a revenue squeeze in the face of weaker commodity prices and slower growth in Southeast Asia’s biggest economy. To keep the budget deficit under 3 percent of gross domestic product, Widodo is banking on the tax amnesty to help plug the shortfall. The central bank forecasts the tax plan wi ll help draw

560 trillion rupiah ($41.8 billion) of funds back to the country and earn the government 53 trillion rupiah of revenue that may add 0.3 percentage point to economic growth. “To keep this year’s budget deficit below 3 percent of GDP, the government needs to cut spending and/or increase revenue collection,” economists at DBS Group Holdings Ltd. in Singapore, said in an e-mail before the plan was approved.

“A lot of hopes are on the tax amnesty law.” DBS estimates that the budget deficit for January to April stands at 158 trillion rupiah, more than double the amount recorded in the same period last year. Indonesia’s rupiah and equities gained after the decision. The currency strengthened 1.2 percent to 13,180 a dollar, the highest level since May 3, according to prices from local banks. Jakarta Composite Index

of shares rose 0.8 percent, set for the steepest gain since June 7. The amnesty bill sets a penalty of 4 percent to 10 percent on individuals

BAIPHIL Market Watch – 29 June 2016 Page 9 of 12

who report assets held abroad but decline to repatriate the funds. Participants must keep the funds onshore for three years. “The finance ministry needs to ensure high participation is met by systems and human resources ready to process the claims, then make sure the revenue is quickly spent to support growth,” David Sumual, chief economist at PT Bank Central Asia, said before the plan was approved.

The tax amnesty was seen as a test of political support for Widodo. His administration earned a majority in parliament when Golkar, the second-largest party, left the opposition to formally support him in May. A majority of parties at the finance commission agreed to approve the bill, while adding lengthy disclaimers to their decisions. “Empirically, the success rate is minimal and countries that do this are seeking

to plug shortfalls,” Kardaya Warnika, lawmaker for Gerindra party, which stands in opposition to Widodo’s government, said at the commission meeting on Monday. “If the country isn’t in a revenue crisis, then Gerindra would reject this bill, but because the country is in a crisis, then Gerindra accepts.” Lawmakers also approved revisions to the 2016 budget, including setting the GDP growth forecast for this

year at 5.2 percent and the fiscal deficit at 2.35 percent of GDP. Taiwan is seen cutting its benchmark interest rate for the fourth consecutive quarter at a policy board meeting this week amid

fresh export uncertainty brought by Britain’svote to exit the European Union and a weaker economic growth outlook. Twenty-three of 26 economists in a Bloomberg survey taken June 22-27 predicted another benchmark rate cut when the board of the Central Bank of the Republic of China (Taiwan) meets June 30. The monetary authority has lowered its policy rate at every meeting since September

2015 to the current 1.5 percent, from 1.875 percent, amid waning demand for the island’s exports. Shipments have contracted year on year every month since February 2015. As a result, the government was forced in May to slash its 2016 gross domestic product growth forecast to 1.06 percent from 1.47 percent. Overseas demand for Taiwan’s goods accounts for about two-thirds of GDP. Following Brexit, “the

negative impact from a tougher growth prospect of the global economy will likely be material” for Taiwan, Bank of America Merrill Lynch said in a recent note. Risk-off sentiment worldwide and a potential strengthening of the U.S. dollar “could result in capital outflows from the financial markets, in turn harming investment demand and business sentiment.” The firm sees GDP growth of just 0.8 percent for 2016 and

a 12.5 basis point rate cut at each of the three remaining board meetings this year. On the other hand, Taiwan’s central bank may also see a need to cut rates to stem inflows, according to analysts from firms including Goldman Sachs Group Inc., with the Federal Reserve’s dovish stance suggesting funds may head for markets such as Taiwan. That could push up the local currency at a time when demand for

Taiwan’s goods is falling. Global investors have bought a net $5.72 bil lion of Taiwan equities so far this year, contributing to a 1.6 percent gain for the Taiwan dollar, ahead of the South Korean won and the Chinese yuan, which have depreciated. Central bank governor Perng Fai-nan said in March that monetary policy was already loose and that further decreases, even if they may not be effective at boosting investment, could be used to curb inflows. Stemming potential investment purchases of the Taiwan dollar could damp currency

appreciation and aid export competitiveness. The central bank said in a June 24 statement Taiwan would experience limited fallout from the U.K. vote. Trade could be affected “in the long run” if the EU economy is hurt by Brexit. The authority pledged to mainta in financial stability and order in the foreign exchange market in the event of local dollar volatility, without giving specifics. “The prospect of economic

recovery this year was already very weak,” said Angela Hsieh, an economist at Barclays Plc, who sees policy makers cutting the main rate by 12.5 basis points. “Brexit will probably mean Taiwan’s economy won’t be able to grow more than 1 percent this year.”

