newsletter
Giving you the brief updates on the market
Become a wise investor and trader with the help of Market Updates Team! These are the updates in the market during March to May 2021!
TABLE OF CONTENTS
Market updates 1.1
March 2, 2022
index updates
PSEI 7,304.02 â–² 91.79 â–² 1.27% w/w
USDPHP 51.25 â–¼ 0.02 â–¼ 0.04% w/w
SPX 4,306.26 â–¼ 78.39 â–¼ 1.79% w/w
NASDAQ 13,532.46 â–¼ 162.16 â–¼ 1.18% w/w
CRYPTOCAP 1,921,160,595,582.00 â–² 162,053,978,698.00 â–² 9.21 w/w
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PAL SEEKS NEW USD 100 MILLION LOAN FROM FOREIGN LENDERS
The Philippine Airlines (PSE:PAL) reported yesterday of ongoing negotiations with an international lender to get a new USD 100 million loan. PAL, which entered into a Chapter 11 bankruptcy in the United States last August 2021, was only saved by another huge injection of money from its majority owner Lucio Tan himself. Presently, there is still USD 391 million in cash left over from Lucio Tan's November 2021 liquidity injection, but PAL says it is now trying to get a new three-year term loan from "international lenders" so that it can run a "more sustainable business."
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Insights: The Chapter 11 bankruptcy proceedings were beneficial for PAL, which was able to cut its fixed lease costs by a lot for the next 18 months. By cutting aircraft capacity, debt, staffing levels, and other cost-cutting strategies, the airline's monthly fixed costs have dropped by about USD 36 million per month compared to 2019. The negotiation for the said loan can possibly be a “double-edged sword” for PAL. Although it may seem that management is confident in recovering from losses this year by saying that “it would be able to ‘survive’ and ‘thrive’ when COVID restrictions were fully lifted”, the chances of another outbreak remains possible. Should that be the case, then PAL would be left with nothing to pay for this loan. Should it be otherwise, they would continue on their current course - flying inefficient routes despite the high maintenance costs of aircraft and having a monopolistic mindset of being the only domestic airlines Filipinos can choose - making the issue on PAL’s liquidity cyclical.
TARGET REPORTS EARNINGS 63% HIGHER YEAR-ON-YEAR
Target Corporation (NYSE:TGT) reported USD 14.10 in earnings per share for the full year of 2021, compared to 8.64 USD in the previous year unadjusted, thus growing by 63% year-on-year. The company earned USD 106 billion in total revenue, growing by 35% over the past two years. Target’s five core merchandise categories, namely: food and beverage, essentials and beauty, home, apparel and hardlines, all delivered double-digit comparable sales growth in 2021. This is in addition to the unexpected growth they observed back in 2020, where a 235% increase in their same-day service transactions, which included Drive Up, Shipt, and Order Pickup, was reported.
Insights: Target’s same-day services and curbside pick up contributed a lot to the growth of its consumers and sales over the course of the pandemic. With the enhancement of these services, which includes more product assortment available on these platforms, customers were able to purchase the goods that they need from Target while allowing them to feel safe against the virus. In addition to this, by the end of 2020, they increased their employees’ minimum wage to USD 15.00, allowing them to have presumably more productive workers. Target was able to adjust to consumer preferences and needs during the pandemic, as well as cater to their employees well, which allowed them to gain more consumers as well as more sales. Its successful adaptation with the changing economic trends brought about by the pandemic allowed Target to see these increased earnings being reported today.
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OIL PRICES AT RECORD HIGH AS SANCTIONS AFFECT RUSSIAN OIL INDUSTRY
The price of benchmark American crude West Texas Intermediate (NYMEX:CL) rose to USD 109.81 per barrel, while the European Brent Oil (ICE:BZ), gaining 6.03% from its previous close, is at USD 111.30 as of 3:00PM GMT+8, March 2, both presently at their record highs since 2014. This followed the announcement of additional sanctions on Russia by the United States and its allies, the most notable of which is the expulsion of seven of the country’s largest banks from the SWIFT banking system. In addition, the exit of major oil companies such as Shell (LSE:SHEL), Exxon (NYSE:XOM), BP (LSE:BP) from their respective Russian ventures is set to further diminish local oil production.
Insights: Although there were no sanctions imposed directly on oil exports last week, higher risks brought about by the conflict in the Ukraine, as well as issues with payment and freight systems, have led investors to avoid Russian crude. The International Energy Agency, whose member states include the United States, Germany, and Japan, has announced that it will release 60 million barrels from their respective oil reserves. This announcement has done little to offset fears regarding supply disruptions so far as evidenced by the continuous increase in prices, but its actual effects remain to be seen as the plan is yet to be implemented. Moreover, the sentiment in the US in particular generally favors the imposition of harsher sanctions targeted directly towards Russia’s oil industry. Without any foreseeable solution for the conflict in Ukraine so far, Russia remains exposed to the possibility of more sanctions. As a result, it is likely that the price of oil will continue to be volatile in the short term.
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USD 36 MILLION POURED INTO CRYPTO FUNDS DESPITE MARKET UNCERTAINTY
Crypto investment funds recorded a whopping USD 36 million in net cumulative inflows for the week ending last Sunday, February 27. Some USD 95 million worth of inflows were recorded from the Americas, while USD 59 million worth of outflows were recorded from Europe. Inflows into Bitcoin (BTC) products rose by USD 17 million, making a total of over USD 239 million in five consecutive weeks, while Ether (ETH) products saw a small inflow of USD 4.2 million. However, altcoin holdings with Solana (SOL) and Litecoin (LTC) funds were reduced, with USD 2.6 million and USD 500,000 in outflows being recorded respectively.
Insights: The rise of cumulative inflows into the digital asset products signals that institutional investors are increasing their exposure in the cryptocurrency market despite the recent rise in volatility. Institutional investors are accumulating their positions despite the ongoing conflict in the Ukraine as they probably knew or had some form of foresight that Russia would invade. With sanctions isolating Russia from the global financial system put in place, it is speculated that the Russian government might turn to cryptocurrencies to evade them. Crypto exchanges, such as Binance and Kraken, have already refused to block the Russian accounts despite Ukrainian requests. Pricewise, however, analysts are having a hard time to predict BTC price action due to high macroeconomic uncertainty, with popular trader and analyst Pentoshi tweeting that a day to day approach is the best thing to do in the market for now.
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Market updates 2.1
March 6, 2022
Index Updates
PSEI 7,342.01 â–² 129.78 â–² 1.80% w/w
USDPHP 51.47 â–² 0.20 â–² 0.39% w/w
SPX 4,328.87 â–¼ 55.78 â–¼ 1.27% w/w
NASDAQ 13,313.44 â–¼ 313.18 â–¼ 2.78% w/w
CRYPTOCAP 1,808,665,489,535.00 â–² 49,558,872,651.00 â–² 2.52% w/w
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PLDT TO SELL HALF OF ITS CELL TOWERS FOR AT LEAST PHP 50 BILLION
PLDT Inc. (PSE:TEL) is selling 6,000 of its 12,000 cell towers for "north of PHP 50 billion". TEL says that lengthy procedures were used to obtain quotes from 19 possible suppliers before limiting the selection to six. TEL will offer two 3,000-tower packages to a group of six bidders it refers to as "global common tower players". The parties will have a "symbiotic relationship," wherein TEL will give up ownership of its towers but lease them back from those companies at a price and period to be agreed upon before the agreement is finalized. Pangilinan earlier announced in August 2021 that PLDT was exploring the possibility of selling its tower holdings. As of writing, no disclosure regarding this transaction has been filed with the PSE.
Insights: PLDT’s performance from 2021 to 2022 continues to look positive after being declared by Ookla® as Philippines’ fastest internet service provider in 2021. The company also exceeded its 2021 projected PHP 30 billion income by PHP 200 million, and is also the quickest telecommunication service provider to restore its services from the previous year’s devastating typhoons. The sale of the towers would allow PLDT to generate free cash flow and to lower its debts. PLDT chief executive officer Alfredo Panililio has not yet identified the six final bidders involved, although it was mentioned that these are global tower companies, some of which are partnering with domestic players and have submitted their final bid offers last week. The Aboitiz group has earlier shown strong interest to participate in this bid back in November 2021 as part of their efforts to establish a telecommunications infrastructure platform.
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U.S. UNEMPLOYMENT RATE DROPS TO 3.8% FOR FEBRUARY 2022
Last Friday, March 4, 2022, the United States Labor Department’s Bureau of Labor Statistics reported a decline in the unemployment rate to 3.8% with 6.3 million unemployed persons for February 2022, a drop of 0.2% from last January. In addition to this, the total nonfarm payroll employment increased by a total of 678,000 jobs across different sectors such as leisure and hospitality, professional and business services, health care, and construction.
Insights: Prior to the pandemic, last February 2020, unemployment was at 3.5% with 5.7 million unemployed persons. By the end of 2021, some 10.9 million vacant job positions were waiting to be filled. With easing COVID restrictions and an emerging policy transition to coexistence with the COVID-19 virus and its variants, more and more people are returning to work. The markets did not give much attention to this, despite being a positive development in the macroeconomic setup of the United States. With the recent corrections, the ongoing conflict in the Ukraine seems to indicate that presently, renewed geopolitical tension is a greater risk, and thus commands greater attention, as the road out of the pandemic seems to be clear so far.
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CHINA SETS 5.5% GDP GROWTH TARGET WITH AGGRESSIVE MONETARY POLICY
China’s National People’s Congress (NPC) began its meeting last Saturday, March 5,, with a focus on the long-term effects of the pandemic on the Chinese economy and had set a growth target of 5.5% for 2022, the lowest in three decades. According to Premier Li Keqiang, China faces the “triple pressures” of weaker consumer demand, disrupted supply, and declining economic expectations. To address these, fiscal spending is estimated to increase by 8.4%. Meanwhile, the People’s Bank of China (PBoC), the country’s central bank, is expected to cut interest rates multiple times this year to stimulate consumption and support small businesses and innovative sectors.
Insights: Analysts have called the 5.5% target “aggressive” as most estimates are closer to five percent, with the lowest being the International Monetary Fund’s GDP growth forecast of 4.8%. However, it is unsure if the government can realistically step up to the challenge as infrastructure investment is growing too slowly without adequate participation from local governments. Domestic demand also continues to shrink, with the real estate sector in particular suffering a significant decline in sales since July 2021 following a liquidity crisis with China’s largest property developers. This projected downward trend for such an important sector casts doubts on whether China can achieve its target in time.
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OUTLOOK ON CRYPTO DARKENS AS FED PURSUES RATE HIKES DESPITE CONFLICT IN THE UKRAINE
Jerome Powell, chairman of the U.S. Federal Reserve (Fed), has confirmed that the Fed will still raise interest rates later this month despite the ongoing conflict between Ukraine and Russia. The Fed’s chairman is still pushing through its plan due to soaring levels of inflation, which is at 7.48% as of January 2022, well above the Fed’s 2% target level. Powell added, "We understand that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing, and transportation (emphasis supplied)".
Insights: Edward Moya, a senior market analyst at forex trading firm OANDA, said that the plan of raising interest rates by the Fed this month has already been priced in by the crypto market, but there still remains uncertainty as no one knows how aggressive the Fed plans would be in the coming weeks. Moreover, investors are expected to be able to handle increased treasury yields well, as long the rate hikes are gradual; otherwise, the crypto market may plunge, considering the capital flight that would follow as less risky assets would have then become more attractive. Given the global macroeconomic uncertainties this year, Bitcoin (BTC) may have a relatively limited upside potential compared to those of the previous years.
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Market updates 2.2
March 9, 2022
Index Updates
PSEI 6,989.88 â–¼ 352.13 â–¼ 4.80% w/w
USDPHP 52.20 â–² 0.73 â–² 1.41% w/w
SPX 4,170.70 â–¼ 158.17 â–¼ 3.65% w/w
NASDAQ 12,795.55 â–¼ 517.89 â–¼ 3.89% w/w
CRYPTOCAP 1,727,933,747,272.00 â–¼ 80,731,742,263.00 â–¼ 4.46% w/w
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DMCI HOLDINGS EXCEED 2021 CORE PROFIT, UP 164%
DMCI Holdings (PSE:DMC) reported a record PHP 17.4 billion core net income in 2021, a whopping 164% increase from PHP 6.6 billion back in 2020. DMC says that the huge growth is attributed to more people buying goods, more people paying for electricity, and more construction accomplishments. DMC also mentioned that it thinks we are at the start of a commodities supercycle, which is when demand for commodities rises for a long time, usually for a decade or more. DMC has exposure to coal via Semirara Mining and Power (up 360%), nickel via DMCI Mining (up 150%), housing and real estate via DMCI Homes (up 127%), bulk electricity via DMCI Power (up 8%), and water via Maynilad (flat).
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Insights: With easing Covid-19 restrictions and the conflict in the Ukraine affecting fuel supplies, it is difficult to contend DMC’s positioning in the commodities market but we will have to wait for the company’s full report in order to go further into details. It would benefit shareholders if the management maximizes this opportunity, both in the short and long run, by maintaining high productivity and making whatever investments are necessary to keep the party going for the remainder of this "supercycle”. This would also entail maintaining full operation of their mines and plants.
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U.S. BANS IMPORT OF RUSSIAN OIL, NATIONAL AVERAGE PRICE FOR A GALLON OF GAS AT ALL TIME HIGH
Last Tuesday, March 8, 2022, President Joe Biden announced the ban on the import of all Russian oil, liquified natural gas and coal in response to the Russian invasion of Ukraine, with the ban on oil being immediate, and the latter was announced on a White House fact sheet that President Biden will sign an executive order to ban them. According to the U.S. Energy Information Administration, the United States imported 672,000 barrels of crude oil and products from Russia back in 2021, accounting for 8% of total imports of crude oil and products.
Insights: On Tuesday, the national average for a gallon of gas in the United States rose to USD 4.18, its highest recorded average price so far. The previous highest recorded average price was back in July 2008 at USD 4.11. The rise in gas prices is contributing to fears of a much higher inflation in the economy, which Andy Lipow, President of Houston-based oil consultancy firm Lipow Oil Associates, predicts to rise up to USD 4.50 per gallon. The price of oil is a major factor to consider for inflation as most industries are dependent on oil for production and transportation. An increase in oil prices increases the costs on such industries to produce and transport their goods, which in most cases they pass on to consumers.
