BAIPHIL Market Watch – 04 January 2018 Page 1 of 11

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BAIPHIL MARKET WATCH ~ Scaling New Heights In Banking Excellence ~

04 Jan 2018

Legend Improvement / Up Deterioration / Down No Movement

FINANCIAL MARKETS AT A GLANCE

PHILIPPINES

Financial Rates Current Previous

USD/PHP 49.8100 49.9300

30-D PDST-R1 3.1464 3.1643

91-D PDST-R1 2.3979 3.1841

180-D PDST-R1 3.2946 3.3189

1-Y PDST-R1 3.0272 3.1761

10-Y PDST-R1 5.5500 5.5832

30-D PDST-R2 3.1464 3.1643

91-D PDST-R2 2.3979 2.4455

180-D PDST-R2 3.2946 3.3189

1-Y PDST-R2 3.0205 3.4647

10-Y PDST-R2 5.5500 5.5832

Stock Index Current Previous

PSEi 8,724.13 8,535.09

Total Market Cap (Php Tr) 14.448 14.188

Trade Value (Php B) 7.287 6.402

PSEi Performers Last Price % Change

Top Gainers

Berjaya Phils., Inc. 6.30 29.36%

Keppel Phils. Property 4.98 23.57%

BOGO-Medellin Milling 139.1 15.82%

Top Losers

Philippine trust Co. 119.90 17.31%

Chemical Industries of the Philippines

165.00 12.23%

Easycall Communications 16.9 8.65%

ASIA-PACIFIC

Stock Index Current Previous

NIKKEI 22,764.94 22,783.98

HANG SENG 30,560.95 30,515.31

SHANGHAI 3,370.10 3,349.05

STRAITS 3,464.28 3,430.30

SET 1,778.53 1,743.29

JAKARTA 6,251.48 6,339.24

Currency Exchange Current Previous

USD/JPY 112.7100 112.8700

USD/HKD 7.8175 7.8158

USD/CNY 6.5030 6.5230

USD/SGD 1.3305 1.3375

USD/THB 32.3450 32.6700

USD/IDR 13,474.50 13,562.00

REST OF THE WORLD

Stock Index Current Previous

FTSEuro First 300 1,533.52 1,532.85

FTSE 100 7,671.11 7,648.10

DAX 12,978.21 12,871.39

CAC 40 5,331.28 5,288.60

DOW JONES 24,922.68 24,824.01

S&P 500 2,713.06 2,695.81

NASDAQ 7,065.53 7,006.90 ,

Various Current Previous

EUR/USD 1.2010 1.2061

GBP/USD 1.3509 1.3592

Gold Spot (USD/oz) 1,316.20 1,313.70

Brent Crude (USD/bbl) 67.84 66.55

3-M US Treasury Yield 1.37% 1.38%

10-Y US Treasury Yield 2.45% 2.46%

30-Y US Treasury Yield 2.78% 2.81%

PHILIPPINES

The local stock market started the new year on a bullish note, with the main index breaching the 8,700 mark for the first time on Wednesday

on rosy prospects for local equities for the rest of 2018. Tracking mostly upbeat regional markets, the Philippine Stock Exchange index gained 165.71 points or 1.94 percent to close at its best-ever finish of 8,724.13, which was likewise the intra-day peak. “The back-to-back closing at new record highs on the first trading day of 2018 and last trading day of 2017 is an auspicious sign for our stock market. Investor confidence and optimism were very apparent in today’s trading and we hope our market will remain robust for most of the year,” said PSE president Ramon Monzon. “Philippine markets resumed their bullish climb on opening day with another record high once again. Investors are continuing to make their bets on issues they believe will outperform for the rest of the year,” said Luis Gerardo Limlingan, managing director at Regina Capital Development.

The peso extended its rally to an eighth straight session on Wednesday, but an analyst said the advance could be temporary. The peso

closed at P49.81 to the dollar from P49.93 during the last trading day of 2016. Analysts earlier attributed the strength in part to seasonal remittances from overseas Filipinos. The peso could strengthen further to P49.20 to the dollar but could weaken to P53 as monetary authorities around the world raise interest rates, said Tomasz Wisniewski chief analyst at Alpari Research and Analysis. "Because it's all about the interest

BAIPHIL Market Watch – 04 January 2018 Page 2 of 11

rates at the end of the day. And if we do have those expectations about interest rates rises and they won't be delivered, that would mean a drop in the value of the currency," Wisniewski told ANC's Market Edge with Cathy Yang. Wisniewski said higher consumption taxes were unlikely to spike inflation past the central bank's 2 to 4 percent target.

Financial institutions yesterday swamped the central bank’s liquidity management facility, tendering over twice the amount on offer

for the first term deposit facility of the year. According to the Bangko Sentral ng Pilipinas, banks put up a total of P95.5 billion in bids for the P40 billion offered over a seven-day tenor by the monetary authority. The term deposit facility is a tool used by the BSP to immobilize excess liquidity in the local financial system that could otherwise be used for unproductive speculative activities in the local markets. Yesterday’s auction saw the weighted average rate slip to 3.3654 percent from the 3.3995 percent during the previous auction of Dec. 27, 2017. It also marked the third week in which the central bank sought tenders for only the seven-day facility, setting aside the 28-day facility which was previously used to siphon off the bulk of the market liquidity. BSP Governor Nestor Espenilla said the reduction in the TDF auctions reflected prevailing market conditions. At the peak of the excess liquidity that the country experienced up to 2016, the central bank would accept almost P200 billion in tenders from banks every week —an indication of just how much unproductive funds were circulating in the financial system, which the BSP had to sterilize to keep the inflation rate in check.

The Philippines should brace itself for more capital outflows this year—which will likely exert downward pressure on the peso—as

the continuing recovery in the US prompts fund managers to repatriate their investments back to the world’s largest economy. The adverse effects of this expected departure of so-called “hot money” would normally be countered by raising domestic interest rates to keep local investments attractive to investors, but Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. said he wanted to keep rates as low as possible for as long as they could to help the economy grow. “The flows are reversing because the US economy is recovering,” he said in an exclusive interview with the Inquirer about the country’s prospects in 2018. “The big challenge for all is the uncertainty about the pace and magnitude of normalization (of US monetary policy). That’s the common problem of all economies.” These dual—and conflicting —priorities of mitigating the expected outflows while helping the local economy grow is expected to demand from Espenilla a delicate balancing act going into his seventh month as the country’s central bank governor. “The United States is just beginning its tightening cycle and there’s still a lot of hot money floating around the system,” he said, explaining that excess liquidity that the central bank had to grapple with over the last few years has “not yet” returned to the United States. The Philippine economy grew 6.9 percent in the third quarter of 2017 and is expected to end that year at a pace of anywhere between 6.5-7.5 percent—a rate that must be sustained to ease the burden on one out of five Filipinos still living below the poverty line. “The challenge is that we have to keep preparing for the worst case but, at the same time, we shouldn’t stifle the economy from growing,” Espenilla said, while dousing persistent talk about the local economy overheating. “The Philippine economy is like a car that we want to drive to a destination,” he said. “If we want to get there at a certain speed, of course the engine will heat up. We’re behind, and we have to step on the gas. But there are gauges we monitor to ensure that the engine doesn’t overheat.” The BSP chief noted that the government’s economic team had, so far, successfully managed the country’s pace of growth while keeping the prices of goods and services in check. Meanwhile, he said outflows that had pushed the balance-of-payments position to a deficit was due to accelerating investments in neglected sectors—a situation mitigated by the reduction in the country’s external debt in recent years. Espenilla declined to disclose estimates about how much dollar outflows the country should expect over the near to medium term, but pointed to one indicator closely watched by the central bank.

