We $how You The Mone￥

Saturday, June 21, 2008 | MANILA, PHILIPPINES

Central banks warned vs inflation ‘misdiagnosis’

Standard Chartered Bank has warned Asian central banks, including the Bangko Sentral ng Pilipinas, against possible policy missteps to combat rising inflation, which it said is the biggest threat to the region’s economies this year.
In its monthly report released this week, the British bank said given the region’s still buoyant growth, Asian central banks have room to further tighten monetary policy, but only after a careful assessment of the source of price pressures.
“Governments need to differentiate carefully between the different sources of inflation and the different tools needed to address the problems,” Nicholas Kwan, StanChart’s regional head of reseaarch for Asia, said. “The risk of a costly misdiagnosis is high, and rising,” he pointed out.

Balanced budget seen still possible this year

The government may still achieve a balanced budget this year despite its decision to move this goal to 2010 to give way to subsidies for the transport and low-income sectors, ATR KimEng Securities, Inc. said.
“The budget may be balanced on a combination of a resumption in asset sales, controlled spending, and a plateauing of commodity prices,” ATR KimEng said in a research note released on Friday. The company noted the budget surplus posted by the national government for last month alone makes its original goal of a balanced budget this year achievable.
The government posted a budget surplus of P7 billion last month, the highest monthly surplus in 12 years, due to strong revenues coupled by slower spending.
Expenditures grew by just 4.1%, slower than the 7.9% growth posted in the same month a year ago, in contrast to original plans that the government would frontload its spending in the first half in a bid to counter the effects of global economic downturn.

Banking & Finance

Peso ends 14 centavos stronger

The peso rose against the dollar on Friday following softening world crude oil prices.
In note to investors, trader said the dollar-peso exchange rate favored the peso as banks booked profits after crude oil futures dived by nearly $5 dollars from dizzy heights overnight.
The peso opened weaker at P44.44 and closed 14 centavos stronger at P44.35 against the greenback. Total volume of transacted dollars reached $531.5 million, $126.5 million lower.
NYMEX West Texas Intermediate Crude Oil for the July delivery closed down by $4.75 at $131.93 per barrel on Thursday.

Pre-need sales up by 20% in May

Pre-need sales for May went up by almost a fifth from a year earlier, as sales of life insurance and pension plans offset declining sales of education plans.
Data from the Securities and Exchange Commission showed pre-need sales went up by 8% from January to May. Sales of education plans, which only accounted for 3% of the industry, went down by 18% to 935 in May. Five-month sales went down by 57%.
Total pension plans sold in January to May declined by a fifth to 35,081. Life insurance plans, however, bucked industry trends and posted a 58% increase in May, with more than 14,000 plans sold from just over 9,000 a year earlier.

Other News

Pre-need firm gets nod to pension plans

Corporate regulators have approved local pre-need firm First Union Plans, Inc.’s offer of pension plans worth of P100 million. In a statement, the company said it would offer 1,227 new pension plans with minimum pension benefits worth P100,000 to P300,000. The plans will consist of Cash Contribution, Asset Accumulator, Future Funder and Prime Provider plans. As of May, the company had registered P1.1 billion worth of pension plan securities, and had P57 million worth of pension plans for sale.

Loren prefers 2% premium tax

A high-profile senator is batting for a 60-percent reduction in the five-premium tax on life insurance policies to make them more affordable to a greater number of Filipinos.
Sen. Loren B. Legarda, Senate economic affairs committee chairperson, introduced Senate Bill (SB) 2117, seeking to lessen from five percent to just two the tax on life insurance premiums.
“We definitely want more Filipinos to enjoy adequate voluntary life insurance protection. One sure way to achieve this is by reducing the cost of premiums through lower taxes,” Legarda said. She lamented that only three million Filipinos, or less than four percent of the population, have voluntary life insurance coverage.
“We want to encourage more Filipinos to invest in life insurance policies,” Legarda said, adding that premiums paid by individual Filipinos should be treated as part of their long-term savings.
She added: “We have to strike a balance between the need to spur long-tem savings on one hand, and the need for government revenue on the other hand.”
The Philippine Life Insurance Association (PLIA) has expressed support for Legarda’s bill, which the group said would boost long-term savings and help local life insurers compete globally. The PLIA noted that the Philippines is the only country in Southeast Asia that imposes a five-percent tax on life insurance premiums. Legarda said the government need not worry too much about the foregone revenue from the proposed lower tax rate.
“Cheaper premiums owing to less taxes would drive down the cost of life insurance and eventually expand coverage, thus enlarging the base of taxable premiums and enhancing government revenue over time,” she pointed out.
Lower taxes would reinforce the role of life insurers in savings mobilization. She cited their role in building up the local capital and securities markets via massive investments in listed firms, commercial papers and bonds. “If we look at the top 100 shareholders of every major corporation listed on the Philippine Stock Exchange, life insurers are among their biggest long-term investors,” Legarda said. The senator cited the case of Great Pacific Life Assurance Corp. (Grepalife), which is the eigth largest Filipino shareholder of Philippine Long Distance Telephone Co. (PLDT). The Insular Life Assurance Co. Ltd. is the 36th largest Filipino shareholder of the Bank of the Philippine Islands.
Life insurers generated a total of P56.4 billion in premium income in 2006. This is 20.3 percent higher than the P46.9 billion that they collected in 2005.