Vietnam’s economy grew more than 5 percent in the second quarter, reflecting its resilience in the face of slowing export demand and mounting global risks. Gross domestic product rose 5.6 percent from a year earlier, the General Statistics Office said in a statement in Hanoi on Tuesday. That compares with a previously reported 5.46 percent in the first quarter. The economy expanded 5.52 percent in

the first half of the year, lower than the 5.8 percent median estimate of four economists in a Bloomberg News survey.

REST OF THE WORLD

European shares rose for the first time in three days on Tuesday after a heavy sell-off following Britain's shock vote to leave the European Union, with battered financial stocks leading the bounce. The pan-European STOXX 600 index, which had slumped 11 percent in the last two sessions, ended up 2.6 percent, while the pan-European FTSEurofirst 300 index rose 2.4 percent. Insurance and

banking stocks climbed, after suffering the worst of the market rout. Elsewhere among financials, Lloyds, Bankia and Intesa r ose between 4.8 percent and 8.3 percent, but UBS fell 2 percent, weighed down by price target cuts, and UniCredit declined 1.5 percent, giving up earlier gains in the last stretch of the session. Shares in Volkswagen rose 1.7 percent after the German automaker agreed to pay more

than $15.3 billion to settle charges that it cheated on U.S. diesel emissions tests. Baader Bank analyst Klaus Breitenbach said the deal removed some uncertainties but he remained cautious on the stock due to other outstanding legal risks. Shares in oil majors also advanced to add a further stabilising effect to the market, with oil prices climbing as a looming strike in Norway threatened to cut output in western

Europe's biggest producer. Clairinvest fund manager Ion-Marc Valahu said one factor helping to calm investors was the lack of any evident rush among British and European politicians to invoke Article 50 of the EU's Lisbon Treaty, which sets out the process for a state to leave the bloc. Others remained wary of buying into the rally, pointing to persistent pressure on the British market, such as a

downgrade of the United Kingdom's credit rating from Standard & Poor's. Wall Street bounced back on Tuesday, recouping some recent losses, as investors sought cheap assets after a two-day equities

rout sparked by Britain's decision to leave the European Union. U.S. indexes joined stock markets around the world in the rebound after global equity markets had shed $3 trillion in value in the two days following Britain's shock vote, according to S&P Dow Jones Indices. Investors also pointed to solid U.S. economic data as helping to stabilize stocks. Financials and tech stocks, hit hard in the wake of the

referendum, were among the top gaining sectors on Tuesday. The Dow Jones industrial average rose 269.48 points, or 1.57 percent, to 17,409.72, the S&P 500 gained 35.55 points, or 1.78 percent, to 2,036.09 and the Nasdaq Composite added 97.42 points, or 2.12

percent, to 4,691.87. All 10 S&P sectors finished higher. Energy shares gained 2.6 percent, leading all groups, supported by higher oil prices. Major U.S. indexes had posted their worst two-day decline in 10 months following the British referendum. More than 8.2 billion

BAIPHIL Market Watch – 29 June 2016 Page 10 of 12

shares changed hands in U.S. exchanges, above the roughly 7.5 billion average over the past 20 sessions. Advancing issues outnumbered declining ones on the NYSE by 2,644 to 440, for a 6.01-to-1 ratio on the upside; on the Nasdaq, 2,302 issues rose and 580 fell for a 3.97-to-1 ratio favoring advancers.

With financial markets reeling from the U.K.’s vote to leave the European Union, business leaders are set to begin a furious

round of lobbying to try to limit the fallout. Prime Minister David Cameron has called an emergency meeting Thursday of his Business

Advisory Group, which includes chief executive officers of companies like BP Plc, Whitbread Plc and EasyJet Plc, according to a person familiar with the situation. On Tuesday afternoon, U.K. Business Secretary Sajid Javid has invited two dozen senior executives to a separate gathering. Business leaders are expected to press for continued access to the EU’s single market and workers, and they want the

government to spell out a time frame for negotiations with the EU and concrete steps to shore up the economy after financial markets plunged following Thursday’s vote. It’s a foretaste of a lobbying fight that could intensify as the U.K. seeks to implement Brexit. Many business leaders object to key demands of the victorious “Leave” campaign, such as curbs on immigration. “While it is prudent for the U.K.

