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net/206447/policy-reforms-key-to-talks-with-eu

Policy reforms key to talks

with EU
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By: Amy R. Remo

@inquirerdotnet

Philippine Daily Inquirer

01:29 AM February 1st, 2016
THE EUROPEAN Union is hoping to see the Philippines implementing crucial reforms,
including those in customs processes and policies on infrastructure projects, before the
start of the planned free trade negotiations between the country and the EU this year.
Walter van Hattum, head of the economic and trade section of the EU Delegation to the
Philippines, also said in an interview with the Inquirer that the EU was looking forward to
seeing the implementation of the Competition Law and the adoption of crucial economic
reforms that could support the Philippines economic growth and development goals.
We look forward to the adoption of various initiatives, such as the Customs
Modernization and Tariff Act and the Public-Private Partnership (PPP)-law. As negotiations
are yet to start, it would be too early to discuss concrete issues related to the (free
trade) negotiations, he said.
The Philippines and the EU announced in December last year their intention to start free
trade agreement (FTA) talks this year.
Having a bilateral agreement with the 28-member bloc was deemed important for the
Philippines, according to van Hattum, as it would help the country corner a far more
significant share of direct investments infused by companies based in the EU into the
region.

While the EU is by far the largest investor in the country, only 3 to 4 percent of its
investments in the Asean go to the Philippines at the moment. So there is a lot of
potential to increase. An agreement will also help companies, be it European or Filipino ,
with their (often global) supply chains and it enable small and medium sized companies
in both our economies to take advantage of the currently underutilized opportunities,
the EU trade official said.
The Philippines is hoping to secure permanently the preferential trade benefits that local
enterprises are enjoying under the European Unions generalized scheme of preferences
through the prospective FTA.
In a separate interview, Trade Undersecretary Ceferino S. Rodolfo told the Inquirer that
the upcoming FTA negotiations with the EU could serve as an avenue for local
negotiators to secure the benefit of zero tariffs for more than 6,200 goods, which at
present are enjoyed under the EU GSP+ scheme.

http://business.inquirer.net/206466/hsbc-overweight-on-ph-stocks

HSBC overweight on PH
stocks
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By: Doris Dumlao-Abadilla

@inquirerdotnet

Philippine Daily Inquirer

09:20 AM February 1st, 2016
THE PHILIPPINES is one of the few emerging markets where stocks will likely outperform
this year, backed by good underlying macroeconomic fundamentals, double-digit
earnings growth and reasonable valuations, investment experts from British banking
giant HSBC said.

In a press briefing on Friday, HSBC head of equity strategy for Asia Pacific Herald Van
der Linde said that globally for this year, the bank had a slightly overweight
recommendation on equities and underweight recommendation on fixed income.
Overweight is a recommendation to buy stocks in excess of a benchmark index,
typically the MSCI index, while underweight is the opposite recommendation.
For equities, HSBC favors developed markets over emerging markets this year, noting
that last years headwinds may persist due to weakening commodity prices, a monetary
tightening cycle by the US Federal Reserve and softness in global exports.
But HSBC has handpicked a few emerging markets where prospects were brighter.
Sifting through Asia-Pacific, the British bank has an overweight recommendation on
the Philippines, China and Indonesia.
For the Philippines, the HSBC strategist said the bank was overweight after a neutral
stance in the last couple of years because valuations had gone down to reasonable
levels while earnings growth this year was projected at 10 percent, better than the 4-5
percent projected average earnings expansion for the whole of Asia-Pacific.
The Philippines has always been great story but its expensive, Van der Linde said.
We changed our mind and now think its fairly valued.
This year, despite escalating political noises ahead of the hotly-contested May
presidential elections, Van der Linde said the situation was still fluid and he preferred
not to overanalyze. He added that there were certain drivers in the economy that would
run independent of political dynamics. Policy thrust is important but he said he would
take a look more closely once the elections were over.
Politics is usually overstated when it comes to near-term eocnomic fundamentals, said
Benjamin Pedley, HSBC Private Bank regional head of investment strategy for Asia.
So you go back to earnings growth. The amount of purchases that will take place in
Jollibee will probably not change too much. Its not as if people will say, oh I wont go to
Jollibee today because theres a new president, Van der Linde said.
Because stock valuations have gone gone to reasonable levels while underlying
fundamentals were bright the Philippines being one of the fastest economies in the
region while corporate earnings were growing at decent levels he said this was one of
the few emerging markets that would stand out amid the volatile global financial
markets.