The Bangko Sentral ng Pilipinas (BSP) will not have to adjust interest rates despite inflation pressures from tax reform that has just

taken effect, a senior central bank official said, explaining that easing restrictions on rice imports could offset the impact of higher levies on basic goods. The first of up to five planned tax reform packages — Republic Act No. 10963 — kicked in on Monday, which is expected to generate P82.3 billion in additional revenues in its first year of implementation. The measure reduces personal income taxes for those earning below P2 million, alongside a simpler system for computing donor and estate taxes. Foregone revenues will be offset by the removal of some value-added tax exemptions; increased tax rates for fuel, automobiles, tobacco, coal, minerals, documentary stamps, foreign currency deposit units, capital gains for stocks not in the stock exchange, and stock transactions; and new taxes for sugar-sweetened drinks and cosmetic enhancements. BSP Deputy Governor Diwa C. Guinigundo said higher taxes on consumer goods will likely drive up inflation, but not at an alarming rate as far as the central bank is concerned. “We anticipate that the impact on inflation is less than one ppt (percentage point). But that hardly justifies a monetary response from the BSP because the impact is on the supply side,” Mr. Guinigundo said in a mobile phone message when asked about the impact of the tax reform law. “We shall consider adjusting our monetary stance when second-round effects are triggered because the demand side would be upset, generating demand pressure for higher wages and higher transport fares,” he added. Split into up to five tranches, the entire tax reform program is designed to shift the burden to those who can afford to pay more, while raising additional revenues that will help finance the government’s ambitious P8.44-trillion infrastructure development effort until 2022. The government has kept its annual inflation target at 2-4% for 2018 despite the expected impact of the first tax reform package. In particular, the BSP sees full-year inflation averaging 3.4% this year, picking up from the 3.2% expected for the entire 2017. Mr. Guinigundo said this showed that tax reform will not have much impact on overall price increases such that the central bank would have to step in. The Monetary Board has kept its policy stance unchanged since September 2014, except for procedural cuts to key rates for the shift to an interest rate corridor scheme in June 2016. Manageable inflation and firm domestic demand has allowed the BSP to stand pat on policy settings, as these remain supportive of robust economic growth. On the flip side, Mr. Guinigundo said monetary authorities expect price pressures from higher taxes to be offset by a proposed law that seeks to allow a bigger supply of cheap rice to enter the Philippine market. “[I]f Congress is able to pass the rice tariffication bill early enough this year, that could be a game changer because liberalizing rice imports would have the effect of cheapening the general price of rice which accounts for nearly nine percent of the consumer basket,” said the BSP official, who is an alternate member of the National Food Authority Council that sets rules and regulations for rice importation. “Our initial estimate puts it at around 1 ppt reduction, which on balance could provide some counterweight to the inflationary pressure of the higher excise tax on fuel.” Quantitative restrictions on rice imports — part of a preferential trade deal secured by the Philippines since 1995 — currently allows the country to limit the volume of rice imports every year in order to shield local farmers from cheap foreign rice. Once lifted, individuals and businesses can import additional volumes of the crop, but will have to pay a higher tariff. The BSP has been backing the lifting of rice quantitative restrictions as it would have “beneficial” effects to inflation. Tariffs collected by the government are expected to support mass irrigation, warehousing, and rice research, Mr. Guinigundo added. On balance, Mr. Guinigundo said the tax reform is expected to fund additional infrastructure projects that would “increase potential output” of the Philippine economy, and will eventually mitigate price pressures in the long run. Aggressive public spending and equally upbeat household consumption are expected to spur annual economic growth to a faster 7-8% up to 2022, keeping the Philippines one of Asia’s fastest-growing economies.

Consumer lending will serve as the main battleground for banks in the Philippines over the next few years, a central bank official

said, depending on how fast and efficient players can adopt digital channels to enhance financial services. “I think the battle would really be on the retail banking. Given advances in technology right now, it’s really more on the digitization — that’s where the battle will be in the next couple of years,” Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier said in a recent interview. “The name of the game would really be digital over the next couple of years.” Ms. Fonacier, who heads the central bank’s Supervision and Examination

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Sector, said lenders are now seeing the retail segment as the new space for competition as corporate lending grows concentrated. The country’s young population — with a median age of 24, according to the Philippine Statistics Authority — proves that the Philippines is a “very conducive” market to introduce digital banking products, she added. The same openness to new technology would also help local players maintain comparative advantage despite the entry of more foreign banks looking to capture a slice of the Philippine market, amid growing interest from offshore lenders to cash in on robust economic growth here. “I think they (local banks) are well-positioned when it comes to competition, but what’s critical is for domestic banks as well to embrace digital transformation because that’s where the future is leading us when it comes to banking,” Ms. Fonacier said. “For as long as a domestic bank would embrace such kind of advancement and development in that space, then they are well-positioned to compete.” Ms. Fonacier said she sees more foreign banks expanding in the Philippines in search of better yields and strong growth, taking stock of a strong middle class market in the country. She recently said that six Asian lenders are in talks with the BSP to set up branches here, which would add to 11 foreign players who have entered the country over the last three years. Domestic banks have been increasingly tapping digital platforms to complement over-the-counter transactions, especially with e-commerce on the rise. The central bank is likewise embracing electronic channels as it leads the National Retail Payment System, which seeks to shift more transactions to online means in this cash-heavy economy. The BSP targets to lift the share of digital payments to 20% of total transactions by 2020, coming from the 1% share recorded in 2013.

Tighter rules on report submission on potential dirty money transactions take effect today, under new guidelines which also require

financial firms to upload customer data to the online portal of the Anti-Money Laundering Council (AMLC). In December, the financial intelligence unit announced the adoption of comprehensive AMLC registration and reporting guidelines (ARRG) for financial institutions, which will digitize submissions as well as the flagging of alerts, analysis, investigation, and escalation of reports to the regulator. The changes are outlined under AMLC Resolution No. 107 which compels covered institutions to submit covered transaction reports and suspicious transaction reports within five to 10 days from the occurrence or discovery of such deals. The guidelines also make it mandatory for firms to upload know-your-customer documents to accompany suspicious transaction reports, which is expected to make it easier for the AMLC to assess and go after illegal wealth. The online filing of these client data is required for funds believed to be proceeds of kidnap-for-ransom, drug trafficking, murder, hijacking and terrorism. Among the information sought by the regulator include signature cards; customer information sheets; and scanned copies of government-issued identification cards, articles of incorporation for businesses; and digital photos. “The requirements for the uploading of know-your-customer documents and the uploading of electronic returns for freeze orders shall take effect on the first banking day of January 2018,” the financial intelligence unit said in an advisory posted on its Web site. The AMLC is tasked to track, investigate, and recover ill-gotten wealth and combat terrorist financing. As a rule, covered entities must report to the AMLC any fund transfers amounting P500,000 in a day. Meanwhile, suspicious transactions are those which appear out-of-pattern or unjustifiable compared to a person’s financial position, which may be taken as a potential case of unexplained wealth from illicit sources. Under the ARRG, all reporting institutions are required to upload reports through AMLC’s online system through unique 18-digit numbers assigned upon registration, where they will course all submissions to the regulator. A separate platform will be created for casino and other gaming operators, following the recent passage of a law that requires the reporting of single cash transactions worth above P5 million and suspicious transactions to the AMLC. These changes come after a government-wide survey showed that money laundering threat in the Philippines remained “high” as of 2015-2016, unchanged from a previous report which covered the years 2011 to 2014. The Philippines remains vulnerable to money laundering as gaps in local laws keep the country as a viable venue for dirty money with banks and remittance agents used as main channels, according to the second National Risk Assessment report published last month. Other platforms considered with a “high” risk of being used for dirty money deals include jewelry dealers, lawyers, accountants, casinos, and non-profit organizations. Meanwhile, risks involving insurance brokers and securities dealers were given a “medium” threat rating as investment-related scams and pyramid schemes remain. The Philippines also serves as a safe haven for international criminals to cleanse ill-gotten funds, the AMLC said. Some P608 billion worth of dirty money trickled in from foreign sources, the biggest of which are in Kazakhstan and the United States. Bulk of these funds were drawn from fictional entrepreneurship, tax evasion and fraud, and were mostly transferred via bank transactions. Back home, the biggest sources of illegal funds are tax evasion, smuggling, copyright infringement, illegal manufacturing of firearms and explosives, environmental crimes, investment fraud, drug trafficking, and corruption in government, the report added. In July last year, the Philippines got out of the watch list of the Asia Pacific Group on Money Laundering, which is the regional unit of the global watchdog Financial Action Task Force that monitors the adequacy of laws to combat dirty money.