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WESTERN CONSUMER GIANTS TO STOP OPERATIONS IN RUSSIA
Earlier this week, McDonald’s (NYSE:MCD), Coca-Cola (NYSE:KO), and Starbucks (NASDAQ:SBUX) joined the long list of Western companies halting their operations in Russia in light of the country’s invasion of Ukraine. Meanwhile, Pepsi (NASDAQ:PEP) has announced it would stop selling soft drinks, but would continue to supply essentials such as milk and baby formula. McDonald’s and Starbucks also indicated that they will still continue paying their employees based in Russia.
Insights: The ongoing mass exodus of foreign companies from Russia is not only due to their (and their respective countries’) condemnation of the invasion, but is also likely due to practical reasons, given that shipping and payment systems are already problematic in the country because of the significant financial sanctions imposed in the weeks prior. It is also a form of shielding against risk in anticipation of future sanctions even if current sanctions do not cover specific industries yet, such as the food sector. In any case, the employee retention policies of some companies indicate that the closures are temporary and that they are positioning themselves for a possible return once hostilities cease.
For Coca-Cola, Russia accounts for 1-2% percent of their operating profits, while it is estimated at around 3% for McDonald’s, which analysts say is “immaterial” exposure. However, the real effect could be on consumer prices and inflation amidst a weakening Russian ruble (RUB), all of which could contribute to a cost-of-living crisis for the average Russian.
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BIDEN EXECUTIVE ORDER ON CRYPTO TO BE RELEASED “IN DAYS”
In an executive order believed to be released “in a matter of days”, U.S President Joe Biden would be asking four executive departments — Treasury, State, Justice, and Commerce — to scrutinize the fast-growing market for digital assets and produce recommendations on how the U.S. government should treat said assets. The Wall Street Journal (WSJ) said that the Treasury Department will be tasked to determine the risks that cryptocurrencies pose to financial stability, as well as how extensively they may be used for criminal activity and the threats they may pose to national security. The Biden administration also intends to assess the environmental impact associated with Proof-of-Work (PoW) blockchains, such as the Bitcoin (BTC) network.
Insights: The prospect of regulation may instill fear among crypto investors. However, many crypto businesses believe that a regulation is needed to have some clarity on how crypto should be treated, thus allowing them to innovate. On the user's side, regulation allows for categorization of such assets that would allow ordinary people to understand them easily. Financial institutions, known for their notorious inertia in terms of technological innovation, will also benefit from this as the regulatory framework that would be created will give them a more familiar landscape in understanding these assets, and the risk factors associated with these.
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Market updates 3.1
March 13, 2022
Index Updates
PSEI 7,112.19 â–¼ 229.82 â–¼ 3.13% w/w
USDPHP 52.16 â–² 0.69 â–² 1.33% w/w
SPX 4,204.31 â–¼ 124.56 â–¼ 2.88% w/w
NASDAQ 12,843.81 â–¼ 469.63 â–¼ 3.53% w/w
CRYPTOCAP 1,743,468,829,255.00 â–¼ 65,196,660,280.00 â–¼ 3.60% w/w
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PSE CLEARS BANK OF COMMERCE’S IPO, LISTING ON MARCH 31
The Philippine Stock Exchange (PSE) gave the go-ahead for the Bank of Commerce’s IPO last Wednesday, March 9. Approximately 280.60 million shares will be sold at a final price of PHP 12.00 each, according to the bank’s statement last March 11. The banking arm of San Miguel Corporation (PSE:SMC) shall have the ticker BNCOM and is tentatively set for listing on March 31. Accordingly, ten percent of the company's shares will be available to small investors by applying for the IPO through the PSE EASy website or application. The Bank of Commerce was also recently given a universal banking license last December 2021 just as it filed its registration statement for this IPO with the PSE.
Insights: The Bank of Commerce’s launch is the PSE’s first banking IPO after Asia United Bank’s (PSE:AUB) debut back in 2013. The preliminary prospectus indicates that the money from the sale of the shares will be used to pay for the bank's lending activities, buy investment securities, and pay for capital expenditures. The gradual reopening of the Philippine economy, now presently at the lowest alert level in NCR, would allow the bank to leverage on its lending activities. Presently, there is also no assurance that BNCOM would be paying out dividends as it is presently restricted by the BSP after its purchase of certain assets back in 2002 (see preliminary prospectus, p. 87).
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COSMETICS FIRM ULTA BEAUTY REPORTS NET SALES 40% HIGHER YEAR-ON-YEAR
Cosmetics firm Ulta Beauty Inc. (NASDAQ:ULTA) reported a USD 2.7 billion net sales in the 4th quarter of 2021, compared to its USD 2.2 billion in the previous year’s 4th quarter. For the full fiscal year 2021, net sales increased to USD 8.6 billion from previous year’s USD 6.2 billion. In addition to this, gross profit increased to USD 1 billion compared to the same quarter last year at USD 771 million.
Ulta Beauty CEO Dave Kimbell said that while sales have recovered from the slump in 2020, the company’s makeup segment continues to be volatile and lags behind the other products sold by the company. The company also said in its fiscal year 2022 outlook that it is confident that the recovery seen in 2021 will continue in 2022. After the announcement last Friday Eastern time, the stock price of Ulta closed at USD 368.51, down by 2.86% from the previous close of USD 379.37.
Insights: Ulta Beauty is the largest cosmetics retailer in the United States, with the company self-estimated to control some 7% of the said market. Nevertheless it had continued to expand its reach through a partnership with Target (NYSE:TGT) last year. Although as of Saturday, March 12, the U.S. recorded some 10,902 new COVID cases, more than â…” below its seven-day moving average, the higher earnings announced by Ulta indicates a return of discretionary spending. Nevertheless, the risk of reversal and possible losses remains as inflation, pushed by higher oil prices and by the fallout of the Federal Reserve’s policy during the past two years of COVID, may stem this resurgence in discretionary spending.
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INTERLISTED CHINESE FIRMS DIP AFTER US SEC RELEASES LIST FOR DELISTING
Last March 8, the United States’ Securities and Exchange Commission released a list of five companies subject to delisting within the next three years. All five firms are Chinese, namely HutchMed (NASDAQ:HCM; HKSE:0013), BeiGene (NASDAQ:BGNE; HKSE:6160), Zai Lab (NASDAQ:ZLAB; HKSE:9688), ACM Research (NASDAQ:ACMR), and Yum China (NYSE:YUMC; HKSE:9987), the operator of KFC and Pizza Hut in China.
At the close of this week’s trading, Hong Kong’s Hang Seng TECH Index plunged by 4.28% to 4,246.97 points, while the main Hang Seng Index was down 1.6% to 20,553.79 points as of March 11, its lowest close in six years.
Insights: The U.S. SEC acted in compliance with the 2020 Holding Foreign Companies Accountability Act, which requires foreign companies listed on U.S. exchanges to establish that they are not owned or controlled by a foreign government. Although the law applies to all foreign enterprises, the focus on China is obvious considering that the very first companies listed are Chinese, likely due to their existing state secrecy laws and political tensions between the two countries. The aforementioned companies have been given time to comply with regulations so their inclusion in the provisional list may be reversed. In the meantime, they may continue to face considerable volatility due to regulatory uncertainty.
More Chinese companies are expected to be tagged in the coming days as the SEC goes through their annual reports upon release, adding to existing regulatory pressure from Beijing. While neither of the two indices actually contain the names in the SEC’s list, both of them include other similarly-situated companies also cross-listed in the US and HK, including tech giant Alibaba (NYSE:BABA; HKSE:9988), whose price decreased 5.52% to HKD 90.80 per share, and JD.com (NASDAQ:JD; HKSE:9618), which dropped 11.04% to HKD 211.20 as of March 11. The decline shows investors’ reaction to regulatory risks in the wider market compounding with the effects of the pandemic and geopolitical turmoil in Europe.
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RUSSIANS LIQUIDATING CRYPTO IN THE UAE
Reuters reported that several crypto firms in the United Arab Emirates (UAE) have been slapped with numerous requests by Russian clients to liquidate billions of dollars' worth of digital assets to seek a safe haven for their wealth. Some clients are using these firms to turn their crypto money into hard cash other than the Russian Ruble (RUB) and place them elsewhere. Others are using crypto to invest in real estate. As of writing, the UAE continues to maintain a neutral stance, refusing to take sides between the West and Moscow.
Insights: The UAE is often considered as a stable and investor-friendly global financial hub, so it is expected that wealthy Russians would consider establishing a presence here. Thus, some Western diplomats are worried that a number of these Russians, especially those covered in the sanctions, were seeking refuge in the UAE by buying property using crypto, effectively circumventing the sanction. The anonymity and transparency cryptocurrency provides consequently allows the evasion of large-scale sanctions easily, prompting calls from other nations, such as Germany and Estonia, to plug in any loopholes that would allow this.
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Market updates 3.2
MARCH 16, 2022
index Updates
PSEI 7,026.45 â–¼ 85.74 â–¼ 1.21% w/w
USDPHP 52.40 â–² 0.25 â–² 0.47% w/w
SPX 4,262.45 â–² 58.14 â–² 1.38% w/w
NASDAQ 12,948.62 â–² 104.81 â–² 0.82% w/w
CRYPTOCAP 1,739,065,781,060.00 â–¼ 4,403,048,195.00 â–¼ 0.25% w/w
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SEC APPROVES CTS GLOBAL IPO
Last March 11, CTS Global Equity Group Inc.'s initial public offering (IPO) has been approved by the Securities and Exchange Commission (SEC). CTS Global’s shares will be listed on the PSE’s Small, Medium, and Emerging Board with up to 1.375 billion common shares priced at up to PHP 1.00 per share. CTS Global is a Philippine-based broker-dealer that also has operations in the United States, China, Hong Kong, and Japan, specializing in equities trading. Its IPO is expected to take place between March 31 and April 6, while its listing on the Philippine Stock Exchange is expected to be on April 13.
Insights: CTS Global Equity Group Inc.'s entry into the PSE comes as a double-edged sword. Raising capital will allow the company to further maximize its profits, inflating the returns that their traders may make, while keeping their current overhead expenses as they are allowing CTS to scale up its operations internationally. On the other hand, this global expansion remains to be a vague picture as most of the company’s historic success and returns come from the Philippine market. Nevertheless, CTS’s plan of scaling their international operations remains something potential investors may look forward to once the company updates its prospectus.
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US AIRLINES CONFIDENT THAT SURGE IN TRAVEL DEMAND WILL OFFSET RISE IN FUEL COSTS
With the recent surge in oil prices instigated by the Russian invasion of Ukraine, travel fares are expected to rise as companies such as Delta Airlines Inc. (NYSE:DAL), American Airlines Group Inc. (NASDAQ:AAL), and United Airlines Holdings Inc. (NASDAQ: UAL) passes on these expenses to their customers . Nonetheless, Delta Airlines President Glen Hauenstein said, “We are very, very confident of our ability to recapture over 100% of the fuel price run-up in the second quarter and through probably the end of the summer.” Delta, United and American Airlines have also reported to have recovered a substantial portion of their pre-pandemic revenues over the course of the pandemic.
Insights: Oil prices have dropped again due to the recent Covid outbreak in China, one of the largest importers of oil. Despite this, prices are still up by 35% this year. With the pandemic already exceeding the length of time the last major pandemic of 1918 had, it is expected that some form of life of coexistence with the virus will take place. The 1918 Spanish flu pandemic was first identified in spring of 1918 and the pandemic lasted until April 1920, lasting for around 26 months. On the other hand, the COVID-19 pandemic began in November 2019 and is currently still ongoing at around 28 months already.
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INDONESIAN TECH FIRM GOTO TO RAISE USD 1.25 BILLION IN IPO
Indonesia’s largest private tech company GoTo, formed by a merger between Gojek and Tokopedia, seeks to raise USD 1.25 billion in its IPO, by selling 4.35% of the company’s shares. This puts GoTo’s valuation at the higher end of the range at around USD 28.8 billion. The company, whose services include ride-hailing, e-commerce, and financial services, has already raised USD 1.3 billion in its pre-IPO in 2021. GoTo is set to debut on April 4 in the Indonesia Stock Exchange, with the company taking investor orders starting this month.
Insights: From January to July 2021, GoTo posted revenues of IDR 2.5 trillion, 50% more than in the previous year. The company’s net loss during the same period was reported at IDR 7.5 trillion, showing improvement from its 2020 losses by 23%. According to the company, they remain optimistic about further growth as their total addressable market (TAM), or its total revenue opportunity in the market, is expected to increase significantly. The TAM for e-commerce alone is set to grow from USD 44.6 billion in 2020 to USD 137.5 billion in 2025.
However, this high valuation comes amid a slump in Southeast Asian markets due to various factors, such as increased inflation, imminent rate hikes, and geopolitical conflicts. GoTo’s IPO will become a test for investor appetite on loss-making yet high potential startups in rocky market conditions, especially as they have plans for a second listing in New York in the near future. The shares of Grab (NASDAQ:GRAB), a similarly situated Singaporean superapp, have fallen more than 70% since its listing on the Nasdaq late last year.
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PROPOSAL LIMITING PoW REJECTED BY EUROPEAN PARLIAMENT
A proposed provision on the draft Markets in Crypto Assets (MiCA), a legislative framework for digital coins, was rejected (30-23-6) by the European Parliament on Monday. The provision, which was added at the last minute, sought to limit the use of blockchains powered by Proof-of-Work (PoW) across the EU’s 27 member-states. Because of this, the MiCA draft will move on to a "trilogue," a formal round of negotiations between the European Commission, Council and Parliament.
Insights: After adding the said proposal on the MiCA’s draft, it has received several criticisms from the crypto community, most notably by hardware wallet company Ledger. The company said that everyone should have the freedom to choose the technology that best suits their needs and policymakers should neither impose or discriminate in favor of a particular technology. After the rejection of the provision, Stefan Berger, a member of the EU Parliament and rapporteur of MiCA, said that the European Parliament’s members paved the way for future-oriented crypto regulation. He also added that it is just a matter of accepting the whole report and that would send out a signal for crypto innovation in Europe.
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Market updates 4.1
MARCH 20, 2022
index Updates
PSEI 7,007.63 â–¼ 104.56 â–¼ 1.47% w/w
USDPHP 52.17 â–² 0.01 â–² 0.02% w/w
SPX 4,463.12 â–² 258.81 â–² 6.16% w/w
NASDAQ 13,893.84 â–² 1,050.03 â–² 8.18% w/w
CRYPTOCAP 1,831,371,808,083.00 â–² 87,902,978,828.00 â–² 5.04% w/w
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PSE GREENLIGHTS CTS GLOBAL IPO
CTS Global Equity Group Inc.'s initial public offering (IPO) was approved by the Philippine Stock Exchange (PSE) last March 17, Friday. The company plans to sell up to 1.375 billion common shares at a price of up to PHP 1.00 per share. The stock’s final price will be finalized tomorrow, March 21, with listing estimated to be on April 13. PSE president and chief executive officer, Ramon Monzon said, "We are pleased to see a longtime trading participant of the PSE tap the equities market to further grow its operations. We are optimistic that this IPO will help CTS Global implement its business strategy.” CTS Global’s IPO was also earlier approved by the Security Exchange Commission (SEC) last March 11.
