THE OFW INVESTOR

COL Financial New Bank Fees

2017-06-30T02:02:00.004-07:00

COL Financial have successfully negotiated with BDO and BPI to waive certain deposit charges when funding your COL account.

The new bank fees for the use of the deposit facilities of BDO and BPI effective July 1, 2017 are summarized below:

For us OFWs, this is good news for us because we normally do our banking transactions online.

Shell Files for Largest IPO in Philippines

2016-07-29T05:01:00.000-07:00

Company Information
Shell is a global group of energy and petrochemicals companies with around 93,000 employees in more than 70 countries and territories. Its headquarters is in The Hague, the Netherlands. The parent company of the Shell group is Royal Dutch Shell PLC, which is incorporated in England and Wales.

Pilipinas Shell Petroleum Corporation (PSPC) refines, blends, transports and sells a wide range of high quality fuels, lubricants, bitumen and other specialty oil-based products. It operates a refinery with a rated capacity of approximately 110,000 bpd and over 960 retail stations nationwide.

Pilipinas Shell commenced operations of its first crude distiller in Tabangao, Batangas in 1962 (now an oil refinery since 1994). Shell also opened a refrigerated LPG terminal in 1983, the first of its kind in Asia operated by Shell Gas Eastern, Inc. with trading handled in the region by Shell Gas Trading Asia Pacific.

It's headquarters is in Makati City and employs more than 3,000 employees nationwide.

Republic Act No. 8479 (An Act Deregulating The Downstream Oil Industry And For Other Purposes)
According to RA No. 8479, Chapter 7, Section 22,.an oil refinery company shall offer at least 10% of its shares to the public.

Below is the full text of Section 22.

Sec. 22. Initial Public Offering. – In compliance with the constitutional mandate to encourage private enterprises to broaden their base of ownership and in recognition of the vital role of oil in the national economy, any person or entity engaged in the oil refinery business shall make a public offering through the stock exchange of at least ten percent (10%) of its common stock within a period of three (3) years from the effectivity of this Act or the commencement of its refinery operations: Provided, That no single person or entity shall be allowed to own more than five percent (5%) of the stock offering: Provided, further, That any crude oil refining company and any stockholder thereof shall not acquire, directly or indirectly, any share of stock offered by any other crude oil refining company pursuant to his Section: Provided, finally, That any such company which made the requisite public offering before the effectivity of this Act shall be exempted from the requirement.

Delayed Listing
The law was enacted last February 1998 and according to the law, oil refinery companies must make a public offering within three years from the effectivity of the law. Supposedly last February 2001, Pilipinas Shell should be listed in stock exchange but it never happened due to unfavourable market conditions and the need for refinery upgrades. Instead, Shell filed for IPO only this year.

Caltex should follow suit soon with the current market conditions.

Largest IPO Ever
If the company would go for the maximum amount of shares at the maximum price, it would be the biggest stock market debut in the Philippine Stock Exchange at P29.7 billion worth of shares. It can potentially exceed the sizes of the largest IPOs so far seen in the country.

Robinsons Retail Holdings Inc. raised P28.11 in 2013.
SM Investments Corp. raised P26.25 billion in 2005.
Cemex Holdings Philippines Inc. raised P25.1B in 2016.

Cebu Pacific’s IPO raised P23.3 billion in 2010.

LTG Group Inc. raised P37.72 billion in 2013. Technically, LTG’s exercise was a re-IPO or a follow-on offering after the group infused key businesses in what used to be a purely liquor company, Tanduay Holdings.

IPO Offerings Details
Price: P90 per share

Global coordinator and international book runner: JP Morgan
Domestic lead underwriter and domestic bookrunner: BPI Capital Corp.
Financial adviser: Rothschild

IPO Shares Composition:
69% for offshore institutional investors
30% for local trading participants and small investors
1% for its employees.

Secondary shares: 270 million
Primary shares: 30 million
Over allotment shares: 30 million shares

18.6% of post IPO shares

Use of Proceeds: fund capital expenditure, working capital and general corporate expenses

Financial Statements
Once the financial statements are available, we will post them accordingly. It's too early to tell whether the IPO is fairly priced or priced with a hefty premium. It should not go far beyond the valuation of Petron and its regional peers.

85% of the Investors Lose Money

2014-05-05T13:24:00.001-07:00

Recently, I was browsing the website of an investment related company and come across an article penned by an investment advisor. He is advising investors to be cautious about the recent stock market rally. Another click, another advisor advices the public to be optimistic on the current rally.

The noise are everywhere…

Do you know that 85% of the professionals in the stock market lose their money by the end of the bull bear market cycle? Only 15% are able to get out of it with their heads intact. So, if 85% of professional were losing money in the stock market, how would a beginner or someone with zero knowledge would fare against the masters? The logical answer would be the beginner may lose more money than these 85% losers.

http://www.flickr.com/photos/90483352@N00/96795910

Consider an amateur basketball player playing against a professional basketball player. Lebron James or Kobe Bryant are basketball professional players. Anthony Davis is the top amateur basketball player in the USA and he was the number one draft pick in the 2012-2013 season. Now, if Anthony Davis will go up against LeBron James or Kobe Bryant in the NBA, what would be the result? It will be a mismatch and Anthony Davis will be “schooled” by either Lebron or Kobe. Why? LeBron and Kobe have been in the league for at least seven years. They are veterans of professional basketball already. They know the rules very well, they are quite familiar with their opponents, and they know when to attack and when to defend basketball. They know when to give up a foul or a layup and they know what it takes to win a championship. Anthony Davis? Oh he’ll get his due later on but meantime, it will be a Lebron or Kobe show.

Now, imagine an ordinary man or woman plunging in the intricate world of stock market where learned and educated men abound. Surely, he will be gobbled up by these sharks that make their living in the stock market. A professional versus amateur, the result is a mismatch.

If 85% of these professionals lose their money in the stock market, then how come it is still advisable to invest in the stock market?

The Lucky 15% Investors

Most of the 15% investors who earn a profit in the stock market are not active traders. Majority of the 15% smart investors are people who don’t care whether the market is up or down. They rarely buy and sell within a month. They do not care what is the daily price of the stock. What is most important to them is that the company is doing very well, it is an established enterprise, has a real growth, has massive potential to increase in value, and will last in your lifetime. I am not saying that professionals do not make money at all. In fact the 85% investors who lose money consist of every kind of investors. You have the investors who have limited knowledge, investors with good knowledge and investors with extensive knowledge in the stock market. Yes, all kind of investors can be included in the 85% losers and in the same way, all kind of investors can be included in the 15% investors.

One of the strategies of the 15% fortunate investors is buy great companies every month and ignore its daily fluctuations. They research, investigate, and make enquiries about the companies. They are investing time and effort in order to find great companies worth investing. In short, they do peso cost averaging.

https://www.flickr.com/photos/26614375@N00/381941233?rb=1

Peso cost averaging is buying stocks on a regular schedule whether the price is high or low. Normally, the interval is monthly. For example, you have P5,000 disposable income every month and you decide to invest it in the stock market. Ayala Land is a great company and you think it will grow in the next few years and will last in your lifetime. You bought Ayala Land shares last March whose price is P29/share with your P5,000 and it netted you 172 shares. Then last April, Ayala Land share price is 30/share and you bought the stock with your P5,000 giving you 166 shares. This May, Ayala Land share price is 31/share and your P5,000 gave you 161 shares.

An Early Christmas Gift From the Stock Market!

2013-12-10T21:35:00.001-08:00

No, I did not received any dividends from my investments. Nor my stock portfolio is green. In fact, its the other way around. My portfolio is red.

A few months back, I'm beaming ear to ear with my paper profits. A two digit return in less than a year is great especially if you compare it to other investment vehicles.

Today, I am happier with my deficit. I don't care about the returns in the short term. I'm more excited on the opportunity to invest at fire sale prices!

I know some of you are somewhat worried on the current downturn. That's perfectly normal. Nobody wants to lose.

However, stock market is not for the impatient. We're here for the long haul. And when I mean long haul, it's a decade plus. Yes, more hair will fall and turn gray before you can truly feel the results of your investments.

Today, however presents an opportunity to buy at lower prices. It's been a while since we've been at this level. It's a buyer's market now. And if you're a buyer, its an exciting times to invest indeed!

The current downturn was caused by the negative sentiment brought about by super typhoon Yolanda. Just as our lands, houses and trees were swept away by the powerful typhoon, our stock market was hit by the super typhoon also. Foreigners dump their shares since the aftermath of 'Yolanda'.

Source:AFP

I watched CNN every single day during and after the typhoon. The images were apocalyptic! It's just unimaginable!

My wife and I pulled some clothes from the drawer, packed them and gave them to a charity organization collecting relief goods for Yolanda.

As international media peppered their news program with images and videos of the destructive forces of super typhoon Yolanda, foreign investors were fed with information that requires them to reassess their investments on the economic repercussion of Yolanda's wrath.

The Aquino administration is being praised for its drive against corruption by the international community. The removal of the SC chief justice, his blunt admonishment on under performing chiefs of departments, and sacking of corrupt officials.

The investment grade, high GDP growth, growing remittances, robust consumption all helped in changing foreign investors sentiment to positive. As a result more dollars flows into our country....

Until 'Yolanda' struck.

The slow response of the government, and political wrangling on aid to victims lowered the enthusiasm of foreign investors.

The Napoles scandal did not help too. The country is perceived that corruption still pervades in the government.

While the current sentiment brought the stock market down, I think the fundamentals remains the same. We are still a consumption driven country. Remittances will still increase every year and GDP growth rate will still be above its peers.

The short term may not look good but I believe our country will just dust off the current bumps and will slowly change the sentiment from negative to neutral and finally positive.

Meanwhile, enjoy the current Christmas sale being offered in the stock market. It may not last longer.

FMETF - The First Ever ETF in the Philippines

2013-12-09T00:50:00.002-08:00

Finally, the first ever ETF in the Philippines has arrived. First Metro’s ETF was listed last December 2, 2013 at Philippine Stock Exchange.

It’s ticker in the Philippine Stock Exchange is FMETF. It will be officially called First Metro Philippine Equity Exchange Traded Fund Inc.

ETF means Exchange Traded Fund. From the word itself, it is a fund being traded in the exchange. To be more specific it is an equity fund being traded in the Philippine Stock Exchange (PSE).