Inflation likely slightly eased to 3.2 percent year-on-year in December as food prices remained stable despite the Christmas holiday

celebrations, the Department of Finance said Wednesday. In an economic bulletin, DOF Undersecretary and chief economist Gil S. Beltran also attributed the slight moderation in the rate of increase in prices of basic goods last month from 3.3 percent in November to lower power costs. For Beltran, “low inflation is an indication that the country’s macroeconomic fundamentals remain strong.” A 3.2-percent inflation rate in December will bring the full-year 2017 average to a similar 3.2 percent, within the government’s target range of 2-4 percent. “Solid fundamentals backed by TRAIN [the Tax Reform for Acceleration and Inclusion Act package] 1 implementation, rice sector reform and the ‘Build, Build, Build’ policy would push the country’s growth to 7-8 percent this year and sustain manageable inflation,” Beltran said. Beltran earlier said that removing the quota on rice imports and instead slapping them with a 35-percent tariff rate would bring down domestic prices by up to P7 a kilo. Last week, the Bangko Sentral ng Pilipinas said it expected inflation in December to settle within the range of 2.9-3.6 percent, similar to its forecast in November and faster than a year ago. “Higher domestic petroleum and rice prices could contribute to upward price pressures, which could be partly offset by the decline in Meralco’s electricity rates and stronger peso,” according to the BSP, citing the projection of its department of economic research. The BSP’s projected range for December was higher than the actual 2.6-percent inflation rate posted a year ago. During its last meeting on monetary policy for 2017 last Dec. 14, the BSP’s policy-making Monetary Board maintained its inflation forecasts of 3.2 percent for 2017, 3.4 percent for 2018, and 3.2 percent for 2019. For the period 2017 to 2020, the government targets inflation to settle within the similar 2-4 percent range. The Cabinet-level Development Budget Coordination Committee last Dec. 22 decided to keep the target range as “the current manageable inflation environment could be sustained over the medium term,” the BSP had noted. “Inflation projections and expectations continue to indicate that inflation could settle within the current inflation target, although there are upside risks to the inflation outlook. Moreover, the inflationary impact of the potential increases in international commodity prices is assessed to be moderate, supported by lower pass-through to inflation of exchange rate and external commodity price inflation,” the BSP had said. According to the BSP, “expectations of healthy economic growth alongside the tax reform program would create demand-side impetus to inflation.” Gross domestic product growth is expected to remain robust until 2022, as economic managers target 7-8 percent yearly expansion. President Duterte on Dec. 19 signed into law package 1A of the TRAIN under Republic Act No. 10963, which starting Jan. 1 this year slashed and restructured personal income tax rates that stayed the same for two decades, while also jacking up or slapping new taxes on consumption of oil, cigarettes, sugary drinks and vehicles. “Nonetheless, the favorable effect of sustained investment spending by the national government on the economy’s productive capacity would help temper inflation pressures,” according to the BSP. BSP estimates showed that inflation could increase by 0.85-1.2 percentage points in 2018 and by 0.4-0.55 percentage point in 2019 due to the TRAIN.

The Department of Finance (DoF) has set 2018 launch targets for key projects intended to improve the ease of doing business,

addressing current hurdles to trade and access to credit information, among others. These platforms include the National Single Window (NSW) trade facilitation system, the Advanced Security Operations Center (ASOC) cybersecurity defense system, digital registries

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such as the Philippine Business Data Bank (PBDB), the Credit Information System (CIS), and a movable collateral registry system under the Land Registration Authority (LRA). “For 2018, the DoF will continue expanding the NSW to realize the goal of connecting a total of 76 government agencies online to the BoC (Bureau of Customs),” the agency said in a statement. The NSW, also known as TradeNet, was launched in December and is expected to shorten the processing time of import/export clearances, reduce the number of transactions and required documents to be submitted. It also serves as the Philippines’ link to the Association of Southeast Asian Nations (ASEAN) Single Window (ASW) gateway to speed up cargo clearances and promote economic integration by enabling the electronic exchange of border documents among the organization’s 10 member-states. Currently, the system is only available for inbound and outbound shipments of rice, sugar, used motor vehicles, chemicals such as toluene, frozen meat, medicines for humans and animals and cured tobacco, regulated by 16 government agencies overall. “The cybersecurity system will be set up through an Advanced Security Operations Center (ASOC) and would involve deploying communication ‘brokers’ to connect all online security appliances of each attached agency to this ASOC,” the DoF said. “By 2021, the DoF expects the system to be fully in place and operational. The DoF will also work with the DICT (Department of Information and Communications Technology) to ensure the sustainability of the system,” it added. The program aims to ensure that the government’s online portals and communication systems are secure against cyberattack. Meanwhile, the Finance department said that the Online Unified Business Permit Application Form under the Philippine Business Data Bank “could be pilot-tested by the first quarter of this year.” The PBDB platform — a universal registry of businesses’ public information — was piloted by the Quezon City government in December. Finance Undersecretary Gil S. Beltran said in the statement that he hopes “to cover all 1,634 local government units nationwide within a two-year period.” Mr. Beltran said that the online business platform will aid the Securities and Exchange Commission in seamlessly launching the CIS and the movable collateral registry this year, after the targeted approval by Congress of the amendments to the Warehouse Receipts Law, or Republic Act No. 2137, within the year. The amendment overhauls the 105-year-old law to provide a legal basis for a computerized central registry for all warehouse receipts, which are used by the agriculture sector as collateral to obtain credit. Farmers are issued warehouse receipts as proof of ownership of their goods stored in warehouses. Such receipts are then traded or encumbered in exchange for credit to informal lenders as banks are often hesitant to extend loans using unreliable and easily-counterfeited paper receipts as collateral. “Both these initiatives aim to benefit micro, small and medium enterprises as the CIS would help banks assess the credit worthiness of its potential borrowers using a credit information database, while the movable collateral registry system will enhance and simplify the process on taking movable assets, such as inventory, equipment, sales contracts, quedan and other intangible assets as collateral,” the DoF said.

As Manila pursues closer ties with Beijing, the mainland pledged about $7.34 billion for building infrastructure here, the Department

of Finance (DOF) said. In a statement Wednesday, the DOF said the grants as well as soft loans committed by China thus far would finance 10 big-ticket projects, including the reconstruction and rehabilitation of war-torn Marawi City. Chinese money will also fund the construction of two bridges crossing the Pasig River in Metro Manila, as well as two drug rehabilitation facilities in Mindanao, according to the DOF. “The unprecedented pledges of assistance from China that President Duterte had generated for the Philippines in 2017 make up the initial investment dividend from his prescient foreign-policy rebalancing toward Asia,” Finance Secretary Carlos G. Dominguez III said. “China is now among the Philippines’ closest allies, with the country delivering swiftly on its respective pledges of assistance to help fund the government’s ‘Build, Build, Build’ and Marawi reconstruction programs,” according to Dominguez. During China Premier Li Keqiang’s visit to Manila on the sidelines of the 31st Asean Summit last November, Dominguez signed a financing cooperation agreement with the Export-Import Bank of China, which will cover 85 percent of the total contract amounts of the Metropolitan Waterworks and Sewerage System’s New Centennial Water Source-Kaliwa Dam as well as the National Irrigation Administration’s Chico River Pump Irrigation Facility projects. “China will provide soft loans estimated at $234.92 million for the Kaliwa Dam project and $72.49 million for the Chico River Pump Irrigation Facility project under the first basket of infrastructure projects presented by the Philippines for possible Chinese financing,” the DOF said, citing a report of its international finance group. Also, Dominguez and China commerce vice minister and international trade representative Fu Ziying signed a 150-million renminbi (about $23-million) grant agreement for Marawi’s rehabilitation. Dominguez and Fu also signed a memorandum of understanding “to jointly identify and study an indicative list consisting of the second basket of key infrastructure cooperation projects for possible Chinese financing,” which includes the Davao City expressway, Panay-Guimaras-Negros Inter-Island Bridge, as well as Subic-Clark Railway. In general, “the Philippines’ economic relations with its neighbors in the region such as China continued to improve in 2017 following President Duterte’s foreign policy rebalancing towards Asia,” the DOF said. “Aid, concessional financing, and investment pledges made by China after its top leaders met with President Duterte in 2016 have progressed into agreements, several of them to help fund the government’s ‘Build, Build, Build’ infrastructure modernization program and its war against illegal drugs,” the DOF added. Also, “China was among the first countries to pledge assistance in helping rebuild Marawi City in Mindanao after President Duterte declared it free of ISIS-inspired extremists last October,” the DOF noted.

