BAIPHIL Market Watch – 12 Oct 2016 Page 1 of 11

BAIPHIL MARKET WATCH

12 Oct

2016

Legend Improvement / Up Deterioration / Down No Movement

FINANCIAL MARKETS AT A GLANCE

PHILIPPINES

Financial Rates Current Previous

USD/PHP 48.5200 48.3550

30-D PDST-R1 1.3893% 1.3429%

91-D PDST-R1 1.4057% 1.3607%

180-D PDST-R1 1.4696% 1.3946%

1-Y PDST-R1 1.6446% 1.5464%

10-Y PDST-R1 4.0657% 4.0018%

30-D PDST-R2 1.3893% 1.3429%

91-D PDST-R2 1.4107% 1.3607%

180-D PDST-R2 1.4732% 1.3946%

1-Y PDST-R2 1.6536% 1.5464%

10-Y PDST-R2 3.8316% 3.6786%

Stock Index Current Previous

PSEi 7,520.82 7,534.71

Market Cap (Php Trillion) 12.458 12.546

Total Value (Php Billion) 7.167 4.994

PSEi Performers Closing % Change

Top Gainers

Manila Broadcasting Corp. 29.70 50.00%

Keppel Phils. Property 4.60 9.52%

Panasonic Manufacturing 4.95 8.32%

Top Losers

Manila Mining Corp. 0.011 -8.33%

Bogo Medellin Milling Co 64.00 -6.98%

Vivant Corp. 32.95 -4.22%

ASIA-PACIFIC

Stock Index Current Previous

NIKKEI 17,024.76 16,860.09

HANG SENG 23,549.52 23,851.82

SHANGHAI 3,065.25 3,048.14

STRAITS 2,856.13 2,870.24

SET 1,442.21 1,457.02

JAKARTA 5,382.00 5,360.83

Currency Exchange Current Previous

USD/JPY 103.4700 103.8800

USD/HKD 7.7592 7.7584

USD/CNY 6.7220 6.7075

USD/SGD 1.3785 1.3772

USD/THB 35.4230 35.1890

USD/IDR 13,032.00 12,977.00

REST OF THE WORLD

Stock Index Current Previous

FTSEuro First 300 1,342.19 1,350.29

FTSE 100 7,070.88 7,097.50

DAX 10,577.16 10,624.08

CAC 40 4,471.74 4,497.26

DOW JONES 18,128.66 18,329.04

S&P 500 2,136.73 2,166.16

NASDAQ 5,246.79 5,328.67

Various Current Previous

EUR/USD 1.1061 1.1130

GBP/USD 1.2241 1.2342

Gold Spot (USD/oz) 1,251.70 1,258.90

Brent Crude(USD/bbl) 52.53 53.08

3-M US Treasury Yield 0.32% 0.31%

10-Y US Treasury Yield 1.76% 1.72%

30-Y US Treasury Yield 2.49% 2.46%

PHILIPPINES

The local equities market marginally declined as negative sentiment on Gokongwei stocks brought down the index. The PSE index

declined by 13.89 points or 0.18%, closing at 7,520.82. Market sentiment was mixed as financial, services, mining / oil, and property

sector gains were dragged down by industrial and holding firm sectors. Market breadth was positive with 96 advances, 51 declines, and 78 unchanged. Total value turnover was Php7.17 billion. Foreigners were net sellers at Php588 million.

In the local fixed income space, prices of government securities fell as average bids for the 7-year Fixed Rate Treasury Note auction rose to 3.605%. Yields rose by an average of 10.29 bps across the curve, with particular emphasis in the belly. The short-end, belly, and long-end of the curve rose by 7.1, 14.5, and 7.5 bps, respectively.

The Peso was flat with a downward bias against the US Dollar as higher oil prices increase expectations of robust inflation figures and the

likelihood of a US fed rate hike. The USD / PHP rose by 0.17 centavos or 0.34%, closing at 48.520.

The government raised less than half of its planned P25-billion financing from its auction of Treasury bonds (T-bonds) yesterday

amid heightened caution among investors due to the US Federal Reserve’s plan to hike interest rates by December. The Bureau of

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the Treasury made a partial award of reissued seven-year T-bonds with a remaining life of six years and six months at Tuesday’s auction of the securities. The offer was undersubscribed as banks only wanted to buy as much as P22.082 billion. The government awarded just

P11.772 billion in notes, less than half of the P25-billion offer. The 2023 T-bonds fetched an average rate of 3.605%, jumping 41.9 basis points (bps) from the previously fetched rate of 3.186%. Yesterday’s average yield was also higher than the coupon rate of 3.5% seen when the debt notes were first issued on April 12. Still, the average yield was lower compared to the 3.7661% quoted for the bonds at the

secondary market yesterday before the auction. At the close of trading yesterday, the seven-year papers rallied to yield 3.5709%. “Apparently there’s heightened uncertainty on the future course of particularly US rates and of course the probability of a positive Fed action by December is now around 66% to 70%, which of course influences domestic expectations,” National Treasurer Roberto B. Tan

told reporters after the auction. “So this is the cause of an increase in rates that are being bid by our GSEDs (Government Securities Eligible Dealers) and investors.” The Fed’s policy-making body Federal Open Market Committee will issue minutes of its September meeting on Thursday. Investors expect the minutes to contain hints on the timing of the Fed’s planned interest rate hike. Asked why the

offer was undersubscribed, Mr. Tan said “a lot of players do not know how to price and therefore would rather just step aside for the meantime” amid market uncertainty due to external factors, particularly increased chances of a Fed rate hike by December and the upcoming US elections on Nov. 8. He explained that the Treasury decided to partially award the bonds as it wants to maintain a “positive”

yield curve. “We don’t want to go against market trends,” Mr. Tan said. “But of course, we are cautious about our yield curve, which is relatively flat already right now, so we’re just following that,” Mr. Tan added. In a separate statement yesterday, the Treasury said that the partial award made for the seven-year debt notes was done “to align with other liquid market benchmarks.” “Rates were buoyed by

heightened uncertainty due to external factors including expectations of an impending US Fed rate hike in December... Total outstanding securities for the series now stands at P86.77 billion,” the Treasury said. A trader interviewed by phone said the Treasury’s decision of partially awarding the debt papers was due mainly of investors’ apparent “short appetite on the seven -year bond because of what’s

happening globally, particularly the expectations of rate hike still on December.” “Currencies particularly the peso and dollar, the oil’s volatility and sentiments on our stocks took effect on the undersubscribed debt papers,” the trader added. “The secondary market is also higher because of yesterday’s year T-bond auction. Currency, the US Treasury’s 10-year bond, oil and the recent US presidential debate --

which made the dollar positive -- affected the secondary market,” the trader mentioned. “Everything that’s happening globally is against us.” Locally, the trader said the higher yields fetched in the central bank’s term deposit facility auction also caused the high average rate in the seven-year debt notes. “Actually, everything right now is on the rise, which is not good for the local financial market,” the trader said. At its

Aug. 16 auction, the government made a full award of the reissued seven-year debt papers, raising P25 billion in fresh funds as planned even as rates rose as yield sought by banks settled within market benchmarks. Banks had wanted to buy as much as P55.441 billion at that auction, offering yields lower than its coupon rate and those seen at the previous Treasury bond sale. The papers fetched an average

rate of 3.186%, higher by 17 bps than the previously fetched yield of 3.016% for 2023 bonds, and also down compared to the coupon rate of 3.5% when the debt notes were first issued on April 12. The government borrows from local and foreign markets to fund its budget deficit, which reached P171 billion as of end-July, barely half of the P388.87-billion ceiling for the year.

