BAIPHIL Market Watch – 10 June 2016

Page 1 of 8

BAIPHIL

MARKET WATCH

10 June

2016 Legend

Improvement / Up Deterioration / Down No Movement

FINANCIAL MARKETS AT A GLANCE

PHILIPPINES

Financial Rates Current Previous

USD/PHP 46.0600 46.0100

30-D PDST-R1 1.6500% 1.6433%

91-D PDST-R1 1.5599% 1.8565%

180-D PDST-R1 1.5994% 1.8687%

1-Y PDST-R1 1.8798% 1.9215%

10-Y PDST-R1 4.4100% 4.4350%

30-D PDST-R2 1.6500% 1.6400%

91-D PDST-R2 1.5823% 1.8416%

180-D PDST-R2 1.5993% 1.6000%

1-Y PDST-R2 1.8796% 1.9204%

10-Y PDST-R2 4.4100% 4.4350%

Stock Index Current Previous

PSEi 7,536.65 7,722.79

Market Cap (Php Trillion) 12.448 12.650

Total Value (Php Billion) 6.330 10.024

PSEi Performers Closing % Change

Top Gainers

Oriental Petroleum 0.011 10.00%

Abra Mining 0.004 9.09%

Bogo Medillin Milling 59.90 8.81%

Top Losers Chemical Industries 171.00 -10.00%

Oriental Petroleum 0.010 -9.09%

Lorenzo Shipping 1.01 -9.00%

ASIA-PACIFIC

Stock Index Current Previous

NIKKEI 16,668.41 16,830.92

HANG SENG Closed 21,297.88

SHANGHAI Closed 2,926.70

STRAITS 2,866.35 2,862.38

SET 1,449.25 1,445.54

JAKARTA 4,901.41 4,916.06

Currency Exchange Current Previous

USD/JPY 106.8542 106.8000

USD/HKD 7.7645 7.7603

USD/CNY 6.5632 6.5625

USD/SGD 1.3474 1.3459

USD/THB 35.1106 35.1040

USD/IDR 13,284.42 13,268.50

REST OF THE WORLD

Stock Index Current Previous

FTSEuro First 300 1,334.12 1,352.91

FTSE 100 6,231.89 6,301.52

DAX 10,088.87 10,217.03

CAC 40 4,405.61 4,448.73

DOW JONES 17,985.79 18,005.05

S&P 500 2,115.48 2,119.12

NASDAQ 4,958.62 4,974.64

Various Current Previous

EUR/USD 1.1314 1.1398

GBP/USD 1.4457 1.4514

Gold Spot (USD/oz) 1,270.50 1,263.70

Brent Crude(USD/bbl) 53.45 52.70

3-M US Treasury Yield 0.24% 0.24%

10-Y US Treasury Yield 1.68% 1.71%

30-Y US Treasury Yield 2.48% 2.51%

PHILIPPINES

The local equities market retreated as investors grabbed the opportunity to lock in gains. The PSEi index lost 186.14 points or -2.41%,

closing at 7,536.65. With the exception of the mining and oil sector (+2.28%), all other indices ended in red led by the holding firms (-2.27%) and financials (-2.27%). Market breadth was negative with 122 declines outnumbering 74 advances while 47 issues were unchanged. Total value turnover is at Php6.33 billion. Foreigners were net buyers at Php189.04 million.

The Peso took a breather from its rally vis-a-vis the US Dollar today, giving up a bit of gains as investors took profit on the local bourse.

The move may have been triggered by the Bank of Korea's surprise decision to cut main policy rates by a quarter-point to 1.25%. The

USD/PHP pair rose 0.5 centavos, or +0.11%, to close today's trading at the 46.06 level. On the local fixed income space, prices of government securities rose as market players continued to take positions following

the recent weak data from the US. On average, the yield curve fell by 5.85 bps, led by the short-end of the curve, which decreased by 7.3 basis points. The long-end and belly of the curve were both down 3.2 and 6.3 basis points, respectively.

Economic growth may hit at least seven percent this quarter on the back of higher government spending boosted by election-related disbursements, Budget Secretary Florencio Abad said yesterday. “We expect an even better performance in the second quarter,” Abad said. Growth, as measured by gross domestic product (GDP), rose 6.9 percent in the first three months, the fas test quarterly

expansion since 2014. If realized, a GDP expansion of seven percent or more will be the fastest since the 7.7-percent growth in the first quarter of 2013. From April to June, Abad said economic expansion could be supported by faster procurement of state services and “more

BAIPHIL Market Watch – 10 June 2016

Page 2 of 8

heightened” spending for the presidential elections last May 9. “I think those things combined give us optimism that the second quarter may even be better than the first,” he said on the sidelines of a public finance conference in Pasay City.