Quote of the Day:

“You cannot tailor-make the situations in life
but you cantailor-make the attitudes to fit those situations.”
- Zig Ziglar

Buy Term and Invest the Difference

Last week I was surprised by the email of Pinay0171, she was asking which fund she can save her hard earned money? So I set an appointment to discuss financial responsibilities and
showed her the hidden power of life insurance. At first she is determined to save and invest, and mutual funds is her vehicle. I told her that insurance is the excellent wealth accumulation and preservation tool for life’s eventualities: Life insurance is not expenditure, but rather a new, beneficial reallocation of assets. A multifaceted financial tool or the “Swiss Army Knife” of her financial plan. Most people quotes “Life insurance as a necessary evil”. But instead of talking about “death”, which most people avoid, I discussed to her that successful people use life insurance as a very effective solution to the problems brought about by death of a loved one, especially the breadwinner. (estate tax payments, loans, credit cards, etc.).

Realities of life insurance
• “Life insurance is the cornerstone of any financial plan.”
None of us can control the timing or outcome of life’s three potential crisis:
Living too long. Dying too soon. Becoming disabled.
• “Life insurance gives room for more investment opportunities.”
Life insurance is a good defense that can be the platform to which you may build a strong offense. You can have the opportunity to be more aggressive in other investment opportunities. Here are the needs answered by life insurance:
Protection and Security
Income Loss = preserves lifestyle.
Liabilities = preserves money for loans and other expenses due to untimely death.
Children = preserves future of children.
Assets = preserves estate from taxes.

Insurance is the backbone of any financial plan.
Whether you achieve your income goals or not, your family’s financial security is guaranteed! It also provides Business and Investment Opportunities. At the end Pinay0171 availed of a term insurance and invest in mutual funds all her savings.

“There’s more to life insurance than you think. A lot more! It’s one of the most versatile financial tools you’ll ever use to create, preserve and distribute wealth.”
- Stuart J. Spivak, LUTCF

Wage levels nationwide will be reviewed given the continuing increase in prices of basic goods. The probable wage hike and increase in transportation cost may lead to higher inflation driven by the incresing prices of gasoline.
The sense of crisis over rice showed no signs of easing as price of the world’s benchmark jumped 10% in just a week, fanning fears that millions across Asia will struggle to afford their staple food.

Local stocks slide despite World Bank aid promise. The International Monetary Fund has scaled down its export and investment growth outlook for the Philippines this year, warning that spillovers from a looming US recession to the whole of Asia could shift from “moderate” to “substantial.”

Banks are still strong, Philippine banking system remained adequately capitalized as banks’s capital adequacy ratio (CAR) stood well above the required minimum, but levels slipped quarter on quarter following the implementation of the Basel 2 accord in July.

1 year T-bill rate rises to 5.993% (PDI, April 14)
Bank lending up 9.4% on record-low interest rates (PDI, April 16)

RP is still buying rice from US. The National Economic and Development Authority (NEDA) said it was reviewing the official gross domestic product (GDP) growth target of 6.3-7.0 percent for this year, as rising prices of food and other commodities are expected to adversely impact on the economy.

OFW remittances rose by 15.5 percent to $2.5 billion in the first two months of the year. For the month of February, remittances registered $1.3 billion or 16% higher than last year.