Trade recovered in August as the decline in exports slowed while imports rebounded, the government said Tuesday. Total

merchandise trade grew 4.7 percent to $11.8 billion, a recovery from the 6.6-percent decline in July. Exports fell 4.4 percent to $4.9 billion,

compared to the previous month's 13-percent contraction. Imports grew 12.2 percent to $6.93 billion, a recovery from the 1.7-percent decline, data showed. "Strong domestic activity is expected to underpin demand for imports for the latter part of this year," said National Economic Development Authority officer-in-charge Rosemarie Edillon. "The government should maintain a conducive environment for

growth and continue addressing logistical bottlenecks to ensure the smooth flow of trade," she said. An 11.6-percent rise in shipments of electronic products, which accounted for 53.7 percent of total exports, slowed the decline of overseas sh ipments in August. Exports to the country's top trading partners - Japan and the United States - posted declines of 5.1 percent and 4.7 percent, respectively. But exports to

Hong Kong and China, the country's third and fourth largest markets in August rose 22.4 percent and 2.2 percent. Imports recovered in August due to increases in seven out of top ten major imported commodities led by transport equipment, which grew a 103 percent from the previous year. Manila posted a wider trade deficit of $2.023 billion in August compared with a $1.048 billion gap in the same month last

year. The Philippine manufacturing output continued to post a positive growth in August, on the back of sustained production of

export-oriented products, the National Economic and Development Authority (NEDA) said Tuesday. Data from the Philippine Statistics Authority (PSA) showed that factory output in August grew by 13.5 percent from a year earlier in volume terms, and 8.4 percent in value. "Manufacturing output sustaining positive growth despite the weak global economy is driven by the increase in new orders and sales

volume as well as expansions of new manufacturing firms," Rosemarie G. Edillon, NEDA officer-in-charge, said in an emailed statement. In terms of value, the most active subsectors were food manufacturing, machinery (excluding electrical), transport equipment, basic metals, rubber and plastic products, beverages, chemical products, tobacco products, footwear and wearing apparel, non-metallic mineral

products, wood products, paper products, and printing. "We expect the firms to remain in the expansion mode in the coming months due to the increase in their operating capacity and purchasing activities," Edillon said. Meanwhile, the top losers were petroleum products, electrical machinery, fabricated metal products, leather products, miscellaneous manufactures, furniture and fixtures, and textiles. "In order

to sustain and further boost the performance of the manufacturing sector, the implementation of support programs and projects especially in low-income and low-productivity areas must be continued and expanded," Edillon said.

The Supreme Court (SC) has ordered the Bureau of the Treasury to pay a combined P5 billion to holders of so-called PEACe bonds plus 6% annual interest from 2011, bringing to a close a five-year-old case that pitted the government against the country’s biggest banks. Thirteen of the 15 magistrates voted to uphold a Jan. 13, 2015 en banc ruling that favored eight banks and two

intervenors that sought to nullify a Bureau of Internal Revenue bid to collect a tax of 20% on the PEACe bonds, or Poverty Eradication and Alleviation Certificates. Two high court justices, Associate Justices Antonio T. Carpio and Francis H. Jardeleza, took no part in the decision penned by Associate Justice Marvic M.V.F. Leonen and promulgated on Aug. 16. The bonds, first issued on Oct. 18, 2001, are

controversial in that the buyer -- Caucus of Development NGO Networks (CODE-NGO) -- was linked to the rise of now Pampanga Representative Gloria Macapagal Arroyo (2nd District) to the presidency in January 2001 following the ouster of Joseph E. Estrada. The bonds are zero-coupons and the heart of the case was whether or not they were subject to the 20% withholding tax that’s due from

government securities. Rizal Commercial Banking Corp. (RCBC) which bid in behalf of CODE-NGO, and won at the primary market in 2001, had argued that the government could not tax the bonds because at that time the bonds were floated, the issuer’s intent was to limit the buyers to 19 lenders. Under existing tax rules, bonds sold in the secondary market to 20 or more investors are considered “deposit

substitutes” -- public borrowings that carry a 20% withholding tax. The tribunal sided with the banks, issuing a stay order against the tax in October 2011 when the PEACe bonds matured, and then in January 2015, ordering the Treasury to pay the P4.966 billion it withheld as tax. The Treasury and another respondent -- the Finance department -- sought reconsideration of the ruling, maintaining that the bonds are

deposit substitutes because they are freely tradable on the secondary market, which meant there were more than 19 investors. But the

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high court reiterated its position in its latest ruling. “We find respondents’ proposition to consider the intended public distribution of government securities -- in this case, the PEACe bonds -- in place of an actual head count to be untenable,” the Aug. 16 decision read.

“Wherefore, respondents’ Motion for Reconsideration and Clarification is DENIED...” On top of the P4.966-billion withheld tax it must pay the lenders, the Treasury now also owes 6% annual interest on the bonds reckoned from Oct. 19, 2011. That was the day after the bonds fell due, and when the high court issued a restraining order against the BIR ruling that collects withholding taxes on the zero coupons. The

court said the Treasury “remained obstinate in its refusal to release the monies and exhibited utter disregard and defiance of this Court,” meriting the payment of interest rates. The petitioners were Banco de Oro, Bank of Commerce, China Banking Corp., Metropolitan Bank & Trust Co., Philippine Bank of Communications, Philippine National Bank, Philippine Veterans Bank, and Planters Development Bank.

The Bureau of the Treasury assured yesterday that the government will address the Supreme Court order to return the

withholding taxes charged on anti-poverty bonds called Poverty Eradication and Alleviation Certificates (PEACe) bonds. National

Treasurer Roberto B. Tan said they will discuss first the Supreme Court ruling with the Solicitor General and other concerned agencies before taking any action. “We are discussing with the Sol-Gen and other concerned agencies on how to address this decision by the SC,” Tan said in a mobile message. In an en bank ruling dated October 5, the high court upheld its decision ordering the treasury to return

P4.96 billion in withholding taxes that it erroneously charged on anti-poverty bonds. The Supreme Court also ordered the treasury to pay interest for failure to promptly reply with the court’s earlier ruling. Francis Lim, the legal council for consortium of bondholder banks that challenged the tax said the decision is a powerful message from the Supreme Court that it will protect and uphold the “rights of innocent

investors in our capital markets even as it is against the government.” In 2001, the Arroyo administration raised P10.17 bill ion from the sale of 10-PEACe bonds and sold them at a discount to non-profit group CODE NGO. The bonds were later resold, mostly to banks and insurance companies. The bonds attracted investor interest due to representation that it was exempted from the 20 percent final

withholding tax. But the BIR lifted the exemption days before the bonds matured in October 2011.