Insights: CTS Global attributes its success in the Philippine markets to the Risk Management system employed by its traders. In CTS Global’s updated prospectus, risks in foreign investments are further recognized in the scaling of their global operations. This may possibly affect their Risk Management considering its current system produced higher percentage profits for PH markets since 2018. Although, it still remains unclear how their expansion will profit potential investors, CTS continuously boasts its 30 traders exposed in multiple markets globally. The company further emphasized that it is not involved in collective investment schemes and it is not an investment company regulated under the Investment Company Act despite engaging in proprietary trading (see p. 19 of updated preliminary prospectus).
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US FED RATE HIKE APPROVED, INFLATION AT ANOTHER RECORD HIGH FOR FEBRUARY, WITH TALK OF POSSIBLE RECESSION
According to the US Bureau of Labor Statistics report released last March 10, the US consumer price index had a 7.9% increase in February 2022 compared to last year, the highest in forty years.
Last Wednesday, the Federal Reserve approved its 0.25 percentage point rate hike, the first in 3 years, bringing the rate to 0.25% to 0.5%. Moreover, according to a Fed survey from March 1, 2022, which surveyed experts and economists, the probability of a recession in the next 12 months is 33%, a 10 percentage point increase from the previous month’s survey.
Insights: The increase in costs to borrow money will reduce consumer spending and demand for goods and services, which will in turn relax the prices of goods and services in the market. The Fed now aims to combat this by raising rates. However, given the amount of money pumped into the economy since the beginning of the pandemic, it is unlikely that the hikes will immediately offset inflation within this year. The increase in rates is also expected for quite a while already, hence it is also unlikely that the markets would expect dramatic movements, but this does not mean that other belated shocks, such as a recession, as indicated in the Fed survey earlier, may not be experienced given the more volatile environment nowadays.
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JAPANESE CAR MANUFACTURERS HALT PRODUCTION AFTER EARTHQUAKE
Toyota (TYO:7203) and Subaru (TYO:7270) have announced that they will temporarily cease production in factories located in northern regions after a magnitude-7.4 earthquake struck last Wednesday, March 16. Toyota will suspend eighteen production lines in eleven out of its fourteen plants in the country for three days starting Monday, affecting an estimated 20,000 vehicles. Meanwhile, Subaru has shut down its Gunma manufacturing plant from Friday until Monday. There have been no announcements so far from other Japanese carmakers such as Honda (TYO:7267) and Mitsubishi (TYO:7211) regarding the earthquake’s impact on their production schedule as of Saturday, March 19.
Insights: Further suspensions and supply chain disruptions caused by the earthquake are seen to affect vehicle manufacturers in the short term as it compounds with existing pandemic-related issues. Toyota has previously announced an April-June 2022 production target of 750,000 vehicles already reduced by 150,000 units due to the ongoing chip shortage. The country’s bullet train system, as well as electricity and water services in northeastern regions, have also been affected by the earthquake. However, its long term effect seems to be minimal as various tech companies, including those involved in the manufacturing of microcontroller chips and ceramic capacitors, are already resuming operations. Toyota and Subaru may follow suit as well.
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ETH BALANCE AT ITS LOWEST LEVEL SINCE 2018
Ether (ETH) balance continues to fall on crypto exchanges and is now at its lowest level since 2018, signaling that traders and investors are holding. Nearly 550,000 ETH worth USD 1.61 billion have left the exchanges year-to-date. Specifically, over 30% of all ETH withdrawals recorded in 2022, according to the data provided by IntoTheBlock. As a result, ETH’s price rallied by more than 17% week-to-date to nearly USD 3,000.00.
Insights: While the amount of ETH circulating on exchanges continues to fall, investors remain persistent, holding on to their bags and expecting a 2022 crypto rally. Chainalysis supported this thesis by saying that, “Assets held on exchanges increase if more market participants want to sell than to buy and if buyers choose to store their assets on exchanges.” This means that the crypto market is in accumulation phase, with an expectation of price gains in the next few months.
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Market updates 4.2
MARCH 23, 2022
index Updates
PSEI 7,009.43 â–² 1.80 â–² 0.03% w/w
USDPHP 52.43 â–² 0.26 â–² 0.50% w/w
SPX 4,511.61 â–² 48.49 â–² 1.09% w/w
NASDAQ 14,108.82 â–² 214.98 â–² 1.55% w/w
CRYPTOCAP 1,928,771,947,842.00 â–² 97,400,139,759.00 â–² 5.32% w/w
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HOLCIM REPORTS 24.2% GROWTH IN 2021 PROFIT
HOLCIM Philippines, Inc. (PSE:HLCM) reported a 24.2 percent increase in net profit to PHP 2.6 billion in 2021 despite "market pressures" experienced last year. In the fourth quarter of the previous year, Holcim reported a net profit of PHP 264,867,000 down from PHP 1.036 billion in the same quarter of 2020. According to the company, its fourth-quarter performance was harmed by weaker market demand and higher energy costs as a result of external developments. Horia Adrian, president and chief executive officer of Holcim Philippines said, "Despite market pressures brought on by the pandemic, weather disruptions that disrupted construction activities, and surges in energy and fuel prices, our company was able to deliver strong profit growth in 2021 from 2020,". Yesterday, Holcim shares rose by 1.10 percent, or PHP 0.06, closing at PHP 5.51 per share.
Insights: Despite the lower Q4 profits, HLCM still was able to deliver a strong profit growth in 2021. Demand for the company’s products is also expected to increase until May 2022 given its seasonality. This comes out as formidable for its investors especially if we combine this with the easing Covid-19 restrictions. HLCM also indicated that its market risks are minimal and managed properly although it is important to note that rising costs of coal, fuel, and other raw materials caused by the Russia-Ukraine conflict may affect future earnings and revenue negatively.
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ST. LOUIS FED CHIEF DISSENTS FROM LATEST FOMC APPROVAL
James Bullard, president and CEO of the Federal Reserve Bank of St. Louis issued a statement dissenting from the FOMC’s recent decision to increase interest rates from 0.25% to 0.50%. He believes that raising the target rate to 0.50% to 0.75% would be more effective in reaching their goal of combating inflation. In addition to this, he believes that the FOMC should have a target policy rate of 3% or greater and that it would quickly adjust the policy rate to a more appropriate level for the current circumstances.
Insights: Inflation affects mostly those who have modest income and those who are unable to adjust to rising prices and costs of living. Bullard cited that in 1994 to 1995, the Fed was able to excellently combat a gradual rise in inflation through such aggressive policies, wherein inflation was at 2% on average and had the US economy boom during the latter half of the 1990s. From 1991 to 1995, the US experienced sluggish economic, employment and wage growth. Only in the later 1990s did employment, productivity and wage growth, and investment and consumption growth accelerate.
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ALIBABA RAISES SHARE BUYBACK TO USD 25 BILLION
Chinese e-commerce giant Alibaba (HKG:9988; NYSE:BABA) has announced on Tuesday that it would increase its share buyback program from USD 15 billion to USD 25 billion. The buyback will occur over the course of two years, ending in March 2024. The company’s shares have gained 11.5% following the news, closing at HKD 110.20 on the Hong Kong Stock Exchange yesterday. There was also a positive movement on Alibaba’s listed stocks in New York, which also gained 11% before closing at USD 114.99.
Insights: Alibaba has been under pressure since 2020 due to a combination of volatile market conditions for tech companies and increased regulatory scrutiny from the Chinese government. The company’s stock lost around half of its value in 2020 alone, with the slump continuing well into 2021. Its latest earnings report back in February also showed a 10% year-on-year revenue growth, the slowest since the company went public in 2014.
The buyback could further increase share prices as well as improve investor confidence by signaling future expansion plans. This strategy could possibly reverse the decline after a relatively poor performance in the past two years. In addition, Beijing has been following a more aggressive policy to boost the economy after a high GDP target was set by the National People’s Congress. Similar buyback strategies are also expected from other Chinese companies with high liquidity such as Xiaomi (HKG:1810), Tencent (HKG:0700), and Baidu (HKG:9888), all of which are listed in the Hang Seng Tech Index alongside Alibaba.
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BTC BACK AT USD 43,000 AMID TERRA’S USD 3 BILLION BUY-IN
Bitcoin (BTC) rallied back to USD 43,000.00 on March 22, continuing its positive price action to three-week highs, as public blockchain protocol Terra plans to back its stablecoin TerraUSD (UST) with BTC in addition to Terra’s LUNA token. Do Kwon, co-founder of Terra, tweeted that Terra plans to acquire some USD 3 billion worth of BTC.
Insights: Terra’s plan to acquire USD 3 billion worth of BTC would equate to around 69,500 BTC at current prices, making the blockchain protocol a larger BTC holder than every corporate investor except Microstrategy (MSTR:NASDAQ) with 125,051 BTC on its balance sheet. Luke Martin, host of the WAGMI podcast, tweeted that Terra's plan was a “narrative worth paying attention to” and that traders noticed the first USD 125 million moved seems to be tied to Terra. With this, crypto trader Michael van de Poppe tweeted that if BTC sustains the present price levels, then a period of some relief across markets would be expected.
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Market updates 5.1
MARCH 27, 2022
index Updates
PSEI 7,124.84 â–² 117.21 â–² 1.67% w/w
USDPHP 52.36 â–² 0.20 â–² 0.38% w/w
SPX 4,543.06 â–² 79.94 â–² 1.79% w/w
NASDAQ 14,169.30 â–² 275.46 â–² 1.98% w/w
CRYPTOCAP 1,995,429,090,743.00 â–² 164,057,282,660.00 â–² 8.96% w/w
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MEAT RETAILER NORTH STAR APPLIES FOR PHP 4.5 BILLION IPO
Meat retailer North Star Meat Merchants, Inc. announced on March 22 the filing of its initial public offering (IPO) registration application with the Securities and Exchange Commission (SEC). Up to 25% of the company's 1.8 billion outstanding shares of its market listing will be offered to the public at up to PHP 10.00 per share, raising up to PHP 4.5 billion. North Star aims to earn roughly PHP 3.5 billion from the sale of primary shares during the offer period in June 2022. Since 2019, the company has grown at a compound annual growth rate (CAGR) of 39.7%, resulting in sales of PHP 9.28 billion in 2021.
Insights: Based on its prospectus, North Star aims to be the “cold chain infrastructure backbone” of the country. Once approved, its listing would make it become the first pure cold storage firm to be listed on the PSE. The success of this listing is highly dependent on whether North Star will be able to keep up with retail giant SM group, its primary patron for more than twenty years. If North Star were able to meet its own vision, economies of scale would apply, amplifying potential revenue and profits North Star may be able to realize thanks to the scale and ubiquity that comes with its vision.
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US MORTGAGE DEMAND DROPS AS RATES HIT 5%
Last Friday, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances in the United States increased to 4.95%, 164 basis points higher than that a year ago. CNBC’s Diana Olick observed that the demand for mortgage loans dropped by 14% from the previous week, and 54% from the same week a year ago, and that the median mortgage payment is 20% higher than it was a year ago.
Insights: The increase in mortgage interest rate limits circulating capital, and money supply, making mortgages more expensive for home-owners, who may need to borrow home-based equity, and for others who may want to buy homes by securing their loan with the property they themselves are buying. Despite this balancing effect in reducing money supply, increased mortgage interest rates also weaken consumer power, as these add burden and costs to ordinary persons in what is already an expensive market hounded by record-high inflation.
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CRUDE OIL HITS USD 120 AFTER HOUTHI ATTACK ON SAUDI OIL DEPOT
A petroleum products distribution station in Northern Jeddah owned by oil giant Saudi Arabian Oil Company, or Aramco, (TADAWUL:2222) was attacked last Friday, causing a fire in two storage tanks. The attack was later claimed by Yemeni Houthi rebels, who also announced that they were targeting the country’s other major oil facilities, such as the refineries in Ras Tanura on Saudi’s east coast and Rabigh on Saudi’s west coast, with missiles and drones. On the same day, the European benchmark Brent crude (ICE:BZ) rose by as much as 1.4% to USD 120.65, before closing at USD 119.98. Meanwhile, the US benchmark West Texas Intermediate (NYMEX:CL) crude also gained 1.4%, reaching a intra-day high of USD 113.90, but eventually closing at USD 112.60. This week alone, Brent had gained 11.5% while WTI rose by 8.8%, marking both benchmarks’ first weekly gains in three weeks.
Insights: This is not the first time Saudi facilities were targeted by the Yemen-based Houthi rebel movement. Last weekend, and the week before that, other water, oil, and natural gas plants had been hit by drone strikes in the province of Jizan, which borders Yemen, and in the port cities of Yanbu and Jeddah. The attack on the Yasref refinery in Yanbu has particularly decreased production, but a spokesperson from the Saudi Ministry of Energy has stated that the current inventory of Yanbu Aramco Sinopec Refining Company, a joint venture between Aramco and Chinese oil giant Sinopec (SSE:600028), can compensate for the loss. However, it is still uncertain if these attacks will continue to escalate, or if the proposed temporary ceasefire for the month of Ramadan will push through in April. Any change in Saudi Arabia’s oil production may cause further volatility in oil prices as it tends to compound other causes that similarly affect oil supply in the market due to the kingdom being one of the world’s top oil producers.
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BTC CONSOLIDATES AFTER HITTING USD 45,000
Bitcoin (BTC) consolidated once again, this time at around USD 44,500, after a resistance at USD 45,000 was hit last Friday. CoinTelegraph’s William Suberg observed that traders became cautious on a possible decline after a large sell wall appeared on Bitfinex, prompting the BTC rally to stop nearly at USD 45,000. Meanwhile, trader B C Richfield emphasized the need to overcome the current local high of around USD 45,000 since two “fakeouts”, where an anticipated trading signal or movement never developed and price action moved in the opposite direction, already happened prior.