The Bangko Sentral ng Pilipinas (BSP) is set to offer a small amount of term deposits over the next few weeks despite strong

demand from banks operating in the Philippines. The BSP is maintaining the offer size of seven- and 28-day term deposits at P30

billion each on June 15 and June 22. The term deposit facility would offer P10 billion worth of seven-day term deposits and P20 billion worth of 28-day term deposits. During the maiden issuance of term deposits on Wednesday, total tenders reached P199.71 billion or almost seven times the issue size of P30 billion. BSP Governor Amando Tetangco Jr. said the first term deposit facility auction was

oversubscribed with the auction priced at average of 2.5 percent for both tenors. “Bid to cover was more than eight times and almost six times for the seven- and 28-day auctions, respectively. We are pleased with the how the auctions were conducted without any technical hitch,” he said. The BSP is initially offering a small amount of term deposits that would be increased gradually based on the daily liquidity

forecast. “We will make adjustments to the amount of the term deposit facility auctions as conditions warrant. We expect that as the banks become more familiar with the facility, and the auction amounts become refined, we will see rates gradually move toward the BSP policy rate,” Tetangco said. Last Friday, banks also swarmed the first auction of the overnight reverse repurchase with bids amounting to P574.07

billion. The BSP made a full award of P305 billion. For term deposits, the BSP would initially offer a small amount of term deposits that would be increased gradually based on the daily liquidity forecast. Term deposits are common tools used by central banks for liquidity management. The facility allows central banks to withdraw bulk of excess liquidity from the financial system and is suitable for shorter

maturities due to their non-tradable nature. Aside from the term deposit facility, the IRC system would also consist of the overnight lending facility and the overnight deposit facility. The interest rates for the standing liquidity facilities form the upper and lower bound of the corridor while the overnight reverse repurchase is set at the middle of the corridor. The overnight lending facility replaced the repurchase window

while the overnight deposit facility replaced the special deposit account (SDA) window. On the other hand, the reverse repurchase facility was modified to a purely overnight reverse repurchase. Increased activity and better pricing in money market rates, in turn, are seen to help add depth to money markets and help develop the domestic capital market. The rate for the overnight lending facility was set at 3.5 percent

instead of six percent, while that of the overnight reverse repurchase rate was set at three percent instead of four percent effective last Friday.

Excise tax collections from tobacco and alcohol products bounced back in April to beat their target after declining the previous month, the Bureau of Internal Revenue (BIR) reported on Thursday. A total of P8.89 billion in "sin" taxes were raised, inching up 1.09 percent from the same period last year. The small increase, however, was more than enough to exceed that month's target of P7.85 billion.

Collections breached goals across-the-board, but were down year-on-year for cigarettes. "The decrease in excise tax collection in cigarettes...is still largely due to the implementation of Graphic Health Warning law (Republic Act 10643)," the agency said in a statement. Jo-Ann Diosana, senior economist at think tank Action for Economic Reforms (AER), agreed. "This is just a temporary decrease. The

companies are adjusting to comply with the new law so obviously, volumes will decrease for now," Diosana said in a phone interview. Republic Act 10643 took effect last March and required cigarette packs to contain photos showing health repercussions of smoking. As a result, BIR said factory withdrawals of cigarettes dropped by more than quarter in April. This, in turn, resulted in an 11.9-percent decline in

tobacco revenues at P4.88 billion that month, data showed. In contrast, supplies of fermented liquors and distilled spirits rose around 14 and 15 percent, respectively. Tax collections went up 24.6 and 20.6 percent. "The social costs of smoking is much more than the revenues we are collectin from it. If non-smoking results into better health, then that's good news," Diosana said. AER was among the lead

advocates of RA 10351 that prescribed yearly upward adjustments in excise tax rates in cigarettes and alcohol beginning in 2012. The law, meant to deter smoking and excessive drinking, allocates around 80 percent of incremental revenues to universal health care program and 15 percent to tobacco farmer support. From January to April, sin tax collections already hit P35.5 billion, up 16.5 percent f rom last year and

beating the P32.58-billion goal during the period. Broken down, revenues from cigarettes went up 12 percent, fermented liquors by around 29 percent and distilled and compounded spirits by 7.9 percent. The incoming Duterte administration plans a tougher implementation of smoking ban in public areas as well as prohibit public drinking. "The people will adjust with that if it is implemented. There is no trade-off

between that and higher revenues. Demand will adjust," Diosana said. Property buyers and sellers could be subjected to a tax probe under a new order from the Bureau of Internal Revenue (BIR)

which wants to gauge their financial capacity to keep and acquire real estate. Issued less than a month before the new administration takes over, Revenue Memorandum Order 24-2016 is said "to ensure the tax compliance of the parties" involved in property sale and transfer. "Parties to the said transactions may be subjected to an audit or investigation to determine their capacity to hold and/or ac quire

properties," the order dated June 7 stated. "In all cases however, verify...that the parties (seller/assignor/transferor and buyer/assignee/transferee) regularly files returns and report income sufficient to establish financial capacity," it added. The order covers transactions involving the payment of capital gains tax on both property and non-traded stocks, donor's tax, estate tax, expanded

withholding tax, and those covered by tax-free arrangements under the law. Outgoing BIR commissioner Kim Henares has not replied to request for comment as of this post. Estela Sales, deputy commissioner for legal affairs, declined to comment.