Improvement of operating conditions of factories in the country eased in December but remained “solid,” setting the stage for “stronger growth” this year, according to a monthly survey IHS Markit conducts for Nikkei, Inc. The seasonally adjusted Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) stood at 54.2 in December, down from November’s 54.8 and the year-ago’s 55.7. A PMI reading above 50 suggests improvement in business conditions from the preceding month, while a score below that signals deterioration. The manufacturing PMI is composed of five sub-indices, with new orders having the biggest weight at 30%, followed by output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%). “The Philippines manufacturing economy rounded off the year on a strong note, with the headline PMI showing a further improvement in operating conditions in December, buoyed by marked growth in both output and new orders,” the report read. “While output and new orders both grew at slower rates in December compared to November, growth remained marked and above 2017 averages,” it added, noting that the fourth-quarter average was the fastest for 2017. Employment and input inventories also improved last month as companies had a “more confident” business outlook, the report added. At the same time, the survey noted “further signs of strain on supply chains, in part due to greater demand for manufacturing inputs,” and inflation pressures “remained elevated.” Moreover, “[f]oreign sales barely increased in December, with survey data showing the weakest expansion in new export orders for four months,” the report read further. Sought for comment, Security Bank economist Angelo B. Taningco in an e-mail attributed supply chain constraints to “a slowdown in suppliers’ delivery of manufactured goods amid increased traffic and port congestion.” Overall, Bernard Aw, principal economist at IHS Markit, said in the report: “The Philippines manufacturing economy finished the year with its best quarter for 2017, setting the scene for stronger growth as the country moves into next year.” “Output and new orders maintained marked growth rates in December. Domestic demand stood out as a key driver for manufacturing activity as export growth remained subdued,” he added. Mr. Aw said that increased purchasing by manufacturers last month should provide further momentum as the new year begins. “Other survey indicators point towards a strong start to 2018 for the sector. Business expectations about output in the year ahead strengthened to a four-month high while firms increased labor capacity and purchasing activity further during December,” he noted. Security Bank’s Mr. Taningco said manufacturing should remain a key growth driver for the Philippine economy in 2018. “My expectation of the sector’s sustained growth for the year is on the back of continued robust economic momentum in both the domestic economy and rest of the world that will enable local and foreign demand for Philippine manufactured items to stay buoyant,” he said. The report also noted that respondents in December were more optimistic about the 12-month outlook, with the Future Output Index improving to a four-month high. PMI readings of other Southeast Asian economies were not available as of early Tuesday night.

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The Investment Coordination Committee (ICC) of the National Economic and Development Authority (Neda) would prioritize this

year the pitching of three big-ticket infrastructure projects, which include two rail projects and an airport, for President Rodrigo Duterte’s approval. Neda Undersecretary Rolando G. Tungpalan told reporters last week that among the projects to be fast tracked by the ICC include two public-private partnership (PPP) projects, namely: San Miguel Corp.’s proposed New Manila International Airport; and the East-West Rail proposal submitted by the consortium of East West Rail Transit Corp. and AlloyMTD. On its website, the PPP Center said the New Manila International Airport to be implemented by the Department of Transportation was an unsolicited proposal for the construction as well as operation and maintenance of a new, modern airport in Bulacan province with a design capacity of 200 million passengers per year, consisting of four runways and aviation-related facilities. The East-West Rail project to be implemented by the state-run Philippine National Railways, meanwhile, will involve the financing, design, construction as well as operation and maintenance of a mostly elevated 9.4-kilometer railway spanning 11 stations from Diliman, Quezon City to Lerma, Manila, the PPP Center said. Also a priority for ICC approval is the Clark-Subic Rail, Tungpalan said. To be implemented by the Bases Conversion and Development Authority, the P57.6-billion Clark-Subic Rail is among the 75 “flagship” infrastructure projects to be rolled out by the Duterte administration under its ambitious “Build, Build, Build” program. The railway project that will connect two fast-rising economic zones in Central Luzon will be financed by official development assistance, for completion in 2021, according to the Neda website. Under “Build, Build, Build,” the government will begin the construction of “game-changing” infrastructure projects, with about half targeted to be finished within President Duterte’s term, alongside plans to spend a total of up to P9 trillion on hard and modern infrastructure until 2022. Tungpalan said these three projects, alongside those already green-lighted by the ICC in 2017, will be up for approval of the Neda Board chaired by President Duterte.

The country will start to feel the impact of higher excise tax rates on fuel products like diesel, gasoline, and cooking gas within the

next two weeks as a result of the government’s tax reform program. Pump prices of petroleum products are likely to reflect the higher excise tax rates under the Tax Reform for Acceleration and Inclusion law on Jan. 15, 2018, the Department of Energy (DOE) said Wednesday. “We expect the increase in the liquid petroleum prices as based on the new excise taxes under the TRAIN law should increase 15 days after January 1,” Energy Assistant Secretary for Oil Industry Management Bureau Bodie Pulido told reporters in a press conference in Taguig City. “We are basing this assumption on two things: the Executive Order 134 that requires minimum inventory for liquid petroleum products for 15 days, and based on the data in the possession of the DOE, made available to us by oil companies,” Pulido noted. “So, we believe that the existing old stocks will take 15 days before it is exhausted,” he said. Thus, the DOE is assuming that the prices of liquid petroleum products will not increase within the first two weeks of January. As a result of the recently approved tax reform law or Republic Act No. 10963, diesel gets an excise tax of P2.50 per liter from zero while the excise tax on gasoline rises to P7 from P4.35 in the first year of implementation. The excise tax rates on diesel will go up to P6 per liter by 2020, and on gasoline to P10. The DOE clarified earlier the new excise tax rates will not affect prices of old inventory, considering that excise taxes are levied upon importation and not at the point of sale to consumers. “Of course, it may be possible that their stocks may last much, much longer. So we will be validating by random inspections to make sure na masusunod ‘yung batas and the oil players are cooperating with us,” Pulido noted. “We will make sure that the old stocks will not be sold under the new excise tax rates,” he said. Energy Undersecretary and DOE spokesperson Felix Fuentebella said the department required oil companies to have postings at the retail level informing the public when pump prices reflect the new excise tax rates. “The oil companies will also require the retailers to post, for transparency, what products will be charged with excise tax and when the excise tax is applicable,” Fuentebella said. “They have also agreed to share the data regarding their sales to the dealers/retailers in order to determine which stocks will be applied with excise tax,” the Energy official added. The DOE and relevant government agencies such as the Department of Trade and Industry, Department of Finance, and local government units will conduct random audit and monitoring on compliance with the new tax reform law both at the depot or refinery and the retail levels.

One of the senators who voted against the tax reform law cautioned the public on Wednesday about the possible domino effect of

the increase in fuel prices. In a statement, Senator Paolo Benigno “Bam” Aquino IV said the fuel price hike will likely impact the prices of goods and other services in the market. "Nakakabahala ang pagtaas ng presyo ng bilihin dahil sa pagpataw ng buwis sa langis. Dagdag gastos na naman ito sa pamilyang Pilipino," he said. Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law took effect January 1. The TRAIN mandates the imposition of excise tax of P2.50 per liter on diesel starting this year, P4.50 in 2019 and P6 in 2020. For gasoline, the excise tax will be increased from P4.35 per liter to P7 this year, P9 in 2019, and P10 in 2020. Aquino said the fuel price hike will lead to an increase in prices of goods, which will ultimately fall on the shoulders of consumers, especially poor Filipinos. "Sa huli, mahihirap na Pilipino pa rin ang papasan at magdurusa sa epektong dulot ng TRAIN sa presyo ng bilihin," he said. Aquino was one of the four senators who voted against the ratification of the TRAIN. The three others are Senators Risa Hontiveros, Ping Lacson, and Antonio Trillanes IV. The Philippine National Taxi Operators' Association (PNTOA) meanwhile has said that it is looking to ask for a P16 per kilometer fare hike due to higher excise tax rates on petroleum products (see article below). The Department of Energy (DOE) earlier said that the new excise tax rates will not affect the prices of petroleum products during the first weeks of 2018. It said retailers should not charge the new excise tax on old stocks.