Insights: Despite the BTC rally this week, retail interest thereon remained low as supported by Google Trends data. In addition to that, analyst Benjamin Cowen tweeted that BTC’s low transaction fees recorded means that there is a lack of activity in the network. However, he also noted that while the “tourists” are gone at the moment, they will return at some point as they always do. Moreover, crypto trader Michaël van de Poppe added that he is not interested in longs at the moment, and that he would only consider taking long positions once BTC’s price hits the USD 50,000 mark.
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Market updates 5.2
MARCH 30, 2022
index Updates
PSEI 7,167.02 â–² 42.18 â–² 0.59% w/w
USDPHP 52.07 â–¼ 0.29 â–¼ 0.56% w/w
SPX 4,631.60 â–² 88.54 â–² 1.95% w/w
NASDAQ 14,619.64 â–² 450.34 â–² 3.18% w/w
CRYPTOCAP 2,143,020,028,447.00 â–² 147,590,937,704.00 â–² 7.40% w/w
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VILLAR REIT FILES PHP 9.2 BILLION IPO
The Securities and Exchange Commission (SEC) said on Monday, March 28, that it received VistaREIT, Inc.'s registration statement for an initial public offering on the stock exchange's main board. The offering will involve around 3.34 billion secondary common shares at an offer price of up to PHP 2.50 per share, raising a total of PHP 9.18 billion. The company’s portfolio includes ten retail malls and two office buildings with a combined gross leasable area (GLA) of 256,403 square meters and a value of PHP 35.95 billion. VistaREIT intends to sell the shares from April 22 to 28 before listing them on the main board of the Philippine Stock Exchange on May 6 under the ticker VREIT.
Insights: According to Business World, the company intends to keep high occupancy rates and high-quality tenants, especially those who provide important goods and services. IPO proceeds will be used to buy Vista Estate projects across the country. Majority of the REIT's profit comes from 10 of the Villar Family's malls making them the only "mall-based" REIT in the Philippines, until probably SM Prime Holdings (PSE:SMPH) lists its own REIT. This shows a lot of promise to its investors since these properties always had high occupancy rates of 93% to 100% of their GLAs over the last three years. Even during the height of the pandemic, Vista Land commercial and office assets conveyed consistent rental income growth. With the relaxation of public health protocols and possibly an end to the pandemic near in sight, a mall-based REIT may provide the greatest potential for growth as we may see an increase of commercial demand back to pre-pandemic, or possibly even exceeding pre-pandemic levels.
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APPLICATIONS FOR U.S. UNEMPLOYMENT BENEFITS AT THEIR LOWEST SINCE 1969
According to an ADP National Employment report, there was an additional opening of 475,000 jobs at private companies last February 2022. This was greater than the Dow Jones estimate at 400,000 and a huge jump from a loss of 301,000 in change in the nonfarm private sector employment. Applications for unemployment benefits have also dropped to its lowest level since September 1969. According to a report released by the Labor Department last March 24, Thursday, it fell by 28,000 to a seasonally adjusted 187,000 for the week ended March 19, 2022.
Insights: According to CNBC, last January 2022, there was a record of 1.8 open positions per unemployed persons. With heightened inflation and volatility in gas prices, the imbalance between the demand and supply of labor is boosting wage growth, which may provide for some cushion against increased inflation.
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SHOPEE SHUTS DOWN INDIA OPERATIONS JUST SIX MONTHS AFTER LAUNCH
E-commerce website Shopee, a subsidiary of Singaporean tech conglomerate Sea Ltd (NYSE:SE), ceased its operations in India on March 29. The company had just started operating in the country in September 2021, just six months ago. This announcement also comes less than a month after their France exit, marking the second withdrawal in Shopee’s overseas expansion drive.
Insights: Bloomberg reports that the reason for Shopee’s withdrawal was due to “global market uncertainties.” However, it occurred after Indian authorities banned “Free Fire,” a gaming app by Garena, another Sea subsidiary. The company lost USD 16 billion in market value after the ban. It is possible that Sea also faced regulatory scrutiny from India due to its growing hostility towards Chinese companies, in addition to general protectionist policies in favor of local brick-and-mortar retailers.
Sea reported a net loss of USD 2 billion in 2021, up from USD 1.6 billion in 2020 partly due to an increase in spending for its tenuous expansion bid. Revenue growth for Shopee is also expected to decrease by half to 76% this year, from the 157% back in 2021. Sea’s stock price has also dropped by approximately 65.3% since its peak in October 2021, when it reached USD 366.99 at the close of October 19. In contrast, SE closed at USD 127.36 yesterday. It is probable that shares could slide further in the future following the long term trend and recent developments.
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GRAYSCALE CONSIDERING TO SUE SEC IF ITS PROPOSED BTC ETF GETS REJECTED
Grayscale, a crypto investment firm, has been working to convert its Grayscale Bitcoin Trust (GBTC) which has USD 28.5 billion in assets under management, into a Bitcoin (BTC) Exchange-Traded Fund (ETF). But with the U.S. Securities and Exchange Commission (SEC) yet to approve a BTC spot ETF for American investors, Grayscale CEO Michael Sonnenshein considers suing the agency if its application is rejected on the basis that the SEC has allowed BTC derivatives-backed ETFs to trade, while continually denying spot ETF applications. He also added that the firm does not feel that the agency is doing everything they can to protect the investors since they are forced to invest into futures-based products instead of spot ETFs. Besides, over 800,000 accounts in the U.S. are waiting to convert its GBTC holdings into an ETF.
Insights: GBTC allows private investors to gain BTC exposure without having to worry about its custody and it is meant to trade fairly to the actual price of BTC. Nevertheless, it is currently trading at 26% discount, which means that it is much cheaper to buy GBTC than an actual BTC. The only caveat is that the shares are locked up in a six-month period. This is why Grayscale is pushing for its GBTC to convert into an ETF since the price of a Bitcoin ETF can be traded very closely to actual BTC. Besides, a BTC ETF would come with fewer fees for investors and still allow investors to gain exposure to BTC without concerns on custody or on increased volatility that investors may be exposed to in futures-based products. While Sonneshein considers the approval of a BTC futures ETF “exciting”, he also said that it is “a matter of when, not a matter of if, a spot Bitcoin ETF is approved.”
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NEWSLETTER MONTHLY WRAP-UP
march 2022
index Updates
PSEI 7,203.47 â–¼ 107.54 â–¼ 1.47%
USDPHP 51.96 â–² 0.67 â–² 1.30%
SPX 4,530.41 â–² 156.47 â–² 3.58%
NASDAQ 14,220.52 â–² 469.12 â–² 3.41%
CRYPTOCAP 2,119,552,954,449.00 â–² 299,685,146,642.00 â–² 16.47%
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SLOW MONTH FOR THE PSE IN MARCH 2022
Last month started with Bank of Commerce (PSE:BNCOM) being the only IPO approved by the Security Exchange Commission (SEC) and CTS Global (PSE:CTS) IPO yet to be approved. Approvals of their listings were expected to be delayed and to occur after April 13 after DITO dropped its stock right offering (SRO) at the last minute which shook relations between PSE and underwriters. Yesterday, March 31, BNCOM successfully entered its first day of trading, closing the day at PHP 12.22, an increase of roughly 1.83% from the IPO price of PHP 12.00being the only IPO conducted last March and the first PSE banking stock IPO after almost ten years. CTS Global Equity Group Inc.'s IPO was approved by the PSE last March 17 and is scheduled to be listed on April 13. Presently, there are still four IPOs, i.e. ASLAG, BALAI, NSTAR, VREIT, expected to be approved by the SEC.
Insights: Despite the pressure the local bourse is experiencing to match the size of its regional counterparts, the regulatory authorities, including the PSE itself, are taking their time scrutinizing the plans of these companies. As a matter of pricing technicals, out of the ten IPOs from last year, eight IPOs finished green on their first day and six of the ten are currently above their IPO price which can relatively be said as “good performance” and possibly indicative of a stable market interest, as may be indicated by increased retail presence. It is also this increased retail presence that brought about the greater scrutiny among companies seeking to list, given the fiasco experienced with the Medilines IPO last December.
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TRIGGER-HAPPY SANCTIONS BY THE UNITED STATES MAY LEAD TO LESS RELIANCE ON THE U.S. DOLLAR, SAYS ANALYST
According to Gal Luft, the co-director of the Institute for the Analysis of Global Security, the United States has been trigger-happy in giving sanctions and other economic punishments. He estimated that at least one in ten countries is under some form of sanction imposed by the United States. According to the U.S. Department of the Treasury, there are at least twenty-four countries subjected to some form of economic sanction by the United States. As of March 2022, these include Afghanistan, Belarus, Burma, the Central African Republic, Cuba, Democratic Republic of Congo, Ethiopia, Hong Kong, Iran, Iraq, Lebanon, Libya, Mali, Nicaragua, North Korea, Russia, Somalia, Sudan, South Sudan, Syria, Ukraine, Venezuela, Yemen, and Zimbabwe.
Insights: Gal Luft stated that “That [the several sanctions placed by the U.S.] has a cumulative effect and as a result, we see the dollar playing less and less of a role and portfolios of central banks.” Sanctions are not uncommon in the armory of economic and political weapons that the U.S. can wield as part of its foreign policy. The outbreak of the Pacific Theater of the Second World War may also be partly and immediately attributed to the U.S. oil embargo imposed on Japan after the latter’s invasion of then-French Indochina (modern-day Vietnam, Cambodia, and Laos). However, there is merit in the U.S. making a more careful approach in using its economic might, through the U.S. Dollar, for geopolitical gains.
The adoption of a common global currency would make the facilitation of transactions more efficient. Manipulation of prices would also be more difficult to commit and countries would also not be as susceptible to hyperinflation as this commonly ties them with the economies of other countries. This, however, comes at the cost of individual countries losing control over their monetary policy, since other countries are using the same currency and they cannot control the flow and supply of money. The U.S. Dollar was first considered as a global currency with the adoption of the Bretton Woods System shortly before the end of the Second World War, eventually emerging as one of the two superpowers at the end of the war. Its later decoupling from the gold standard during the 1970s raised concerns about the USD’s impartial reliability as a common global currency, as its value could now be easily subjected to the whims of the regulatory authority, as can be observed with the unprecedented injections made by the Federal Reserve on the U.S. economy during the first two years of the pandemic.
The sanctions imposed by the U.S. immediately after the Russian invasion of the Ukraine in late February have struck this sensitivity among the more wary states. By isolating Russia from the rest of the world through its economic muscles, the U.S. has also increased the risk of losing its economic preeminence given Russia’s status as one of the world’s top producers and the latter’s close ties with China, the other contending power on the rise to challenge this U.S. hegemony. These measures have also reignited political tensions that can also be seen as a clash between different politico-economic systems, i.e., between the crony capitalist economies of authoritarian states and the free (and often liberal) market economies of liberal democratic states.
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VOLATILE CHINESE MARKET FOR MARCH DUE TO RUSSIA, TECH CRACKDOWNS, AND COVID WAVES
The past month saw great movements in the global markets, primarily due to the Russian invasion of the Ukraine. The Chinese market, beset with the complexity that comes with its government’s close ties with Russia, as well as the threat of U.S. crackdown on interlisted Chinese tech firms, and a resurgence of COVID infections in major cities that led to ongoing massive lockdowns, also experienced this bout of volatility. On March 14 alone, the Hang Seng China Enterprises Index (HSCEI) lost 7.2%, its biggest drop since the financial crisis of 2008. The Hang Sang TECH Index (HSTECH) has also reported its single largest decline of 11% on the same day. The following day, the China Securities 300 Index (CSI 300), a blue-chip index for the Shanghai and Shenzhen Stock Exchanges, fell by 4.6%. These were quickly reversed just a few days later following a State Council promise to support the economy. The HSCEI rose 12.5%, HSTECH gained 22%, its biggest daily gain since its launch, while CSI 300 increased by 4.3% on March 16.
Insights: In light of these events, the Chinese government has assured investors that they would make regulation more transparent. There were suggestions that the China Securities Regulatory Commission (CSRC), the Chinese securities watchdog, could give the U.S. access to company audits within the year to ease the current scrutiny on Chinese tech firms. The impact of the country’s notably stringent COVID-Zero policy was also reviewed to help curb panic selling. In addition, analysts say an interest rate cut is imminent to boost the declining economy in line with the government’s vow, although presently the rates remain unchanged.
These positive reactions and developments prompted the rebound in the indices on March 16. Chinese stocks may be oversold and could be nearing the end of capitulation. However, investor sentiment remains poor. Volume remains thin as some analysts have questioned whether China could keep its promises. The impact of geopolitical tensions in Europe and those between China and the U.S. also remain unresolved, possibly indicating that the market has not bottomed yet. Volatility should still be expected in the medium to long term.
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GOOGLE SEARCHES ON “ETH MERGE” HIT AN ALL TIME HIGH
Bitcoin (BTC) price is rallying over the last week amid the excitement on Terra’s (LUNA) USD 3 billion BTC purchase plan. Despite macro uncertainties playing out in the past few months that drove BTC price to a low of USD 33,000, it seems that a rally will be sustainable in the coming months as major upgrades are bound to take place on several cryptocurrencies, which includes, among others, Ethereum (ETH). People have been curious to know more about the Ethereum Merge as Google Trends data show. On March 6, “Ethereum Merge” was about 21% as popular as it is now that drove the term to hit all-time peak popularity worldwide by March 20, with Canada, Australia, and Singapore topping the search data by location .
Insights: Ethereum Merge, or The Merge for short, intends to “merge” the existing Proof-of-Work (PoW) mechanism with a Proof-of-Stake (PoS) system called Beacon Chain, wherein ETH validators who stake the most crypto will validate most transactions, instead of the miners in the PoW network. Given that the old ETH system is similar to that of BTC, it similarly received a lot of criticism with its high energy usage. Consequently, it was recently rebranded to what is called a “consensus layer”, reflecting the idea that this is an upgrade of the existing network, and not the introduction of a whole new system. With this in mind, not only will this upcoming upgrade affect ETH’s scalability, security, and decentralization, but also its long-term price. The promise of better scale will also attract more usage from users, generating greater market demand that may drive ETH’s price to new highs. ConsenSys CEO and Ethereum co-founder Joseph Lubin said that the upgrade is expected to launch "by Q2 or possibly slipping into Q3" this year.