The Labor Force Survey (LFS) conducted by the Philippine Statistics Authority (PSA) put unemployment rate at 6.1% in April, down from 6.4% a year earlier. Meanwhile, the employment rate -- or proportion of the employed to the total labor force -- “ climbed to 93.9% from 93.6% previously, while the labor force participation rate eased to 63.6% from 64.6%. By industry, those employed in the

service sector, which has the largest share of the working population, expanded to 56.7% from 54.2% a year earlier. The agriculture sector, the second largest, saw a decline to 25.0% from 29.3%, while industry's share rose to 18.3% from 16.5%. Meanwhile, the underemployment rate rose to 18.4% from 17.8%. The LFS results for April 2015 still exclude Leyte, which is still showing the effects of

typhoon Yolanda (international name: Haiyan) which devastated the area in November 2013. Rice farmers who till irrigated farms may be in for a windfall in the coming months as the incoming Duterte administration is

considering to scrap irrigation fees to help lower cost of rice production. This is according to Emmanuel F. Piñol, whom President-elect Rodrigo Duterte designated as his alter ego at the Department of Agriculture. “This is a commitment of the Duterte administration,” Piñol told reporters. “We’re still working out whether we can do it this year or next year, but definitely (it will be happening) in 2017.” Asked

whether the new administration is also planning to provide other subsidies to farmers, the incoming agriculture ch ief said he would not call free irrigation fees and other support as “subsidies,” saying the Philippines was a signatory to international agreements tha t were against the provision of subsidies. However, Agriculture Undersecretary Siegfredo Serrano clarified that under the rules of the World Trade

Organization, the government could provide subsidies worth up to 10 percent of the gross value of the produce. “We are not prohibited from giving subsidies,” Serrano said. In May, Assistant Agriculture Secretary Edilberto de Luna said the domestic rice industry might be exposed to shocks associated with increased market competition brought about by tariff reduction or removal as curbs on rice importation

were due to expire in June 2017. De Luna, who is also director of the National Rice Program, said that while farmers in Thailand and

BAIPHIL Market Watch – 10 June 2016

Page 3 of 8

Vietnam could produce palay at an equivalent of P6.50 per kilo, Filipino farmers were producing at an average of P11 per kilo. He said the influx of imports might drive milled rice prices down, which could discourage farmers to continue planting in the succeeding crop seasons.

Asked what needed to be done given such risks, De Luna said this would be up to the incoming team that would run the agriculture department under the new administration. “Personally, I think we should opt for support for farmers—whether partial or full—in terms of seed procurement, irrigation expenses and crop insurance coverage,” he said, adding that farmers in neighboring countries benefit from

such subsidies. In 2014, the WTO’s highest-level decision-making body gave the green light for the Philippines to keep milled rice import curbs—which should have expired in 2012—over the succeeding three years. With the WTO’s nod, the Philippines raised its import volume to at least 805,200 tons yearly from 350,000 tons in 2012. Without the quantitative restrictions (QR), any volume of rice may enter the

country, possibly still subject to ordinary customs duties or none at all—instead of the current 35-percent levy. But the QR was intended to insulate or protect local farmers from the flood of imported rice that may be cheaper because locally grown crops cost high.

A steel industry group has filed a case for graft at the Ombudsman against two officials of the Department of Trade and Industry (DTI), who were key to a DTI decision to clear the importation of at least 5,000 metric tons of deformed steel bars from China. Roberto Cola, president of the Philippine Iron and Steel Institute (Pisi), in a case filed at the Ombudsman, accused the two DTI officials of

“favoring” Mannage Resources Trading Corp., the steel bars’ importer, when they issued the import commodity clearance (ICC) f or the shipment on April 18. The steel bars have been held here since April on Pisi’s request due to fears that these were smuggled from China and were substandard. Pisi requested Customs Commissioner Alberto Lina to hold the shipment. Ann Claire Cabochan, director in charge

of the Bureau of Product Standards (BPS), and Leonila Baluyut, the DTI Zambales director, were named respondents in the graft case filed by Cola. When DTI issued the ICC, the seized shipment “had not yet undergone the prior, complete and successful testing” under existing industry laws, Cola said in the complaint. According to him, Cabochan and Baluyut should be held “criminally responsible for giving undue

advantage and benefit to importers … who are consequently favored by their actions.” Cola also said the manner by which the BPS and DTI conducted the testing, sampling and certification of the steel bars was “contrary to law, administrative issuance and industry practice.” He said the quantity of the shipment required a sampling of 250 pieces, instead of the three samples tested by the BPS. “The testing was

also made in the absence of industry technical experts,” he said. But Judith Angeles, DTI Central Luzon director, said Cabochan and Baluyut acted “within the mandate and bounds of the law.” “I can’t see any irregularity in the performance of duty of [Baluyu t] as far as the issuance of the provisional or conditional [ICC] to the applicant, Mannage Resources Trading Corp.,” Angeles said in a June 3 statement.

At a press conference here last week, Baluyut said she would stand by her action after describing the lawsuit as “character assassination” aimed at her and Cabochan. “I’ve done my job and there was no graft,” she said. The test results released by the BPS on May 16 showed that the 4,929 metric tons of deformed steel bars “passed the mechanical, chemical and physical tests” required by law, Baluyut said. She

said the import value of the steel bars was pegged at $1.6 million. “It is up to the BOC (Bureau of Customs) if it will release [the imported steel bars],” she said.