Loan availments under the central bank’s rediscount window grew in September, sustaining an uptick seen the previous month

following adjustments to the borrowing rates. The Bangko Sentral ng Pilipinas (BSP) said peso rediscount loans hit P10.734 billion from January to September, a slight rise from the P10.673 billion seen as of end-August. The figure surged from a mere P397 million tallied during the comparable nine months of 2015, factoring in a record increase in loans seen last March. Local banks resumed taking loans out

of the rediscount facility in August after a three-month pause since May, which coincided with the central bank’s shift to an interest rate corridor (IRC) system that saw adjustments in the benchmark policy rate to 3% from 4% effective June 3. The rediscount window allows banks to borrow from the BSP to meet their short-term liquidity needs by using promissory notes from existing loans to clients as their

collateral. Around 76% of the total rediscount loans were given to capital expenditures, permanent working capital, and other service activities, the BSP said in a statement. Nearly a fourth went to commercial credits, while a 0.1% share was extended for production activities. Lower borrowing rates for the peso rediscount facility took effect on July 25 to reflect operational tweaks to the BSP’s monetary

policy rates under the IRC. As a result, yields for the Rediscount Window I covering universal and commercial banks now stand at 3.5625% for 90-day loans and 3.625% for 180-day loans, patterned after the 3.5% overnight lending rate plus a minimal premium. These rates were significantly lower than the previous 6% repurchase rate. Meanwhile, rates for thrift, rural, and cooperative banks under the Rediscount

Window II went down to 3% for 30- and 90-day loans, 3.0625% for 180-day loans, and 3.125% for 360-day loans, following a “procedural” cut in the benchmark reverse repurchase rate. However, the rediscount facility for foreign currency loans stood untapped for the fourth straight month. Total dollar loans remained at $10.4 million as of end-September, while the yen facility stood untouched throughout the first

nine months of the year. For October, yields under the dollar rediscount window have been raised to 2.85367% for loans with a tenor of one to 90 days; 2.91617% for 91- to 180-day loans; and 2.97867% for 181- to 360-day loans. Rates for the yen rediscount facility also went up to 1.97407% for one to 90-day loans, 2.03657% for 91- to 180-day loans, and 2.09907% for 181- to 360-day loans to reflect

adjustments in the London Inter-Bank Offered Rate, which stands as the international benchmark.

Net inflow of foreign direct investments (FDI) jumped 79 percent to $4.69 billion in the first seven months, the Bangko Sentral ng Pilipinas (BSP) reported yesterday, citing the country’s strong macroeconomic fundamentals. “The increase in FDI inflows was

driven by investors’ positive outlook on the Philippine economy, reinforced by strong macroeconomic fundamentals,” the central bank said. The latest figure was $2.07 billion higher than the previous year’s $2.62 billion. The Philippines has posted 70 straight qua rters of positive gross domestic product growth. The GDP expansion accelerated to seven percent in the second quarter from 6.8 percent in the first

quarter amid the strong boost from election related spending. This brought the GDP expansion to 6.9 percent in the first half from 5.5 percent in the same period last year. Economic managers of the Duterte administration see the GDP growing between six and seven percent this year after easing to 5.9 percent last year from 6.1 percent in 2014 due to weak global demand and lack of government

spending. Data showed net equity capital inflows increased 74.7 percent to $1.47 billion in the first seven months from $841 million in the same period last year. Equity placements rose 55.7 percent to $1.66 billion from $1.06 billion, while withdrawals fell 15.7 percent to $189 million from $224 million. The bulk of the equity came from Japan, Singapore, Hong Kong, US, and Taiwan. These were channeled to financial and insurance activities; real estate; manufacturing; construction; as well as accommodation and food service. The BSP data also

showed net investments in debt instruments or lending by parent companies abroad to their local affiliates to fund existing operations and business expansion more than doubled to $2.78 billion from $1.32 billion. For July alone, FDI inflows inched up seven percent $503 million this year from $470 million in the same month last year. Equity placements plunged 85.5 percent to $46 million in July from $180 million in

the same month last year, while withdrawals increased 8.4 percent to $23 million from $21 million. Gross equity capital placements were sourced mainly from Germany, the US, Singapore, Japan, and Korea. These were invested largely in real estate; wholesale and r etail trade; manufacturing; financial and insurance; and construction activities. The BSP sees FDI inflows rising to $6.3 billion this year amid the

country’s strong macroeconomic fundamentals and the implementation of much needed infrastructure projects under the public pr ivate partnership (PPP) scheme. Investors remain wary about the volatile global financial markets brought about by the timing of the second round of interest rate hike by the US Federal Reserve, the economic slowdown in China as well as the decision of the United Kingdom to

leave the European Union (Brexit) last June 23.

The Philippine Deposit Insurance Corp. (PDIC) on Tuesday said it was looking to generate P66 million from the sale of 133 assets of closed banks. PDCI said a total of 118 real properties are up for bidding in Batangas, Benguet, Bulacan, Cagayan, Camarines Sur,

Cavite, Cebu, Davao del Norte, Davao del Sur, Isabela, La Union, Leyte, Metro Manila, Nueva Ecija, Pangasinan, Rizal, Tarlac and Zamboanga del Sur. Fifteen motor vehicles are also up for bids. The bidding is scheduled on October 25, it said. Proceeds from the sale of properties of shuttered banks will be added to a pool of liquid assets for distribution to uninsured deposits and other creditors. Sale

proceeds from corporate assets are added to PDIC’s main fund source for payment of valid deposit insurance claims. PDIC has s o far taken over 16 banks ordered closed by the central bank as part of its efforts to eliminate underperforming players in the industry.

The Bureau of Internal Revenue said it expects to generate up to P1 billion in additional revenue from fees alone if more small

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businesses register via the online Philippine Business Registry (PBR) system. The bureau made the estimate for revenue generated by micro, small, medium enterprises (MSMEs) at a memorandum of agreement (MoA) signing between the Department of Trade and

Industry (DTI) and the BIR yesterday. The initiative is intended to simplify business registration, in the process encouraging MSMEs to better avail of government services provided to them. “The memorandum of agreement is part of our mandate to respond to the business sector and seeing to it that there is ease in doing business,” said BIR Commissioner Caesar R. Dulay. “We are not talking of their income

or taxing them, we’re only talking of getting them into the stream,” he added on the role of the bureau in the PBR system. Asked by reporters during the MoA signing on how much revenue could be generated if MSMEs register through the PBR, Mr. Dulay said “it ’s about P1 billion if we get them to register.” The PBR has a P500 registration fee. DTI Secretary Ramon M. Lopez estimated that “underground”

MSMEs, or unregistered small businesses, number about 2 million. He said the estimate is based on data from a major microlender. “If you look at all the micro borrowers, just for one of the biggest microlenders the borrower numbers are over 3 million,” Mr. Lopez said. “Based on the registry, fewer than a million [MSMEs] are registered,” he added. The MoA requires the BIR to speed up processing of certificates

of registration. Upon registration with the PBR, the taxpayer will immediately be issued a Taxpayer Identification Number (TIN). The PBR will then generate a list of registrants to be transmitted to the BIR for the agency to prepare certificates of registration. The taxpayer, upon receiving a TIN and preparing documentary requirements, can proceed to a revenue district offices and obtain a certificate of registration.

“The process will be expedited, because they won’t be scared off by multiple requirements,” said Mr. Lopez of DTI. “We continue to find ways to respond to the clamor and needs of small and micro business enterprises,” Mr. Dulay said. A part of this response by the BIR is revenue memorandum circular (RMO) 93-2016, issued last month, which reduced the documentary requirements for business registration

to six from eighteen, and shortened the processing system to three steps from the former five.