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Market updates 6.1
april 10, 2022
index Updates
PSEI 7,124.84 â–² 117.21 â–² 1.67% w/w
USDPHP 52.36 â–² 0.20 â–² 0.38% w/w
SPX 4,543.06 â–² 79.94 â–² 1.79% w/w
NASDAQ 14,169.30 â–² 275.46 â–² 1.98% w/w
CRYPTOCAP 1,995,429,090,743.00 â–² 164,057,282,660.00 â–² 8.96% w/w
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UNIONBANK FINALIZES SRO PRICE AT PHP 64.81 PER SHARE
UnionBank of the Philippines, Inc. (PSE:UBP) announced the final price of its stock rights offering (SRO) last April 5, Tuesday at PHP 64.81 per share, involving 617,188,705 shares in order to raise PHP 40 billion. Stockholders of record are entitled to purchase 1 share for every 2.4707 shares they hold. UnionBank said that: "The offer price was determined using the exchange's 15-day volume-weighted average price for the bank's common shares, subject to a 30% discount." The stock rights offer will run from April 25 to May 6 while its preliminary listing date is on May 16. Aboitiz Equity Ventures, Insular Life Assurance, and the Social Security System, among UnionBank's major shareholders, have previously declared their commitment to the stock sale.
Insights: UBP’s updated prospectus states that the entire amount of net proceeds will primarily be used to partially fund the Bank’s acquisition of the consumer banking business of Citigroup, Inc and to help enhance the products and services offered by the bank and expand to meet the increasing demand from the Philippine economy. Historically speaking, however, share price tends to lean back towards its SRO price, hinting a strong possibility that the SRO pulls UBP’s share price, currently 7.5% down from when the SRO price was finalized. This may bear resemblance to when BPI filed an SRO for loans back in 2019.
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INFLATION CONTINUES TO WORRY FED OFFICIALS
According to a news release by the U.S. Bureau of Economic Analysis, the Personal Consumption Expenditure (PCE) price index, which is the Fed’s preferred inflation gauge, for February 2022 rose by 5.4% from the same month of the previous year, and the highest since April 1983. U.S.stocks also fell last March 29 as one of the Federal Reserve Governors and the incumbent Vice Chair, Lael Brainard, indicated that the central bank could take a more aggressive approach to its contractionary policy. She commented about envisioning an aggressive drawdown of the assets of the central bank holding on its balance sheet.
Insights: The recent trend regarding inflation in the United States continues to worry key Fed officials. Just last Wednesday, the Philadelphia Federal Reserve President, Patrick Harker, also remarked, “Inflation is running far too high…The bottom line is that generous fiscal policies, supply chain disruptions and accommodative monetary policy have pushed inflation far higher than I — and my colleagues on the [Federal Open Market Committee] — are comfortable with.” However, Brainard’s earlier comments give more jitters as she is seen as the one among Fed officials who prefers a loose policy and lower rates. Should another, more aggressive rate hike be considered, U.S. stocks would likely receive the fallout of another bout of selloff. CNBC’s Samantha Subin and Yun Li reported that some believe that tech companies could be the most affected by the Fed's hiking initiative as investors will opt to go for more steady and less risky investments, rather than growth shares promising big earnings in the long term.
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TESLA VEHICLE PRODUCTION ON TRACK DESPITE CHINA LOCKDOWNS
Last April 2, electric car manufacturer Tesla (NASDAQ:TSLA) reported that its production for Q1 2022 remained relatively stable at 305,407 units, showing only a slight drop from 305,840 units in Q4 2021. This comes after the company’s Shanghai gigafactory was shut down twice this year because of rising coronavirus cases in China, first in mid-March and then for a second time this month. The factory has already been closed for two weeks due to the ongoing lockdown in the city, which has been extended indefinitely, and other supply chain disruptions caused by China’s zero-COVID policy. The Shanghai plant, the largest electric vehicle factory in the world, produces the Model Y SUV and the Model 3 sedan for the rapidly expanding and crucial Chinese, Japanese, and European markets at a rate of approximately 2,000 vehicles per day.
Insights: The company suffered numerous delivery delays last year after production ranged from 180,338 to 237,823 for the first three quarters of 2021 due to the worldwide chip shortage. In a bid to increase production to meet demand, Tesla inaugurated a new gigafactory in Texas last Friday. It is set to produce the Model Y SUV within the year and the Cybertruck, along with its large-cell 4680 EV battery, by 2023. The plant is the second to open this year, after the Berlin gigafactory, the company’s first in Europe. The numbers seem to have stabilized and might improve once the operations of the new factories in North America and Europe are in full swing. However, some uncertainty should still be expected for Tesla’s supply in the short term in Asia as China remains the primary manufacturing hub for the region. Around half of all its deliveries in 2021 came from the Shanghai gigafactory, and its prolonged closure may begin to take effect beginning in the second quarter.
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US SEC APPROVES FOURTH BTC FUTURES ETF
Crypto news firm Decrypt reported last Friday that the U.S Securities and Exchange Commission (SEC) has approved its fourth BTC futures ETF. The fourth BTC futures ETF approved belongs to Teucrium Trading under the name of Teucrium Bitcoin Futures Fund (NYSE:BCFU). Decrypt also reported that the Teucrium BTC futures ETF has been approved pursuant to a filing Teucrium made under the Securities Act of 1933, the first among BTC ETFs approved and operating in the U.S. market.
Insights: The other three BTC futures ETFs currently in the U.S. market, namely Proshares (BITO), Valkyrie (BTF) and VanEck (XBTF) have all been approved under the Investment Company Act of 1940. This is surprising since the SEC said in an investor bulletin last summer that funds regulated under the 1940 Act are required to provide “important investor protections,” such as rules regarding valuation, liquidity, and custody of fund assets, rules not covered under the 1933 Act. For instance, the ARK 21Shares BTC ETF was denied last week due to its filing under the 1933 Act. This may lead to an argument that the protections under the 1933 Act would be strong enough for a BTC spot ETF. With the approval of the Teucrium BTC Futures ETF, Grayscale CEO Michael Sonnenshein tweeted that the SEC “can no longer justifiably cite the ‘40 Act as being the differentiating factor" between futures and spot ETF approvals.
A registration for an investment fund filed under 1940 Act has a higher chance of getting an approval from the SEC since the determination of liability is easy (the 1940 Act regulates investment companies and their products), unlike the 1933 Act which only dealt with the products themselves, i.e., securities, leaving the question of liability in case demanded by investor protection relatively open. As of writing, the full-text decision or a pertinent news release related to this approval is not yet released by the SEC.
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Market updates 7.1
april 20, 2022
index Updates
PSEI 7,142.42 â–² 157.52 â–² 2.26% w/w
USDPHP 52.38 â–² 0.21 â–² 0.39% w/w
SPX 4,462.21 â–² 69.62 â–² 1.58% w/w
NASDAQ 13,619.66 â–² 268.58 â–² 2.01% w/w
CRYPTOCAP 1,921,764,914,415.00 â–² 60,121,428,370.00 â–² 3.23% w/w
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​SM PRIME ALLOCATES PHP 80 BILLION FOR CAPEX
SM Prime Holdings (PSE:SMPH), the Sy-led SM Group's listed property developer, has appropriated PHP 80 billion for capital expenditures this year. According to the company's annual report filed with the Philippine Stock Exchange (PSE) yesterday, this year's capex is greater than the PHP 65 billion spent last year, with a net income of PHP 21.8 billion, up from PHP 18 billion in 2020. The residential segment accounted for the majority of last year's capex, which totaled PHP 34 billion. SM Prime currently has 61 residential projects, 46 in Metro Manila and 15 outside thereof. This year, the company hopes to open 15,000 to 20,000 residential units as well as four new shopping centers, subject to the local government and quarantine restrictions.
Insights: SMPH’s potential IPO may be knocking at the market’s door soon and is possible knowing the company’s high market cap standards, long list of mature real estate assets, and capex plans for this year. Last year, the REIT market witnessed the successful listing of Filinvest REIT (PSE:FILRT), RL Commercial REIT (PSE:RCR), MREIT (PSE:MREIT), and Citicore Energy REIT (PSE:CREIT), consequently acquiring billions in capital for their real estate developer parent companies. Last month, VistaREIT filed their own IPO as well, making them the first mall-based REIT should it be approved. BDO estimated that SMPH’s potential IPO would amount to PHP 50 billion of what could be the biggest REIT offering in the country. Although SMPH has not yet said any statements regarding this matter, it is safe to say that the company is not rushing things and is possibly waiting how the market will react to Villar’s mall-based REIT. A REIT listing for SM, if deemed possible based on the current circumstances, would allow the company to tap an alternative source of capital, considering rising interest rates.
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NETFLIX LOSES 200,000 SUBSCRIBERS FOR THE FIRST TIME IN A DECADE, PLUNGES 25% AFTER TRADE HOURS TUESDAY
Yesterday, Netflix Inc. (NASDAQ: NFLX) reported a global net loss of 200,000 subscribers during the first quarter of 2022. In a letter to shareholders, it also forecasted a loss of 2 million subscribers for the second quarter of 2022. The last time there was a decline in subscriber count was October 2011, which was more than a decade ago. Netflix co-CEO Reed Hastings is now considering offering lower-priced subscription plans with advertisements in order to increase the company’s market share, but indicated that it would not be available for at least 1-2 years. The company also stated, “Our revenue growth has slowed considerably as our results and forecast below show. Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally. However, our relatively high household penetration - when including the large number of households sharing accounts - combined with competition, is creating revenue growth headwinds.”
Insights: After the release of Netflix’s first quarter report, the company’s stock price plunged by about 25%, down to USD 258.69 in the extended hours after trading. Other companies with streaming services such as Roku, Spotify and Disney also dropped after the company’s update. According to Netflix, it would have seen a 500,000 net addition in subscriptions if not for the 700,000 loss in subscribers in Russia due to its suspension of services there as a result of the ongoing conflict in the Ukraine. Netflix also attributed the excessive sharing by its 222 million paying subscribers to its losses, claiming that existing subscriptions are being shared with more than 100 million additional households. Netflix’s losses may also be partially attributed to the return of people to their pre-pandemic activities due to the removal of mask mandates and its increasing prices.
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POLITICAL TURMOIL FORCES CLOSURE OF LIBYAN OIL FIELDS
Earlier this week, Libya’s state-owned National Oil Corporation (NOC) announced a series of closures of its oil production facilities, in particular the Al-Fil and Al-Sharara fields, and the oil ports of Zueitina and Brega. The NOC has declared a force majeure after protesters occupied the facilities as part of the ongoing standoff between the two competing governments in Libya. Combined losses may be as high as 600,000 barrels per day, which constitutes half of the country’s total output. Consequently, European crude benchmark Brent Oil (ICE:BZ) reached USD 114.70 on Monday on the day of the announcements, but eventually fell to USD 107.25 on Tuesday.
Insights: Political instability has long marred Libya, but tensions have started to flare up as supporters of the Tobruk-based government headed by former interior minister Fathi Bashagha challenge the UN-brokered interim government in Tripoli. The NOC has claimed that the protesters are threatening the safety and security of staff, as well as causing serious damage to valuable reservoirs and equipment which can result in long term losses. Due to Libya’s reliance on oil as a major source of revenue, the country’s economy may be at risk. Global oil prices could also be affected should the conflict worsen. Though Brent Oil fell on Tuesday due to other market factors, continued pressure on supply could cause prices to shift again. Given the tight global supply, analysts say even relatively minor disruptions may cause further price movements.
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BTC OUTFLOWS FROM CRYPTO FUNDS REACH USD 73 MILLION AMID AGGRESSIVE FED POLICY
CoinShares reported that over USD 90 million worth of crypto has seen an outflow from institutional crypto funds last week with USD 73 million accounting for Bitcoin (BTC). CoinShares investment strategist James Butterfill said that this could be a delayed reaction of the investors to the “hawkish FOMC statement”. For the last two weeks, most of the outflows were from the U.S., but 88% of last week’s outflow came from Europe.
Insights: In February, the FED stopped its senior officials from buying and selling a number of assets including crypto. This new rule will take effect on May 1 and will allow officials to dispose of their banned holdings within 12 months. This may affect trading volumes, and possibly, price movements, in the short-term as officials comply with this policy, adding pressure already brought about by an aggressive policy that may include subsequent rate hikes. However, there is room for a possible upside as Butterfill also observed that investors seem to have sold out Short-Bitcoin investment products amounting to USD 1.8 million after several bearish weeks of money flowing into short Bitcoin products. Multi-asset products, which give exposure to multiple coins, also saw inflows of USD 5.3 million last week.
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Market updates 7.2
april 24, 2022
index Updates
PSEI 6,998.59 â–² 13.69 â–² 0.20% w/w
USDPHP 52.40 â–² 0.22 â–² 0.42% w/w
SPX 4,271.78 â–¼ 120.81 â–¼ 2.75% w/w
NASDAQ 12,839.29 â–¼ 511.79 â–¼ 3.83% w/w
CRYPTOCAP 1,840,907,958,668.00 â–¼ 20,735,527,377.00 â–¼ 1.11% w/w
PLDT TOWERS SOLD FOR PHP 77 BILLION TO TWO MALAYSIAN FIRMS
PLDT Inc. (PSE:TEL; NYSE:PHI) announced on Tuesday, April 19, that its subsidiaries, Smart Communications, Inc. and Digitel Mobile Philippines, Inc., had completed the sale of 5,907 telecom towers and related passive telecom infrastructure for PHP 77 billion. The signing ceremonies for the sale of the towers and accompanying infrastructure to subsidiaries of Kuala Lumpur-based edotco Group and US-based EdgePoint Infrastructure were headed by PLDT chairman Manny Pangilinan. The country’s largest integrated telco has promised to lease the towers it just sold to the buyers for ten years, as well as an additional 1,500 common towers that will be built under the conditions of the transaction. The press release refers to this purchase as the "biggest ever acquisition of assets in the Philippines by international investors," and the buyers will become the Philippines' largest common tower operators once the transaction is completed.
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Insights: PLDT was able to maximize a PHP 77 billion deal after more than a month of deliberations from when they announced the final six bidders with an estimated amount of PHP 50 billion in biddings. S&P Global Ratings said in an emailed statement on Thursday, April 21, that this deal will increase TEL’s financial flexibility, allowing them to take on more debt without having to change their gearing ratios, and offset pressure from its incremental lease liability of PHP 27.5 billion. The deal monetizes telco’s mature assets and allows the company to further reduce the operational costs of maintaining the 5,907 towers, hence increasing their capital and maximizing profit.
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CNN+ SHUTS DOWN AFTER JUST A MONTH OF OPERATIONS
After just a month of operations, the streaming service CNN+ by Warner Bros. Discovery Inc. (NASDAQ:WBD) will be shutting down by the end of this month. CNN+ was launched by WarnerMedia last March 29, 2022, just less than a month ago. The subscription for CNN+ charged USD 5.99 monthly, or USD 59.99 annually. In the two weeks following its launch, it only achieved less than 10,000 daily active viewers. The company also announced plans to refund subscribers of their subscription fees.