government to delay firing the starting gun on negotiations with the European Union, firms want a clear timetable and simultaneous action to support the wider economy,” said Adam Marshall, acting director of the British Chamber of Commerce. He also said business is seeking clarity on plans for infrastructure projects such as the planned high-speed railway from London to the north of England. Mike

Cherry, national chairman of the Federation of Small Businesses, said he would push for the government to make sure companies can continue to trade with the EU and hire the workers they need from overseas. Business leaders are also expected to urge Javid to take steps to protect the rights of EU workers currently in the country. Carolyn Fairbairn, director-general of the Confederation of British Industry,

said businesses welcomed Prime Minister David Cameron’s decision to delay invoking Article 50, which gives the government two years to conclude new arrangements with the EU but urged rapid clarity on who is making decisions. “What we need is a plan,” she wrote in the Times newspaper. “The government should remove uncertainties over the long-term right to stay in the U.K. for those already working here

as soon as possible.” A survey by the Institute of Directors after the referendum highlighted business leaders’ concerns around Brexit. A third of the respondents said the outcome of Thursday’s vote will cause them to cut investment in their businesses, while a quarter said they will institute a hiring freeze. “There is no point crying over spilled milk,” said Simon Walker, director-general of the institute, a business

networking group. "But these results highlight the importance of the Bank of England maintaining stability in the financial system. It is crucial that the banks do not starve businesses of cash.” On Thursday, Shriti Vadera, chairman of the U.K. arm of Banco Santander SA, will convene a meeting of financial services firms organized by the British Bankers Association to look at how banks can maintain “passporting” rights, which let them do business across the EU from a London base.

U.S. economic growth slowed in the first quarter but not as sharply as previously estimated, and while there are signs of a pickup

in the second quarter, analysts worry Britain's vote to leave the European Union could hurt activity later this year. Gross domestic

product increased at a 1.1 percent annual rate, rather than the 0.8 percent pace reported last month, the Commerce Department said on Tuesday in its third GDP estimate. The economy grew at a rate of 1.4 percent in the fourth quarter. There are indications the economy has regained momentum in the second quarter, with retail sales and home sales rising in April and May, although business spending remains

weak and job growth has slowed. But uncertainty following last Thursday's so-called "Brexit" referendum poses a risk to the growth outlook. Brexit wiped off $3.01 trillion from global stock markets over two days. On Tuesday, global equities recouped some losses, with financial shares leading the rebound. U.S. stock indexes rallied, while prices for government debt fell. The dollar fell against a basket of currencies.

Economists estimate that Brexit could subtract an average of two-tenths of a percentage point from U.S. growth over the next six quarters, with most of the drag coming through weak business spending as uncertainty causes companies to either delay or scale back capital projects. Despite signs growth is gaining steam, economists say the Federal Reserve is unlikely to raise interest rates in the near-term,

given the uncertainty over the implications of Brexit. Fed Chair Janet Yellen told lawmakers last week that data pointed to "a noticeable step-up" in GDP growth in the second quarter. The Atlanta Federal Reserve is currently estimating second-quarter GDP rising at a 2.6 percent rate. When measured from the income side, the economy grew at a 2.9 percent rate in the first quarter, the quickest pace since the

third quarter of 2014. That was up from the 2.2 percent pace reported last month and reflected upward revisions to corporate profits. After-tax profits increased at a 2.2 percent rate in the first quarter, rather than the previously reported 0.6 percent pace. Economic growth in the first quarter was constrained by dollar strength and sluggish global demand. Output was also hampered by business efforts to reduce an

inventory overhang, with a further drag coming from lower oil prices, which have unleashed deep spending cuts on capital goods such as equipment. There are indications that the model used by the government to strip out seasonal patterns from data is not fully accomplishing its goal. The economy has underperformed in the first quarter in five of the last six years. The government has acknowledged shortcomings

with its seasonal adjustment model, and early this month said beginning in mid-2018, it planned to produce estimates of GDP and its major components that are not seasonally adjusted. These will be released together with the seasonally adjusted GDP estimates. Firs t-quarter business spending on software, research and development was revised to show it rising at a 4.4 percent rate instead of falling at a 0.1

percent rate. Business spending on equipment fell at an 8.7 percent pace as opposed to the 9.0 percent rate reported last month. Still, overall business spending sliced off 0.58 percentage point from first-quarter GDP. Business spending has contracted for two consecutive quarters. Export growth was revised to show a 0.3 percent rate of increase instead of the previously reported 2.0 percent pac e of decline.