The Philippines is unlikely to breach the new government’s deficit cap until 2017 but the deficit is poised to trend higher due to aggressive spending planned by President Rodrigo R. Duterte, BMI Research said in a report, although it flagged declining

revenue as a possible setback to growth. In a recent report, the unit of the Fitch Group said the country will likely see a significantly higher budget shortfall this year at 2% of gross domestic product (GDP), although the total is still below the level targeted by economic managers. “[W]e have revised our forecast for the Philippines’ budget deficit as a share of GDP to widen to 2% in 2016 and 2.7% in 2017

(up from 0.8% and 1.4%, respectively) to reflect the deterioration in the government’s fiscal performance in the January-July period, as well as its aggressive fiscal expansion plans in the 2017 budget,” the report read. BMI’s forecast represents a major expansion from a deficit of 0.9% of GDP last year, but would still fall within the government’s cap of 2.7% of GDP this year -- equal to roughly P388.87 billion -- and

3% for 2017. The budget gap stood at P171 billion at end-July, wider than the P18.452-billion level during the comparable year-earlier period but still short of a P178.979-billion deficit programmed for the first seven months, based on Treasury data. “The increase in expenditure in the January-July period was a one-off resulting from election spending, while the increase in other expenditures

corresponds with the government’s intention to improve infrastructure and social services in the country,” BMI Research said in adjusting their estimates. Increased government spending, coupled with private sector investment and an extra push from election-related spending, drove GDP growth to 6.9% during the first half, among the fastest in the region. The analysts said the higher spending planned under the

P3.35-trillion national budget now before Congress is viewed as “positive” for economic growth, particularly as it aims to plug the infrastructure gap and improve social services. In particular, some P860.7 billion is allocated for spending by the government next year for infrastructure projects, or 5.4% of GDP. “While a sharp rise in government spending can often pose significant risks of the private sector

being crowding out, the Philippines has a large infrastructure deficit and successful project implementation should boost overall productivity,” BMI Research said, pointing out improvements in public procurement and greater transparency that leave little room for corruption passed on by the Aquino administration. However, BMI Research noted that government programs could be left unfunded if

revenue collapses. “[T]he revenue stagnation appears largely to be the result of weak tax compliance rather than slow real GDP growth... A continued downtrend in direct tax revenue would pose downside risks to the Philippines’ fiscal sustainability and constrain the government’s ability to fulfill its ambitious development plan,” the report also read. Taxes collected by the Bureau of Internal Revenue fell

by 9% from a year ago at end-July. Still, BMI Research said the Executive appears “conscious” of this trend, as seen in its planned tax reform that would raise revenue in the long run while also trimming income taxes. The Finance department submitted the first tranche of its proposal to Congress last month, which seeks to adjust income tax brackets for middle- and low-income earners while raising the ceiling

for multi-millionaires. In turn, the foregone taxes will be offset by a broadening of the value-added tax and higher duties on oil and sugary products. Other reforms in the pipeline point to a net revenue gain of P368.1 billion by 2019, with P566.4 billion in additional collections making up for a potential P198.3 billion in foregone revenue.

Foreign investors have put on hold their planned investments in the business process outsourcing sector (BPO), after the recent

pronouncements of President Rodrigo R. Duterte against the United States, the American Chamber of Commerce of the

Philippines (AmCham) said on Monday. "(They) have decided not to go ahead is what we were told," AmCham Senior Advisor John Forbes said in a text message. He noted some investors looking to set up shop in the Philippines, specifically in the BPO sec tor, have decided not to push through with their plans at this point. The President said earlier this month he might "break up" the Philippine alliance with the United States, and warned the US would lose its alliance with the country if it would not stop treating the Philippines like a

"doormat." He also lashed out at international bodies, daring the US, the European Union, and the United Nations to withdraw aid to the Philippines. Asked to elaborate on the decision of foreign businessmen to put investments, Forbes said he was not aware of how much it would translate in terms of foregone revenues. "I am not aware of any such estimate and would hope it is not large," Forbes s aid. He did

not name the foreign investors. While the BPO sector employs over a million people in the country, its particular presence boosts local economies and help businesses flourish. The monthly rental fees of a 1,000-seat operation alone could reach P1.950 million to P4.550 million. On the back of the gains in the industry and services sectors, which count BPO as part and parcel, the Philippine economy grew by

7 percent in the second quarter of the year, the fastest since the economy expanded by 6.5 percent in the fourth quarter of 2013. The Department of Trade and Industry (DTI), however, has not received any report of foreign investors canceling investments in the country. "Wala hong na-re-report sa amin na na-cancel. I have yet to see. Baka hindi pa pinaabot samin. I cannot comment. Hindi ko din alam 'yan,

eh," Trade Secretary Ramon Lopez told reporters on the sidelines of a signing ceremony in Quezon City. "The numbers are not showing all those perceptions or allegations because as we've been saying, I think they see huge potential pa rin dito satin. The opportunities for growth are still there," he said. "The fundamentals are there – the parameters of investment – meaning the size of the market is there," he

added. Concerns about the leadership of President Rodrigo R. Duterte are "overdone" and Philippine economic risks remain benign, the

Department of Finance said on Tuesday, citing the comments of fund manager Mark Mobius. "I don't see downside anywhere, because there are individual problems in each country. There's concern about Duterte and the Philippines which I think is overdone," Mobius, executive chairman of the Templeton Emerging Markets Group, was quoted as saying. "There are concerns about reform in

Indonesia; in Thailand, the political environment may be questionable. But all in all, the situation looks pretty benign in Asia," Mobius said. As his planned reforms take place, President Duterte will be good for the Philippines in the long-term, Mobius noted. "I think the marketing

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impact is going to be good to longer-term once he (Mr. Duterte) gets his house in order... I think he's going to be softening and you're going to see the reform taking place," he said. Mobius was also reported to say he does not see anything negative about Duterte's use of

"colorful" language. "No, I really don't. I think we're seeing this globally, more populist leaders, people who are effective in pushing down crime and corruption. You're seeing that all over the world, which I think is a good thing," he said. Duterte has been vocal against his campaign against illegal drugs, recently claiming that he would be happy to kill millions of drug addicts in the country. "Hitler massacred

three million Jews. Now, there are three million drug addicts... I'd be happy to slaughter them," he said late September. Duterte has since apologized to the Jewish community for such remarks. Mobius said a successful campaign against crime and corruption "will be very positive for the [Philippines]."

The oversight body for government-owned or -controlled corporations (GOCCs) is proposing that instead of selling the

Philippine Postal Savings Bank (Postal Bank), it should instead be absorbed by an existing state-owned lender, a ranking finance

official said. Finance Undersecretary Gil S. Beltran said the Governance Commission on GOCCs (GCG) is recommending the merger of the state thrift-lender Postal Bank with either Land Bank of the Philippines (LandBank) or Development Bank of the Philippines (DBP). “This is just a proposal from the GCG, nothing is final yet on the planned sale of the Postal Bank,” Beltran said in an inter view. “This is a

very small asset of the government, and GCG believes we can fully utilize this asset if it’s absorbed by one of the government banks.” The finance official said that Land Bank or DBP could use Postal Bank for its expansion program. This is contrary to what Finance Secretary Carlos G. Dominguez III said before that the government was to pursue the sale of Postal Bank and United Coconut Planters Bank

(UCPB). Dominguez said the government may sell the UCPB and Postal Bank within the first three-years of the Duterte administration barring any legal obstacles. “We want to do it [the sale] as quickly as possible. Realistically they have to value the banks, they have to do due diligence and bid it out,” Dominguez said. “We don’t have any problem with the Postal Bank, while UCPB has some legal troubles.”

Beltran, meanwhile, said the government has yet to come up with the valuation for Postal Bank. Data from the Bangko Sentral ng Pilipinas (BSP) showed that Postal Bank’s total assets stood at R12.07 billion as March this year. Established in 1906, the Postal Bank was closed down in 1976 as a result of competition with privately owned banks, but was reopened in 1994 pursuant to the provisions of Republic Act

No. 7354, the charter of the Philippine Postal Corp. The proposal to absorb the operations of Postal Bank comes after GCG abandoned a plan by the previous administration to merge the Land Bank and DBP. Last month, GCG resolved to cancel the implementation of Executive Order No. 198 issued by former President Benigno S. Aquino III earlier this year that green-lighted the DBP-LandBank merger.

Dominguez earlier said he was thumbing down the planned LandBank-DBP merger as it would not serve the public interest to transform the two institutions into one, given their different functions. He noted that the Land Bank serves the agriculture sector, while the DBP takes care of the needs of industry.