Insights: After previous launches of niche streaming networks, Warner Bros. Discovery Inc.(NASDAQ: WBD) came to the conclusion that consumers do not want to pay more money for small services according to CNBC. On the other hand, there are many free streaming services for news, which was what CNN+ aimed to market heavily, so it would be more difficult for the program to gain viewers as they have to pay for it. In addition to this, the streaming service market is already saturated with many available programs such as Netflix (NASDAQ:NFLX), Walt Disney Company’s (NYSE:DIS) Disney+, and many others.
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INDONESIA BANS PALM OIL EXPORTS
Last Friday, the Indonesian government announced its plan to ban exports of palm oil effective next Thursday, April 28. The plan, as announced by Indonesian president Joko Widodo, was made in an effort to ensure the sufficiency of food supplies in the country, especially that of cooking oil which is currently facing a major shortage and skyrocketing prices. Indonesia is the world’s largest producer of palm oil, an important ingredient used in the manufacture of cooking oil, food products, cosmetics, and biofuel. Following the announcement, the price of global benchmark crude palm oil futures in the Bursa Malaysia (MYX:FCPO) rose 0.67% to MYR 6,355 per ton.
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Insights: As Indonesia is a crucial producer of palm oil, the ban is expected to significantly affect its global supply. The prices of edible oils have already risen in the past few months due to various factors including the war between Russia and Ukraine, since the latter is a major producer of sunflower seed oil, as well as drought in South America, which affected the supply of soybean oil among others. Tighter supply could lead to a further surge in prices for not only the oils in question, but also for its substitute goods and other related items. Soybean oil futures contracts (CBOT:ZL) for the month of May have already risen 1.22% to USD 1,835.57 per ton as of April 22.
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Increased protectionist measures may benefit the country enforcing them, but consumers and importers abroad will suffer. The Philippines is the 11th largest importer of palm oil. According to the Philippine Bureau of Customs, palm oil imports reached 55.49 million kilograms in 2020, a significant increase from 1.18 million kilograms in 2016. This indicates that palm oil has gained importance in local consumer markets as an essential cooking ingredient, becoming a direct competitor of locally produced coconut oil. Approximately 29.1% of the country’s imported palm oil is sourced from Indonesia. Thus, a prolonged ban could possibly lead to a shortage and an eventual increase in the prices of cooking oil and relevant food products in the future.
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ETH INVESTORS GAINED USD 76.3 BILLION IN 2021 THANKS TO DEFI
Blockchain forensic firm Chainalysis reported that Ethereum (ETH) went ahead of Bitcoin (BTC) in total realized gains in 2021 with a narrow win of USD 76.3 billion compared to BTC’s USD 74.7 billion. The firm added that it reflects increased demand for ETH as the result of DeFi’s rise in 2021. CoinGecko stated that the market cap across the decentralized finance (DeFi) protocols grew by 7.5x from USD 20 billion to USD 150 billion in 2021.
Insights: With the growing adoption of cryptocurrencies, it is expected that the gains earned by investors have exploded thanks to new innovations made in most of the networks particularly for ETH. As NFTs and DeFi boomed in 2021, investors can be said to have been keen on speculative assets. However, DeFi Llama, a data dashboard tracking all things DeFi, shows that the number two crypto network enjoys a 54.43% market share of all activity so far this year. Last year, it was more than 70%. This implies that there has been a decrease of interest among investors, thus putting into question whether the DeFi trend will continue. With the recent trend towards an increase in interest rates in the U.S. and conflicts aggravating geopolitical rivalries, sentiment on more speculative assets may prompt investors to reassess the risks that they are willing to take.
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Market updates 8.1
april 27, 2022
index Updates
PSEI 6,863.91 â–¼ 134.68 â–¼ 1.92% w/w
USDPHP 52.26 â–¼ 0.14 â–¼ 0.27% w/w
SPX 4,175.20 â–¼ 96.58 â–¼ 2.26% w/w
NASDAQ 12,490.74 â–¼ 348.55 â–¼ 2.71% w/w
CRYPTOCAP 1,783,455,589,223.00 â–¼ 57,452,369,445.00 â–¼ 3.12% w/w
VILLAR INTENDS THREE NEW IPOS BY Q2 2023
The Philippine Daily Inquirer reported that billionaire Manny VIllar plans to list three new companies on the PSE within the next 12 months. Other than VistaReit (VREIT), currently pending in the SEC, Villar wants to put his coffee chain, Coffee Project, on the market, as well as Siquijor Island Power Corp. (SIPCor), a small regional power plant operator, which owns two power plants in the Visayas with a combined capacity of 15 megawatts. Currently, the VIllar group has five listed companies: AllDay Marts Inc. (PSE:ALLDY), AllHome Corp. (PSE:HOME), Golden MV Holdings (PSE:HVN), Vista Land & Lifescapes Inc. (PSE:VLL), and Vistamalls Inc. (PSE:STN), having a combined market value of over PHP 500 billion.
Insights: Although Villar’s companies are “underperforming”, with AllHome down 30%, AllDay Marts down 25%, and Medilines Distributors down 66%, Villar stated that none of the companies he puts in the market are bad. Despite the downward trend in these companies, they remain profitable with their financial performance up to standards and the nature of the goods and services that they offer. Recently, Villar’s Prime Asset Ventures Inc. bought Ayala Corp.’s (PSE:AC) interests in the 4-km Muntinlupa-Cavite Expressway for PHP 3.8 billion, driven by the idea of building more upscale projects alongside the economic growth and an expanding middle class. All of these places the Villar group one step closer to being a true conglomerate along the lines of other family-run entities, such as the Ayalas. This must be seen, however, with a keen eye on the family’s political position, considering the family’s participation in national politics.
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GOOGLE PARENT REPORTS LESS GROWTH REVENUE FOR Q1 2022
Google’s parent company Alphabet Inc. (NASDAQ:GOOGL) released its first quarter 2022 results yesterday,April 26. The company’s revenue was reported at USD 68.01 billion, growing by 23% year-on-year. This is less than the 34% growth reported in the first quarter of 2021.. The reported revenue in terms of amount is also lower than the expected USD 68.11 billion. Alphabet subsidiary Youtube’s advertising revenue also came in lower at USD 6.87 billion, which is lower than the expected USD 7.51 billion.
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Insights: The lower-than-expected growth reported by Alphabet prompted its stock price to fall by about 3% after trading hours. Compared to Youtube’s strong first quarter of 2021, the decline in the first quarter of 2022 was called “modest growth” by CFO Ruth Porat. Advertising revenue makes up the largest portion of Google’s revenue, with Youtube being one of the major sources thereof. The company reported USD 54.66 billion in advertising revenue for the quarter, with Youtube making up more than a tenth thereof. With the pandemic, Youtube is considered to be a beneficiary as users mainly stay home and would primarily rely on apps like Youtube for entertainment. However, with Tiktok garnering a bigger share of the social media video market, there would be less users on Youtube, thus resulting in the less-than-expected revenue for Youtube.
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HYUNDAI POSTS 16.8% GAIN IN PROFIT DESPITE GLOBAL MARKET CHALLENGES
South Korean automobile maker Hyundai (KRX:005380) reported a 16.8% increase in quarterly profit at KRW 1.78 trillion in Q1 2022 compared to the same period in 2021. The news comes despite numerous market challenges in the first few months of the year including suspended production in Russia, a rise in raw materials costs, and a decrease in sales volume. Hyundai’s stock price rose 3.1% to KRW 182,500 on April 25, shortly after the report’s release.
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Insights: Hyundai exceeded first quarter revenue expectations, originally estimated at KRW 1.4 trillion, partly by raising prices to cope with higher production costs. Although the report shows a 10% decrease in overall car sales, the company sold more Sports Utility Vehicles (SUVs) and units from its luxury line Genesis compared to Q1 2021. More importantly, the surge in profit can also be attributed to favorable exchange rates. The South Korean won (KRW) has weakened nearly 7% against the US dollar (USD) since the beginning of the year, thus increasing the value of its overseas earnings. The US dollar recently rose to a two-year high due to increasing risk aversion in the global markets as well as the possibility of bigger rate hikes by the US Federal Reserve. Considering this, Hyundai and other companies which earn significant revenue abroad could expect better profits in the coming quarters should the US dollar continue to strengthen enough to offset production costs and slowing demand.
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DOGECOIN SOARED 26% AFTER TWITTER ACCEPTS MUSK’S TAKEOVER BID
Dogecoin (DOGE) surged 26% yesterday, reaching a high of USD 0.1675 after Twitter (NYSE:TWTR) accepted Elon Musk’s USD 44 billion takeover bid. DOGE’s price is observed to be prone to movements based on Musk’s accomplishments and DOGE-related tweets. Microstrategy (NASDAQ:MSTR) CEO Michael Saylor congratulated Musk on Twitter quoting the First Amendment of the U.S. Constitution that guarantees everyone’s free speech. Musk also has promised to “defeat the spam bots” that affect millions of the platform’s users.
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Insights: Musk taking over Twitter drove excitement across the crypto community because the platform already has the infrastructure to support Bitcoin (BTC) and Ethereum (ETH) payment by leveraging Strike’s Bitcoin lighting wallet service and Stripe Connect. At the same time, some believe that Dogecoin’s functionality is soon to be followed. The takeover is expecting to help spread cryptocurrency adoption, considering the 290.5 million users present on Twitter as of 2019. Meanwhile, Saylor previously proposed Twitter’s spam problem using Bitcoin’s (BTC) Lightning Network, wherein users are permitted to load their accounts with a certain number of satoshis (the smallest unit of BTC) to unlock an orange checkmark for their accounts. Thus, users could quickly be verified without know-your-customer (KYC) procedures.
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NEWSLETTER MONTHLY WRAP-UP
april 2022
index Updates
PSEI 6,731.25 â–¼ 472.22 â–¼ 6.56%
USDPHP 52.16 â–² 0.20 â–² 0.38%
SPX 4,131.93 â–¼ 398.48 â–¼ 8.80%
NASDAQ 12,334.64 â–¼ 1,885.88 â–¼ 13.26%
CRYPTOCAP 1,780,234,154,084.00 â–¼ 339,318,800,365.00 â–¼ 16.01%
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PROMISING Q1 2022 REPORTS FOR PHILIPPINE LISTED COMPANIES
The month of April saw another round of annual reports of listed companies being released to the general public. A number of companies reported an increase in net income and a steady pace of recovery from the pandemic. And while economic hurdles were experienced during the first quarter of 2022, the reopening of economic activities shows promises of growth further into 2022.
Gokongwei-owned Universal Robina Corporation (PSE:URC) reported a profit of PHP 3.5 billion in the first quarter of the year, up 16% from the same period last year and up 29% from the same period last year. URC attributed its gains to the growing momentum of sales and the strength of the Philippine peso.
Meanwhile, the Manila Electric Company (PSE:MER) posted a profit of PHP 5.6 billion Q1 of 2022, up 29% from a profit of PHP 4.3 billion in the same time last year. Consolidated core net income was up 10%, which the company says is due to "more contributions'' from its power generation business and more electricity sold.
On the other hand, AboitizPower (PSE:AP) saw a PHP 2.9 billion consolidated net income that is 53% lower year-on-year, primarily because of outages caused by Typhoon Odette. Although Q1 of 2022 was a setback, AboitizPower shows growth potential considering its capex plans for the year, a strong financial performance in 2021, and its catering of the increasing electricity demand due to the resumption of economic activities.
Insights: URC announced in March that it would be raising prices of its goods to offset the rising cost of commodities due to Russia’s invasion of Ukraine. Not only is URC affected by this but also other food and beverage manufacturers as well such as Century Pacific Food Inc., (PSE:CNPF), RFM Corporation (PSE:RFM), and San Miguel Food and Beverage (PSE:FB). URC being able to manage itself during this crisis shows its profitability potential although the price hike will be passing the burden to the consumers which may possibly affect inflation.
Meanwhile, the increased volume for electricity reflected in Meralco’s first quarter report is a good signal of economic growth and activity. Nevertheless, there still remains uncertainty in the global energy markets that may have a significant impact on customer electricity consumption.
With the reopening of the economy the past few months, Philippine companies can be generally seen to be on the road to recovering to pre-pandemic levels of economic activity. However, some hurdles, such as the ongoing supply chain constraints, coupled with geopolitical tensions that directly affect commodity prices, may pose a challenge for them. The deadline of quarterly reports coming in by May 16 would be timely in assessing how badly the country was affected by the recent omicron surge. Nevertheless, it seems that 2022 may be a relatively better year than the past two years.
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RETAIL BROKER ROBINHOOD’S NET REVENUES DOWN BY 43% YEAR ON YEAR
Retail brokerage Robinhood Markets Inc. (NASDAQ:HOOD) reported a total net revenue of USD 299 million for the first quarter of 2022, a 43% decrease year-on-year. Transaction-based revenue also decreased by 48% to USD 218 million from USD 420 million in the same quarter last year, with those derived from options transactions down by 36%, those from cryptocurrencies also down by 39%, and those from equities down by 73% to USD 127 million, USD 54 million, and USD 36 million respectively. Average revenue Per User was also reported to have decreased by 62% to USD 53.00 compared to USD 137.00 last year. The company also declared a net loss of USD 392 million, which is lower than the USD 3.4 billion net loss reported last year.
Insights: Robinhood’s main source of revenue is from payment-for-order flows (PFOF), i.e., the company earns money from the trades made by its users that it sends to large trading houses. With the pandemic triggering an interest in participating in the stock market, Robinhood's commission-free trading app quickly gained some 3 million users last 2020. This, however, caused three outages within two weeks and subsequent lawsuits. In January 2021, Robinhood users were blocked from purchasing GameStop, AMC, and other stocks due to “market volatility”. Many of the users of Robinhood accused the company of market manipulation and claimed that they were helping the hedge funds. Because of this, Robinhood had to pay more than USD 3.4 billion to settle its collateral demands and to comply with SEC regulations. In the same year, the Financial Industry Regulatory Authority (FINRA) imposed a USD 70 million-fine on Robinhood, claiming that the company misled its customers.
Although beset by many regulatory issues, Robinhood has added many new features in order to keep customers and potentially attract new ones, such as the Robinhood Cash Card, the extension of trading hours last March, and stock lending. For the first quarter of 2022, Robinhood was able to reduce its net loss to USD 392 million from USD 1.4 billion year-on-year. Based on assets under management, Robinhood is the 5th largest stock brokerage firm with USD 810 billion worth of assets under management last 2021, reporting a growth of 311% from USD 0.19 trillion year-on-year. According to CNBC, Robinhood will continue to build products to support long-term investing, as well as spending and saving and that, despite continuous declining revenue from cryptocurrencies since 2Q 2021, Robinhood continues to invest heavily in its crypto business in hopes of opening it internationally in 2022.