Opposition legislators said they may seek to block in the Supreme Court the implementation of the Tax Reform for Acceleration and

Inclusion (TRAIN) Act, citing procedural defects in the approval of the law, such as the absence of a quorum. “We will challenge the legality of this run-away TRAIN as it was railroaded in the House without the required quorum and distribution of approved copies to the members,” Bayan Muna party-list Rep. Carlos Isagani T. Zarate, member of the Makabayan bloc, said in a statement. Mr. Zarate said that the poor do not stand to benefit since they are already tax-exempt under the old rules but will have to spend more on transportation, among others, due to higher taxes on fuel. “Majority of our poor people will suffer more and would be mired further in poverty with the expected spike in the prices of major basic commodities and services beginning this month,” he said, estimating that about 15.2 million poor families will suffer because of tax reform. “These would have a severe domino effect on the prices of other products and services which is further aggravated by the VAT increases on these said products themselves. The effect of this ‘price shock’ can be crippling to the 15.2 million poor families and even to the whole economy,” Mr. Zarate said. The Makabayan bloc earlier cited the lack of a quorum during the ratification of the TRAIN bicameral report last month before Congress went on a one-month holiday break. The TRAIN Act was signed into law by President Rodrigo R. Duterte on Dec. 19. The law exempts from income tax those with annual salaries of less than P250,000. The first package of the tax reform program also charges P1 per liter of excise tax on liquefied petroleum gas starting this month, rising to P2 in 2019, and P3 in 2020 onwards. The new tax on diesel fuel is P2.50, rising to P4.50 in 2019 and P6 in 2020. The tax on regular and unleaded premium gasoline will rise to P7 in 2018 from P4.35 in 2017 and will rise further to P9 in 2019 and P10 in 2020.

The Philippine National Taxi Operators' Association (PNTOA) is looking to ask for a P16 per kilometer fare hike due to higher excise

tax rates on petroleum products under the Tax Reform for Acceleration and Inclusion (TRAIN) law. In a report on GMA News' "24 Oras" by Jam Sisante on Tuesday, PNTOA president Bong Suntay said the taxi operators group may petition for the said fare hike to the Land Transportation Franchising and Regulatory Board (LTFRB). "Ang magiging epekto niyan is mas lalong kakaunti yung mga taxing bumabyahe. Tapos nu'n maaring tumaas yung mga insidente ng driver na nangongontrata o ayaw magsakay o namimili ng pasahero... Hindi namin

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tinotolerate yung maling ginagawa ng driver but we have to become realistic," Suntay said. Under the recently approved tax reform law or Republic Act NO. 10963, diesel gets an excise tax of P2.50 per liter from zero while the the excise tax on gasoline rises to P7 from P4.35. By 2020, the excise tax rates on diesel will go up to P6 per liter and on gasoline to P10. The DOE clarified earlier that the new excise tax rates will not affect prices of old inventory, considering that excise taxes are levied upon importation and not at the point of sale to consumers. The new excise tax scheme will affect only those imported petroleum products from January 1, 2018 onwards. Oil companies' stock usually last up to two weeks. Transport group Pasang Masda also plans to file before the LTFRB to raise the minimum jeepney fare to P12 in light of the higher excise tax for fuel products resulting from the TRAIN law. "Ang jeepney driver kasi ang magbabayad ng boundary sa operator, sila rin ang magbabayad sa diesel, yung comsumption for the whole day of operations bago pa sila kikita. At the end of the day ang mahihirapan dito mga mahihirap nating mananakay, sila ang tatamaan at ito'y magkakaron ng domino effect pati sa mga pangunahing bilihin," Martin said.

Grab Philippines is filing a petition for an increase of as much as 10 percent in fare rates before higher pump prices of fuel products

kick in as a result of the government’s tax reform program. The company plans to file its petition with the Land Transportation Franchising and Regulatory Board (LTFRB) this week in light of the Tax Reform for Acceleration and Inclusion (TRAIN) bill that President Rodrigo Duterte signed into law last month. “We will file a petition with the LTFRB to request for a fare change anywhere between 6 to 10 percent of current fares,” Grab Philippines country manager Brian Cu said in a press conference in Makati City on Wednesday. As a result of higher excise tax rates, prices of liquefied petroleum gas (LPG) will go up by P1 per liter, diesel by P2.50 per liter, and gasoline by P2.65 per liter. Based on the average fares in December, Cu expects an increase of P11 to P13 per trip once the petition is approved. “The way we’re basing this on is the net income of our partner operators should be net neutral from before this excise tax and after this excise tax,” Cu noted. Latest data available from the company showed that a full-time Grab driver consumes 20 to 22 liters of gasoline daily, or P900 to P1,100. Cu emphasized the new Grab fare rates—once approved—would be applied only when the new tax reform law starts to impact on prices of petroleum products. “We will not increase it until we see a significant increase in pump prices. And, again, that’s in the spirit of fairness,” he said.

The Department of Transportation is targeting to launch this month hundreds of modern jeepneys as part of the PUV Modernization

Program. Passenger vehicles that are 15 years and older will be phased out under the program and replaced with environment friendly and fuel-efficient units. “We are looking at a minimum of 300 to 1,000 vehicles this month alone and around 500 to 2,000 in the first quarter,” Transportation Undersecretary for Roads Thomas Orbos told GMA News Online on Wednesday. The prototype of the modern jeepney, which has an exit door on the side of the vehicle and a bigger body to accommodate more passengers, will be pilot-tested in January 2018, Trade Secretary Ramon Lopez said earlier. “There will be no single source but several from both local assemblers and those imported, so long as they comply with the Philippine National Standard as set forth by the Department of Trade and Industry,” Orbos noted. “We will see compliance definitely in Metro Manila and some in the provinces such as Tacloban, Leyte; Gen. Santos, Mindoro, Pampanga, and Nueva Ecija,” he said. Despite protests from various transport groups, Transportation Secretary Arthur Tugade said the PUV Modernization Program will proceed this year as planned. The program is targeted to be fully operational in 2020. It includes a loan financing component, with the Development Bank of the Philippines (DBP) providing P1.5 billion to kick-start program.

The country’s telecom industry would only open to other foreign players if the talks between the Philippine government and China

would fail, Malacañang clarified Wednesday. “Let me be clear on this ‘no. The offer to China was made in a bilateral talk between the President [Rodrigo Duterte] and the Chinese Premier [Li Keqiang],” presidential spokesperson Harry Roque said in a press briefing. “It appears to have been accepted because the Chinese government nominated China Telecom ‘no, (sic)” he added. Communications Secretary Martin Andanar earlier said that the third player expected to enter the country is “not limited to China” and is “open to all telcos or investor from around the world.” “Whoever can give the best, the most viable offer, or the juiciest offer to us, that will be the third player in the telecommunications industry in the Philippines,” Andanar said Sunday. Roque said that the industry would only be open to other foreign telecom companies if China would not amenable with the constitutional provision on foreign ownership of strategic industries. He explained that Chinese state-owned companies are always “uncomfortable with not having 100 percent or majority stake.” The Constitution states that 60 percent of stakes of companies in strategic industries, including telecommunications, should be Filipino-owned. “If for any reason this is not acceptable to China Telecom, then we have no choice ‘no. We gave China the option but if this is not acceptable to it, unfortunately we will have to look for other players because we will have to honor what the Constitution provides,” he noted. But so far, the spokesperson said, there are no indications that China Telecom, a state-owned does not want to push through with the project. “But unless it’s actually up and going, I guess there is always a possibility that others may be involved if for any reason China Telecoms or China decides not to push through with their commitment ‘no, to start a third telecoms company,” he said.

Flag carrier operator PAL Holdings Inc. has sought a five-day trading suspension at the Philippine Stock Exchange starting

Wednesday pending disclosures on charter amendments approved by the Securities and Exchange Commission related to its capital restructuring. The equity restructuring is aimed at cleaning up PAL Holdings’ balance sheet and pave the way for the entry of an investor group. The requested voluntary trading suspension was set for Jan. 3 to 9 as the SEC issued certificates approving the following:

•a reduction in the authorized capital stock by changing the par value of shares from P0.45 to P1 per share. •a decrease in capital stock from P30 billion divided into 30 billion shares with the par value of P1 each to P13.5 billion divided into 30 billion shares with the par value of P0.45 each. •the valuation of P8.24 billion shares of stock will be applied as full payment for the additional issuance of around 1.65 billion common shares with a par value of P1 each with applied paid-in capital of P6.59 billion.