Historically, PSE only has companies like PLDT, Globe, BPI, MBT, Ayala Land, Etc. on its list of stocks traded in the exchange. Now, for the first time it includes an ETF as tradable in the exchange.

From here on, aside from seeing the usual tickers like BPI, MBT, TEL, GLO, ALI, etc. you’ll also see the ticker FMETF in the ticker tape. Yes, this ETF is being bought and sold just like a normal listed company.

FMETF is expected to replicate or mimic the PSEi as closely as possible.

If PSEi goes down, FMETF NAVps should go down also. On the other hand, if PSEi goes up, NAVps should go up also. It doesn’t intend to be defensive during market declines or to outperform the Index.

The strategy is to invest on PSEi stocks with approximately the same weights as in the PSEi.

There are 30 stocks in the PSEi. The total market capitalization is 2.5 trillion pesos.

PLDT’s share of that market capitalization is 11.26%, SM 9.84%, ALI 7.51% and so on and so forth. Now, FMETF is going to invest its fund in the same weights as the PSEi.

The fund shall invest 11.26% on PLDT, SM 9.84%, and ALI 7.51% and so on and so forth.

In this strategy, the fund is going to imitate the behavior of the PSEi; hence its NAVps shall considerably replicate PSEi returns.

In fact, when you draw a chart of FMETF, the graph will resemble almost exactly as that of PSEi.

Again, FMETF objective is not to be defensive during market declines or to outperform the market but rather to replicate the behavior of PSEi. If PSEi returns are high, FMETF returns should also be high.

The fund however cannot exactly match the behavior of PSEi. Trading and management costs will affect the NAVps. Additionally, changes in PSEi composition and diminishing liquidity may affect the NAVps and increase the tracking error slightly.

Overall, the fund expects the maximum deviation from PSEi at 5% against its NAV.

1	PHILIPPINE LONG DISTANCE TELEPHONE COMPANY "Common"	TEL	282,168,843,456	11.26
2	SM INVESTMENTS CORPORATION	SM	246,525,894,720	9.84
3	AYALA LAND, INC.	ALI	188,150,379,774	7.51
4	BANK OF THE PHILIPPINE ISLANDS	BPI	152,105,353,582	6.07
5	ABOITIZ EQUITY VENTURES, INC.	AEV	133,507,816,930	5.33
6	AYALA CORPORATION	AC	131,201,830,656	5.24
7	SM PRIME HOLDINGS, INC.	SMPH	130,519,963,196	5.21
8	BDO UNIBANK, INC.	BDO	110,555,944,946	4.41
9	INTERNATIONAL CONTAINER TERMINAL SERVICES, INC.	ICT	105,389,876,494	4.21
10	UNIVERSAL ROBINA CORPORATION	URC	101,668,897,603	4.06
11	ALLIANCE GLOBAL GROUP, INC.	AGI	101,055,107,323	4.03
12	METROPOLITAN BANK & TRUST COMPANY	MBT	100,131,715,337	4
13	JG SUMMIT HOLDINGS, INC.	JGS	88,472,752,441	3.53
14	JOLLIBEE FOODS CORPORATION	JFC	70,718,194,512	2.82
15	METRO PACIFIC INVESTMENTS CORPORATION	MPI	53,018,331,178	2.12
16	GT CAPITAL HOLDINGS, INC.	GTCAP	52,290,000,000	2.09
17	ABOITIZ POWER CORP.	AP	48,566,788,446	1.94
18	GLOBE TELECOM, INC.	GLO	46,669,155,200	1.86
19	ENERGY DEVELOPMENT (EDC) CORPORATION	EDC	45,187,500,000	1.8
20	LT Group, Inc.	LTG	43,610,197,236	1.74
21	DMCI HOLDINGS, INC.	DMC	41,080,492,180	1.64
22	MEGAWORLD CORPORATION	MEG	38,203,981,542	1.53
23	ROBINSONS LAND CORPORATION	RLC	32,889,835,741	1.31
24	MANILA WATER COMPANY, INC.	MWC	29,704,905,011	1.19
25	SEMIRARA MINING CORPORATION	SCC	29,625,750,000	1.18
26	BLOOMBERRY RESORTS CORPORATION	BLOOM	27,842,703,625	1.11
27	SAN MIGUEL CORPORATION	SMC	23,510,748,885	0.94
28	PETRON CORPORATION	PCOR	22,504,000,842	0.9
29	FIRST GEN CORPORATION	FGEN	14,144,584,575	0.56
30	PHILEX MINING CORPORATION	PX	14,141,531,542	0.56
	TOTAL		2,505,163,076,973	99.99

Source: Pse

As part of its reportorial requirements with PSE, FMETF is required to disclose its Net Asset Value per share (NAVps) every day.

This daily disclosure is important because it discloses the NAVps and the tracking error of the ETF.

Since FMETF is a listed fund, investors buy and sell shares of FMETF that do not correspond to the NAVps of the fund. For example, on December 6, 2013 the NAV per share of FMETF is 96.15 (see below PSE screen grab). The closing price of FMETF on same date is 97.15. There was a difference of 1 peso.

FMETF is good especially for investors who wants an exposure in the stock market but doesn’t want to invest in individual stocks. Since FMETF is required to buy a basket of stocks listed in PSEi, a single company cannot bring your investment considerably down.

FMETF offers exposure to various blue-chip companies. Imagine going to the supermarket, filling up your trolley with TEL, SM, ALI, BPI, etc, queuing at the counter, and paying your ‘grocery’ in a single transaction.

Since FMETF is listed in the PSEi, it trades like a stock and you can see the daily change in its NAVps.

Don't Get Trapped with Credit Cards and Loans!

2013-11-03T01:00:00.000-07:00

Did your credit card bill arrive already? How many bills do you have?

I have a friend who has credit cards. Her total card balance is AED 20,000. She struggles to pay her bills every month. The purchases of signature bags, shoes, dresses have all accumulated into one big bill.

There is nothing wrong in buying signature brands if you have the excesses. However, if buying means borrowing from your credit card to pay it later, then you are simply spending beyond your means already.

http://www.flickr.com/photos/28077296@N02/5417026496

Banks are chasing her. She realized that she should have managed her finances wisely before taking the splurge in shopping malls.

The cold calls from banks collection agents are downright stressing. You cannot sleep comfortably.

A couple of days ago, I was reading Express, a weekly newspaper here. I flip the pages until an article named “12 dirty tricks UAE banks play” caught my attention. Reading it made me cringe.

I don’t want to go through the ordeal of these people. I don’t want to feel like a criminal because of unpaid loans.

The time, money and effort wasted on these credit cards and loans issues are just taxing. You’ll feel tired, spent and drained.

Your daily problems should be enough to spend your energy and yet when the collection agent calls, you dried up.

I cannot overemphasize the value of not incurring loans for personal consumption. It’s a trap. And once you are in, you’ll be lucky if you’ll find a way out.

The time that should have been spent to your family, friends, passion, hobby and moments that will help others and humanity are taken away.

Living within the means is the key. Coupled with financial discipline and personal development, you’ll go far in pursuit of your dreams.

Start paying larger chunk of your credit card bills now until it is fully paid.

Once you are clear of debts, throw a party and invite your friends for you have summoned the courage to go out of your comfort zone. Your freedom is back. Your peace of mind is back.

To start arranging your finances, you can read Bo Sanchez’ My Maid Invests In the Stock Market... And Why You Should Too.

Personally, it’s a good read. Bo Sanchez explains financial jargon in plain, simple English.

Rules for Great Mornings

2013-11-01T23:07:00.003-07:00

When you are dealing with your boss and he's having a hot temper early of the day, we typically say " Hindi maganda ang gising".

There are mornings when you feel the day is going to be beautiful and wonderful.

There are mornings when you feel sleepy and your bed is pulling you to sleep more even though it's seven thirty already and you're late for work.

There are mornings when you get your tablet or phone and automatically open Facebook.

There are mornings when you still feel the effects of last nights booze.

There are mornings when your toddler wakes you up and crawls over your body for the next hour so.

There are mornings when you feel lucky such that if you bought a lotto ticket, you'll win the grand prize.

There are mornings when you browse over your phone and see if your crush left a message to you.

There are mornings when you feel like not reporting for work.

There are mornings when you feel like going into wilderness for no apparent reason at all.

Is it really true that our circumstances defines what makes for a great morning?

With all the different moods we have upon waking up, Robin Sharma says there are rules for a great morning.

If you've been reading my blog for longer period of time, you know that one of my favorite author is Robin Sharma. Bo Sanchez follows his works too. Here is an example.

Well, here are Robin Sharma's rules for a great morning.

Enjoy and have a great morning! :-)

--Plan the first 60 minutes of your day the night before so you set yourself up for success in advance.

--Eat breakfast within an hour of getting up.

--Use the first 20 minutes of your day to exercise so you jump start your brain's chemistry.

--While you're exercising, listen to something inspirational and of value (the influences that you expose your mind to at the beginning of your day set the mental tone for the rest of the day).

--Hydrate. You've been sleeping all night. Drink lots of water to get yourself fired up.

--Review your Big 5. This takes just a few minutes, but list your five main goals for the year on a mirror with a dry erase marker. Look at it every morning to renew your focus.

--Do your affirmations. Perhaps in the shower, recite words like "excellence" and "focus" and "mastery". Also repeat one line statements to prepare yourself for a world-class day ahead.

--Get into nature. As much as possible, get out into nature every morning. The fresh air as well as the environment has a superb effect on your creativity, productivity and sense of happiness.

--No news. Start your day in what I call "a tight bubble of total focus". Avoid the news, complainers and toxic situations. The first 3 hours of your day have the least distractions...and are GOLDEN. You know that the way you begin your day drives how you live it. So start it strong.

The Law of the Garbage Truck

2013-10-25T22:56:00.001-07:00

I was browsing my Inbox when I come across an e-mail from Bob Proctor. It's about the The Law of the Garbage Truck.

A law about garbage truck? Sounds interesting.

You know, typical newsletter from authors, speakers and sellers are eye-catching. Mine included. This one sure catches my attention but since it is coming from a reliable sender, I read it.

Yes, it was worth reading.

I just wanted to share the story to uplift your spirit just as it did mine. It's a little reminder about how to react on people's anger, resentment, rage and antagonism.

Life's short to focus on the negatives. Keep marching on to your dreams and ignore the little irritants and annoyances along the way.