SN Aboitiz Power-Magat Inc. (SNAP-Magat), a unit of Aboitiz Power Corp., is raising P19 billion from corporate notes with two

local banks to pay off debts and finance general corporate purposes. AboitizPower disclosed yesterday SNAP-Magat has signed a

notes facility agreement Bank of the Philippine Islands (BPI) and China Banking Corp. to issue P19-billion fixed rate corporate notes. “The proceeds of the notes will be used by SNAP Magat to, among others, repay its existing loans, finance its recapitalization and fund other general corporate purposes,” it said. SNAP Magat also appointed BPI-Asset Management and Trust Group as facility agent and BPI

Capital Corp. as mandated lead arranger and bookrunner. On the other hand, China Bank Capital Corp. acted as joint lead arranger for the transaction. SN Aboitiz Power-Magat, Inc., a joint venture between AboitizPower and SN Power AS of Norway, is owner and operator of the 360-MW Magat Hydroelectric Power Plant located at the border between Ramon, Isabela and Alfonso Lista, Ifugao after a successful

bid for the plant under the Philippine government’s power sector privatization program in December 2006. Petron Corp. will have to meet certain conditions before it could start offering bonds from its P40-billion shelf offering to the

investing public. In an en banc meeting on Tuesday, the Securities and Exchange Commission (SEC) approved the shelf registration of Petron but made certain conditions before any sale could push through. For one, the regulator wanted to confirm first the qualification of Petron’s Independent Director Reynaldo G. David because of a pending case before its Enforcement and Investor Protection Department.

“So, kung kailangan nilang palitan, palitan muna nila bago ma-issue ang permit (If they need to replace him, he should be replaced first before a permit is issued),” Emma A. Valencia, officer in charge of the Markets and Securities Regulation Department told reporters after the meeting, without disclosing any more details. Accordingly, the SEC required Petron to submit an updated prospectus and timetable,

among others, before it could launch the peso-denominated bond issue. Petron announced its plan to issue P40 billion worth of fixed-rate retail bonds under a shelf registration for three years in early August. It intends to issue an initial tranche amounting to P20 billion, including an oversubscription option for P5 billion. The company has tapped BDO Capital & Investment Corp., BPI Capital Corp. and SB Capital

Investment Corp. as joint issue managers, bookrunners and lead underwriters for the bond issue. Petron has obtained a “PRS Aaa” score with a “stable” outlook from Philippine Rating Services Corp. for the first tranche of a P40-billion debt securities. Petron is the largest oil refining and marketing company in the Philippines, capturing 30.4% of the petroleum market in 2015. It also operates in Malaysia, with an

estimated 15.9% market share. The company caters to both the consumer and industrial segments of the market. As of end-June, it had about 2,800 service stations, of which 2,225 were located in the Philippines. In the first half of 2016, Petron booked a consolidated net income of P5.28 billion, a 55% increase from the P3.4 billion reported a year earlier on the back of higher sales volumes amid an

aggressive network expansion. Shares in Petron rose 30 centavos or 2.86% to P10.80 on Tuesday. Global Ferronickel Holdings Inc. is spending $25 million to boost the capacity of its Ipilan mine in Palawan province, its president

said Tuesday. The country’s third largest producer of nickel ore said it was planning to boost capacity to 3 to 4 million metric tons from 1.5 million in within the next two to three years, Global Ferronickel President Dante Bravo said. “We are hopeful that when it’s fully developed and it’s fully operational that we can hit 3 to 4 million tons a year,” Bravo told ANC’s “Market Edge with Cathy Yang.” The company is

considering branching out to processing but is held back by high power costs and the threat of double taxation on the producing and processing sides of the business, he said. “If that is fixed, I think value-added processing is very much viable here in the Philippines,” he said. “We have a comparative advantage because we have the source of the raw materials here,” he said. Bravo said Global Ferronickel

was among miners who passed the environment department’s industry-wide audit, which could result in the suspension of up to 20 mines, mostly nickel. If all 20 mines are suspended, Bravo said the country’s nickel output could be cut by 55 percent. If some of the mines are allowed to resume operations, production could be cut by 30 to 40 percent, he said. The Philippines is the world’s top producer of nickel

ore and the government’s crackdown has pushed prices up. Bravo said he expected nickel prices to continue rebounding after hitting a 10-year low in February.

Po family-led Shakey’s Pizza Asia Ventures Inc (SPAVI), a leading full-service restaurant in the country, seeks to raise up to P5.5 billion from a local stock market debut this year. SPAVI filed on Monday a prospectus with the Securities and Exchange Commission (SEC) to sell up to 352 million primary and secondary shares – including 46 million shares to meet excess demand, at a maximum price of

P15.58 each. The offer price is expected to be finalized in November ahead of a possible listing in December 2016. “We intend to use the

BAIPHIL Market Watch – 12 Oct 2016 Page 6 of 11

offer proceeds for the expansion of our in-house commissary, working capital requirements, potential acquisitions, and repayment of debt,” SPAVI said late Monday. Deutsche Bank AG had been appointed sole global coordinator and bookrunner for the deal while BDO Capital

and Investment Corp. and First Metro Investment Corp. were mandated as joint lead managers and underwriters. Evercore acts as exclusive financial adviser to SPAVI. SPAVI’s in-house commissary supplies the bulk of its proprietary pizza dough and crust used to create Shakey’s trademark “thin crust” pizza. Shakey’s, recognized globally as the original pizza franchise in the US, was first established

in the US in 1954 and is best known for “the pizza that started it all”. The first Shakey’s pizza parlor opened in the Philippines in 1975. It has since then gained popularity for its thin crust pizzas and its iconic chicken and mojos. Locally, where SPAVI owns the ri ghts to the Shakey’s trademark, the company holds the number one position in the traditional full service pizza chain and family style casual dining

categories. It had 177 stores all over the country as of June 2016, with plans to expand in the greater Manila and provincial areas. Seven more stores are expected to open before the end of 2016, with 20 more new stores in the pipeline for 2017. Apart from the Phi lippines, SPAVI also owns perpetual rights to the Shakey’s brand for the Middle East, Asia (ex Japan and Malaysia), China, Australia, and Oceania.

SPAVI is majority owned by the Po Family’s Century Pacific Group Inc (CPGI), parent company of Philippine listed Century Paci fic Food Inc (CNPF). Earlier this year, CPGI and GIC, Singapore’s sovereign wealth fund, teamed up to acquire majority of the pizza business from the Prieto family, which continues to hold a minority stake in SPAVI.

The Pietrucha Group of Poland and its local partner Design Science are opening today their $2-million vinyl sheet manufacturing

plant in Bataan, making it the first Polish-Philippine investment in the Philippines. The production facility, which will be operated by

Pietrucha Manufacturing Philippines, is coming in at a time when existing and prospective investors are reportedly putting on hold their planned investments for either new or expansion projects in the country, on the back of the controversial remarks made by President Duterte over the past months. According to the Pietrucha Group, the Philippines is a strategic location as it can serve as a gateway to

Southeast Asia. The company also took stock of the country’s “great” economic potential and the incentive packages being offered to investors, particularly for those located in special economic zones (ecozones). Pietrucha’s Bataan facility is expected to supply vinyl sheet piling to the rest of Southeast Asia. This product—said to be an advanced alternative to traditional materials such as steel, concrete or

wood—can be used in construction, land and water infrastructure investments, as well as flood prevention and protection projects. “The Pietrucha Group is an international manufacturing, trade and service enterprise operating globally with a strong position in the civil engineering sector. Pietrucha Manufacturing Philippines is part of our long-term investment strategy which assumes strengthening of our

international exposure, especially in regions sensitive to climate changes. The plant was designed to meet the development potential of the group and will greatly support our supply chain logistics, getting us closer to our customers in our core and the most dynamically developing markets,” said Pietrucha Group CEO Jerzy Pietrucha in a statement. “The Philippines welcomes the investment by Pietrucha

Group, the first industrial project of Poland in the Philippines. We are pleased indeed that such a distinguished player chos e ultimately the Philippines after a thorough and long term consideration of various Asean markets. This final choice proves that the Philippines is an attractive investment destination, also for the Polish investors looking into the Asean. I hope Pietrucha Group will pave the way for other

investors from Poland and there will be more Polish businesses and Polish technologies brought into our country,” said Philippine Ambassador to Poland, Patricia Ann V. Paez. The Pietrucha Group has over 55 years of experience, manufacturing vinyl and composite sheet piling systems and providing geotechnical services used in civil engineering. It has over 3,500 customers in 34 countries. Its local

partner, Design Science Inc., is an infrastructure engineering company that offers professional technical services in planning, special studies, civil engineering, architecture, surveying, energy management, power audit and project management.