Oceana Philippines is seeking the assistance of the government in crafting a masterplan for the development of the sardines industry. In an interview with The STAR, Oceana Philippines senior marine scientist Jimely Flores said the non-government organization plans to collaborate with the Bureau of Fisheries and Aquatic Resources (BFAR) and Department of Science and Technology (DOST) to

draw up a masterplan for the sardines sector that will be used in the national level. “Some smaller fishes are not growing anymore due to excessive fishing. The intensity of fishing efforts should be lessened because if not, the hope for sardine sustainab ility will be on the rocks,” Flores said. Oceana is still in the research stage and expects the masterplan to be up and ready by 2018. “We’re looking at what BFAR

and DOST have not done yet, then that’s where we will come in to complement the data that are already present,” Flores said. Flores said one of the things to be mapped out is to have certain limits of fish sizes to be caught and modify fishing practices and gears. “This is very urgent. Sardines are affected in seasonal changes. We are experiencing climate change and they are very dependent on environmental

parameters that’s why we need to make them resilient,” she said. She added that the incoming La Nina and other environmental events could lower the production as excessive rains would lead to upwelling and result to decreased production of planktons, the primary food of sardines. Sardines should mature from 10 to 14 centimeters in length but scientists observed that they are beginning to be much smaller

than the normal size. “This is a sign of overfishing. Because for them to sustain their population, they had to mature at a faster pace but way smaller in size,” she said. Flores said the main market of the sardine industry is through processing. Local demand for the fish specie continues to be high as majority of Filipinos, regardless of class, are consumers. Sardines production in the Philippines is largely situated in

the Zamboanga Peninsula with up to 80 percent of total production. Major banks are hoping to restructure a “big chunk” of the P167.4 billion credit card receivables through a debt relief program for

highly indebted and financially distressed customers. Credit Card Association of the Philippines (CCAP) president Jesus Angelo Gomez said in a round table discussion that banks hope to migrate a major chunk of the credit card receivables to the Inter-Bank Debt relief Program (IDRP). Gomez said only 1.39 percent or P2.32 billion of the total credit card receivables have been placed in individual

restructuring programs of banks. The receivable have interest rates ranging between zero and three percent with an average tenor of 48 months. As of end-2015, the total non-performing credit card receivables amounted to P14.5 billion or 6.54 percent of the total receivables. Gomez said the IDRP was developed to help well meaning customers get back on track toward responsible credit use. Under the program,

the repayment period could be extended to as long as 10 years for severe cases of indebtedness, while interest rates would on ly be 1.5 percent per month or even lower depending on the profile of the customer, debt to income ratio, and completion of documents required. The CCAP said any of the 16 participating banks would disapprove application for customers who misused and abused the credit facility

granted by the banks. Likewise, all existing credit cards of customer who would avail of the program would be blocked or canc elled upon enrollment and all rebates and rewards earned would be forfeited.

AboitizPower Corp. has secured a bilateral contract with Zamboanga del Norte Electric Cooperative (Zaneco) for part of the output of the 68.8-megawatt (MW) Manolo Fortich run-of-river hydro power plant project in Bukidnon. The contract covers initially 5 MW of energy supply from the power station being constructed and developed by AboitizPower subsidiary Hedcor. The power plant in

Bukidnon is scheduled for completion in 2017. The signing ceremony was held on June 8, 2016. Mindanao’s shift toward strengthening its renewable energy future moved a step closer with the signing of the bilateral supply contract, said officials of AboitizPower and Zaneco. Zaneco serves the cities of Dipolog and Dapitan and the entire Zamboanga del Norte. The agreement makes Zaneco a “green” ener gy

supporter, according to board president Jesus Eduardo Tayrus Sr. The cooperative earlier signed supply contracts with Aboitiz Power subsidiaries Therma South and Therma Marine to secure the baseload (coal-fired) and peaking (oil-fired) power demand of Zamboanga del Norte. “We praise the zealousness of Zaneco in ensuring they get renewable energy to meet the needs of their growing franchise area,”

Hedcor assistant VP Darlene Arguelles said. Arguelles said she was confident Hedcor would “deliver as promised” the supply fr om the Manolo-Fortich power plant by 2017. Hedcor owns and operates run-of-river hydro power plants in Benguet, Mt. Province and Davao del Sur, which have combined capacity of about 185 MW of clean and renewable energy. In Mindanao, Hedcor delivers power to Davao Light

and Co. through the Talomo, Sibulan and Tudaya power plants and the Davao del Sur Electric Cooperative (Dasureco) through its Tudaya

BAIPHIL Market Watch – 10 June 2016

Page 4 of 8

power plant. AboitizPower is the holding company for the Aboitiz Group’s investments in power generation, distribution, and retail electricity services.

Local credit watchdog Philippine Rating Services Corp. has issued a triple-A credit rating with a stable outlook on conglomerate

Ayala Corp.’s proposed P10 billion bond issuance. The issue credit rating of PRS Aaa is the highest credit rating assigned by

PhilRatings on borrowers, suggesting that debt rated as such is of “highest quality with minimal credit risk.” The borrower’s capacity to meet its financial commitment on the obligation is deemed “extremely strong.” On the other hand, a “stable” outlook suggests that the current rating is likely to be maintained or to remain unchanged in the next 12 months. The bonds proposed by Ayala are part of the

conglomerate’s three-year fixed rate bonds program of up to P20 billion. PhilRatings likewise maintained its PRS Aaa rating with a stable outlook for the following outstanding retail bonds of Ayala: P10 billion retail bonds due on April 30, 2017; P10 billion retail bonds due on November 23, 2019; P10 Billion retail bonds due on May 12, 2021 and P10 billion retail bonds due on May 11, 2027. In a statement on

Thursday, Philratings said the latest credit assessment on Ayala reflected Ayala’s “strong brand equity and leading market position for its core businesses” alongside “well-defined strategy, backed by a strong management team with a solid track record.” Philratings also cited Ayala’s sustained profitability, healthy cash flows and financial flexibility. One of the largest conglomerates in the Philippines, Ayala

operates in diverse industries that include real estate, financial services, telecommunications, water and used water services infrastructure, electronics manufacturing services, automotive dealership and distributorship, business process outsourcing, power generation, transport infrastructure, education, and healthcare. Ayala booked P5.8 billion in net income attributable to equity holders of the parent in the first

quarter of 2016, 15 percent higher year-on-year. Philratings also noted Ayala’s significant cash hoard of P78.4 billion as well as its conservative capitalization.