INSURANCE INDUSTRY

Manulife, Prulife and Philamlife have recently introduced their new investment products Affluence Builder, Pru Millionaire and Asset Builder, respectively.

Sun Life Financial, Insular Life and Paramount Life awarded their top producers for 2007.

AXA has reported their 80 and 82 percent increase in total and new business premiums, respectively.

Pre-need sales declined by 54.7% for the first month of the year. The Senate committees on banks, financial institutions and currencies in trade and commerce have approved a bill that assigns the Insurance Commission (IC) as regulator of the pre-need industry.

THE NATION

Inflation is expected to accelerate for the fourth straight month in March due to higher import costs of crude oil and rice, and the up trend is expected to continue, putting the government’s full-year target at risk. Consumer protection measures are now set in both local and international markets.

DTI expects prices of rice and bread products to stabilize soon as allocation come in.

IMF and ADB expects the country to grow by 6% this year citing that the country will not be affected too much by a volatile global environment to be caused by a US recession.

PHILIPPINES

Equities. A rally in U.S. equities and gains in prices of precious metals Wednesday night helped push local share prices higher yesterday. The PHISIX gained 24.19 points, or 0.8%, to end trading in the PSE yesterday at 3,116.84. PLDT and Philex Mining paced the gains among the listed firms that advanced. Expect another volatile market today taking its cue from Wall Street’s weak performance overnight due to reports that U.S. mortgage foreclosures hit a record high in late 2007.

Currency. The release of downbeat economic data in the U.S. Wednesday evening worked to the advantage of the EUR, GBP, and other regional currencies such as the PHP as this led to increased trader bets of a U.S. rate cut in March. The USD/PHP closed at 40.56, 20 centavos lower than Wednesday’s close of 40.76. Turnover was pegged at USD 500.45 million compared with Wednesday’s USD 471.10 million. The domestic FX market will be monitoring the monetary policy statement of the ECB and the BOE because a maintenance of the current interest rate regimes in the Eurozone and indications of positive growth prospects in the area could lead to a rally in the EUR. The release of the non-farm payrolls report in the U.S. could also spell risk aversion towards U.S. stocks and other currencies and take its toll on the Peso if weakness in the employment sector persists.

Secondary Market Yields. Trading in the local fixed income market was a non-event yesterday with secondary market rates moving generally flat from the previous day’s levels. Only P2.91 billion worth of trades were mapped in the PDEX platform yesterday, a reflection of subdued demand by GS traders. Certain uncertainties have been beleaguering the government securities market recently, which have been the partial cause of low trading activity and appetite for government paper in the market. This includes the ongoing investigation of Congress into the PDEX trading platform, a resolution passed recently within Congress to investigate the validity of the BSP’s SDA facility for mopping-up excess market liquidity, and the reopening of the BTr’s GS sale through negotiation. Expect restrained trading in the markets as traders closely monitor developments on these said issues.

PHILIPPINES

Equities. Local share prices traded sideways yesterday as investors remained cautious in light of record-high oil prices (USD 101.32/barrel) resulting from concerns over a stifling of world oil supply. The benchmark 30-company PHISIX declined by 4.99 points, or 0.2%, to end trading at 3,176.06 at noon. Bearish sentiments remain and consolidation is once again expected.

Currency. Sentiment towards the local currency improved as the release of the latest FOMC minutes indicate a bigger possibility of the Fed easing policy rates once again come March, increasing the attractiveness of local assets. The USD/PHP closed at 40.625, 23 pips lower than the previous day’s ending level, which was also the intraday high. A rally in regional currencies and bourses due to stronger prospects of a U.S. rate cut could buoy the Peso further but the political noise in the local front could put a cap on potential gains. Expected trading range today is 40.55 to 40.95.

Secondary Market Yields. Very few trades were mapped in the PDEX platform yesterday, with only P4.63 billion worth of successful trades taking place, as bid-offer spreads remained wide throughout the day, reflecting a lack of market sentiment. Fixing rates at the end of the day were: 3-months unchanged at 4.50%, 6-months unchanged at 5.375%, 3-years down 5 bps to 6.075%, and 5-years down 5 bps to 6.325%. Weak market activity lately can be attributed to the fact that the next FOMC and BSP Monetary Board meetings are scheduled for next month, there are no major economic news that could significantly drive rates, the market has been cautions about developments in the political arena (Senate inquiry on ZTE scandal), and stringent PDEX policies and high fees on trading have muted trading interest among banks. We anticipate consolidation in rates at their current levels.