Gaming cafe operator PhilWeb Corp. said Tuesday it has asked regulators to allow a special block sale of former chairman Roberto Ongpin's stake to proceed ahead of a tender offer to speed up his exit from the company. Ongpin had agreed to sell his 53.76-percent stake to Gregorio Araneta Inc. for P2 billion, two months after President Rodrigo Duterte branded him as an oligarch who

must be destroyed and regulators refused to renew the company's license. "The concern is that any further delay in Mr. Ongpin’s exit from the company may delay its discussions with PAGCOR (Philippine Amusement and Gaming Corp.) regarding the reissuance of the company license," PhilWeb told the stock exchange. "This would further damage the network of eGames operators and the 5,000

employees of that network, which has been shut down for two months now," it added. PhilWeb shares were up 3.09 percent to P8.35 in late trading on Tuesday.

Tech firm Xeleb Technologies Inc. (XLB) on Tuesday announced plans to debut on the Philippine equities market later this year with a P736.60-million initial public offering (IPO). In an emailed statement, Xeleb said it has filed registration statements with the Securities and Exchange Commission (SEC) on offering up to 290,000 common shares in December. The company initially priced its IPO

shares at P2.04 to P2.54 apiece. The shares make up 19.68 percent of the company's total outstanding capital stock, and will be issued out of the company's authorized and unissued capital stock. The company expects to raise as much as P591.60 to P736.60 million from its maiden share sale. The net proceeds from offer shares – minus the estimated fees and expenses – would likely be P533.28 to P667.51

million, according to the company's prospectus. "XLB plans to use the net proceeds for ongoing product development, regional expansion to Southeast Asia, and for general corporate purposes," it said in a separate statement. The company tapped SB Capital Investment Corp. as sole issue manager, underwriter, and bookrunner for the transaction, as did parent Xurpas Inc. – the developer of digital products and

services for mobile phones – when it went public in October 2014. Originally founded as Fluxion Inc. in 2001, Xeleb claims to be the country's first and largest celebrity-branded and themed casual games company. Two companies have so far conducted separate IPOs on the Philippine Stock Exchange this year, including the P778-million market debut of Golden Haven Memorial Park Inc. in June, and the

P25.1-billion share sale of Cemex Holdings Philippines Inc. in July. Other companies planning list on the exchange are TVI Resource Development (Philippines) Inc. (P1.66 billion), Pointwest Technologies Corp. (P2.21 billion), Green Power Panay Philippines Inc. (P222.8 million), Audiowav Media Inc. (P2.66 billion), and Shakey's Pizza Asia Ventures Inc. (P5.5 billion).

BAIPHIL Market Watch – 12 Oct 2016 Page 7 of 11

ASIA-PACIFIC

Japan's Nikkei share average rose to a five-week high on Tuesday, led by mining stocks after oil prices jumped the previous day and a

weak yen lifted risk appetite. The Nikkei rose 1.0 percent to 17,024.76, the highest closing level since Sept. 6. The broader Topix rose 0.4 percent to hit a four-month closing high of 1,356.35. The JPX-Nikkei Index 400 rose 0.4 percent to 12,144.65.

China stocks advanced to a one-month high on Tuesday as Beijing's plan to cut massive corporate debt triggered bets on mergers and restructuring among listed state-owned companies. The blue-chip CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 0.4 percent to 3,306.56 points, while the Shanghai Composite Index gained 0.6 percent to 3,065.25. Investors welcomed

guideliness issued by China's cabinet on Monday to reduce rising corporate debt, which will include encouraging mergers and acquisitions, bankruptcies, debt-to-equity swaps and debt securitisation. "For such a plan to be successful, you need a vibrant equity market," said Yang Hai, analyst at Kaiyuan Securities. Investors are now betting that consolidation among debt-laden state-owned companies will accelerate.

China's major listed shipbuilders, including CSSC Offshore & Marine Engineering Group Co, China Shipbuilding and China CSSC Holdings surged on expectations that their state-owned parents will merge. Also reflecting growing interest in state sector restructuring, shares of China United Network Communications jumped 10 percent, rising for a second day after saying over the weekend that its parent company

is studying plans for "mixed ownership" reforms. Banking is the only main sector that fell on Tuesday, as investors believe Beijing's debt-to-equity plan would weaken lenders' balance sheets.

Hong Kong stocks fell more than 1 percent on Tuesday as investors took profits after a strong rally over the past few months. As

trading resumed following Monday's holiday, the Hang Seng index fell 1.3 percent to 23,549.52 points, while the China Enterprises Index lost 1.2 percent to 9,804.47. The Hong Kong market posted its biggest quarterly gain in seven years in July-September, jumping 12 percent. So many investors expect trading to be volatile this quarter due to rising pressure from profit-taking. Most sectors fell on Tuesday,

with property shares leading the decline as more Chinese cities imposed restrictions on home buying as prices risk overheating. Bucking the trend, Alibaba Pictures Group Ltd, the film unit of Chinese billionaire Jack Ma's Alibaba Group, rose 3 percent to a five-week high after saying it would partner with Steven Spielberg's Amblin Partners.

Singapore shares fell to their lowest in nearly two weeks on Tuesday after local media reported the economy might see some quarters

of contraction, quoting a government minister. Trade and Industry Minister Lim Hng Kiang was quoted by a local broadcaster saying in Parliament that the economy faces the possibility of experiencing "some quarters of negative growth", although the government does not

expect an outright recession. The government still expects the economy to grow 1 to 2 percent for the full year, albeit on the lower end of the projection curve, he added. The comments came just days before a semi-annual monetary policy decision by the central bank and the release of the government's advance estimate of third-quarter gross domestic product, both due on Friday. The Straits Times Index fell as

much as 0.6 percent to its lowest since Sept. 30 and was headed for a third consecutive session of falls. The financial sector shed 0.4 percent after the city-state directed Swiss wealth manager Falcon Private Bank Ltd to cease operations and fined top local lender DBS Bank and UBS AG over lapses in its biggest crackdown on entities dealing with Malaysian sovereign fund 1MDB. DBS Group shed 0 .2

percent. Other Southeast Asian stock markets were sluggish though oil stocks gained across the board as crude prices held near one-year highs touched in the previous session on growing expectations of an output cut by OPEC producers. Vietnamese shares fell to their lowest in two weeks with gains in the energy sector offset by decline in consumer non-cyclicals and industrials. Indonesian shares fell for a

fifth straight session to their lowest in two weeks, with clove cigarette maker Hanjaya Mandala Sampoema and cement manufacturer Semen Indonesia shedding as much as 1 percent and 6.3 percent, respectively.