In China, another favored emerging market, HSBC sees economic growth stabilizing at
6.7 percent this year and next year. Pedley said Chinas large infrastructure-building
would make the economy more efficient and create more jobs. HSBC also sees no need
for China to significantly value its currency further to become competitive.
While the renminbi may weaken throughout the year, this will more likely be for cyclical
and not structural reasons, Van der Linde said. Nonetheless, he said investors would
have to get used to a more volatile Chinese currency. HSBC likes new stories evolving
out of China, revolving in themes such as Internet, water, solar and wind energy
businesses.
In Southeast Asia, HSBC favors the Philippines and Indonesia, the regions most
populous nations. The Philippines is more of a consensual overweight for quite a few
people. Indonesia is more of an emerging (turnaround) story, almost like a new
Philippines, you could say, he said.
Elsewhere in the region, HSBC is underweight on Taiwan and India.
As investment fundamentals vary wildly among BRIC an acrononym referring to what
were previously the hottest emerging market bloc of Brazil, Russia, India and China
HSBC believes that BRIC had lost relevance. It has preferred to remain selective, with
a preference for Asia, and with a long- term eye on Southeast Asian growth potential
alongside its expected population growth and young and relatively cheap pool of labor.
In developed markets, HSBC prefers European equities over US equities. Monetary
easing in Europe is seen to continue as opposed to the tightening in the US, although
HSBC believes that the US Feds tightening magnitude may turn out to be smaller than
what markets expect.

http://business.inquirer.net/206424/china-grapples-with-contradictions-overcurrency

China grapples with

contradictions over currency

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Agence France-Presse
01:27 PM January 31st, 2016

A Chinese woman poses for photos near a sculpture depicting a Chinese yuan note at an art
district in Beijing, China. AP FILE
BEIJING, China China is struggling to reconcile its push for economic reforms and a
freely traded currency with curbing massive outflows of capital sparked by worries over
its slowing economy and a lack of communication is fueling fear.
The thorny problem represents the so-called impossible trinity, as Chinas ruling
Communist Party seeks to control the exchange rate and monetary policy, while at the
same time moving to freer capital flows, analysts said.
Around $1.0 trillion left China last year, according to Bloomberg Intelligence. In
December alone capital outflow from the country was nearly $160 billion, it said.
READ: China stock markets fall 7%; trading stopped Monday | Why did Chinas
stock market plunge?

The cash hemorrhage reflects growing concern about the economy against a backdrop
of volatility in the stock and currency markets, which has led both investors and savers
to shed their yuan, also known as the renminbi (RMB).
The recent flood of capital leaving China has been driven primarily by increased
skepticism that the Peoples Bank (the central bank) will hold to its pledge to keep the
renminbi stable, said Mark Williams, chief Asia economist at Capital Economics.
At the recent World Economic Forum in Davos, billionaire investor George Soros told
Bloomberg TV that the worlds second largest economy, where growth has already
slowed to a 25-year low, was heading for more trouble.
READ: China pours $20B in falling market; doubts linger
A hard landing is practically unavoidable, he said, pointing to deflation and excessive
debt as a reason for Chinas slowdown.
His remarks angered the Chinese media, which accused him of declaring war on the
currency.
Soros whose enormous trades are still blamed in some countries for contributing to
the Asian financial crisis of 1997 in the 1990s led speculators in bets against the
Bank of England, which unsuccessfully sought to defend the pounds exchange rate peg.
No policy to devalue
The yuan has retreated against the dollar by 1.3 percent since the start of January,
having already slid more than 4.5 percent against the greenback in 2015.
Beijing keeps a grip on currency flows and the yuan can only move up or down against
the dollar by two percent daily from a mid-rate set by the Peoples Bank of China
(PBoC), the central bank.
But after a surprise devaluation last August a move intended to bring it closer to its
market value according to Beijing the yuan is being dragged down by the vast
outflows of capital.
READ: China cuts yuan to weaker than 6.5 against dollar
Chinese citizens are allowed to convert the equivalent of $50,000 from the domestic
currency under an annual quota, though many seek ways to evade the barrier. A
popular method is borrowing the quota of other people, such as family members.

When the PBoC in mid-December signaled a change in the way it manages the yuans
value by measuring the unit against a basket of currencies instead of pegging it to the
dollar, the move increased the level of anxiety.
Bank of America Merrill Lynch said the lack of clear and transparent rules for the
basket led to confusion in the market. At the same time, the decision by the US Federal
Reserve to raise interest rates has put downward pressure on the yuan.
Chinese officials deny plans to devalue the currency, amid fears Beijing is seeking a
currency war to help boost its flagging exports.
The fluctuations in the currency market are a result of market forces and the Chinese
government has no intention and no policy to devalue its currency, Vice President Li
Yuanchao told Bloomberg.
But Beijing faces a dilemma, he said. On the one hand, China wants to expand use of
the yuan internationally. At the same time, the government needs to ensure the unit
remains stable.
Declining reserves
To keep its currency steady, China has been diving into its foreign exchange reserves
already the worlds largest to buy massive amounts of yuan.
But it is a bitter pill to swallow. Chinas foreign exchange reserves fell $108 billion in
December the biggest monthly decline on record to $3.3 trillion.
The PBoC has enough reserves to keep selling at Decembers rate until mid-2018 but it
would presumably throw in the towel before they were all exhausted, said Williams of
Capital Economics.
The central bank has also refrained from loosening monetary policy by cutting reserve
requirements the amount of funds that banks must put aside on fears of
exacerbating the yuans depreciation, analysts said.
Some say China will need to devalue the yuan, and have even called on Beijing to move
rapidly towards a free float of the currency.
But others believe such a move would reflect poorly on China, which in November
received approval from the International Monetary Fund for the yuan to be included in
its basket of elite currencies.

The potential disruption to financial stability outside China, and with the risk of an
Asian currency war, would ultimately feedback negatively to China, said Michala
Marcussen, global head of economics at Societe Generale.