Those interested to learn the performance of Variable Universal Life (VUL) products, refer to the file below.
Performance of VUL Funds

PHILIPPINES

Equities. The local stock bourse extended its gains for a third straight day as the announcement by Moody’s Investor Service to upgrade its credit rating outlook on Philippine debt from ’stable’ to ‘negative’ was cheered on by the markets last Friday. Gains in the U.S. stock market Thursday evening also helped prop up local share prices. The benchmark PHISIX rallied by 89.99 points, or 2.9%, to close at 3,237.41 at the end of trading in the PSE. PLDT and Meralco paced the gains in the index. Trading is expected to be mixed today. After last week’s sharp rebound, expect risk-averse investors to lock in on gains while long investors will continue to buy defensive stocks that are still trading at oversold levels. Positive news from Moody’s that suggest a rating upgrade as well as anticipation of further rate cuts by mid-week may help stabilize the market’s volatility.

Currency. An improvement in risk appetite as well as the recent Moody’s outlook upgrade on the Philippines from ’stable’ to ‘positive’ buoyed the Peso for a third straight day. The USD/PHP ended trading in the PDS at 40.80, the intraday high for the local currency, as regional currencies also strengthened against the U.S. Dollar. Volume turnover was a hefty USD 815.5 million. The outlook upgrade of Moody’s and expectations of a Fed rate cut by January 31st are expected to help make the Peso appreciate further today. But we also anticipate the BSP to step in and limit the Peso’s rise and smoothen out volatility in the market. Expected trading range for the USD/PHP today is 40.60 to 41 figure.

Secondary Market Yields. The Moody’s outlook upgrade announced on Friday was taken very favorably by the markets as we saw traders lifting offers the entire day, pushing yields on done trades down by 11 basis points across the curve. Fixing rates as of end-week were as follows: 3-months unchanged at 4.1154%. 5-months unchanged at 4.75%, 3-years down by 6.28 bps to 5.3122%, and 5-years down by 3.34 bps to 5.5143%. We expect rates to range-trade within the next few days but with a strong downward bias ahead of the anticipated rate cuts by the end of this week.

How to have a good and balance portfolio?

This is an actual question by one of the PMT member A320: I want to build and accumulate some of my hard earned money and prepare for our future. I just got married and wonder if there is a recommended portfolio? How much should I set aside?

A: Congratulations, A320 for investing! With your outlook and determination, you’ll be on the road to financial security in no time. Your commitment to set aside money regularly at this early age is the starting point in laying down the foundation for financial success.
As I have often said before, it’s not enough to just save money for the future. These savings have to be done regularly and invested wisely to yield higher returns. A savings account in commercial banks these days, gives one as low as 0.80% interest. Contrast this with bonds and stocks, which may potentially yield 20% per annum, but not guaranteed. But see, there is already a big discrepancy there. Anyone can earn more given the right investment vehicles.
Since A320 is uniquely different, what works for him may not work for you. I then recommend that you begin by scheduling a financial check-up to assess your goals as well as determine your risk appetite.

Here are some tips to identify your goals and dreams in life. Only after assessing all these can you start on your investment portfolio. I offer financial check-ups for free.

1. Set your goals. Write down what you’d like to save up for: maybe a dream house by the time you’re married or funds for your child education? Don’t forget to mark down a target age for your retirement. By having a time line like this, you will have a clearer picture of how long you need to prepare and save to meet your goals. By the time you retire, for instance, you should be able to amass an investment portfolio that will finance your lifestyle at retirement.

2. Decide how much you need to finance your goals. Set a specific amount for each of your goals, For instance, industry estimates show a private university education for one’s child costing P1.1 million to P2.3 million today will cost P2.2 million to P4.6 million in 16 years.

3. Determine how much you need to invest each month to meet your goals. Project and compute rate of return of your investments. It is not enough to just set a target amount to save each month without calculating for inflation and your investment’s projected rate of return. A financial planner can help you with this.

4. Prepare for an emergency fund. This will fund your needs should something happen, such as a job loss or illness. This should be at least six months’ worth of your regular expenses. Put this money in an easily accessible account, such as ATM. Never ever touch this fund to meet other needs.