Oil prices edged down on Tuesday but held near one-year highs touched on growing expectations of an output cut by OPEC

producers, with traders saying the price outlook remains bullish as confidence in crude markets rises. Oil prices jumped as much as 3 percent on Monday, with Brent hitting a one-year peak, after Russia and Saudi Arabia both said a deal between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members like Russia in curbing crude output was possible. International Brent

crude oil futures LCOc1 were trading at $53.04 per barrel at 0225 GMT, down 10 cents from their previous close, not far off Monday's $53.73 a barrel high. U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $51.24 a barrel, down 11 cents from their last close, but also near Monday's high of $51.60 a barrel.

China's economy showed positive changes in the third quarter and the country's debt risks are under control, Premier Li Keqiang

said in a speech in Macau on Tuesday. The government will take effective measures to ensure stable and healthy development of the property market, and will reinforce differentiated, city-based real estate policies, Li said in the speech broadcast live on state television. China is fully capable of maintaining medium- to high-speed economic growth, Li said.

Singapore’s central bank is shuttering Falcon Private Bank in the city-state on anti-money laundering breaches, the second bank

to lose its license amid a probe on fund flows linked to the troubled Malaysian fund known as 1Malaysia Development Bhd. or 1MDB. The Monetary Authority of Singapore is withdrawing the merchant bank status of the Swiss private bank and said the local branch

manager, Jens Sturzenegger, has been arrested by the city-state’s Commercial Affairs Department on Oct. 5. The central bank also imposed financial penalties on UBS Group AG and DBS Group Holdings Ltd. The decision on Falcon follows "serious failures in anti-money laundering controls and improper conduct by senior management at the head office in Switzerland as well as the Singapore Branch,” the

MAS said. Singapore has vowed stronger action after the central bank found anti-money laundering lapses at financial-services companies linked to 1MDB. The city-state said in May it would revoke BSI’s license and in July rebuked four banks -- including Falcon, UBS and DBS -- for lapses in controls, and announced the seizure of S$240 million ($175 million) in assets linked to the alleged fraud. Swiss prosecutors

BAIPHIL Market Watch – 12 Oct 2016 Page 8 of 11

and U.S. authorities are also digging into how billions of dollars may have been diverted from 1MDB, which was intended to fund development projects across Malaysia. The MAS has imposed financial penalties amounting to S$4.3 million on 14 breaches relating to its

anti-money laundering rules. DBS was fined S$1 million and UBS S$1.3 million on lapses by specific bank officers, the regulator said, adding that it has completed its inspections of the two banks relating to 1MDB fund flows. UBS and DBS said they will strengthen controls and take actions against employees responsible for the lapses. A person answering the phone at Falcon’s office in Singapore declined to

comment. The bank said in March it has nothing to hide from regulators probing possible financial irregularities at the Malaysian state fund. The boards and senior management at banks "must set the tone from the top – that profits do not come before right conduct," MAS Managing Director Ravi Menon said in the statement. "MAS will work closely with the industry to ensure that standards are kept high and

will take strong deterrent actions against institutions that fall short.” 1MDB has consistently denied wrongdoing and Malaysia’s government has said it will cooperate with lawful investigations of local companies or its citizens in relation to the fund. Singapore has criminally charged four people, including three former BSI bankers for their roles in transactions and money flows linked to 1MDB.

REST OF THE WORLD

The UK benchmark FTSE 100 equity index reversed course after it set a record intraday high that was helped by further sterling

weakness. The British pound has lost more than 4 percent of its value against the dollar over the past week as investors fret about a "hard exit" by Britain from the European Union. In Europe, the pan-regional FTSEurofirst 300 index fell 0.6 percent to close at 1,342.19. MSCI's all-country stock index fell 1.18 percent. Weaker commodity stocks weighed in Europe. The STOXX Oil & Gas index fell 1.5

percent, making it the region's second-biggest sector loser after the STOXX Basic Resources index, which fell 2.1 percent as metal prices retreated.

Slumping crude prices and a dour start to Wall Street's corporate earnings season pulled down U.S. and European equities on

Tuesday, while the dollar hit an eight-month high on increasing bets U.S. interest rates will rise in December. Wall Street fell more than 1 percent as shares of aluminum producer Alcoa (AA.N) and diagnostics test maker Illumina (ILMN.O) plunged, with worries over the make-up of the U.S. Congress after November's election also weighing on stocks. Alcoa shares tumbled 11.4 percent and Illumina

plummeted 24.8 percent, casting a pall over the market. Wall Street's "fear gauge," the CBOE Market Volatility index, jumped almost 24 percent at one point and ended the day up 15 percent. Investors were also jittery about earnings to be reported on Friday by Wells Fargo and Citigroup, according to brokerage Seaport Global. In the United States, investors were looking to Wednesday's release of minutes from

the Fed's policy-setting meeting in September for signs of a December interest rate hike. The futures market perceives a roughly 70 percent chance that the Fed will lift rates in December, a view that pushed the benchmark 10-year U.S. Treasury yield to a more than four-month high.The Dow Jones industrial average closed down 200.38 points, or 1.09 percent, to 18,128.66. The S&P 500 fell 26.93

points, or 1.24 percent, to 2,136.73 and the Nasdaq Composite lost 81.89 points, or 1.54 percent, to 5,246.79. Minneapolis Federal Reserve President Neel Kashkari said on Tuesday the Fed should continue to focus on further progress in

the U.S. labor market until inflation pressures emerge. "My view is let's let the economy keep creating jobs, bringing workers off the sidelines so long as it's not creating inflation," Kashkari said at a town hall meeting in Minnesota streamed live on the bank's website. He added that given inflation has been below the Fed's two-percent target rate for more than four years, there appeared no urgency to raise

interest rates. Kashkari is not a voting member on the Fed's rate-setting committee until next year, but takes part in deliberations. Most Fed policymakers are backing a rate hike by year's end should the labor market and inflation continue to firm. Kashkari has yet t o comment on when he prefers to see a rate increase and has said more patience is less risky than raising the benchmark interest rate too soon.

Russia, the world’s largest energy exporter, is ready to join OPEC in limiting oil production with either a freeze or a cut, said

President Vladimir Putin. “Russia is ready to join in joint measures to limit output and calls on other oil exporters to do the same,” Putin

said on Monday at the World Energy Congress in Istanbul. “In the current situation, we think that a freeze or even a cut in oil production is probably the only proper decision to preserve stability in the global energy market.” Ministers from some of the largest oil-producing nations are gathering in Turkey this week to discuss ways to end a two-year supply glut. With benchmark Brent crude trading at about $52 a barrel

-- less than half its price in mid-2014 -- countries from Saudi Arabia to Russia remain under severe economic pressure. Last month in Algiers, the Organization of Petroleum Exporting Countries reversed its policy of pumping without constraints, helping boost prices. Even so, a lot of work needs to be done by the next OPEC meeting on Nov. 30, with crucial details still to be resolved on how the burden of cuts

will be shared, or whether producers outside the group will cooperate. Russia would prefer to freeze its output at current levels rather than make reductions, Energy Minister Alexander Novak said earlier Monday in Istanbul. Russia has pumped 11.2 million barrels a day of oil so far in October, beating a post-Soviet record, according to preliminary data from the Energy Ministry’s CDU-TEK unit. Putin said he hoped

OPEC would agree in November on limits to its crude production and that Russia was ready to back such a decision, while remain ing a reliable energy supplier. “We support OPEC’s recent initiative to cap output and think that at the OPEC meeting in November this idea will materialize in a specific agreement, giving a positive signal to the markets and investors,” Putin said.