Korean Air Chairman and CEO Yang Ho Cho has been reelected to the International Air Transport Association (IATA) Board of Governors and the Strategy and Policy Committee for a three-year term each at the 72nd IATA Annual General Meeting in Dublin, Ireland. This is Cho’s eighth election to the board since 1996 and second consecutive election to the Strategy and Policy Committee since

2014. As a member of the Board of Governors and the Strategy and Policy Committee, Cho will play a major role in setting up long term plans and managing various kinds of projects for IATA. The Board of Governors acts as IATA's government and 31 members are chosen among the representatives of IATA Active Member Airlines. Its members exercise an oversight and executive role on behalf of the

membership as a whole in representing the interests of the association. Among the Board of Governors members, 11 key members are elected as the Strategy and Policy Committee member, a committee which establishes the major strategies and policies of IATA. Having worked in the airline industry for more than 40 years since 1974, Cho was named chairman and CEO of Korean Air in April 1999 and has

served as president and CEO since 1992. Established in 1945, IATA is the biggest trade association for the world’s airlines representing 264 airlines in 117 countries and supports many areas of aviation activity and help formulate industry policy on critical aviation issues.

ASIA-PACIFIC

~~Financial Markets of China and Hongkong were closed yesterday for a public holiday~~

Japan's Nikkei share average fell on Thursday as a strong yen soured the mood and dragged down large-cap shares. Some small-cap

stocks, seen as safe-haven assets for investors cautious before big macro events next week, attracted buyers. The Nikkei shed 0.8 percent

to 16,696.94 in mid-morning trade. Major exporters lost ground after the dollar dipped 0.2 percent t 106.79 yen, moving back toward Monday's one-month low of 106.35. Toyota Motor Corp and Honda Motor Co both dropped 1.2 percent, while Panasonic Corp stumbled 2.8 percent. With major events such as policy meetings by the U.S. Federal Reserve and the Bank of Japan scheduled next week, many

investors avoided taking large positions in the Nikkei although some investors took to buying small-cap shares. "Theses stocks listed on the Mothers market are not vulnerable to a strong yen compared to Nikkei-listed stocks," said Yoshihiro Okumura, general manager at Chibagin Asset Management. The Tokyo Stock Exchange's "Mothers market" for start-ups rose 1.3 percent to a 3-1/2 week high. Brangista

Inc , which provides corporate promotional services, jumped 11 percent and biotechnology company Acucela Inc soared 18 percent. Singapore shares extended gains into a sixth consecutive session, led by oil and gas stocks as global crude prices remained

near 2016 highs. Keppel Corp Ltd rose 1.9 percent, while Sembcorp Marine Ltd gained 1.2 percent. “Singapore is still edging up on the back of the more positive U.S. close. Market is playing down the expectations of rate hike in June-July," said Carey Wong, a research manager with Singapore-based OCBC Investment Research. Asian stocks fell, with MSCI's broadest index of Asia-Pacific shares outside

Japan down 0.2 percent, led by sliding Japanese equities. Oil prices edged lower on Thursday as traders took profits after three sessions of gains, though prices remained close to their highest

this year thanks to a fall in U.S. crude inventories and supply disruptions. International Brent crude oil futures traded 13 cents a barrel lower

at $52.38 a barrel at 0845 GMT, after setting a 2016 high of $52.86 a barrel earlier in the session. U.S. crude fell by 5 cents a barrel to $51.20 after also hitting a new 2016 high at $51.67. "While we're above $50 a barrel, momentum still remains fairly positive and what we've just seen today is a little bit of profit taking after three consecutive days of gains," CMC Markets chief market analyst Michael Hewson said.

Oil prices gained ground after data on Wednesday from the U.S. Energy Information Administration (EIA) showed U.S. crude stocks last week fell 3.23 million barrels to 532.5 million, the third consecutive weekly fall.

Japan summoned the Chinese ambassador early on Thursday to express concern after a Chinese navy ship sailed close to what Japan considers its territorial waters in the East China Sea for the first time, increasing tensions over the disputed area. Japan said a Chinese frigate sailed within 24 miles (38 kms) of the contested territory, the islands known as the Senkaku in Japan and the Diaoyu

in China, shortly after midnight. Japan's Vice Foreign Minister Akitaka Saiki summoned the Chinese ambassador in Tokyo at around 2 a.m.

BAIPHIL Market Watch – 10 June 2016

Page 5 of 8

(01:00 p.m. EDT on Wednesday) to "express a serious concern," the government said in a statement. Japanese and Chinese coastguard vessels frequently face off around the islands as both sides press their claims. Until now neither has dispatched warships to nearby waters,

because doing so would inflame tensions and remove a buffer against potential armed conflict. "We are worried that this action raises tensions to a higher level," Japan's Chief Cabinet Secretary Yoshihide Suga said at a regular press briefing in Tokyo.