Have a great day ahead!

Here is the story.

How often do you let other people’s nonsense change your mood? Do you let a bad driver, rude waiter, curt boss, or an insensitive employee ruin your day? Unless you’re the Terminator, you’re probably set back on your heels. However, the mark of your success is how quickly you can refocus on what’s important in your life.

Sixteen years ago I learned this lesson. And I learned it in the back of a New York City taxi cab. Here’s what happened.

I hopped in a taxi, and we took off for Grand Central Station. We were driving in the right lane when all of a sudden, a black car jumped out of a parking space right in front of us. My taxi driver slammed on his brakes, the car skidded, the tires squealed, and at the very last moment our car stopped just one inch from the other car’s back-end.

I couldn’t believe it. But then I couldn’t believe what happened next. The driver of the other car, the guy who almost caused a big accident, whipped his head around and he started yelling bad words at us. How do I know? Ask any New Yorker, some words in New York come with a special face. And he even threw in a one finger salute! I couldn’t believe it!

But then here’s what really blew me away. My taxi driver just smiled and waved at the guy. And I mean, he was friendly. So, I said, “Why did you just do that!? This guy could have killed us!” And this is when my taxi driver told me what I now call, “The Law of the Garbage Truck®.” He said:

“Many people are like garbage trucks. They run around full of garbage, full of frustration, full of anger, and full of disappointment. As their garbage piles up, they look for a place to dump it. And if you let them, they’ll dump it on you. So when someone wants to dump on you, don’t take it personally. Just smile, wave, wish them well, and move on. Believe me. You’ll be happier.”

So I started thinking, how often do I let Garbage Trucks run right over me? And how often do I take their garbage and spread it to other people at work, at home, or on the street? It was then that I said, “I don’t want their garbage and I’m not going to spread it anymore.”

I began to see Garbage Trucks. Like in the movie “The Sixth Sense,” the little boy said, “I see Dead People.” Well now “I see Garbage Trucks.” I see the load they’re carrying. I see them coming to dump it. And like my taxi driver, I don’t take it personally; I just smile, wave, wish them well, and I move on.

One of my favorite football players of all time was Walter Payton. Every day on the football field, after being tackled, he would jump up as quickly as he hit the ground. He never dwelled on a hit. Payton was ready to make the next play his best. Over the years the best players from around the world in every sport have played this way: Muhammad Ali, Nadia Comaneci, Bjorn Borg, Chris Evert, Michael Jordan, Jackie Robinson, and Pele are just some of those players. And the most inspiring leaders have lived this way: Nelson Mandela, Mother Theresa, Gandhi, and Martin Luther King.

See, Roy Baumeister, a psychology researcher from Florida State University, found in his extensive research that you remember bad things more often than good things in your life. You store the bad memories more easily, and you recall them more frequently.

So the odds are against you when a Garbage Truck comes your way. But when you follow The Law of the Garbage Truck®, you take back control of your life. You make room for the good by letting go of the bad.

The best leaders know that they have to be ready for their next meeting. The best sales people know that they have to be ready for their next client. And the best parents know that they have to be ready to greet their children with hugs and kisses, no matter how many garbage trucks they might have faced that day. All of us know that we have to be fully present, and at our best for the people we care about.

The bottom line is that successful people do not let Garbage Trucks take over their lives.

What about you? What would happen in your life, starting today, if you let more garbage trucks pass you by?

Here’s my bet: You’ll be happier.

— DAVID J. POLLAY

Source: http://www.davidpollay.com/the_law_of_the_garbage_truck.html

Hurrah! Another Investment Grade for Philippines!

2013-10-13T00:20:00.004-07:00

Philippines recently achieved an Investment Grade from Moodys Investor Service.

It is the last of the Big Three credit rating agencies to rate Philippines as Investment Grade.

Moody's rating on Philippine Government is Baa3 with a positive outlook.

Please take a look on the Ratings table below. The first Rating in order to become an investment grade is Baa3 and we achieved that recently.

Before this investment grade, we were lounging in the Speculative Grade for the longest time.

In fact, since Moody's started covering Philippine Government credit, we never obtained an investment grade status.

For two decades, Philippine Government credit was judged to have speculative elements and a significant credit risk.

Until recently.

Our country made great strides in improving the fundamentals of our economy. .

According to Moody's, the factors on the upgrade of rating were:

1. Sustainability of the country's robust economic performance

2. Sustainability of the country's ongoing fiscal and debt consolidation

3.Sustainability of the country's political stability and improved governance.

Additionally, the stability of the Philippines' funding conditions during the recent bout of market volatility in emerging markets points to the country's relative lack of vulnerability to external financial shocks.

Yes. We finally "arrived".

It was a long time coming. But it's all worth it.

Savor and take the opportunity of these investment grades.

Borrowing costs getting cheaper.

Interest rates at their historical low.

Benign inflation.

Favorable demographic conditions.

High growth GDP.

Peso at its sweet spot.

Kay sarap maging Pilipino!

INVESTMENT GRADE
Rating	Long Term Ratings	Short Term Ratings
Aaa	Rated as the highest quality and lowest credit risk.	Prime-1 superior ability to repay short-term debt obligations.
Aa1	Rated as high quality and very low credit risk.
Aa2
Aa3
A1	Rated as upper-medium grade and low credit risk.
A2
A3		Prime-1/Prime-2 superior ability or strong ability to repay short-term debt obligations.



Baa1	Rated as medium grade, with some speculative elements and moderate credit risk.	Prime-2 strong ability to repay short-term debt obligations.


Baa2		Prime-2/Prime-3 strong ability or acceptable ability to repay short-term debt obligations.



Baa3		Prime-3 acceptable ability to repay short-term obligations.




SPECULATIVE GRADE
Rating	Long Term Ratings	Short Term Ratings
Ba1	Judged to have speculative elements and a significant credit risk.	Not Prime Do not fall within any of the prime categories
Ba2
Ba3
B1	Judged as being speculative and a high credit risk.
B2
B3
Caa1	Rated as poor quality and very high credit risk.
Caa2
Caa3
Ca	Judged to be highly speculative and with likelihood of being near or in default, but some possibility of recovering principal and interest.
C	Rated as the lowest quality, usually in default and low likelihood of recovering principal or interest.

Source: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004

https://www.moodys.com/research/Moodys-upgrades-Philippines-to-Baa3-revises-outlook-to-positive--PR_283602

What are Accrual Entries?

2013-10-10T05:20:00.000-07:00

Accrual Entries are special journal entries recorded in the books at the end of each accounting period and before financial statements are prepared and issued. Accruals are part of the Matching Principle method where revenues and expenses are recorded when they are incurred, regardless of when cash is exchanged.

There are two types of accruals.

1. Accrued Revenue

2. Accrued Expense

Accrued Revenues are revenues that have been earned but are not yet recorded in the books of accounts at the end of each accounting period. Accountants recognize revenues as earned, whether or not the company has received cash.

Goods or services have been delivered to the client but there was no billing yet. Thus, even though a company doesn’t have an Invoice yet for services or goods delivered, the revenues must be recorded in the books accounts.

Example:

Company ABC entered into a one year lease contract for its two brand new heavy equipments to a client for $144,000.

Contract starts Jan 15, 2013 and ends on Jan 14, 2014.

Contract states that billing is every 30 days and payment term is 30 days from date of Invoice.

Company ABC’s accounting period is monthly.

Adjusting Journal Entry:

Jan 31, 2013 Dr. Unbilled Receivable $6,800

Cr. Rental Revenue $6,800

To record accrued revenue for 17 days (Jan 17-31, 2013) for the lease of two brand new heavy equipments

Reversing Journal Entry:

Feb 1, 2013 Dr. Rental Revenue $6,800

Cr. Unbilled Receivable $ $6,800

To reverse the accrual entry made in January for the lease of two heavy equipments.

Actual Billing Entry:

Feb 15, 2013 Dr. Account Receivable $12,000

Cr. Rental Revenues $12,000

30 days billing from January 15 to February 13, 2013 for two heavy equipments

From January 15-31, Company ABC already earned 17 days of the 30 day billing period. It must recognize and record that 17 days for January by passing an accrual entry on January 31.

On the first day of the next accounting period, the accrual entry was reversed. Reversing entries are used to simplify the entry on the next period.

When the Invoice was cut on Feb 15, 2013, the accountant simply debits (Dr.) Accounts Receivable and credit (Cr.) to Revenues the Invoice amount. The accountant doesn’t need to worry about the number of days that pertains to January and February because the accrual and reversing entry takes care of it.

Rental Revenues account- 17 days rent for January and 13 days rent for February must be recognized at the correct accounting period. We achieved that because of the accrual entry, reversing entry and actual billing entry we posted in January and February.

Unbilled Receivable account – normally this account has zero balance once the reversing entry is posted. The February balance of Unbilled Receivable ($6,800-$6,800) is $0 because of the reversal entry knocking off the balance created on the accrual entry.

Accounts Receivable account - When the actual billing was made in February, it resulted to $12,000 accounts receivable. This amount is the correct Invoice value collectible to the client.

Accrued Expenses are expenses that have been incurred but are not yet recorded in the books of accounts at the end of each accounting period. Accountants recognize expenses as incurred, whether or not the company has paid out cash.

Goods or services have been received from the supplier but the billing did not arrived yet. Thus, even though a company doesn’t have the Invoice yet from the supplier for services or goods received, the expenses must be recorded in the books of accounts. In the case of non-suppliers, expenses incurred already but not yet paid.

Example 1:

Company ABC payroll cut-off is every end of the month. Payment is every 2^nd day of the succeeding month. Payroll for the month of January 2013 is $12,000.

Adjusting Journal Entry:

Jan 31, 2013 Dr. Salaries Expense $12,000

Cr. Accrued Salaries $12,000

To record accrued salaries for the month of January 2013.

Reversing Journal Entry:

Feb 1, 2013 Dr. Accrued Salaries $12,000

Cr. Salaries Expense $12,000

To reverse the accrual entry made for January 2013 salaries.

Actual Payment Entry:

Feb 2, 2013 Dr. Salaries Expense $12,000

Cr. Cash $12,000

To record payment of January 2013 salaries .

Salaries Expense - Under the accrual base accounting, expenses must be recorded on the accounting period they were incurred. Thus, we made an accrual entry in January 31 to record the salaries expense.