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JAPANESE YEN SLIDES TO 20-YEAR-LOW AGAINST THE US DOLLAR
Throughout March and April, the Japanese yen has weakened significantly against the US dollar, falling by approximately 13% from JPY 115.08 on March 1 to JPY 129.83 as of April 29. On April 28, the yen reached its lowest point in 20 years at JPY 131.22 per dollar. Nikkei Asia attributed the decline to the Bank of Japan’s traditional expansionary monetary policy. In contrast, the US dollar has been strong for the past few months, buoyed by the combination of interest rate hikes by the Federal Reserve and increased risk aversion across global markets. The growing divergence in policy has fueled a sell-off of the yen in favor of growing US Treasury yields, causing an upward momentum on the USD/JPY pair.
Insights: For years, the Bank of Japan has promoted a relatively weak yen that has been useful for maximizing profits from exports. However, a greater percentage of Japanese cars and other products are manufactured in the countries where they are sold instead of being exported directly from Japan like in previous years, lowering the benefits gained from a weak currency. In addition, a prolonged and significant drop in the exchange rate can cause inflationary pressure, particularly on imported goods. This has compounded with other market factors, such as high oil prices, to cause a 1.2% rise in Japan’s Consumer Price Index (CPI) in the month of March 2022 compared to the same period last year. The CPI measures changes in the weighted average price of a basket of goods and services purchased by households. A high CPI could increase the burden on Japanese consumers. In the long term, manufacturers may also be affected as the rise in the cost of importing raw materials could mean higher overall production costs and lower profits, presenting a possible handicap to local industries. On April 28, the Bank of Japan raised its inflation forecast for 2022 to 1.9% from its original forecast of 1.1% in January. This is already considered unusually high for the Japanese economy which has experienced decades of deflation, although still below the central bank’s target of 2%.
Japan’s Ministry of Finance has expressed concern over the issue, stating that they would take appropriate action to resolve the yen’s drop. However, the Bank of Japan has vowed that it would continue to keep interest rates at low levels. Analysts say that imminent government intervention is not likely at the moment despite the ministry’s announcement, and the yen’s decline will most likely continue in the foreseeable future.
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FURTHER DOWNSIDE FOR THE ENTIRE CRYPTO MARKET?
The crypto market’s aggregate capitalization decreased by 3.5% in week-on-week and by 16% month-on-month with the USD 1.75 trillion support being tested last April 27, just as Bitcoin (BTC) bounced at USD 38,000 and Ether (ETH) at USD 2,800 on the same day. On the other hand, some gaming and Metaverse altcoins posted 25% gains in the same time period. However, key indicators suggest that a further downside is expected. Tether (USDT) premium stands at 0%, signaling a neutral sentiment from retail traders. Data from the futures market also supported this sentiment. The accumulated seven-day funding rate is slightly positive for BTC and ETH at 0.0475% and 0.0301% respectively, indicating a lack of demand from retail traders as the total crypto market capitalization struggles to maintain the USD 1.75 trillion support.
Insights: The Crypto Fear and Greed Index as of April 30 is at 20, an all-time low year-to-date, indicating that investors and traders are in the extreme fear level. This is supported by the increasing trend in net unrealized loss (NUL) wherein more investors are beginning to be in loss as indicated in Figure 1 below. With the BTC supply in loss (%), an indicator that measures the total amount of Bitcoin that’s currently being held at a loss, is trending higher as indicated by Figure 2 below, a short-term sell pressure is created. This is considering that most of the pressure comes from the short-term holders who are typically new to crypto.
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Market updates 9.1
may 4, 2022
index Updates
PSEI 6,802.73 â–² 71.48 â–² 1.06% w/w
USDPHP 52.30 â–² 0.14 â–² 0.27% w/w
SPX 4,175.48 â–² 43.55 â–² 1.05% w/w
NASDAQ 12,563.76 â–² 229.12 â–² 1.86% w/w
CRYPTOCAP 1,730,421,472,692.00 â–¼ 49,812,681,392.00 â–¼ 2.80% w/w
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COL POSTS RECORD PROFIT FOR FY2021
Online retail broker COL Financial Group, Inc. (PSE:COL) announced on Monday, May 2, that its net income increased by 38% to PHP 582 million in 2021, surpassing its pre-pandemic record of PHP 513 million in 2018. Meanwhile, consolidated revenues increased to PHP 1.3 billion, while client assets increased to PHP 112 billion, with net fresh flows of PHP 6.7 billion. COL Financial also reported that it benefited from the rise in market activity on the Philippine Stock Exchange (PSE) as a result of its efforts for focusing on its retail investor base service. In a statement, COL Financial President and Chief Executive Conrado F. Bate said, "While being #1 is not the yardstick by which we evaluate our performance, we think that this is the inevitable conclusion of our strategy to focus on servicing our clients." The financial group's client base had grown to about half a million investors by the end of 2021.
Insights: The approach of focusing on the retail investor demographic came out big for COL Financial, thus resulting in a massive increase in its customer base and client assets. COL profits from both interest and commission income. Clients’ non-traded funds are deposited as savings in banks, hence gaining interest while traded funds and transactions allow COL to earn commission income. Unlike in the previous years, a substantial portion of COL’s income comes from commission payments and this bodes well for the company’s future profitability by enticing a significant portion of those new investors to its platform and reinvest their assets in short-term savings products that will yield higher returns when interest rates rise in the second half of the year. COL can keep this momentum going considering the increasing interest of market retail investors and if COL continues to implement more efficient and scalable technologies in 2022, as well as expand its product offerings and improve their user interface to meet the diverse demands of its current and future clients.
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AMD REPORTS RECORD REVENUE FOR Q1 2022
Yesterday, American semiconductor company Advanced Micro Devices Inc. (NASDAQ:AMD) released their earnings report for the first quarter of 2022 It reported a record revenue of USD 5.89 billion, a growth of 71% year-on-year. Operating income came at USD 951 million or 16% of total revenue, with net income at USD 786 million. The company also repurchased USD 1.9 billion of stock with USD 8.3 billion left in its authorization and its earnings per share is at USD 1.13. Shortly after this release, AMD’s stock after-trading price rose by around 8%.
Insights: According to CNBC's Kif Leswing, “One highlight for AMD is its high-end server chip business, which primarily competes with Intel. Some data points show that AMD has taken market share from its rival while it tries to get its manufacturing prowess back.” Due to supply chain and production disruptions caused by the pandemic last 2020, there was a global chip shortage, which recovered as operations returned to normal. Moreover, during the pandemic, there was a higher demand for gadgets such as laptops, PCs, or tablets due to the transition to the online set up. With people already returning to their pre-pandemic way of life, there would have been an expected slow down in consumption of these gadgets, but AMD showed that sales continue to be strong. Its focus on its premium and gaming lineups would help keep the momentum in the growth of its financials. At the same time, with the supply chain constraints still ongoing, especially in the semiconductor industry, the demand, and the consequent opportunity to maximize value, is not expected to go down anytime soon.
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INDIA’S TOP LIFE INSURANCE PROVIDER LAUNCHES COUNTRY’S LARGEST IPO
On Wednesday, May 4, Indian state-run Life Insurance Co. (LIC) began accepting share orders from the public as part of the country’s largest IPO. An estimated USD 2.75 billion is expected to be raised for a 3.5% stake in the company, putting LIC’s valuation at USD 78.5 billion. The LIC is the oldest and largest insurance provider in India with a 66% market share in 2021, including over 280 million current policies. It is also the country’s largest asset manager with significant investments in government securities and the stock market. LIC will be listed on May 17 on the BSE and the National Stock Exchange of India (NSE) with the ticker subject to later confirmation.
Insights: The LIC IPO will gauge investor sentiment regarding the growth prospects of both the company and the Indian economy as a whole. There has been some concern over LIC’s growth prospects as it has been slowly losing market share to private companies such as HDFC Life (NSE:HDFCLIFE) and ICICI Prudential Life (NSE:ICICIPRULI). Its reliance on physical distributors, known as LIC agents, to sell insurance policies might also pose problems in the long term as competitors have all expanded to digital platforms. In addition, volatile market conditions have dampened expectations for Indian IPOs in general. However, demand for LIC shares in particular may be stronger with local retail investors because of the company’s emotional engagement with customers throughout its long history. It is possible that this may somewhat offset foreign investors’ aversion to risky emerging market stocks, but considerable uncertainty on LIC’s prospects remains.
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ANALYST ADVISES CAUTION ON CRYPTO MORTGAGES
Jon D. Markman, an analyst from Weiss Ratings, warned that investors should be skeptical on crypto mortgages as current market conditions are very risky. Florida-based companies such as Milo and XBTO Capital are beginning to offer these mortgages to investors who are crypto rich but cash poor. Markman claims that some of these lenders have a larger plan of pooling these home loans and offering them as bonds to asset managers which was the recipe for the Great Recession of 2009.
Insights: Markman noted that getting crypto mortgages may be a winning strategy as long as house prices continue to rise. However, several people with low credit scores tend to default when the housing market crashes. As the inflation is at its highest in 40 years, the Fed is expected to increase interest rates this week causing the cost of mortgages to rise leading to a fewer number of buyers and lower home prices. XBTO Capital's CEO Philippe Bekhazi explained that if the value of the Bitcoin investors used as collateral fell, the company would ask them to supplement that collateral with more Bitcoin so it doesn't create a selling event. On the other hand, real estate and crypto assets are unlikely to be the winners in the short term as uncertainty prevails in the current market conditions.
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Market updates 9.2
MAY 8, 2022
index Updates
PSEI 6,759.90 â–² 28.65 â–² 0.43% w/w
USDPHP 52.33 â–² 0.17 â–² 0.33% w/w
SPX 4,123.34 â–¼ 8.59 â–¼ 0.21% w/w
NASDAQ 12,144.66 â–¼ 189.98 â–¼ 1.54% w/w
CRYPTOCAP 1,654,003,175,648.00 â–¼ 126,230,978,436.00 â–¼ 7.09% w/w
ICT REPORTS GREATER PROFIT FOR Q1 2022
Ports operator International Container Terminal Services Inc. (PSE:ICT) posted a Q1 2022 profit of PHP 7.5 billion, a 58% increase from its Q1 2021 profit of PHP 4.7 billion and 48% more than its Q4 2021 profit of PHP 5.0 billion. ICT chairman and president Enrique Razon mentioned that the company had a great start in 2022 because of the improvements in trade activities, coupled with new contracts with shipping lines as a result of the continuous economic recovery from the impact of the pandemic. Despite this, Razon also said that the company is aware of the challenges the Ukraine conflict poses to world trade: "We are aware of the challenges ahead as the tragic conflict in Ukraine affects the global economy, and we continue to monitor the situation carefully." ICT presently has operations on six continents and is actively looking for new locations for container terminals.
Insights: The global nature of shipping containers exposes the company to multiple risks such as COVID restrictions, the Ukraine conflict, as well as inflation and interest rate hikes. Despite this, ICT is able to maintain its edge over its competitors due to its ability to successfully manage (2021 ICTSI A.R, p. 13) and mitigate aforementioned risks and varying political climates globally. Economically speaking, the profit increase of ICT reflects the country’s economic growth, similar to Meralco’s increased revenues from higher electric consumption, as ICT’s container volume and income somehow mirrors the global economic expansion and contraction. At the same time, the company does not have direct operations (2021 ICTSI AR, p. 8-9) in territories affected by the Russo-Ukrainian war, mitigating any possible risk therefrom, although still remaining vulnerable to future developments having an impact on global trade, like the expansion of the geopolitical conflict or other issues which may result to global economic slumps.
STARBUCKS Q2 2022 EARNINGS REPORT MEETS EXPECTATIONS
Last Tuesday, May 3, Starbucks Corporation (NASDAQ:SBUX) released its earnings report for Q2 2022. Consolidated net revenues rose by 15% to a record USD 7.6 billion, while comparable stores sales rose by 12% in the United States, driven by a 7% increase in average ticket and a 5% increase in comparable transactions. Net revenue for North American branches rose by 17% year-on-year to USD 5.4 billion. Moreover, the Starbucks Rewards loyalty program membership increased 17% year-on-year to 26.7 million members. Generally accepted accounting principles (GAAP) earnings per share of USD 0.58 grew 4% from the previous year, while the non-GAAP earnings per share of USD 0.59 dropped from USD 0.61 from the previous year.
Insights: Share price rose by 5% in the after-trading hours following the release of Starbucks’ (NASDAQ:SBUX) report. The company aims to accelerate store growth plans by adding more drive thrus and accelerating renovation programs to better meet customer expectations and satisfaction. Moreover, the company’s earnings per share and net revenue for the North American segment arrived within the expectations set by analysts at Wall Street. Furthermore, in order to appease the unionization of about 50 company owned branches, CEO Howard Schultz announces a USD 1 billion investment for fiscal year 2022 on wage hikes, improved training and store innovation. However, these benefits will not be applied at unionized stores as they will have to negotiate with the company.
According to Vox’s Rani Molly, unionized branches hope to use collective bargaining to get higher pay, more hours and better safety as their goals in becoming employees that feel valued. In general, unions are able to improve working conditions and performance, which in turn may increase the financial performance of the company. However, since the unionized branches are excluded from the wage hike, there is a chance that they may continue to make measures that would try to improve their labor situation in relation to non-unionized branches. Thus, the economically productive benefits brought about by unionized branches may be offset by the increased costs in running them. In the bigger regional picture, the same offset may be similarly observed, unless other economic factors that may affect their performance arise.
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MOST JAPANESE PLANTS IN SHANGHAI STILL CLOSED FOLLOWING LOCKDOWN
The Shanghai Japanese Commerce & Industry Club has reported based on a survey of 54 companies from various industries that 63% of Japanese manufacturers in the city have suspended operations due to disruptions caused by coronavirus lockdowns. Of the remaining 37% that have resumed operations, the majority have reported facility utilization of 30% and below, putting the total of significantly affected companies at 91%. Full-scale resumption of operations seems unlikely in the near future, according to a representative from one of the companies, due to logistical difficulties involving the delivery of raw materials, components, and finished goods, as well as securing the welfare of workers according to city guidelines.