Deflationary pressures in China eased further in May, relieving some pressure on cash-strapped companies, but consumer inflation was cooler than expected, suggesting the central bank will keep policy supportive in coming months but be in no hurry to cut interest rates further. Consumer inflation rose less than forecast as pressure from high food prices eased, while producer prices

recovered more than forecast, the statistics bureau said on Thursday. The consumer price index (CPI) rose 2.0 percent year-on-year in May, compared with a 2.3 percent increase in April. Food prices were up 5.9 percent year-on-year in May after rising 7.4 percent in April. Prices of China's staple meat pork rose 33.6 percent last month and hit record levels last week. Non-food prices rose 1.1 percent, flat from

April and continuing to show a lack of price pressures that would indicate activity in the broader economy was gaining steam. Analysts polled by Reuters had expected consumer inflation to come in at 2.3 percent, the same pace as in each of the previous three months. "On a month-on-month basis, China's CPI has been dropping for three consecutive months, clearly pointing to an easing bias in monetary

policy for the time being," said Zhou Hao, senior Asia emerging market economist at Commerzbank in Singapore. Improvements in producer prices will not change China's overall soft inflation outlook, Hao added. In a sign that strains on Chinese companies are easing, producer prices fell at their slowest rate since November 2014, supported by a government investment spree and higher commodity prices.

The producer price index (PPI) fell 2.8 percent in May, up from a 3.4 percent drop in April. On a monthly basis, producer prices rose 0.5 percent, the third increase in a row. Analysts had expected PPI to fall 3.3 percent, extending a more-than-four-year decline which has eroded profit margins. China's consumer inflation rate remains well below the official 3 percent target, and despite strengthening producer

prices analysts do not see inflation at these levels impacting policy decisions. Cosmetics maker Lancome shut all its Hong Kong shops on Wednesday as protesters accused the cosmetics brand of

kowtowing to Beijing when it scrapped a promotional event featuring an activist singer. The company sparked a furious backlash earlier this week in Hong Kong with its cancellation of the mini-concert by Denise Ho, who’s known for her support of Hong Kong’s pro-democracy movement and Tibet, both causes that irritate China’s communist leaders. Lancome’s move apparently was in response to

criticism by the Chinese nationalist newspaper Global Times, which triggered internet calls to boycott the brand in mainland China. Several dozen protesters marched to an unstaffed Lancome counter in a downtown Hong Kong department store Tuesday. They taped up signs accusing the company of self-censorship and of kowtowing to Beijing and called for a boycott. Hong Kong’s 23 Lancome boutiques were

closed for the day and it was uncertain whether they would reopen on Thursday, which is a public holiday, a customer service representative said by phone. Lancome and its parent company, French cosmetics giant L’Oreal, did not respond to emailed requests for comment. Shops under at least four other L’Oreal brands, including Kiehl’s and The Body Shop, were also shut. Ho said in an interview

that she was shocked that a multinational brand “would succumb to internet bullying and also obvious political pressure.” “This is not only about me and the brand,” said Ho. “It’s about the whole situation in Hong Kong where everyone is being suppressed and everyone is living in some kind of a ‘white terror’ that we cannot speak out publicly about anything concerning the Chinese government.” Ho is the latest

performing artist to run afoul of Beijing, which has been intensifying a campaign to quash dissent at home and abroad. Last year, concerts by Bon Jovi and Maroon 5 were cancelled in China, reportedly over tweets or pictures of the Dalai Lama, Tibet’s exiled spiritual leader .The Chinese market’s huge importance for Lancome and other foreign companies is complicating efforts to balance profit with princ iple. China

become L’Oreal’s second biggest market last year, behind the U.S. and ahead of France, according to its latest annual report. It said Hong Kong was a “difficult” market.

South Korea’s central bank surprised markets by cutting interest rates to a record low 1.25 percent on Thursday, to cushion the economy against weak exports and the fallout from a massive restructuring of an ailing shipping industry . The 25 basis points reduction was the first cut since the Bank of Korea (BOK) last lowered rates in June 2015. Though low inflation is a source of concern, and

a reason for lowering interest rates, some economists doubted whether the central bank could afford to cut again once an anticipated increase in U.S. interest rates finally takes place. Just four of 23 analysts surveyed by Reuters had forecast the central bank would lower the rate, although most of those who saw a June hold forecast that rates would be cut in July. The decision to cut rates was unanimous,

Governor Lee Ju-yeol told a news conference. "The problem is in the second half of the year, when we see downside risks increasing," said Lee. "We feel the sluggishness in global trade is worse than we expected. And there will also be downside risks once corporate restructuring begins in earnest." The move came just a day after the International Monetary Fund said South Korea needed to speedily

implement additional fiscal stimulus and ease monetary policy to offset risks posed by "weak and volatile external demand". A tumble in trade since January last year has darkened the outlook for South Korea's export-driven economy - Asia's fourth-largest - while persistently weak inflation opens the door to yet lower rates. The finance ministry will be releasing their policy plans for the second half of the year later

in June. The ministry usually announces revised economic forecasts at this time and some analysts believe a supplementary budget will also be on the agenda. On Wednesday, the government and central bank said an 11 trillion won ($9.50 billion) fund would be created to support two state-run banks most exposed to the once-thriving shipping and shipbuilding sectors. By the time the proposed restructuring is

complete in 2018, major shipbuilders' capacity will likely have fallen 20 percent, and their workforce by 30 percent. "We continue to watch the interplay between progress on corporate restructuring, the likely impact this will have on domestic demand, and how other policy branches of government respond to this," ANZ said in a note. "Monetary easing alone is not sufficient to absorb the burden corporate