We have two transactions in February, reversing entry and actual payment of salary entry. These two entries resulted in a net transaction balance of $0.

Accrued Salaries- normally this account has zero balance once the reversing entry is posted. The February balance of Accrued Salaries ($12,000-$12,000) is $0 because of the reversal entry knocking off the balance created on the accrual entry.

Example 2:

Company ABC entered into a one year lease contract for one brand new car from Rent-A-Car.

Lease amount is $14,400.

Contract starts Jan 15, 2013 and ends on Jan 14, 2014.

Contract states that billing is every 30 days and payment term is 30 days from date of Invoice.

Company ABC’s accounting period is monthly.

Adjusting Journal Entry:

Jan 31, 2013 Dr. Rent Expense $680

Cr. Accrued Rent Payable $680

To record accrued rent expense for 17 days (Jan 17-31, 2013) for the lease of one car

Reversing Journal Entry:

Feb 1, 2013 Dr. Accrued Rent Payable $680

Cr. Rent Expense $$680

To reverse the accrual entry made in January 2013 for the lease of one car

Entry Upon Receipt of Invoice from Rent-A-Car:

Feb 15, 2013 Dr. Rent Expense $1,200

Cr. Rent Payable $1,200

To record 30 days rent for one car from January 15 to February 13, 2013

Rent Expense - 17 days rent for January and 13 days rent for February must be recognized at the correct accounting period. We achieved that because of the accrual entry, reversing entry and actual billing entry we posted in January and February.

Accrued Rent Payable – normally this account has zero balance once the reversing entry is posted. The February balance of Accrued Rent Payable ($680-$680) is $0 because of the reversal entry knocking off the balance created on the accrual entry.

Rent Payable - When the actual billing was received from the lessor, the Invoice amount was recorded. This amount is the correct Invoice value and payable to Rent-A-Car.

Accounting softwares

Accounting softwares makes recording of reversing entries easier.

The program can automatically reverse all accrual entries on the first day of the next accounting period. This program saves you time and effort.

Reversing Entries

Reversing entries are an option. They are not required. If you do not want to make a reversal entry, you need to take a look at the accrual entry you’ve made and then do the necessary compound entry later on. It removes the duplication of revenues and eliminates the need of a compound entry. It allows an efficient processing and recording of the transactions.

No Reversing Entries

If you prefer not to use reversing entries, that is perfectly permitted. What is really important is that the revenues and expenses are recorded at the correct accounting period.

In the Accrued Revenue example, if there is no reversing entry, actual billing will be recorded as follows:

Actual Billing Entry:

Feb 15, 2013 Dr. Account Receivable $12,000

Cr. Rental Revenues $5,200

Cr. Unbilled Receivable $6,800

30 days billing from January 15 to February 13, 2013 for two heavy equipments.

The effect on the balances of Rental Revenues, Unbilled Receivables and Accounts Receivable is just the same.

However, the accountant needs to check the accrual entry posted before in order to come up with the correct compound entry.

What is the Effect of US Gov't Shutdown on Stock Market?

2013-10-08T01:26:00.002-07:00

The stock market apparently is not nervous about the government shutdown. October 1, the first day of the government shutdown, S&P went up by 0.80%, DOW by 0.40% while Nasdaq by 1.2%.

On a weekly note which ended last Friday, S&P was up by 0.53%, Nasdaq by 0.96% while DOW was down by 0.38%.

Date	S&P		DOW		Nasdaq
26-Sep	1,698.67	0.30%	15,328.30	0.40%	3,787.43	0.70%
27-Sep	1,691.75	-0.40%	15,258.24	-0.50%	3,781.59	-0.20%
30-Sep	1,681.55	-0.60%	15,129.67	-0.80%	3,771.48	-0.30%
1-Oct	1,695.00	0.80%	15,191.70	0.40%	3,817.98	1.20%
2-Oct	1,693.87	-0.10%	15,133.14	-0.40%	3,815.02	-0.10%
3-Oct	1,678.66	-0.90%	14,996.48	-0.90%	3,774.34	-1.10%
4-Oct	1,690.50	0.70%	15,072.58	0.50%	3,807.75	0.90%

What does this mean? The investors are not worried about the economic repercussions of the US government shutdown.

The longest government shutdown was in 1995-1996 and it cost $1.4 billion, over $2 billion in today’s dollars according to Office of Management and Budget.

According to Lexington, a global market research firm, the cost of a day’s shutdown is at least $300 million. A week-long shutdown will reduce the 4^th quarter growth by 0.2%.

A 21 day shutdown similar to the 1995-1996 shutdown could reduced growth by 0.9 to 1.4% according to Guy Lebas, chief fixed income strategist at Janney Montgomery Scott LLC.

The economic cost of the shutdown is just a fraction of the total GDP of the USA. Investor’s interests are mainly on the recovery of the US economy and improving global economic outlook.

Historically, Government Shutdowns Never Hurt the Stock Market

Historically, US Government shutdowns never hurt the stock market. There are 17 shutdowns technically but none of them lasted for more than a month.

The longest shutdown was during the Bill Clinton administration from November 14 to November 19, 1995 and from December 16, 1995 to January 6, 1996, for a total of 28 days. The S&P 500 rose 4 percent between those dates.

Here is the list of US Government Shutdowns:

September 30 to October 11, 1976 (10 days)

September 30 to October 13, 1977 (12 days)

October 31 to November 9, 1977 (8 days)

November 30 to December 9, 1977 (8 days)

September 30 to October 18, 1978 (18 days

September 30 to October 12, 1979 (11 days)

November 20 to November 23, 1981 (2 days)

September 30 to October 2, 1982 (1 day)

December 17 to December 21, 1982 (3 days)

November 10 to November 14, 1983 (3 days)

September 30 to October 3, 1984 (2 days)

October 3 to October 5, 1984 (1 day)

October 16 to October 18, 1986 (1 day)

December 18 to December 20, 1987 (1 day)

October 5 to October 9, 1990 (3 days)

November 13 to November 19, 1995 (5 days)

December 5, 1995 to January 6, 1996 (21 days)

Source: http://www.outsidethebeltway.com/a-brief-history-of-federal-government-shutdowns/

Let’s take a look at the impact of these shutdowns on the stock market. We’ll begin with the November 20 to November 23, 1981 shutdown during the Reagan administration.

The previous year’s shutdown under Carter’s administration were removed because the Dow was 959 the day Carter was inaugurated and 966 the day he left. There is very little movement on the stock market during his time.

Nov. 20-23, 1981 — The market fell one point from 853 to 852; one month out it was up to 873.

Sep. 30-Oct. 2, 1982 — The market rose from 896 to 903; one month out it was up to 991.

Dec. 17-21, 1982 — The market rose from 1,011 to 1,030; one month out it was up to 1,084.

Nov. 10-14, 1983 — The market rose from 1,236 to 1,254; one month out it was up to 1,260.

Sept. 30-Oct. 3, 1984 — The market fell from 1,206 to 1,182; but one month out it was up to 1,217.

Oct. 3-5, 1984 — This shutdown was an extension of the previous one, and the market remained the same, at 1,182.

Oct. 16-18, 1986 — The market fell from 1,836 to 1,811; but one month out it was up to 1,860.

Dec. 18-20, 1987 — The market rose from 1,975 to 1,990; one month out it was down to 1,963.

Oct. 5-9, 1990 — The market fell from 2,511 to 2,446; but one month out, at 2,502, it had regained nearly all it had lost.

Nov. 13-19, 1995 — The market was way up, from 4,872 to 4,983; and the following month the government shut down again.

Dec. 5, 1995, Jan. 6, 1996 — The market rose from 5,177 to 5,197; two months out (since this one took most of the month) the market was way up, to 5,407.

Source: http://www.forbes.com/sites/merrillmatthews/2013/10/07/government-shutdowns-have-never-hurt-the-stock-market/

Based on the above data, government shutdowns virtually have no impact on the stock market.

Hence, investors today did not fret about on the ongoing standoff between the Republicans and Democrats over the federal budget.

The Effect of US Gov't Shutdown in Philippines Economy

On the first day of shutdown, PSEi registered gains and it continued in green for the rest of the week.

Date	PSEi
26-Sep	6,407.46	-0.20%
27-Sep	6,379.81	-0.43%
30-Sep	6,191.80	-2.95%
1-Oct	6,197.84	0.10%
2-Oct	6,362.26	2.65%
3-Oct	6,387.65	0.40%
4-Oct	6,390.48	0.04%

The potential impact of US Government shutdown would be on risk-averse foreign investors who move away from risky assets to traditional safe haven. These risk-averse investors can cause volatility in the stock market and foreign exchange.

Photo taken from http://www.bsp.gov.ph

This is evident during the past few months when the US Fed hints on tapering the $85 billion a month stimulus. Our stock market plunge dramatically and our peso depreciated more against dollar even reaching the 44 exchange rate level. The Bangko Sentral ng Pilipinas (BSP) however is ready to counter any volatility in the financial markets.

Right now, our stock market and currency are stable. There is no significant deviation from their current levels. In fact, our stock market experienced an uninterrupted gains beginning Oct 1 until October 4, 2013. Investors are largely ignoring the economic repercussions of the US Government shutdown.

If you take a look on the USD/Php exchange rate, our Peso actually got stronger during the week since the government shutdown. It appreciated by 0.90% for the week ending Oct 4, 2013.

Date	USD/Php
26-Sep	43.27	0.37%
27-Sep	43.37	-0.23%
30-Sep	43.48	-0.25%
1-Oct	43.31	0.39%
2-Oct	43.40	-0.21%
3-Oct	43.11	0.67%
4-Oct	43.09	0.05%

Amid all the hoopla surrounding the US government shutdown, the investors are actually focusing on the fundamentals of the economy.

Philippine economy is largely protected from the US Government shutdown.

Why Philippines Never Incurred a Government Shutdown?

2013-10-07T00:38:00.001-07:00

Currently, the US Government shuts down. Not that the government totally stops functioning. Portion of the government services were temporarily halted until the budget is passed.

The US Government has incurred 17 shutdowns technically but the major shutdown of recent memory is during the Bill Clinton administration which lasted for 28 days, the longest shutdown.

If US Government has incurred a lot of shutdowns already, why does the Philippines never incurred a government shutdown?