5. Ask yourself how willing you are to take on risks. This is important so you will be able to put your money in the right investment vehicles. If you want to play things safe, then you will do well to invest the bulk of your money in time deposits. With time deposits your investments will more likely to earn the promised rate of return for the set term. If you are aggressive, go for the higher-yielding instruments more, such as mutual funds and variable life (VUL). There is a higher risk involved with stocks though, since market prices change daily. Over the long term, stocks, however, outperform other asset classes.

6. Diversification. That means not putting your eggs in one basket. This simply means looking at your wealth as a whole — as one big pot — and deciding how to apportion it to achieve the best overall return at an acceptable level of risk.” When you spread out your assets among different classes (e.g., time deposits, mutual funds or VUL), you will still be able to have potential gains should one asset class perform poorly at any given time. “If you invest 100 percent of your wealth in a single asset, such as a house or the stocks of one company, you are vulnerable to changes in the market, This was what happened back in the late ’90s when the Asian financial crisis hit the region. People who invested heavily in stocks and real estate saw their investments plunging down in value. Generally, though, for short-term goals, it is wise to put the money in cash deposits and TD. For medium-term goals, invest more in bonds. For long-term goals, stocks are a better option.

7. Review your portfolio over time and change tactics if necessary. Your financial needs will change as you go through life. Regularly review your investment portfolio and adjust your placements as necessary so you can still meet your goals.

PHILIPPINES

Equities. The local stock index advanced on Thursday as the release of a respectable 3rd quarter GDP growth figure of 6.6%, coupled with increased market speculation of a rate cut in the U.S., indicated brighter prospects for local companies by year-end. The PHISIX increased by 41.55 points, or 1.2%, to close at 3,578.55 at the end of trading in the PSE on Thursday. Share prices in the benchmark index had rallied by more than 100 points by 10am on Thursday, but news of a rally and police/military stand-off in a posh Makati hotel soon afterwards pulled the rally down to as low as +15 points towards the end of trading. ICTSI, Meralco, and JFC were among the stocks that paced the gains in the index.
Expect the market to ignore last week’s failed attempt to destabilize the government. Lack of widespread support and late-breaking news that 3rd quarter real GDP growth was buoyant at 6.6% year-on-year are enough reason for the market to continue bargain hunting for defensive stocks. I think the focus will be more on the upcoming December 11 meeting of the US Fed board of which a rate cut is highly likely.

Currency. The Peso ended the month stronger, closing at 42.75 against the U.S. Dollar, higher by 11 pips from the previous day’s close of USD/PHP 42.86. The USD/PHP had reached an intraday low of 42.60 early on during the day, but gains in the local currency were pared by breaking news of escaped coup plotters taking over a luxury Makati City hotel, contributing to jitters which made the USD/PHP fluctuate to as high as 42.98.
I expect the USD/PHP to trade within a low of 42.00 and a high of 42.50 as remittances over the month-end which built-up over the long weekend are expected to be converted as the market opens today. We believe last Thursday’s hotel siege would provide only minimal pressure to the Peso as the peace-and-order situation seems to have normalized already.

Secondary Market Yields. Rates on benchmark government paper eased on Thursday on the back of bullish sentiment resulting from the latest economic growth numbers, but yield pressure ensued during the latter part of the morning as the failed coup attempt brought out the sellers. 3-months and 6-months were unchanged at 4% and 4.8% respectively, 3-years was down by 4.52 bps to 6.1947%, and 5-years was up slightly by 0.79 bps to close at 6.3479% at the end of trading in the PDEX platform on Thursday.
I anticipate yields to be range-bound today but with a downward bias due to positive market sentiment on the GDP numbers. The November inflation report is due on Wednesday and is expected to remain benign and comfortable amid rising oil and food prices.

U.S.A.

Equities. U.S. stocks posted their biggest weekly gain since March after Federal Reserve officials including Chairman Ben S. Bernanke signaled more interest rate cuts may be on the way. Financial stocks surged on the prospect of lower borrowing costs. Citigroup Inc. climbed after the biggest U.S. bank received a USD 7.5 billion investment from Abu Dhabi. Freddie Mac soared after the second-biggest provider of money for U.S. home loans announced plans to sell USD 6.0 billion in preferred stock and cut its dividend in half to shore up capital. The S&P 500 added 2.8% to 1,481.14 this week. The DJIA rose 3% to 13,371.72. The NASDAQ Composite Index climbed 2.5% to 2,660.96.