restructuring places on the South Korean economy." At Thursday's news conference Governor Lee insisted the bank had fully signalled the rate cut at its previous meeting, noting the bank's decisions did not hinge on the policy of the U.S. Federal Reserve, which is expected to raise rates at least once this year. Many analysts saw June or July as the last chance for the BOK to cut rates as the Fed rate hike looms

closer. "Many expected the U.S. Federal Reserve to hike rates in June or July but after the May jobs data a June hike now seems impossible. The BOK probably thought taking action before the Fed's rate hike would be safer," said Lee Sur-bee, a fixed-income analyst at Samsung Securities. The analyst said Thursday's move would be the last cut this year, a view shared by many other economists contacted

by Reuters. The BOK chief added interest rates at home should remain higher than those of advanced economies. Bond futures erased some gains after the BOK news conference, but were still up 0.07 points, trading at 110.63. The won was flat against the dollar as of 0418 GMT after collapsing briefly following the rate cut. Addressing the problem of South Korea's high household debt, the BOK chief said

borrowing would likely slow, despite lower interest rates, because banks are screening borrowers more closely. Inflation would likely approach the bank's 2 percent target in 2017, he said. The BOK is expected to trim its GDP growth forecast of 2.8 percent for this year at a quarterly review in July. The IMF lowered its 2016 GDP forecast for South Korea to 2.7 percent from 2.9 percent in April while earlier this

month the OECD slashed its projection from 3.1 percent to 2.7 percent.

BAIPHIL Market Watch – 10 June 2016

Page 6 of 8

REST OF THE WORLD

European shares fell for a second straight day on Thursday weighed down by continued weakness among financial sector stocks,

while Essentra plunged after a profit warning. The pan-European STOXX 600 and FTSEurofirst 300 indexes were both down around 1

percent by 0846 GMT. Despite this, shares in DONG Energy jumped as much as 10 percent after the Danish utility and wind farm developer sealed the biggest European stock market flotation this year. Some investors cited the recent strength of the euro as a negative factor for European equities as well as caution ahead of a UK vote later this month on whether to remain in the European Union. "The

weaker dollar is overall bad for European companies and ... the Brexit vote means there will be a lot of uncertainties in the mid term," said Jerome Schupp, head of research at SYZ Asset Management in Geneva. Fading expectation of a U.S rate hike triggered by a weaker than expected jobs report last Friday have sent the dollar to a five-week low against a basket of currencies this week. The euro has also

strengthened but was down slightly on Thursday. Schupp said expectations the Federal Reserve would not lift interest rates any time soon had weighed on financial stocks, especially the big European banks with a global business. The STOXX 600 Bank sector index, which has been the worst sectoral performer so far this year, was down 1 percent, with Deutsche Bank, BNP Paribas and Barclays down 1.2-1.5

percent. Profitability in the sector is being hurt by the European Central Bank's ultra low interest rates, a policy which has been cr iticised by German politicians including Finance Minister Wolfgang Schaeuble. On Wednesday, sources told Reuters that Commerzbank was examining the possibility of hoarding billions of euros in vaults rather than paying a penalty charge for parking it with the ECB.

Commerzbank shares fell 2 percent. Vodafone fell 4.5 percent, making it the second biggest loser on the FTSEurofirst, after it traded without entitlement to its latest dividend payout. Among the biggest fallers on the STOXX 600, Essentra fell 27 percent after it warned of lower full-year profit, citing challenging market conditions in filter products and delays in some large projects.

U.S. stocks retreated on Thursday after three days of gains as oil prices fell and global growth worries drove investors to safer

assets like bonds. Energy shares .SPNY declined 0.5 percent as crude oil prices CLc1 LCOc1 also snapped a three-day streak of gains,

while the more defensive S&P utilities index .SPLRCU rose 0.9 percent, leading sector gains. "It was a cautious tone investors took, investing in utilities and other high-dividend stocks and selling some more volatile sectors and securities, like small caps," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York. The Russell 2000 index was down 0.7 percent. "I think

investors are pointing to the move in stocks that we've had since mid-February as perhaps being extended from a technical standpoint, and that caused some concern," he said. Still, the day's losses were slight, and the S&P 500 remains less than 16 points below its record closing high of 2,130.82. The index is up about 17 percent from its Feb. 11 low for the year. The Dow Jones industrial average .DJI ended

down 19.86 points, or 0.11 percent, to 17,985.19, the S&P 500 .SPX lost 3.64 points, or 0.17 percent, to 2,115.48 and the Nasdaq Composite .IXIC dropped 16.03 points, or 0.32 percent, to 4,958.62. The S&P 500 record could fall in coming days, said Bruce Zaro, chief technical strategist at Bolton Global Asset Management in Boston. "A start of that move was that breakout (above) 2,120," earlier this

week, he said. "I would expect some follow-through in the next days and weeks." Thursday marked the fifth day in the row that more than 200 companies on the New York Stock Exchange hit 52-week highs, the first such streak since January 2015.

European Central Bank Governing Council member Francois Villeroy de Galhau defended the bank's monetary policy measures in a speech to Germany's lower house of parliament published on Thursday, saying they were necessary to heed off the risk of deflation. "As long as inflation is too low, as is the case today, we need to take action. If we didn't act we wouldn't fulfill our mandate and

the deflation risk for Europe and Germany would grow," he said, according to the text of a closed-door speech he gave to the German parliament on Wednesday. In recent weeks the ECB has been subject to criticism from some German politicians for its ultra-low interest rates.