According to our 1987 Constitution, Article VI, Section 25 (7) states “If, by the end of any fiscal year, the Congress shall have failed to pass the general appropriations bill for the ensuing fiscal year, the general appropriations law for the preceding fiscal year shall be deemed reenacted and shall remain in force and effect until the general appropriations bill is passed by the Congress.”

Our constitution specifically stated that in case the Congress failed to pass the budget for the ensuing year, the preceding budget will be used. This is the reason why the Philippine Government never incurred a shutdown.

Why can’t the US do the same? The tried through a continuing resolution but did not materialize. A continuing resolution is a legislation to continue funding the federal government at pre-approved levels until a new budget is enacted.

The Senate controlled by Democrats wants a “clean” continuing resolution which means that the previous budget will be used without any strings attached. On the other hand, the House of Representative controlled by Republicans wants a continuing resolution but with provisions to delay the Obamacare and repeal the tax on medical devices.

The US Senate and House of Representative cannot agree on the continuing resolutions, hence the shutdown.

The Philippines government does not need a continuing resolution in case our Congress failed to pass the national budget. The preceding budget will be used automatically. Conversely, the US needs a continuing resolution.

http://budgetngbayan.com/summary-of-allocations/#

Sources: www.policymic.com, www.gov.ph

Why is the US Government Shutting Down?

2013-10-06T03:28:00.000-07:00

First and foremost, the US Government did not collapse. It is not the end of the world for the Americans. The US Government Budget shuts down because the Congress which involves the House of Representatives and Senate failed to pass a budget for the FY October 1, 2013 to September 30, 2014.

The US Constitution mandates that “No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law”. Appropriations and Law creation are functions of the Congress. When Congress failed to pass the budget request of the president, the government shuts down.

What are the Processes to have a US Gov't Budget?

The federal government fiscal year begins on October 1 and ends September 30.

The president submits a budget request to the Congress no earlier than the first Monday in January, and no later than the first Monday in February for the succeeding fiscal year.

Once the congress receives the requested budget, the United States House Committee on the Budget (House of Representative) drafts a budget resolution. Simultaneously, the United States Senate Committee on the Budget (Senate) does the same.

Once the budget resolutions of the House and Senate were passed at their respective floors, selected members from each House negotiate to reconcile the differences of their respective budget resolutions through a conference report. This conference report must be approved by both the House and Senate. The approved budget will be sent to the President for his signature. The President however, can veto the Congress approved budget but the Congress can override the veto if 2/3 of the Congress voted to let the budget move forward.

Mandatory Spending

Certain expenditures are not affected by the US Government shutdown because they are protected by specific laws. These certain laws authorize the applicable federal agencies to continue operating indefinitely or for a specific period. Contained in these laws are permanent appropriations (funding) which become automatically available every fiscal year regardless whether a federal budget is passed or not.

Actual mandatory spending for FY 2011 is $2.025 trillion and accounted for 56% of total federal expenditure.

Mandatory spending includes Social Security, Medicare, Medicaid, MERHCF, Children’s Health Insurance Program, SNAP, Unemployment compensation, Supplemental Security Income, Earned income and child tax credits, Temporary Assistance for Needy, Child nutrition, Foster care, Making Work Pay and Other Tax Credits, Civilian and Military Retirement, Veterans Income security, Fannie Mae and Freddie Mac, Deposit Insurance, Higher education, Agriculture and Others.

Essential Services Continue

In a government shutdown, not all employees are getting furlough. There are 1.3 million essential civilian employees who continue to work despite the shutdown. However, if the shutdown continues until October 15, their paychecks will be delayed.

Active service military members will get paid no matter how long the shutdown lasts because the Congress passed a bill guaranteeing them of a paycheck even during shutdowns. President Obama signed it into law.

Here is a partial list of essential employees:

· Any employee or office that "provides for the national security, including the conduct of foreign relations essential to the national security or the safety of life and property." That means the U.S. military will keep operating, for one. So will embassies abroad.

· Any employee who conducts "essential activities to the extent that they protect life and property." So, for example: Air traffic control stays open. So does all emergency medical care, border patrol, federal prisons, most law enforcement, emergency and disaster assistance, overseeing the banking system, operating the power grid, and guarding federal property.

· Agencies have to keep sending out benefits and operating programs that are written into permanent law or get multi-year funding. That means sending out Social Security checks and providing certain types of veterans' benefits. Unemployment benefits and food stamps will also continue for the time being, since their funding has been approved in earlier bills.

· All agencies with independent sources of funding remain open, including the U.S. Postal Service and the Federal Reserve.

· Members of Congress can stick around, since their pay is written into permanent law. Congressional staffers however, will also get divided into essential and non-essential, with the latter getting furloughed. Many White House employees could also get sent home.

Non-essential Services Shuts Down

The non-essential services are the functions of the government which without a budget cannot function.

The Office of Management and Budget (OMB) recently ordered the managers of federal agencies to conduct reviews to see which employees are essential or non-essential. Employees classified as non-essential will be furloughed.

Furloughed is a temporary unpaid leave due to special needs of a company. A government shutdown resulted in non essential employees getting furlough.

Here is an example of employees getting furlough:

Department of Commerce: 87 percent of the agency's 46,420 employees would be sent home. (The Weather Service would keep running, for instance, but the Census Bureau would close down.)

Department of Defense: 50 percent of the 800,000 civilian employees would be sent home while all 1.4 million active-duty military members would stay on. (Environmental engineers, for instance, would get furloughed, and the agency could not sign any new defense contracts.)

Department of Energy: Thanks to multi-year funding, parts of the agency can actually operate for "a short period of time" after Sept. 30. But eventually 69 percent of the agency's 13,814 employees will be sent home. (Those in charge of nuclear materials and power grids stay. Those conducting energy research go home.)

Environmental Protection Agency: 94 percent of the 16,205 employees will be sent home. (Those protecting toxic Superfund sites stay. Pollution and pesticide regulators get sent home.)

Federal Reserve: Everyone would stay, since the central bank has an independent source of funding.

Department of Health and Human Services: 52 percent of 78,198 employees would be sent home. (Those running the Suicide Prevention Lifeline would stay, those in charge of investigating Medicare fraud would go home.)

Department of Homeland Security: 14 percent of the 231,117 employees would go home. (Border Patrol would stay. Operations of E-Verify would cease. The department will also suspend disaster-preparedness grants to states and localities.)

Department of Housing and Urban Development: 95 percent of the 8,709 employees would go home. (Those in charge of guaranteeing mortgages at Ginnie Mae would stay, as would those in charge of homelessness programs. Almost everything else would come to a halt.)

Department of Interior: 81 percent of the 72,562 employees would be sent home. (Wildlife law enforcement officers would stay, while the national parks would close.)

Department of Justice: 15 percent of the 114,486 employees would go home. (FBI agents, drug enforcement agents, and federal prison employees would stay. The department would continue running background checks for gun sales. Some attorneys would go home.)

Department of Labor: 82 percent of the 16,304 employees would be sent home. (Mine-safety inspectors will stay. Wage and occupational safety regulators will go home. Employees compiling economic data for the Bureau of Labor Statistics will also get furloughed.)

NASA: 97 percent of the 18,134 employees would be sent home. (Scientists working on the International Space Station will stay. Many engineers will go home.)

U.S. Postal Service: Everyone would stay, since the Postal Service is self-funded.

Social Security Administration: 29 percent of the 62,343 employees would be sent home. (Claims representatives would stay; actuaries would go home.)

Supreme Court and federal courts. Federal courts, will continue to operate for approximately two weeks with reserve funds. After that, only essential employees would continue to work, as determined by the chief judge, with the rest furloughed. (The Supreme Court will continue to operate when it opens Oct. 7, as it did in previous shutdowns.)

Department of Treasury: 80 percent of the 112,461 employees will be sent home. (Those sending out Social Security checks would stay; IRS employees overseeing audits would go home.)

Department of Transportation: 33 percent of the 55,468 employees will get sent home. (Air-traffic controllers will stay on; most airport inspections will cease.)

Department of Veterans Affairs: 4 percent of the 332,025 employees would go home. (Hospital workers will stay; some workers in charge of processing benefits will go home.)

Why the House and Senate are at Odds with One Another?

The US congress is composed of the House of Representative and the Senate. Both are distinct and separate legislative body. A budget cannot be passed without the concurrence of both bodies.

The current gov't shutdown is due to the disagreement over the budget between the House of Representative controlled by the Republicans and Senate held by the Democrats. This impasse leads to a budget not getting passed.

At the heart of the House and Senate impasse is Obamacare. Republican controlled House wants to delay or defund Obamacare. The Democrat majority Senate wants to remove those provisions in the budget, and so is President Obama. Remember, President Obama is a Democrat.

Republicans and Democrats have their own political ideology. Here are some of the differences:

	Democrat	Republican
Philosophy:	Liberal	Conservative
Economic Ideas:	Favor minimum wages and progressive taxation i.e. higher tax rates for higher income brackets.	Believe taxes shouldn't be increased for anyone (including the wealthy) and that wages should be set by the free market.
Stand on Military issues:	Decreased spending	Increased spending
Stand on gay marriage:	Support (some Democrats disagree)	Oppose (some Republicans disagree)
Stand on abortion:	Should not be made illegal; support. Roe v. Wade (some Democrats disagree)	Should not be legal; oppose Roe v. Wade (some Republicans disagree)
Stand on Death penalty:	While support for the death penaltyis strong among Democrats, opponents of the death penalty are a substantial fraction of the Democratic base.	A large majority of Republicans support the death penalty.
Social and human ideas:	Based on community and social responsibility	Based on individual rights and justice
Traditionally strong in states:	California, Massachusetts	Oklahoma, Kansas, Texas
Symbol:	Donkey	Elephant
Color:	Blue	Red
Founded in:	1824	1854
Website:	www.democrats.org	www.gop.com
Senate Leader:	Harry Reid	Mitch McConnell
Chairperson:	Debbie Wasserman Schultz	Reince Priebus
Famous Presidents:	Franklin Roosevelt, John F. Kennedy, Bill Clinton, Woodrow Wilson, Jimmy Carter	Abraham Lincoln, Teddy Roosevelt, Ronald Reagan, George Bush, Richard Nixon

Sources:

http://www.law.cornell.edu/uscode/text/31/1105

http://en.wikipedia.org/wiki/United_States_federal_budget

http://en.wikipedia.org/wiki/United_States_budget_process

http://en.wikipedia.org/wiki/Mandatory_spending

http://www.fas.org/sgp/crs/misc/RL33074.pdf

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/09/30/absolutely-everything-you-need-to-know-about-how-the-government-shutdown-will-work/

http://www.washingtonpost.com/blogs/federal-eye/wp/2013/09/18/omb-to-agencies-start-making-shutdown-plans/

http://www.gao.gov/legal/lawresources/antideficiencybackground.html

http://www.diffen.com/difference/Democrat_vs_Republican

A Banner Year for the Philippines...