Insights: China’s zero-Covid policy has proved difficult for many industries because of the massive supply chain disruptions it has caused. The city government of Shanghai has already promised to provide aid to 666 selected companies in the auto and chip manufacturing industries, including vehicle makers Tesla (NASDAQ:TSLA) and Volkswagen (ETR:VOW3). However, there has been limited support for Japanese-owned businesses in general. The continued spread of community infections in Shanghai is preventing authorities from easing restrictions even as economic activities struggle. It is unknown when the situation will be back to normal. Meanwhile, Beijing is also facing an ‘outbreak’ of about 50 new cases per day, but officials have already called this problematic, possibly hinting that the city may soon share a similar fate to Shanghai.
The full impact of China’s zero-Covid policy on Japanese companies with interests in the country is yet to be assessed, but prolonged and expanded lockdowns will definitely be detrimental for production in the foreseeable future. In addition, it is possible that we may see more manufacturers exit China if these disruptions persist. A survey conducted by the European Chamber of Commerce in China found that nearly a quarter of polled companies are already considering moving investments out of the country as a result of these drawbacks. Japanese companies may follow suit if a solution is not attained soon.
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CRYPTO MARKET CONTINUES TO PLUMMET
Bitcoin’s (BTC) price continued its drop at its lowest point since late February. BTC’s price declined by 8% yesterday, dipping below USD 36,000. Ethereum (ETH) plunged by 7% from yesterday’s price. The crypto market as a whole lost 7% during the same timeframe. Decrypt’s Jeff Benson opines that the 0.5 percentage point increase on interest rates remains very high by historical standards.
Insights: Although crypto asset prices rose along with equities on Wednesday after the Federal Reserve announced an interest rate increase that was slightly lower than expected, the market ended the week in decline as shares in tech companies also dropped. With general uncertainty in the global macroeconomy, various jurisdictions seeing inflation levels not seen in the past 40 years, and their respective monetary authorities taking measures, like raising interest rates and tapering their balance sheets, to fix this, the overall market condition remains risky.
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Market updates 10.1
MAY 18, 2022
index Updates
PSEI 6,727.60 â–² 348.43 â–² 5.46% w/w
USDPHP 52.45 â–² 0.06 â–² 0.12% w/w
SPX 4,088.85 â–² 64.96 â–² 1.61% w/w
NASDAQ 11,984.52 â–² 179.52 â–² 1.52% w/w
CRYPTOCAP 1,294,183,750,923.00 â–¼ 9,006,132,605.00 â–¼ 0.69% w/w
PSE GREENLIGHTS VREIT’S PHP 9.2 BILLION IPO
The Philippine Stock Exchange, Inc. (PSE:PSE) has cleared VistaREIT, Inc. (PSE:VREIT), the Villar group’s real estate investment trust, to hold its PHP 9.18-billion public offer period from May 30 to June 3, 2022. According to VREIT’s preliminary plan, the corporation is anticipated to launch its shares on June 15, 2022 under the ticker VREIT. VistaREIT will issue up to 3.33 billion firm shares and an over-allotment option of up to 333.75 million shares at a price of up to PHP 2.50 per share. The final offer price will be set after the company completes its book building process a week later on May 25. PSE President and CEO Ramon S. Monzon remarked, “We are happy with the continuous growth in the number of REIT listings in the PSE.” VistaREIT's portfolio has ten community malls and two office buildings totaling 256,403.95 square meters of gross leasable space.
Insights: The Philippine REIT sector has been a dependable source of fees and excitement in the PSE and the entry of VREIT will further broaden the portfolio of mall and office buildings assets in the local REIT space. There is no doubt that the Villar Family’s quick entry to the REIT market may look like a “relatively easy win” in this sector and a way to regain momentum after the sharp drop experienced around the elections. Currently, the 4 recent REIT IPOs have been more accurate in terms of their set market price, with only Citicore Energy REIT’s (PSE:CREIT) market price trading below its IPO price, compared to the 8 recent non-REIT IPOs, where 6 are trading at market prices lower than their respective IPO prices. REIT pricings seems to be more accurate due to mature and more stable assets based on land in comparison to its non-REIT counterparts.
Presently, the Villar family has strong ties in the Philippine political scene and has also been a vocal backer of Ferdinand Marcos Jr. and Sara Duterte. Thus, the listing of VREIT can be seen as a start of Villar family’s “empire building”.
SPIRIT AIRLINES TURNS DOWN ACQUISITION BY JETBLUE TO MERGE WITH FRONTIER
Last Monday, shareholders of major American ultra-low-cost carrier, Spirit Airlines Inc. (NYSE:SAVE) were offered USD 33 per share as part of a takeover by Jetblue Airways (NASDAQ:JBLU) and urged them to vote against the deal with Frontier Airlines. This offer was turned down to keep the USD 2.9 billion stock-and-cash deal with Frontier last February as the board of directors in Spirit Airlines believes that U.S regulators will approve the acquisition by JetBlue. Following the announcement, the share price of JetBlue Airways Corporation (NASDAQ:JBLU) fell by 6% and that of Spirit Airlines Inc., rose by 13.5%.
Insights: Spirit Airlines Inc. and Frontier Airlines have a more similar operating model wherein they offer lower fares and fees and tighter seating on their fleet, while JetBlue Airlines offers higher end carrier services with free Wifi, on-flight TVs, and business class seating on theirs. Although Jetblue points out that a consolidation of the companies would enable them to better compete with the four legacy carriers, i.e., United Airlines (NASDAQ:UAL), Delta Air Lines (NYSE:DAL), American Airlines (NASDAQ:AAL), and Southwest Airlines (NYSE:LUV), that control nearly 80% of the U.S. air passenger market, Jetblue's existing partnership with legacy carrier American Airlines remains as a barrier for clearance from antitrust authorities. According to CNBC, the U.S. Justice Department believes that JetBlue’s Northeast Alliance partnership with American Airlines would lead to higher fares in the saturated Northeastern U.S. Airports. Despite the deregulation of the airline industry, existing antitrust laws in the U.S. remain as a barrier for any consolidation among the low-cost carriers in an effort to keep prices down and their services competitive within their respective class of airlines.
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XIAOMI, OPPO, AND VIVO TO REDUCE SMARTPHONE ORDERS BY 20% DUE TO COVID LOCKDOWNS
Chinese smartphone manufacturers Xiaomi (HKG:1810), Oppo, and Vivo have each reduced orders from suppliers by approximately 20% from original plans, according to an industry source of Nikkei Asia. This comes after a series of COVID lockdowns in the country’s major financial centers that affected consumer spending. Oppo and Vivo are both under the privately owned BBK Electronics, among the world’s biggest phone makers. Meanwhile, Xiaomi is the largest manufacturer of consumer electronics in China, and the third largest in the world after Samsung Electronics (KRX:005930) and Apple (NASDAQ:AAPL). Xiaomi’s shares have already fallen 37.31% YTD, dropping by 0.51% on May 18 alone to HKD 11.66 as of 4:00 PM.
Insights: In early 2022, a recovery was expected by smartphone makers in the post-COVID era. However, the rise of infections in China’s largest cities, particularly Shenzhen, Shanghai, and now Beijing, combined with the strict implementation of the country’s COVID-zero policy, has caused supply chain disruptions and increased inflation. The Chinese economy contracted in the first half of 2022, with retail sales falling by 11.1% in April compared to the same period in 2021. The trend indicates falling consumer demand, which likely prompted the said smartphone makers to reduce production following potentially poor sales forecasts, in addition to existing supply chain issues. It is also likely that other consumer electronics companies with significant exposure to the Chinese market will suffer a reduction in market share. Forecasts for those with limited exposure, such as Samsung and Apple, remain unchanged in the short term.
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BTC FALLS FOR THE SEVENTH STRAIGHT WEEK
Bitcoin (BTC) has suffered a dramatic collapse for the past two months, from roughly USD 46,900 on March 28 to a Monday close of about USD 31,300, a 33% loss. This collapse in price is unseen since late 2020. With Terra’s downfall, the Luna Foundation Guard (LFG) dumped 99% of its 80,000+ BTC on the market to save its stablecoin, TerraUSD (UST), sparking a wave of fear and uncertainty across the crypto market.
Insights: The BTC Fear and Greed Index is currently at 12 which suggests that investors are in extreme fear. Huobi Research Institute (HRI) remains bearish and said that the market bottom has yet to come. Barry Jiang, researcher at HRI, predicted that BTC may drop to somewhere between USD 20,000 and USD 25,000 before rallying again. Will Clemente, lead insights analyst at Blockware, believes that BTC has likely reached a “multi-generational” bottom based on multiple indicators, including a fast-approaching “realized price”. At the moment, BTC remains moving in a sideways direction.
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Market updates 10.2
MAY 22, 2022
index Updates
PSEI 6,746.33 â–² 367.16 â–² 5.76% w/w
USDPHP 52.39 â–² 0.004 â–² 0.01% w/w
SPX 3,901.36 â–¼ 122.53 â–¼ 3.05% w/w
NASDAQ 11,354.62 â–¼ 450.38 â–¼ 3.82% w/w
CRYPTOCAP 1,244,549,035,205.00 â–¼ 58,640,848,323.00 â–¼ 4.50% w/w
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MEG BUYBACKS PHP 166 MILLION WORTH OF SHARES DURING FLASH CRASH AMID BIR FIASCO
Megaworld Corporation (PSE:MEG) reported the purchase of around 62 million MEG shares on Tuesday, May 17, during the flash crash after the Bureau of Internal Revenue (BIR) Revenue Region No. 08-B planned to announce the enforcement of a closure order against MEG. The share buy-backs are part of the company’s long-running initiative with a total budget of PHP 5 billion. MEG purchased 62 million shares at an average price of PHP 2.6717 per share, for a total purchase price of PHP 166 million. The purchase reduced MEG's outstanding shares by 62 million shares, which were added to its holding of treasury shares, which can be resold without shareholder permission in the future to raise cash. Megaworld clarified last Wednesday, May 18, that it has no outstanding or unpaid taxes in response to rumors on social media that the Bureau of Internal Revenue (BIR) issued a closure order against the company.
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Insights: Although MEG quickly mitigated the issue after the BIR Revenue Region office issued the shutdown order against them, uncertainty arose among investors and traders looking for updates yet left in the dark. MEG’s reticence on the issue gave them a preposterous information edge over the distressed shareholders. BIR’s media advisory first appeared on Twitter at 1:37 PM approximately when the trading volume spiked as its stock price dropped. Around 2:42 PM, MEG’s stock price was pushed back to its pre-shutdown order level but MEG did not release its first disclosure to the public until 2:54 PM which was around 10 minutes after MEG executed its buy-back program that consequently pushed its stock price above the pre-shutdown level. This buy-back is massive in scale and did not reflect the program's performance in the months leading up to this point. While MEG's current buy-back program was in effect at that time, filings suggest that it is only a few hundred thousand shares in magnitude compared to this one. MEG was able to raise its overall company value because of the buy-back and likewise, shareholders who did not panic sell definitely made a profit as well. It also remains unclear whether any rules were broken during this transaction.
TARGET REPORTS LOWER THAN EXPECTED Q1 EARNINGS REPORT
Last Wednesday, retailer Target Corporation (NYSE:TGT) released its first quarter earnings report. For the three months ended April 30, 2022, the company reported an earnings per share of USD 2.19 adjusted, lower by 29% compared to an expected amount of USD 3.07 by Refinitiv consensus estimates. Moreover, the company reported a revenue of USD 25.17 billion, higher than the expected USD 24.49 billion. Comparable sales grew 3.3% on top of the 22.9% growth in the previous year.
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Insights: Following the lower-than-expected results, Target’s share price fell by almost 25% and hit a 52-week low. Its market capitalization fell from USD 99.82 billion on Tuesday to USD 75 billion on Wednesday. In the first quarter of the previous year, sales rose due to the provision of stimulus checks and less options to spend due to lockdowns and quarantines. Presently, sales are going more to items such as luggages and products for gatherings and for traveling compared to TVs and other home items previously as people are readily returning to pre-pandemic life. However, compared to the first quarter of the previous year, sales still showed growth. Target CEO Brian Cornell said that profits were also hindered by supply disruptions and higher production and distribution costs.
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GRAB POSTS IMPROVED Q1 EARNINGS; SHARES SEE THE HIGHEST SURGE IN SIX MONTHS
On May 19, Singapore-based super-app Grab (NASDAQ:GRAB) posted its Q1 2022 earnings report with a net loss of USD 435 million, showing a 35% year-on-year improvement from USD 666 million in Q1 2021. Other important metrics that have exceeded estimates include the gross merchandise value (GMV), or the total value of merchandise sold through the app, and the total payments volume (TPV), or the value of payments through Grab’s financial services segment. GMV rose 32% to USD 4.8 billion compared to the same period last year, while TPV also increased 32% to USD 3.6 billion. Following the report, Grab saw its biggest price surge in 6 months. Shares rose 24%, closing at USD 3.14 on Thursday, and then gained another 2.23% the following day before closing at USD 3.21 on Friday.
Insights: Grab has greatly benefited from relaxed pandemic restrictions in southeast Asia. A rising demand for ride-hailing is seen with the general improvement in consumer activity as southeast Asian markets gradually reopen post-pandemic. Grab’s monthly users grew alongside per-user spending as evidenced by the increase in GMV. Its online financial services are also gaining momentum as seen through the improved TPV. In addition, the strategic acquisition of Malaysian supermarket chain Jaya Grocer in January also contributed to the narrowing in net loss. Grab is poised for further growth, particularly in its ride-hailing and financial services segment. It is likely that Grab will continue to narrow its losses and gradually achieve profitability as the region recovers from the pandemic. Strengthening consumer demand could also benefit similarly positioned multi-service platforms in southeast Asia.
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ETH MERGE COMING IN AUGUST “IF EVERYTHING GOES TO PLAN,” — DECRYPT CORE DEVELOPER
Ethereum (ETH) core developer Preston Van Loon told a panel at the Permissionless conference that ETH’s move to proof-of-stake (PoS) could be on the horizon this summer. Ethereum Foundation Justin Drake noted on the panel that there is a strong desire to make the move in August. The move called The Merge is the most anticipated one for the crypto community
Insights: The Merge is an event where the current Ethereum blockchain merges with the PoS beacon chain. This event will shift the network from mining—where people run powerful computers for the chance to earn ETH—to staking, wherein Ethereum holders can deposit their ETH in exchange for rewards. The crypto community expects that, as a result of the Merge, the issuance of ETH will be cut by about 90%. This means that with less ETH in circulation, there would be less supply, assuming the demand stays the same, which in turn should push the price of the coin up.