PAL Holdings has likewise obtained approval for the valuation of a proposed share-swap transaction with Zuma Holdings and Management Corp., wherein the former will issue 19 shares for every Zuma share surrendered. Zuma owns 99.97 percent of Air Philippines Corp., an afffiliate that operates a portion of Philippine Airlines’ flights. As a result, PAL Holdings will issue a total of 1.65 billion shares from its authorized but unissued capital in favor of other affiliates Cosmic Holdings Corp. and Horizon Global Investments Ltd. which respectively own 60 percent and 40 percent of Zuma. To recall, the group of tycoon Lucio Tan has been consolidating the operations of Philippine Airlines under listed PAL Holdings Inc. as part of a streamlining program envisioned to upgrade the airline into a five-star carrier. PAL, which is currently rated as a 3-star airline by airline and airport rating firm Skytrax, aims to obtain the highest rating of 5-star in four years. The certified 5-star airline rating is the highest category quality ranking used by Skytrax to certify airline product and service standards. This status has so far been awarded to only nine airlines: Qatar Airways, Singapore Airlines, Cathay Pacific Airways, Asiana Airlines, Hainan Airlines, ANA All Nippon Airways, Garuda Indonesia, EVA Air and Etihad Airways. This rating recognizes the highest standards of airport and onboard product provided by an airline to customers, together with consistent and high standards of front-line staff service across the airport and onboard service environment.

Real estate giant Ayala Land, Inc. (ALI) signed a deal to cement its control over Malaysian developer MCT Bhd. that could set the stage for a mandatory takeover offer for the remaining shares held by minority investors. The property arm of Ayala Corp. said in a disclosure on Tuesday its wholly-owned subsidiary Regent Wise Investments Limited (RWIL) inked a conditional share purchase agreement to buy an additional 17.24% stake in MCT Bhd. In a filing with Bursa Malaysia, MCT disclosed that Ayala Land will acquire 230.16 million

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ordinary shares from Tan Sri Dato’ Sri Goh Ming for a cash consideration of RM 202.50 million. The transaction will jack up ALI’s interest in MCT to 50.19% from 32.95%, breaching the 33% trigger point for extending a mandatory takeover offer, according to the Capital Markets and Services Act and the Malaysian Code on Take-Overs & Mergers. This will force RWIL to launch a mandatory takeover offer in accordance with the laws of Malaysia once the agreement becomes unconditional, Ayala Land said. The precedent involves obtaining a waiver from Bursa Malaysia Securities Clearing Sdn Bhd to allow for 51% of the cash consideration to be settled in tranches to the selling party, MCT said. “This increase in ownership will strengthen ALI’s commitment to enhance MCT’s operations and expand its business further,” the real estate firm said, citing its “solid track record in developing large-scale, integrated, mixed-use and sustainable estates across the Philippines and in growing its diversified product lines.” “This will also provide ALI with a greater opportunity to take advantage of the growth potential and long-term prospects of the real estate sector in Malaysia and will affirm ALI’s role as a key player in the ASEAN property sector.” Ayala Land bought a 9.16% interest in MCT in April 2015, marking its first investment in Southeast Asia. Eight months later, it exercised its option to buy additional shares and boost its stake to 32.95%. Founded in 1999 as a construction company, MCT is a property development company specializing in mixed-use projects that include retail, office, hotel, and mid-range to affordable residential properties. Ayala Land President Bernard Vincent O. Dy previously said it continues to scout for opportunities in Southeast Asia, identifying Vietnam, Myanmar and Indonesia as potential investment destinations. Under its 2020 Vision, Ayala Land is targeting a 20% annual growth rate to hit a net income of P40 billion. For the first nine months of 2017, ALI saw an 18% increase in earnings to P17.8 billion, on the back of a 16% growth in revenues to P98.9 billion.

SBS Philippines Corp., a chemical trading firm which is diversifying into the property business, has signed a deal to acquire a five-hectare property with warehousing facilities used by beverage giant Coca-Cola in Calamba, Laguna for P520 million. Through its subsidiary Lence Holdings Corp., SBS entered into a binding commitment with The Coca Cola Export Corp. – Philippine Branch and its related parties for the acquisition of warehouse facilities and property lot located at Silangan Industrial Park in Barangay Mapagong, Calamba City. The property includes ambient and cold storage facilities, machinery and other building improvements. “The facility will principally be used in the warehouse and distribution operations of the corporation to serve as a key distribution center for regional market customers south of Metro Manila,” SBS said in its disclosure. “Given that SBS customers are looking for savings, the south depot will allow greater opportunities for customers cut down on their logistics and sourcing organization, integrate the corporation’s procurement and logistic capabilities in their business processes, and promote collaborations for supply chain optimization to simplify their operations. Further, this capital expenditure would not only help control residual risks in not owning major logistic facilities but it is also a good investment opportunity to broaden the corporation’s asset base,” it added. The acquisition is also seen to allow the lease or use of the other areas for additional business building projects of SBS group. “This arrangement permits the corporation to grow and diversify its income streams,” the disclosure said. After a careful review of the disclosure submitted by SBS, the PSE said the subject transaction was covered by its rules on substantial acquisitions and reverse takeovers.

ASIA-PACIFIC

Japan’s Nikkei share average erased early modest gains and ended slightly lower on its final trading day of the year on Friday, but the index

still gained nearly 20 percent in 2017. The Nikkei ended the day down 0.08 percent at 22,764.94 points, while the broader Topix was also down 0.08 percent at 1,817.56. Advancers outnumbered decliners 332 to 266, with 64 issues ending unchanged. The stronger global economy, as well as domestic political stability and the Bank of Japan’s ultra-easy monetary policy helped lift Japanese corporate earnings in 2017, which in turn helped push the Nikkei up 19.1 percent and the Topix up 19.7 percent.

China stocks rose for a fourth straight session on Wednesday, aided by strong gains in consumer and transport firms. At the close, the

Shanghai Composite index was up 21.77 points or 0.65 percent at 3,370.10. The blue-chip CSI300 index was up 0.61 percent, with its financial sector sub-index flat, the consumer staples sector up 1.2 percent, the real estate index up 0.59 percent and healthcare sub-index up 0.03 percent.

Hong Kong shares rose for the seventh straight session on Wednesday to a fresh decade-high, aided by strength in index heavyweight Tencent

and consumer goods stocks. At close of trade, the Hang Seng index was up 45.64 points or 0.15 percent at 30,560.95. The Hang Seng China Enterprises index rose 0.17 percent to 12,088.99. The sub-index of the Hang Seng tracking energy shares rose 0.2 percent while the IT sector rose 1.07 percent, the financial sector was 0.09 percent lower and the property sector rose 0.09 percent.

Oil prices were stable on Wednesday, not far off mid-2015 highs reached the previous session, as strong demand and ongoing

efforts led by OPEC and Russia to curb production tightened the market. U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $60.40 a barrel at 0141 GMT, up 3 cents from their last close, and not far off the $60.74 June 2015 high reached the previous day. Brent crude futures LCOc1 - the international benchmark for oil prices - were at $66.55 a barrel, down 2 cents but still not far off the $67.29 May 2015 high from the previous day. Despite this, there were indicators that markets had overshot in the last days of 2017 and trading this year, as U.S. production is set to rise further and doubts are emerging about whether demand growth can continue at current levels. Ole Hansen, head of commodity strategy at Denmark’s Saxo Bank warned that ”multiple but temporary supply disruptions“ like the North Sea Forties and Libyan pipeline outages (and) protests across Iran ... helped create a record speculative long bet.” With the pipeline outages resolved and the protests in Iran showing no signs of impacting its oil production, Hansen said there was potential for a price downturn in early 2018, especially due to rising U.S. output. “It is only a matter of time before the 10 million barrel per day (bpd) production target will be reached,” Hansen said. U.S. oil production C-OUT-T-EIA has risen by almost 16 percent since mid-2016, hitting 9.75 million bpd at the end of last year. There was also some concern that output by Russia, the world’s biggest oil producer and one of the key drivers together with the Organization of the Petroleum Exporting Countries (OPEC) in cutting supplies, was in fact not falling. As part of the supply cut deal, Russia pledged to reduce its output by 300,000 bpd from the 30-year monthly high of 11.247 million bpd hit in October 2016, which it achieved by the second quarter of 2017, according to Russian energy ministry data. For the whole of 2017, however, Russian output rose to an average output of 10.98 million bpd, compared with 10.96 million bpd in 2016 and 10.72 million bpd in 2015. “We also have some concerns about the Chinese economy in

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2018 that ultimately could lead to lower than expected demand growth,” Hansen said. “By year-end we see Brent crude at $60 per barrel with WTI three dollars lower at $57 per barrel.”