2013-10-01T23:02:00.000-07:00

Miss World – Megan Young

Megan Young, our representative to the Miss World beauty pageant held in Indonesia was recently crowned as Miss World 2013. This is the first time that a Filipina won this event. After 62 years of excruciating agony hoping to hold that magic wand, sit in the golden chair, and wear that diamond crusted crown, we can finally say “Yes, we did it!” Or should we say, Megan Young did it for us.

photo by Murdani Usman, Reuters

Her hard work, sacrifice and passion carried us on to win the event. Once again, we are beaming with pride and honor. Before the pageant, she posted on her official Miss World - Philippines Facebook account, “Sa aking mga kababayan, huwag kayong mawalan ng pag-asa. May bukas pa at may laban pa tayo. Taas noo tayong lalaban pero tayo’y magpakumbaba pag dating sa ating mga salita. Buong puso ko at puso niyo ang lumalaban dito. Itong laban na ito ay para sa ating lahat. Sana makapagbigay inspirasyon ako sa lahat ng Pilipino katulad rin ng aking mga iniidolo na lumaban para sa bansa. Laban, Pilipinas.” Yes, Megan. Your fight is our fight. Your battle is our battle. Together, as one united Filipinos, you as our representative and we as your avid supporters with undying fervor to support you, we can overcome the hurdles and challenges in the international competition.

More importantly, the win mirrors the resiliency of the Filipinos who in spite of their struggles continues to endeavor to be triumphant and victorious in the game of life.

To Megan Young, thank you for bringing honor and pride to our country. You did inspire all of us. Kay sarap maging Pilipino, taas noo kahit kanino.

Source: Rappler

2^nd Place, FIBA Asia 2013

The victory of Smart Gilas over South Korea is still fresh in my memory. The fearless drives of Jason Castro, the clutch three point shots of Jimmy Alapag and jumpers of Ranidel, the hustle of Marc Pingris and the passion of the Filipinos.

I watched the encounter through streaming videos. It’s a little bit blurred but enough to see the action and recognize the players. Besides, this is a game where we can take off the monkey on our back and reassert ourselves in the world basketball. It’s about damn time that we should beat this pesky and sweet shooting Koreans. With 20,000 plus screaming fans supporting our players inside the Mall of Asia , the family’s moral support, and the 90 million plus rooting and praying to beat the Koreans, this is the best opportunity to finally exorcise the demons against the Koreans.

photo credit: FIBA Asia/Nuki Sabio

Korea was ahead 28-23 when Douthit got injured halfway through the second quarter. Wow, can you believe that? Our main man in the middle was gone! I felt right there that our chances of winning got diminished.

But the players never gave up. Who could forget the daredevil drives of Jason Castro in the opening of third quarter? He is one of the smallest on the court and yet he stands tall amongst them. Ping muscled his way under the rim against taller Koreans to rebound, defend and score. At the end of 3^rd quarter, we’re up by 9 points.

And then it happened. With over four minutes remaining, that Korean player with a tomahawk hairstyle (Lee Seung-Jun) dunked the ball to give the Koreans a one point lead. Oh boy, here we are again! Those demons just won’t go away. Those heartbreaking losses resurfaced again in my head. No, this ain’t happening!

Less than a minute to go, Philippines is up by two. Jimmy dribbled his way to the left side and shot a three, a form we are too familiar watching in PBA. He nailed it and we’re up by five points. The ensuing play is a blocked of Norwood against a Korean shooter. As the final seconds ticked away, people start hugging one another as tears flows. Coach Chot sobs at the sidelines, some players jumped in joy; others knelt down savoring the liberation of winning against South Korea.

The historical importance of the win cannot be overemphasized. For decades, we are the kings of Asia. From 1936 to 1972, we represented Asia in Olympic basketball except for one. Since then, we’ve never been in the world.

We’ve never beaten South Korea in international competition since 1985, a 28 long years of fruitless endeavor. As a hoops mad nation, getting over the hump is a welcome relief everyone relishes. Heartbreaks includes 2011 FIBA Asia Championship, 2010 Asian Games, 2009 FIBA Asia Championship, 2002 Asian Games, 1998 Asian Games, 1987 Asian Basketball Confederation Championship, and 1986 Asian Games.

Source: Grantland,GMA News and Interaksyon

Miss Supranational – Mutya Datul

Okay, I know this title is not as popular and prominent as the other three beauty pageants, Miss World, Miss Universe and Miss International but then again when you bested 82 other beauties from different nationalities, it’s something to be proud of.

Never heard or seen her? Here is a glimpse of her beauty. Ganda talaga ng lahi natin ano po? :-)

photos c/o Raymond Saldana.

Source: Rappler

GDP, best in Asia

Philippines 2^nd quarter 2013 GDP grew by 7.5%. Several highlights on this glowing numbers are:

Source:NSCB

a. It beat the analysts median forecast of 7.2%.

b. This is the 4^th consecutive quarter that the GDP expanded by at least 7%.

c. The highest among ASEAN nations.

d. It matched China’s GDP, highest in Asia.

e. The composition of the growth points towards the process of rebalancing; from being a consumption led economy to investment-led and industrialized.

It wasn’t too long ago when Philippines was tagged as the “sick man” of Asia. Today, analysts and investors alike are singing a different tune. Philippines is Asia’s newest bright spot. Philippines is Asia’s Rising Economic Star. The strong man of Asia. Philippines is the investors’ darling in Asia, its economy shines amid a backdrop of slower growth in the global economy.

HSBC predicted Philippines to become the 16^th largest economy by 2050 with an average growth of 7% until 2050.

Source: NEDA, Inquirer

PSE, 3^rd Best Performing Stock Market

Paris-based World Federation of Exchanges (WFE) recognized Philippine Stock Exchange as the 3^rd best performing stock for the year 2012. It follows Turkey and Thailand respectively.

The PSE was recognized after it gained 38.9% in market capitalization. The value turnover increased by 25.3% in 2012, 3^rd best in the world. PSE landed fourth in the expansion of number of trades while it registered fifth highest increase in broader market index.

In 2012, our PSEi recorded 33% gain, enough to land the 10^th spot lead by Venezuela’s Index which increased by a whopping 303%.

In 2013, the PSEi still fairs well among the best performing stock market as it gains 20% as of Apr 2013 to land at fifth spot, this time lead by Japan with a gain of 34% year to date.

Source: GMA News, Business Insider, Rediff

Interest Rates at Historic Low

Current interest rate is at 3.5%, the lowest rate in history since data were compiled.

Recently, Bangko Sentral ng Pilipinas kept the interest rate at 3.5% to support GDP growth.

The interest rate refers to the central bank benchmark interest rate. Usually, the central bank benchmark interest rate is the overnight rate at which central banks make loans to the commercial banks under their jurisdiction. Moving the benchmark interest rate, the central bank is able to make an impact on interest rates of commercial banks, inflation level of the country and national currency exchange rate.

Reduction of interest rates should bring increase in business activity, a rise in inflation rate and weakening of national currency. In case of increase in interest rates the level of business activity is likely to drop, inflation declines and national currency strengthens.

Source: BSP,Trading Economics, Bloomberg

Now, A Lender to IMF

For 45 long years, we are an IMF borrower. In 2006, we were able to pay our obligations. This year, we are extending a $1 billion loan to IMF.

We’ve been the recipient of these IMF loans before, it’s time that we turn back the favor and help struggling countries.

Our GIR is at historic levels as dollars from OFWs and BPOs sector increase the net dollar inflow of our country.

First Ever Investment Grade

Philippines never achieved an Investment Grade from the three major credit agencies. Moody’s and S&P started covering Philippines in 1993 while Fitch in 1999. Since these three major credit agencies started covering Philippines credit, we’d never passed the speculative grade. The highest grade we got was a notch below the investment grade.

Until 2013 came. Last March this year, Fitch gave Philippines its first ever investment grade rating. S&P followed suit in May. Moody’s team is expected to follow suit.

Source:Philstar

An investment grade rating would lower debt interest payments, open more credit avenues, and give the country more foreign investments.

Source:SEPO, PhilStar

Balance Sheet of Juan Dela Cruz Sari-Sari Store

2013-09-29T01:08:00.000-07:00

What is a Balance Sheet? Balance sheet is a sheet that is balance. The balance sheet is always balance. That is Assets = Liabilities + Equity. What you can see in the Balance Sheet are balances of your assets and sources of your capital. It is a summary of balances, hence the Balance Sheet.

Before you proceed further, it is necessary to read my previous blog so that you’ll have an understanding of the reports presented below. Here it is Juan DelaCruz Sari-Sari Store.

Let’s take the trial balance we have in the previous blog.

JUAN DELA CRUZ SARI- SARI STORE

TRIAL BALANCE

AS OF OCTOBER 31, 2013

(In Philippine Peso)

Account Titles Debit Credit

Cash 15,000

Inventory 15,500

Store Building 20,000

Accumulated Depreciation 167

Owner’s Equity 50,000

Sales 5,000

Cost of Goods Sold 4,500

Depreciation Expense 167

Total 55,167 55,167

Based on the above trial balance, we will generate the balance sheet. Let’s begin with Current Assets. Current Assets are assets which are current. They are expected to be sold or used within one year.

Cash and Inventories are classified as current because they are expected to be used or sold within one year. Structure of Current Assets in the Balance Sheet is shown below.

However, there are businesses whose operating cycle is greater than one year. An operating cycle is the length between paying employee salaries or buying materials and collecting cash from customers. A shipbuilder building a ship tanker takes more than two years to finish and deliver the ship to customer. Thus, the operating cycle of a shipbuilder is not one year but rather more than two years.

Let’s move to Non-Current Assets. Non-Current Assets are assets which are not current. They are not expected to be sold or used within one year.