As a result, trade contributed 0.12 percentage point to GDP growth in the first quarter. It was previously reported to have cut 0.21 percentage point from GDP growth. Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised down to a 1.5 percent rate, the slowest pace in two years. Consumer spending was previously reported to have increased at a 1.9

percent rate. The downward revision reflected weak spending on services such as transportation and recreation. But April and May retail sales reports suggest consumer spending has rebounded. Should financial markets continue to settle down after last week's global equities rout, consumer spending could gain further ground, also aided by lofty savings and rising house prices, which are boosting household

wealth. A report from the Conference Board on Tuesday showed consumer confidence increased to an eight-month high in June. The survey was, however, conducted before last week's Brexit referendum.

The flash Markit US Services PMI came in at 51.3 in June of 2016, the same as in May as relatively subdued demand continued to weigh on activity growth, reflecting economic uncertainty and risk aversion among clients. Incoming new work increased moderately although the growth rate was the fastest since January; jobs growth eased for the third month and was the slowest since

December 2014; input cost inflation remained subdued and slowed to its weakest since March. In addition, business optimism fell to a fresh record-low. Considering the second quarter of the year, the average reading was 51.8, slightly stronger than 51.4 in the first three months of the year. Services PMI in the United States averaged 55.35 Index Points from 2013 until 2016, reaching an all time high of 61 Index

Points in June of 2014 and a record low of 49.30 Index Points in October of 2013.

BAIPHIL Market Watch – 29 June 2016 Page 11 of 12

Counterfeit Detection

- 8 July 2016 EQ and Leadership for Bankers

- 8 July 2016 Project Management

- 9 July 2016 Overview of Outsourcing Framework (Knowing the Essentials When Outsourcing)

- 9 July 2016 Updated Guidelines on Sound Credit Risk Management (Includes BSP Cir. No. 908: Agricultural Value Chain Financing Framework)

- 15 July 2016 Embedding Risk Management in New Product Development & Management - 16 July 2016 Supervisory Expectations On The ICAAP - 22 July 2016 BSP Cir. No. 889 and the Sales and Marketing Guidelines for Supervised Financial Institutions

- 22 July 2016 Signature Analysis & Forgery Detection

- 23 July 2016 Enterprise Risk Management

- 23 July 2016

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

JUNE 16-30

16 Ignacio A. Manipula - Sumitomo Mitsui

16 Cynthia B. Corsino - Bank of China Manila

18 Dante T. Fuentes -SBC

19 Joel Rizaldy G. Flor -RCBC Savings

21 Flordeliza L. Sarmiento -Rizal Bank

22 Corazon R. Gamallo - Asso Life Member

24 John T. Florendo - Equicom Savings

24 Meliton A. Martin - Secretariat

29 Criselda B. Santillan -Asso Life Member

MANAGED FUTURES - are part of an alternative investment strategy in which professional portfolio

managers use futures contracts as part of their overall investment strategy. Managed futures provide

portfolio diversification among various types of investment styles and asset classes to help mitigate

portfolio risk in a way that is not possible in direct equity investments. Professional money

managers, known as commodity trading advisors, typically monitor managed futures accounts.

These accounts can have various weights in stocks and derivative investments. A

diversified managed futures account will generally have exposure to a number of markets such as

commodities, energy, agriculture and currency. Introducing futures into a portfolio reduces risk

because of the negative correlation between asset groups.

BAIPHIL Market Watch – 29 June 2016 Page 12 of 12

"The secret to living well and longer is: eat half, walk double, laugh triple, and love without measure.”

- Tibetan proverb

What is represented by this BrainBat?

H I J K L M N O

HINT: Say what you see

BPI Asset Management Business World Philippine Daily Inquirer Philippine Star

GMA News ABS-CBN News Bulletin Today Reuters

Bloomberg CNN Wall Street Journal Strait Times

Investopedia Brainy Quotes Goodreads Corsinet – Trivia

Trivia Of The Day Filipi-Know Phrases.Org.UK Fun, Trivia & Humor

Compiled And Prepared By: Research Committee FY 2015-2016

Director: Maria Teresita R Dean (ChinaBank Savings) Chair: Sheryll K. San Jose (Equicom Savings Bank) Member: Rachelle A Fajatin (Equicom Savings Bank)

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