Europe is at risk of suffering lasting economic damage from weak productivity and low growth, the European Central Bank's

president warned on Thursday, underscoring his argument that monetary policy alone cannot end the bloc's economic malady .

The ECB has been easing policy aggressively to boost growth and inflation in recent years with little to show for its efforts, fuelling arguments that monetary policy was at its limits and governments needed to help out. "We do not let inflation undershoot our objective for longer than is avoidable given the nature of the shocks we face," Mario Draghi told the Brussels Economic Forum. "For others, it means

devoting every effort to ensuring that output is returned to potential before subpar growth causes lasting damage." "There are many understandable political reasons to delay structural reform, but there are few good economic ones. The cost of delay is simply too high," he added. The euro zone grew by just 1.6 percent last year with much of the expansion coming from the ECB's stimulus and growth is

expected to flatline over the next several years with inflation also holding below the ECB's target of close to 2 percent. Draghi said growing below potential for too long actually reduced the economy's potency because instead of output rising toward capacity, potenti al would fall toward the actual output, permanently embedding low growth. "Given the harm that has already occurred to potential growth dur ing the

crisis, it also means (a need for) acting decisively to raise potential," Draghi said. Singling out areas for improvement, Draghi said the euro zone was lagging behind in innovative capacity, particularly in the services sector, and needed to utilize the latent potential in the euro area labor force, which can be unleashed with appropriate labor market and activation policies.

The number of Americans filing for unemployment benefits unexpectedly fell last week, pointing to sustained strength in the

labor market despite a sharp slowdown in hiring last month. Other data on Thursday showed wholesale inventories recording their biggest increase in 10 months in April, prompting economists to raise their second-quarter economic growth estimates. The rise in

inventories came even as sales at wholesalers rose for a second straight month. Initial claims for state unemployment benefits declined 4,000 to a seasonally adjusted 264,000 for the week ended June 4, the Labor Department said. The drop confounded economists' expectations for an increase to 270,000. "The hand-wringing over the May jobs report may be misplaced," said Joel Naroff, chief

economist at Economic Advisors in Holland, Pennsylvania. Claims have dropped by 30,000 since surging to 294,000 in early May. They have now been below 300,000, a threshold associated with a strong job market, for 66 straight weeks, the longest streak since 1973. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 7,500 to

BAIPHIL Market Watch – 10 June 2016

Page 7 of 8

269,500 last week. The claims report offered the latest sign that the labor market remains strong even though the economy added only 38,000 jobs in May, the smallest gain since September 2010. A report on Wednesday showed job openings hitting a nine-month high in

April and layoffs falling to their lowest level since September 2014. "The underlying trend to a tighter labor market remains intact. It seems clear that the problem with the jobs market is hiring new employees that are suitable for available positions, which in itsel f is a sign of labor market tightness," said John Ryding, chief economist at RDQ Economics in New York.

The net worth of U.S. households rose in the first quarter as a boost in real estate values offset a fall in stock market prices, a

report by the Federal Reserve showed on Thursday.Families' net worth increased to $88.1 trillion over the quarter, up from a revised

$87.3 trillion in the previous period. The S&P 500 .SPX dropped almost 10 percent from January through mid-February on fears over China's economic rebalancing, a global growth slowdown and low oil prices. It had almost recouped the losses by the end of March and stock prices have since risen further, suggesting that households will see their net worth continue to rise through the second quarter.

Household borrowing rose at a 2.7 percent annual rate, the report also showed, down from 3.7 percent growth in the fourth quarter of 2015. The housing market has continued to gain steam so far this year and consumer spending has been strong, underpinned by an economy near full employment. However, the U.S. central bank is expected to decide against an interest rate increase next week amid a sharp

weakening in job gains last month and renewed global risk fears.

e-Commerce Law, Intellectual Property and Data Privacy

- 17 June 2016 BSP Circular No. 706, AMLA Law, RA 10365 and the AML Risk Rating System

- 17 June 2016

Asset Liability Management - 18 June 2016

Excel Training for Bankers

- 24 & 25 June 2016 Counterfeit Detection

- 8 July 2016 EQ and Leadership for Bankers

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

- 15 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 1-15

2 Lydia King - Past President

3 Sabino Maximiano O. Eco - RCBC

4 Racquel B. Mañago - Phil Veterans Bank

7 Ana Luisa S. Lim - RCBC

11 Rosalina DL.P. Magat - Assoc Life Member

15 Edeza A. Que - PSBank

BAIPHIL Market Watch – 10 June 2016

Page 8 of 8

CAPITAL BUDGETING - Capital budgeting is the process in which a business determines and evaluates potential expenses or investments that are large in nature. These expenditures and

investments include projects such as building a new plant or investing in a long-term venture. Often times, a prospective project's lifetime cash inflows and outflows are assessed in order to determine whether the potential returns generated meet a sufficient target benchmark, also known as

"investment appraisal."

“It is better to lead from behind and to put others in front, especially when you celebrate victory

when nice things occur. You take the front line when there is danger. Then people will appreciate

your leadership.”

- Nelson Mandela

Small gray dots should appear at the intersections of the squares, but if you look directly at the

intersection, the gray dots will disappear.

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) Members: 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