Store Building is classified as non-current because it is expected to be used for more than one year. In fact, you estimated it to last for ten years. Thus, the economic benefits the store building will bring is more than one year, hence it is treated as non-current assets. The store building cost 20,000. This 20,000 cost should be allocated or spread out for ten years, its estimated useful life. Using straight line method, monthly depreciation is Php 167 (20,000÷120 months). Below is the structure for Non-Current Assets.

Owner’s Equity

Next is the Liabilities and Owner’s Equity. Since, there are no liabilities in our example, we’ll ignore that for the meantime. We’ll go on to the Owner’s Equity Account. The Owner’s Equity’s balance in the trial balance is 50,000.

Closing (Consolidate) the Income Statement Accounts to Income Summary Account

Sales, Cost of Goods and Depreciation Expense accounts are not Balance Sheet accounts. They are Income Statement Accounts. They do not appear in the Balance Sheet. In order to transfer these account balances, we must create closing entries. Closing entries are:

Date	Account Title	Debit	Credit
31-Oct-13	Income Summary		333
31-Oct-13	Sales	5,000
31-Oct-13	Cost of Goods Sold		4,500
31-Oct-13	Depreciation Expense		167
	To close the income statement accounts to Income Summary

What have you noticed? First, Sales which has a credit balance in the trial balance was debited in the closing entry so its balance is now zero. Cost of goods sold and depreciation expense were credited in the closing entry, their balances are now zero. What happened is that we closed the income statement accounts and created a “profit and loss” account which in this case is the Income Summary account. The income summary account is the profit of the store for the period of October 2013. Its balance of 333 is the profit of the store.

Transferring Net Income to Balance Sheet

This Income Summary account is still an Income Statement account. What we did was to consolidate all the Income Statement accounts into one summary account.

This Income Summary account which in reality is profit of the store for October 2013 can now be transfer to Owner’s Equity. The entry is:

Date	Account Title	Debit	Credit
31-Oct-13	Income Summary	333
31-Oct-13	Owner’s Equity		333
	To close the income summary account tp Owner’s Equity

The Income statement account balances are all zero at this point in time after considering the closing entries. Let’s take a look at the trial balance after the closing entries.

JUAN DELA CRUZ SARI- SARI STORE

TRIAL BALANCE

AS OF OCTOBER 31, 2013

(In Philippine Peso)

Account Titles Debit Credit

Cash 15,000

Inventory 15,500

Store Building 20,000

Accumulated Depreciation 167

Owner’s Equity 50,333

Total 50,500 50,500

If you noticed, there are no more Income Statement Accounts. The remaining accounts are all balance sheet accounts. From this, we can proceed in generating the Balance Sheet of Juan Dela Cruz Sari Sari Store.

Basic Accounting for Juan DelaCruz

2013-09-26T04:44:00.001-07:00

The balance sheet is a summary of balances right? Before you can make a summary, you need the details. Now in accounting you need transactions. EACH transaction must be recorded in your books. This is important because nowadays Bureau of Internal Revenue (BIR) is focusing on professional services which typically are created through sole proprietorships. It was even said that teachers are paying taxes more than professional services.

Let’s say you want to open a sari-sari store in front of your house. You have Php 50,000 in savings. You withdraw your 50,000 savings to establish a sari-sari store. Your accounting entry is:

Date	Account Title	Debit	Credit
25-Sep-13	Cash	50,000
25-Sep-13	Owner's Equity		50,000
	To record capital infusion from owner

After withdrawing your 50,000 savings, you went to the hardware to buy hollow blocks, cement, lumber, nails, galvanized iron and steels. Total cost is 15,000. You hired a carpenter and mason to do the works. Their wages total is 5,000 upon completion of the sari-sari store.Accounting entry for this is:

Date	Account Title	Debit	Credit
29-Sep-13	Store Building	20,000
29-Sep-13	Cash		20,000
	To record capital construction of store building

Upon completion of the store building, you went to the grocery store nearby and bought canned goods, chips, shampoos, toothpaste, soaps, matches, and a lot of basic stuff your neighborhood needs. These products cost you 20,000.

Date	Account Title	Debit	Credit
30-Sep-13	Inventory	20,000
30-Sep-13	Cash		20,000
	To record products bought from Pedro’s grocery

Suppose that for the month of October, you were able to sell 5,000 worth of products in cash. Your policy is “Credit is good, but we need cash”.

Date	Account Title	Debit	Credit
31-Oct-13	Cash	5,000
31-Oct-13	Sales		5,000
	To record sales for the month of October 2013

The cost of the products you sold in October is 4,500. Another entry is required.

Date	Account Title	Debit	Credit
31-Oct-13	Cost of Goods Sold	5,000
31-Oct-13	Inventory		5,000
	To record cost of sales for the month of October 2013

The store building was estimated to last for 10 years. Your first month has gone by and you need to record a depreciation expense. Your depreciation computation is:

Cost Php 20,000

Estimated Life 10 years (120 months)

Depreciation/month (20,000÷120) Php 166.67 (rounded off to 167)

Date	Account Title	Debit	Credit
31-Oct-13	Depreciation Expense	167
31-Oct-13	Accumulated Depreciation		167
	To record depreciation expense for the month of October 2013

Now that you have recorded the entries until October 31, 2013, it’s time to summarize your entries by using a T- account. T-account is an account structure that resembles letter T. Each account transactions will be recorded under the T account.

See below.

Once all transactions are recorded in the T account, you can summarize the Accounts using the trial balance. As of October 31, 2013, the summary of your T account balances are:

JUAN DELA CRUZ SARI- SARI STORE

TRIAL BALANCE

AS OF OCTOBER 31, 2013

(In Philippine Peso)

Account Titles Debit Credit

Cash 15,000

Inventory 15,500

Store Building 20,000

Accumulated Depreciation 167

Owner’s Equity 50,000

Sales 5,000

Cost of Goods Sold 4,500

Depreciation Expense 167

Total 55,167 55,167

If you noticed, the debit and credit balances are ALWAYS equal. That will always be true. The debit and credit will always be equal. From this trial balance, you can generate the major Financial Reports which includes the Balance Sheet and Income Statement.

Tip: The abbreviation of Debit is Dr. while Credit is Cr. So that you won’t forget their abbreviation, here is the Doctor’s (Dr) Comfort Room (Cr) J.

Brief Info on Balance Sheet...

2013-09-24T00:59:00.003-07:00

The balance sheet (also called the statement of financial position or statement of financial condition) presents a company’s current financial position by disclosing the resources the company controls (assets) and its sources of capital (liabilities/equity) at a specific point in time.

In the balance sheet report, you’ll see the Assets, Liabilities and Owners Equity. Those three are the basic elements of the balance sheet.

Assets are resources controlled by the company as a result of past events and from which future economic benefits are expected to flow to the entity. This definition means that:

a. An asset is controlled by the company. Machines, equipment, cash and vehicles are controlled by the company. Employees are not considered assets because the company doesn’t control them.

b. An asset is a result of past events. It occurred already. It happened already. The event giving rise to the entity’s right or control over the asset has transpired already.

c. An asset is expected to provide future economic benefits to the company. Future net cash flow is expected. Simply put, an asset is expected to provide net cash flows in the future.

In Assets section, you’ll know which assets are current or non-current.

Liabilities represent obligations of a company arising from past events, the settlement of which is expected to result in an outflow of economic benefits from the entity. This definition means that:

a. It is an obligation. A duty. A responsibility. It provides little or no discretion to avoid its settlement.

b. It came from past events. It occurred already. It transpired already. It happened already.

c. It is expected to result in outflow of economic benefits. It is a duty to transfer economic benefits (assets) to others at a future date.

Similar to Assets, the Liabilities section will provide information which items are current and non-current.

Owner’s Equity is the owner’s residual interest after deducting liabilities from the assets. It is normally compose of Capital, Retained Earnings and Unrealized Gain or Loss.

The amounts of the items in the balance sheet are the balances at a specific point in time. What is your bank balance last December 31, 2012? The balance sheet will answer that question. Have you notice that the date is always specific? It’s always like December 31, 2012, or March 31, 2012, or June 30, 2012 or September 30, 2012 or any specific date you have in mind. Take a look at EEI’s balance sheet date. The date specifically states it is December 31, 2012. That means that the item balances are as of December 31, 2012 and December 31, 2011. In some financial statements, you’ll see As of or As on before the date. It will be like As of December 31, 2012 or As on December 31, 2012. This As of or As on signifies the specific date of the items in the balance sheet.

PSE disclosure screengrab

From an analyst point of view, below are some of the questions that a balance sheet can answer.

■ Is the company capable on meeting its short term obligations (liquidity), and has the ratios improved?

■ Does the company has sufficient resources to cover its obligations (solvency)?

■ What is the company’s financial position relative to the industry?

■ Does the company has enough resources to declare dividends to shareholders?

Source: CFA

What is the Objective of Financial Statement Analysis?

2013-09-23T02:44:00.000-07:00

The role of financial statement analysis is to use financial reports prepared by companies, combined with other information, to evaluate the past, current, and potential performance and financial position of a company for the purpose of making investment, credit, and other economic decisions.

Financial statement analysis starts when the role of financial reporting is done. Accountants who record the transactions of the companies are financial accountants. Once their job is done, the financial statement analyst can come into picture and start analyzing the financial statements reports. Financial analysis within the organization though does not necessarily rely on financial statements but rather on financial information available within the company.

In financial statement analysis, we use financial reports and other information. So what are these financial reports? Let’s take a look at these reports that are being used by financial analyst to evaluate the past, current, and potential performance and financial position of a company for the purpose of making investment, credit, and other economic decisions.

1. Balance Sheet - (also called the statement of financial position or statement of financial condition) presents a company’s current financial position by disclosing the resources the company controls (assets) and its obligations to lenders and other creditors (liabilities) at a specific point in time. Owners’ equity represents the excess of assets over liabilities.

2. Income Statement - presents information on the financial results of a company’s business activities over a period of time.

3. Statement of Changes in Equity - variously called the “statement of changes in owners’ equity” or “statement of changes in shareholders’ equity,” primarily serves to report changes in the owners’ investment in the business over time.

4. Cash Flow Statement- disclosing the sources and uses of cash helps creditors, investors, and other statement users evaluate the company’s liquidity, solvency, and financial flexibility.

5. Financial Notes and Supplementary Schedules - The notes provide information that is essential to understanding the information provided in the primary statements. The notes disclose the basis of preparation for the financial statements.

6. Management Commentary or Management’s Discussion and Analysis - The management commentary or MD&A is a good starting place for understanding information in the financial statements.