Factory activity hit a five-year high in India and the best in 6-1/2 years in Taiwan, and also picked up in China. But activity contracted

in South Korea, Malaysia and Indonesia, a sign that regional interest rate hikes are likely to be gradual. “Robust external demand and accommodative domestic monetary policy should help keep Asian manufacturing sectors in good shape,” said Krystal Tan, Asia economist at Capital Economics. In China, manufacturing growth unexpectedly picked up to a four-month high in December amid a surge in new orders, suggesting continued strength in global trade. The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 51.5 from 50.8 in November, and far outpaced expectations in a Reuters poll for a dip to 50.6. The China PMI, which pushed Asian shares to their highest in a decade, was somewhat at odds with a much larger official China PMI survey on Sunday. It showed a slowdown in growth amid a crackdown on pollution and measures to curb risky financing and cool the housing market. The difference, analysts say, stems from the fact that the Caixin/PMI index tracks smaller, private firms, more sensitive to exports. China is expected to have grown by close to 7 percent in 2017, but the world’s second largest economy is likely to slow in the new year on the back of those measures, highlighted as policy priorities at October’s key Communist Party congress. Beijing is expected to target 2018 growth of around 6.5 percent. “We believe a moderate growth slowdown to be more visible in the first half of 2018, especially on the investment front, due mainly to the tight financial conditions and a cool down of the property market,” BofA Merrill Lynch economists said. China’s slowdown means that for the rest of Asia, the pace of rate increases is unlikely to match that of the U.S. Federal Reserve, which is likely to raise interest rates three times this year, and possibly more. There will likely be “only a few rate hikes here and there across the region over the coming two years,” HSBC analysts wrote in a note, even as they expect Asian economies to keep chugging along in 2018, led by tech and trade. India’s PMI showed factory activity expanding at the fastest pace in five years, buoyed by a rise in output and new orders, which allowed firms to raise prices. The data firmed up views that interest rates in Asia’s third-largest economy have probably bottomed. PMIs for Japan, which surpassed growth expectations in 2017 on the back of the surging tech and trade cycle globally, will be released on Thursday.

REST OF THE WORLD

European shares recovered on Wednesday from a muted start to the year as a rising dollar boosted exporters and new records on

Wall Street lifted spirits on a day devoted to the implementation of the new European MiFID II market rules. Euro zone blue chips gained 0.6 percent and the pan-European STOXX 600 index closed up 0.5 percent while trading volumes were slightly up from the previous session despite new financial regulations kicking in. Frankfurt's DAX and Paris' CAC 40 both jumped 0.9 percent.

The S&P 500 index rose above 2,700 for the first time on Wednesday and other major indexes hit record closing highs as technology stocks

climbed after signs of robust economic growth. Stocks added slightly to gains late, with some support from minutes from the Federal Reserve’s last policy meeting showing the U.S. central bank would likely stick to gradual interest rate hikes this year. Earlier in the session, data showed U.S. factory activity increased more than expected in December, a sign of economic momentum at the end of 2017. Meanwhile, manufacturing surveys pointed to a strong start for the European economy. The Dow Jones Industrial Average rose 98.67 points, or 0.4 percent, to 24,922.68, the S&P 500 gained 17.25 points, or 0.64 percent, to 2,713.06 and the Nasdaq Composite added 58.63 points, or 0.84 percent, to 7,065.53. The Cboe Volatility Index, better known as the VIX and a popular options-based gauge of expected near-term price volatility, closed at 9.15, just shy of its record low close of 9.14 on Nov. 3. Advancing issues outnumbered declining ones on the NYSE by a 1.47-to-1 ratio; on Nasdaq, a 1.45-to-1 ratio favored advancers. About 7.1 billion shares changed hands on U.S. exchanges. That compares with the 6.3 billion daily average for the past 20 trading days, according to Thomson Reuters data.

Euro zone factories ended 2017 growing at their fastest pace in more than two decades while performance in Asia was more uneven,

with its third-largest economy India leading the field and manufacturing giant China unexpectedly resilient. With a similar business survey covering the United States forecast to be strong, the synchronized global growth that took hold last year looks set to continue based on the first major economic data releases of 2018. Euro zone factory activity is handily outpacing its peers, including Britain. That has added to expectations that the European Central Bank, which this month will halve its monthly bond purchases, will shutter the program later this year. “The euro zone manufacturing boom gained further momentum in December, rounding off the best year on record and setting the scene for a strong start to 2018,” said Chris Williamson, chief business economist at IHS Markit, which compiles the surveys. The December euro zone final manufacturing Purchasing Managers’ Index (PMI) was 60.6, matching an earlier preliminary reading, the highest since the survey began in June 1997. Any figure above 50 represents growth. The euro rose to a three-month high above $1.20. The factory output index, which feeds into a broader set of data including services due on Thursday, rose to 62.2 from 61.0 in November. That was its highest in over 17 years and a reading exceeded only once in the survey’s more than two decades of history. Germany and France, the euro zone’s two largest economies look to be expanding in tandem, striking their highest manufacturing PMI numbers on record and for 17 years, respectively. But growth slowed in Italy, the bloc’s third largest economy. In Britain, which is in the process of negotiating a withdrawal from the European Union, growth tailed off sharply from a four-year high the previous month. “Strong growth will be hard to sustain in 2018,” noted Samuel Tombs, UK economist at consultancy Pantheon Macroeconomics. He pointed out that the UK PMI had underperformed the euro zone’s by the most since June 2008. “British manufacturers ... are failing to make the most of the rebound in global trade,” Tombs wrote.

German seasonally adjusted jobless total fell by 29 thousand to 2.442 million in December 2017, following an upwardly revised 20

thousand drop in November and above market expectations of a 13 thousand decline. The seasonally adjusted unemployment rate edged down to 5.5 percent, the lowest level since German reunification in 1990. Separate data from the federal statistical office released earlier showed the harmonised unemployment rate fell to a 37-year low of 3.6 percent in November.

U.S. Federal Reserve policymakers showed worry over the fate of currently low inflation and saw recent tax changes as providing a

boost to consumer spending, according to the minutes of the U.S. central bank’s last policy meeting on Dec. 12-13 released on Wednesday. The details of the meeting, at which the Fed raised interest rates for the fifth time since the 2008 financial crisis, also showed that

BAIPHIL Market Watch – 04 January 2018 Page 9 of 11

officials have a similar lack of certainty over the impact of fiscal stimulus on raising price pressures. “Most participants reiterated their support for continuing a gradual approach to raising the target range, noting that this approach helped to balance risks to the outlook for economic activity and inflation,” the Fed said in the minutes. They then mulled the dual possibilities that the Trump administration’s tax cuts or easy financial conditions could cause inflation pressures to build unduly, while at the same time also considering that actual or expected inflation may fail to rise to the Fed’s 2 percent target. The inflation shortfall is set to dominate incoming Fed Chair Jerome Powell’s first few months as chief of the central bank with further rate increases more difficult to justify without an upswing. He is set to take over from Janet Yellen by the time of the next rate-setting meeting on Jan. 31-Feb. 1. At its December meeting, the Fed kept its forecast for three rate rises this year and in 2019 unchanged even as policymakers anticipated a short-term boost in U.S. economic growth from the Trump administration’s sweeping $1.5 trillion tax overhaul signed into law on Dec. 22. The tax changes reduce the corporate rate from 35 percent to 21 percent and temporarily cuts the taxes paid by most individuals as well. In the minutes, many policymakers “expected the proposed cuts in personal taxes to provide some boost to consumer spending” and many characterized the changes in business taxes as likely to provide a modest boost to capital spending. “However, some business contacts...noted that the increase in cash flow that would result...was more likely to be used for mergers and acquisitions or for debt reduction and stock buybacks,” the minutes said. In December, the Fed forecast ultra-low unemployment of below 4 percent in 2018 and 2019, but still predicted inflation would remain below 2 percent at the end of 2018. The mystery of low inflation in such a robust economy has prompted debate at the Fed for the past several months and was the concern of the two policymakers who voted against a rate increase at last month’s meeting. The latest minutes showed that while participants generally viewed inflation rising back to target over the medium term, several said “other persistent factors may be holding down inflation.” Investors have all but ruled out an interest rate increase at the Fed’s upcoming meeting but currently see another nudge upwards at the following one in March.