Euro zone finance ministers gave Greece a positive review of its reforms on Monday but divided up the latest tranche of aid to

Athens, disbursing a 1.1 billion euro loan but postponing its decision on a further 1.7 billion payout to later in October. As part of

an 86 billion euro bailout program agreed last year with other euro zone members, the third such package since 2010, Greece needs to complete a wide range of reforms on pensions and labor markets, carry out privatizations and tackle other sensitive issues . Euro zone countries have so far disbursed 33.5 billion euros under the third bailout and were expected to release a further tranche of 2.8 billion euros

to conclude the first review of the aid program. But in a meeting in Luxembourg on Monday, euro zone finance ministers decided to split the payment in two parts and gave their political green light only to a 1.1 billion euros payment. The release of the remaining 1.7 billion euros

BAIPHIL Market Watch – 12 Oct 2016 Page 9 of 11

will depend on data on arrears payments for September that the Greek authorities are in the process of collecting. "It takes time," to collect this data, the chairman of the Eurogroup of euro zone finance ministers Jeroen Dijsselbloem told a news conference after the meeting. But

he added that "we are fully confident that it will be fine." The actual disbursement of the 1.1 billion euro sub-tranche will be finalised in two weeks, on Oct. 24 or 25, when the board of directors of the euro zone bailout fund, the European Stability Mechanism, is to meet. "We could do it earlier but there is no need to do it earlier," ESM head Klaus Regling told the news conference. At the meeting, the ESM should

also decide on the disbursement of the remaining 1.7 billion euros after data on arrears is available, Dijsselbloem said. "The 1.7 billion euro tranche will be disbursed at the next ESM meeting, when official data for September will confirm that we are well above our target (on state arrears)," the Greek finance ministry said in a statement. To get the money, Greece was supposed to take 15 reform actions, called

milestones, the last of which were completed over the weekend. The institutions assessing the reforms are the European Commission, the European Central Bank, the euro zone bailout fund ESM and the International Monetary Fund. "All remaining milestones have been completed," European Commissioner for Economic and Financial Affairs Pierre Moscovici told reporters. During the meeting some

countries, especially Germany, argued Greece still needed some more work to complete the milestones, mostly regarding making a privatization fund fully operational, officials said. But a compromise was reached on pushing back full implementation of the milestones to the second review of the program, the next stage of the reform process. Moscovici said that a team of European Commission experts will

go to Athens in the second half of October to start talks on the second review, the completion of which is a condition for the start of talks on the scope of Greek debt relief. The second review will focus on the reform of the Greek labor market, EU officials said. If Athens completes all the actions from the second reform review by the end of the year, it could begin negotiations on the terms of medium- to long-term debt

relief from the euro zone - an important political victory for the government. Euro zone finance ministers agreed in May to start discussing the scope of such debt relief, to be delivered only in 2018, once a new debt sustainability analysis for Greece is prepared by the IMF in December. Euro zone ministers, who are now the main creditors of Greece after the country restructured privately-owned debt in 2012,

agreed in May that the guiding principle for debt relief, once all reforms are delivered, would be to cap Greece's gross financing needs at 15 percent of GDP in the medium term and at below 20 percent in the long run.

Deutsche Bank made a rapid-fire return to the US high-grade bond market on Tuesday, satisfying investor demand by tapping last week's $3 billion deal for another $1.5 billion in fresh cash. Investors who bought into Friday's deal were clamoring for more, leading the bank to sell new debt for the second straight session - and show it still has significant access to funding. Deutsche's bond

spreads have been under pressure since September, when the US Department of Justice asked the bank to pay $14 billion to settle an investigation into its selling of mortgage-bond securities. But after raising $4.5 billion over two days, both times from reverse inquiry, the bank instilled some confidence that it is making progress in putting some problems behind it. Deutsche paid a new issue

concession of around 50bp on Friday's deal, which was a chunky premium compared to its outstanding bonds. But it was broadly in line with where its paper was trading after the sell-off occasioned by the DoJ request. Tuesday's self-led tap of its 4.25 percent October 2021s priced at 100.263 and a spread of 290bp over Treasuries for a yield of 4.191 percent, offering investors a premium of around 25bp. The

bond that priced Friday, which was sold to a limited number of investors, had rallied by up to 40bp in secondary markets after clearing at 300bp over Treasuries. Many of the same investors bought in again on Tuesday. Friday's deal was the first Deutsche Bank had s old in the US dollar market in five months. Proceeds will be used for general corporate purposes. The bank had only a limited amount of time to sell

new debt before it enters its earnings blackout period. For that reason, sources told IFR, Deutsche opted to issue bonds in a 144A for life format rather than an SEC-registered deal that would have required more documentation and time to prepare. In any event, more than one market participant told IFR that Deutsche had perhaps paid too much to get the new deals done. Several noted that Deutsche Bank has

ample liquidity, a message that CEO John Cryan drove home in a letter to staff last month. "We should look at the complete picture," Cryan said, indicating the bank has more than 20 million customers - and reserves of more than 215 billion euros (US$237bn). "In a situation like this, the most important factor is our liquidity reserves."

IT Risk Management, IT Risk Rating System, and IT Regulatory Updates – 14 October 2016 Developmental Course on Treasury Products - Bootstrapping – 15 October 2016 BSP Cir. No. 706, AMLA Law, RA 10365 and the AML Risk Rating System – 21 October 2016

Developmental Course on Treasury Products - Financial Options – 22 October 2016 Advanced Workshop on Banks Frauds and Forgery Detection – 22 October 2016 Enterprise Risk Management – 22 October 2016

How to Spot Fake IDs and Money Mules – 29 October 2016 A Regulatory Prospective on Trust Activities and Administration – 11 & 18 November 2016 Overview of Outsourcing Framework (Knowing the Essentials When Outsourcing) – 12 November

2016 Establishing Internal Controls in Philippine Banks-SEMINAR ONE. – 19 November 2016 Advanced Project Management – 19 November 2016

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

BAIPHIL Market Watch – 12 Oct 2016 Page 10 of 11

OCTOBER 1-15

02 Teresita S. Galvadores - Past President

02 Emma B. Co - PS Bank

04 Evangeline L. Salazar-Nevado - PDS

04 Rene S. Natividad - Bancnet Inc

06 Maria Victoria P. Ronquillo - UCPB

09 Zenaida P. Molina - Past President

10 Maria Daisy B. Posadas - ING Bank NV

11 Mary Joyce M. Sasan - UBP

12 Nestor A. Espenilla, Jr. - BSP

14 Ma. Teresa R. Tan - Standard Chartered Bank

15 Teresa O. Limqueco - Secretariat

MARKET ACCESS - refers to the ability of a company or country to sell goods and services across

borders. Market access can be used to refer to domestic trade as well as international trade, although

the latter is the most common context. Market access is not the same thing as free trade. The ability

to sell into a market is often accompanied with tariffs, duties or even quotas, whereas free trade

means that goods and services flow across the borders without any extra costs imposed by

governments. Even so, market access is seen as an early step towards deepening trade ties. Market

access has increasingly been referenced as the stated goal of trade negotiations as opposed to true

free trade.

BAIPHIL Market Watch – 12 Oct 2016 Page 11 of 11

REFERENCE COMPILED AND PREPARED BY: RESEARCH AND INFORMATION COMMITTEE FY 2016-2017

BPI Asset Management Business World Philippine Daily Inquirer Philippine Star GMA News ABS-CBN News Bulletin Today PSE

Reuters Bloomberg CNN Wall Street Journal Investopedia Brainy Quotes Goodreads Corsinet- Trivia

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

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

from third party websites and may be subject to change without notice. Although the information was compiled from sources believed to be reliable, no liability for any error or omission is accepted by BAIPHIL or any of its directors, officers or employees, and BAIPHIL is not under any obligation to update or keep current this information