U.S. factory activity increased more than expected in December, boosted by a surge in new orders growth, in a further sign of strong

economic momentum at the end of 2017. The Institute for Supply Management (ISM) said its index of national factory activity jumped to a reading of 59.7 last month, the second-highest reading in six years, from 58.2 in November. A reading above 50 indicates growth in manufacturing, which accounts for about 12 percent of the U.S. economy. The survey’s new orders sub-index shot up 5.4 points to 69.4, the highest reading since January 2004. Manufacturers also reported an increase in export orders. While a measure of factory employment fell 2.7 points last months it remained at lofty levels consistent with an expansion in manufacturing payrolls. Factories also reported paying more for raw materials, with the survey’s prices index jumping by 3.5 points. Rising raw material prices bolster the view that inflation will pick up in 2018. Manufacturing is likely to get a boost this year from a $1.5 trillion tax cut approved by the Republican-controlled U.S. Congress last month. The overhaul of the tax code, the most sweeping in 30 years, slashed the corporate income tax rate to 21 percent from 35 percent. Business spending surged in anticipation of the corporate tax cuts. Recent weakness in the dollar and a strengthening global economy are expected to buoy exports of U.S.-made goods, which would underpin manufacturing. The ISM survey showed manufacturers upbeat about the economic outlook. Machinery producers reported strong international sales and computer and electronic products manufacturers said they were “seeing a ramp-up with companies releasing early 2018 spend now.” Food, beverage and tobacco products manufacturers, however, struck a more cautious note saying that while the economy and business were strong, signals of “headwinds in 2018 are persistent.” In a separate report on Wednesday, the Commerce Department said construction spending rose 0.8 percent to an all-time high of $1.257 trillion in November. It advanced 2.4 percent on a year-on-year basis. The manufacturing and construction reports added to data ranging from the labor market to housing and consumer spending in sketching a robust picture of the U.S. economy. Following Wednesday’s data, the Atlanta Fed raised its fourth-quarter gross domestic product estimate by four-tenths of a percentage point to an annualized rate of 3.2 percent. The economy grew at a 3.2 percent pace in the third quarter. In November, spending on private residential projects soared 1.0 percent to the highest level since February 2007 after rising 0.3 percent in October. The increase was in line with a recent jump in homebuilding and supported expectations that housing would boost economic growth in the fourth quarter after being a drag on GDP since the April-June period. Spending on nonresidential structures rebounded 0.9 percent in November after falling 0.2 percent in the prior month. Overall, spending on private construction projects climbed 1.0 percent in November to a record high. That followed a 0.3 percent increase in October. Outlays on public construction projects rose 0.2 percent in November after jumping 3.5 percent in October. Economists, however, expect modest gains in public spending in the months ahead.

Signature Verification & Forgery Detection – 13 January 2018 Professional Image and Values Enhancement – 19 January 2018 Enhanced Corporate Governance Guidelines (BSP Cir. Nos. 969, 970, 971, 972) – 26 January 2018 Compliance with Financial Consumer Protection Framework (FCPF) – 26 January 2018 Code of Champions (A Leadership Effectiveness Program for Bankers) – 26 January 2018 Accounting for Non-Accountants with Financial Statements Analysis – 01 & 02 February 2018 Beyond Compliance: Managing Technology and Cyber Security Risk (Highlighting BSP Cir. No. 982: Enhanced

Guidelines on Information Security Management) – 02 February 2018 Establishing Internal Controls for Banks – Seminar One – 03 February 2018 Effective Presentation Skills – 09 February 2018 Advanced Excel Training for Bankers – 09 & 10 February 2018 Business Impact Analysis and Risk Assessment Workshop – 09 & 10 February 2018 Basic Course on Corporate Governance for Savings and Loan Associations, Rural Banks and Cooperatives –

09 & 10 February 2018 Establishing Internal Controls per BSP Cir. No. 871 – Seminar Two –10 February 2018 Enhanced Corporate Governance Guidelines (BSP Cir. Nos. 969, 970, 971, 972) (Board of Directors) – 23

February 2018 Counterfeit Detection – 23 February 2018 Project Management Fundamentals – 23 February 2018 Asset Liability Management – 24 February 2018 Fraud Risk Management – 24 February 2018 Advanced Project Management (Pre-requisite PM Fundamentals) – 03 March 2018 Signature Verification & Forgery Detection – 3 March 2018 (CEBU CITY) Process Improvement Specialists Program – 10 & 17 March 2018 Robotic Process Automation in Banking – An Introduction – 16 March 2018 BSP Cir. 706 as Amended by BSP Cir. No. 950, AMLA Law, and the AML Risk Rating System – 23 March 2018 Compliance with Operational Risk Management Guidelines – 06 April 2018 Related Party Transactions – 06 April 2018 Estate Planning – 07 April 2018 Defining Process Performance Indicators – 14 April 2018 Updated Guidelines on Sound Credit Risk Management (Includes Cir 908: Agricultural Value Chain Financing

Framework and BSP Cir 941: Amendments to the Regulations on Past Due and NPLs – 20 & 21 April 2018 Macros Training for Bankers – 20 & 21 April 2018 A Regulatory Perspective on Trust Activities and Administration (2 Days) – 20 & 27 April 2018

BAIPHIL Market Watch – 04 January 2018 Page 10 of 11

BSP Cir. No. 706 as Amended by BSP Cir. No. 950, AMLA Law, and the AML Risk Rating System (Board of Directors) – 27 April 2018

Overview of Outsourcing Framework (Knowing the Essentials When Outsourcing) – 04 May 2018 Basic Course on Corporate Governance for Savings and Loan Associations, Rural Banks and Cooperatives –

04 & 05 May 2018 Identity Theft: How To Effectively Combat It – 05 May 2018 Updated Guidelines on Sound Credit Risk Management (Includes Cir 908: Agricultural Value Chain Financing

Framework and Cir. 941: Amendments to the Regulations on Past Due and NPLs) – 11 & 12 May 2018 Trust Products – 11 & 18 May 2018 Counterfeit Detection – 12 May 2018 (CEBU CITY) Process Mapping as an Operational Risk Management Tool – 12 & 19 May 2018

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

JANUARY 1-15

5 Ana Teresa B. Diaz de Rivera – Wells Fargo Bank

6 Marietta M. Fondevilla – DBP

8 Elmarie S. Reyes – Bancnet, Inc.

8 Edmar C. Ullegue – Standard Chartered Bank

9 Regnar C. Rivera – Past President

9 Myrna E. Amahan – Union bank of the Philippines

11 Patricia R. San Agustin - DBP

NEOCLASSICAL GROWTH THEORY - Neoclassical growth theory is an economic theory that outlines how a steady economic growth rate can be accomplished with the proper amounts of the three driving forces: labor, capital and technology. The theory states that by varying the amounts of labor and capital in the production function, an equilibrium state can be accomplished. The theory also argues that technological change has a major influence on an economy, and that economic growth cannot continue without advances in technology.

BAIPHIL Market Watch – 04 January 2018 Page 11 of 11

WEB HOST - In order to publish a website online, you need a Web host. The Web host stores all the pages of your website and makes them available to computers connected to the Internet. The domain

name, such as "sony.com," is actually linked to an IP address that points to a specific computer. When somebody enters your domain name into their browser's address field, the IP address is located and Web site is loaded from your Web host.

A Web host can have anywhere from one to several thousand computers that run Web hosting software, such as Apache, OS X Server, or Windows Server. Most websites you see on the Web are accessed from a "shared host," which is a single computer that can host several hundred Web sites. Larger websites often use a "dedicated host," which is a single machine that hosts only one website. Sites with extremely high amounts of traffic, such as apple.com or microsoft.com, use several computers to host one site.

If you want to publish your own website, you'll need to sign up for a "Web hosting service." Finding a good Web host shouldn't be too hard, since there are thousands available. Just make sure the Web host you choose offers good technical support and ensures little or no downtime. You'll usually have to pay a monthly fee that varies depending on how much disk space and bandwidth your site will use. So it's a good idea to estimate how big your site will be and how much traffic you expect before signing up for a Web hosting service.

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

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

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

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

DISCLOSURE: The BAIPHIL Market Watch (BMW) is for informational purposes only. The content of the BMW is 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

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