In the Philippines, aside from the above listed reports that publicly listed companies must provide every year, they also need to disclose other information to the investing public. Below are some of the reports required to be submitted to Philippine Stock Exchange (PSE):

Annual Report

Quarterly Report

Public Ownership

Corporate Governance Report

List of Top 100 Stockholders

Record And Payment Dates For Dividend Declarations

Documentary Requirements For Mining Companies

Progress Reports For Fund Raising Activities

Supplemental Listing And Disclosure Requirements For Petroleum And Renewable Companies

Buyback Transactions

Result of Annual Stockholders Meeting

Clarification of News Article

Changes in shareholdings of officers/directors

Press Releases

Aside from the information inside the organization, the economy, industry and sector, and comparable peer companies must be evaluated as well in order to come up with a decision or recommendation. These include economic statistics, industry reports, trade publications, and databases containing information on competitors.

A financial analyst evaluates the past, current, and potential performance and financial position of a company to recommend or make an investment decision.

Examples of these decisions include the following:

■ Evaluating an equity investment for inclusion in a portfolio.

■ Evaluating a merger or acquisition candidate.

■ Evaluating a subsidiary or operating division of a parent company.

■ Deciding whether to make a venture capital or other private equity investment.

■ Determining the creditworthiness of a company in order to decide whether to extend a loan to the company and if so, what terms to offer.

■ Extending credit to a customer.

■ Examining compliance with debt covenants or other contractual arrangements.

■ Assigning a debt rating to a company or bond issue.

■ Valuing a security for making an investment recommendation to others.

■ Forecasting future net income and cash flow.

Managers within a company perform financial analysis to make operating, investing, and financing decisions but do not necessarily rely on analysis of related financial statements. They have access to additional financial information that can be reported in whatever format is most useful to their decision.

Source: CFA, PSE

Another Pre-Need Company Bites The Dust. Who's Next?

2013-09-22T00:38:00.002-07:00

Perhaps most of you have read about the collapse of Prudential Life Plans Inc. (PPI). Another pre-need company went down the gutter. The confidence on pre-need plans is in tattered....way back when CAP collapsed.

It was not so long ago, when the pre-need industry's growth was skyrocketing. One company after the other sprouts like mushroom to take advantage of the popularity of the pre-need plans in the Philippines. Today, it is no longer the case as even pioneers of the industry went bust.

Pioneers Folded
The Pacific Plans, Inc. (formerly known as Pacific Memorial Plan, Inc.) is the first pre-need company that started in 1966. It offered memorial or life plans to the public. The business prospered until 2002 when it experienced difficulty meeting its maturing obligations. In 2005, Pacific Plans filed for rehabilitation with the Makati RTC. In 2009, Noel Onate, an investment banker bought the company for Php 250 million.

Professional Pension Plan (which became Professional Financial Plans) started the pension plan in 1976. It's plan holders are entitled to received benefits upon retirement or maturity of the plan. It is currently under rehabilitation.

College Assurance Plan pioneered the educational plan in 1980. It enjoyed unparalleled success in the educational plan sector until it's collapse in 2004 when it's issued checks were dishonored. In 2005, it filed for rehabilitation with the Makati RTC.

Only 20 remain out of 92 pre-need companies
To date, there are only 20 pre-need companies which are legally and licensed to sell educational, life and pension plans based on Insurance Commission website. At its peak, there were 92 pre-need firms operating in the Philippines.

In order to avoid getting scammed by closed or revoked pre-need companies, below is the list of 20 pre-need companies that are still licensed to sell pre-need plans. When I say pre-need plans, it means that the company can sell life plan, educational plan and/or memorial plan depending on their license.

Pre-Need Plans are contracts which provide for the performance of future service/s or payment of future monetary consideration at the time of actual need, payable either in cash or installment by Planholders at prices stated in the Contract with or without interest or insurance coverage and includes life, pension, education, interment, and other plans which the Commission may from time to time approve.

If the insurance company offering you a pre-need plan is not included in the list, then you can report it to the proper authority.

Source: Insurance Commission

Causes of Collapse

1. The Education Act of 1992

The Education Act of 1992 is often referred to as the main reason of the collapse of the pre-need industry. The Act deregulated the education industry and the 15% capped tuition fee increase was removed. As a result, educational institutions increased their tuition fees tremendously.

Ten years after the Education Act of 1992 was enacted, the cost of a four year educational plan increased by 1200 percent. The yield on investments by the pre-need companies cannot cope up with the tuition fee increases. Consequently, pre-need companies incurred deficiency in their trust fund.

2. The 1997 Asian Financial Crisis
During the 1997 Asian Financial Crisis, the stock market went down dramatically together with real estate values. As such, the investment values of pre-need companies reduced considerably and impaired their capability meeting their maturing obligations.

Take a look at the chart below.

From record high of 3,447.60 in early 1997, it plunged down to 1,075, a decrease of almost 70%! Such is the heightened risks and volatility in stock market. It can kill an investor in a year.

3. Inappropriate Accounting Practices
Some pre-need companies sugarcoated their financials to cover their deficiencies. It was found out that they do not have sufficient assets to pay for their future obligations.

Below is an excerpt from Congressional Planning and Budget Department House of Representatives:

According to the SEC, the entire pre-need industry used aggressive accounting practices which understated liabilities and tended to present a rosier financial picture than warranted. As a corrective measure the SEC in 2002 imposed the use of the PreNeed Uniform Chart of Accounts (PNUCA) as a standard for reporting of finances and liabilities. With the PNUCA in place, pre-need educational and pension plans were no longer treated as investment contracts but as insurance contracts, subject to the Actuarial Reserve Liability (ARL) scheme.

In addition the SEC imposed circulars instituting ARL as method of valuation for pre-need industry. Circular # 6 sets the standard for valuation of the ARL for pre-need plans, Circular # 7 requires pre-need companies to provide information relevant to actuarial valuation report and Circular # 8 sets the responsibilities of actuaries in the pre-need actuarial reserve valuation. These, according to the PFPPCI have caused major difficulties to their members.

These changes in accounting methods further weakened the financial statements of the pre-need companies, and effectively constrained their investment activities.

4. Weak Regulation
SEC was assailed for being remiss in its duties to closely monitor the pre‐need companies and act decisively on their problems. Its weakness as a regulator is considered to be an important factor why the pre‐need industry is now in distress.

Here is an excerpt from Senate Economic Planning Office's Policy Brief:

Section 16 of RA 8799 or the Securities Regulation Code vested the SEC with regulatory powers over the pre‐need companies. It authorized the SEC to prescribe rules and regulations governing the registration and sale of pre‐need plans. Some of these important rules are the following:

· A minimum paid‐up capital of PhP100 million as a buffer for trust fund performance fluctuation;

· A minimum trust fund equity requirement of not less than 45 percent of the amount collected for life plans and 51 percent for pension and education plans. For installment payments, the minimum limits of the deposit contribution to the trust fund shall be in accordance to a schedule (Table 4). Should the SEC discover a deficiency in the trust fund, it shall give notice to the pre‐need company, and require it to make additional deposits within 30 days. The SEC may also demand for a higher deposit as determined by the actuary;

· An investment portfolio mix for trust funds. To ensure that risks to the trust fund are managed, the fund shall observe a certain investment mix (Table 5);

· Liquidity reserve requirement of not less than 10 percent of the net value of the trust fund assets per type of plan. Loans, treasury notes or bills, Central Bank Certificates of Indebtedness, repurchase agreements, savings or time deposits with government‐owned banks or commercial banks, and investments in fixed income instruments shall qualify as investments for the Liquidity Reserve Fund;

· A trustee who will exercise due diligence for the protection of plan holders, and who will have the exclusive management and control over the funds, including the required liquidity reserve fund. The trustee must be established independently with the trust department of a trust company, bank or investment house doing business in the Philippines;

· Strict compliance with the Pre‐Need Uniform Chart of Accounts (PNUCA) for a more accurate accounting and reporting of financial condition of pre‐need companies;

· A limit to the payment of commissions up to 10 percent of the contract price of the plans; and

· Reportorial requirements such as the monthly, quarterly and annual publication of financial condition and trust fund statements, among others.

Should the SEC find that a pre‐need company has violated any of the said Pre‐Need Rules, has engaged in fraudulent transactions or does not conduct its business in accordance with the law, or is insolvent, the SEC has the power to cancel the pre‐need company’s registration and permit to sell new plans.

However, it appears that the SEC itself failed to follow its own rules. In the Senate hearings, it was revealed that Legacy was still able to secure permit to sell new plans from the Commission, ignoring SEC’s advisory to recapitalize as early as 2006. This was also the case for CAP who was still able to get a permit to sell in 2001 even after the SEC found a PhP2.6‐billion trust fund deficiency the year before. Moreover, even with the regular financial reports submitted to the Commission, the SEC is apparently still unable to keep track of companies that are already having financial difficulties.

SEC officials explained that lack of technical and financial capabilities, and not negligence, have been hindering them from carrying out their mandate effectively. At present, the SEC only has about 400 personnel and has no resident actuaries to do the counterchecking of the figures and financial projections pre‐need companies submit to them. It was further argued that the non‐passage of a Pre‐Need Code has restrained the regulatory powers of the SEC.

5. Independent Trustee
Some of the pre-need companies' trustee were affiliates. Pacific Plans' trustee is RCBC, both are under the Yuchengco Group of Companies. CAP's trustee is Bank of Commerce, both have Sobrepeña affiliation. Ayala Plans trustee is BPI, both under Ayala Corporation, Philam Plans trsustee is Philam Savings. Cocolife trustee is UCPB; and First Union's trustee is Union Bank. There is a possibility that a collusion between these two related companies may occur.

Excerpts from Congressional Planning and Budget Department House of Representatives:

Collusion between pre-need companies and their affiliates could result in possible diversion of the trust fund into business ventures other than the intended investment specified by the SEC.

In 2005, Senator Serge Osmena, during committee hearings, mentioned about CAP and PPI impropriety in handling their trust fund. Specifically, he pointed to the questionable investment of CAP in its affiliates company such as the Fil-Estate Management, Inc (FEMA) and PPI appointment of Rizal commercial Banking Corporation (RCBC) as its trustee bank. Likewise, Atty. Maricel Lopez, counsel for CAP planholders accused CAP’s executives of diverting P25 billion of its trust funds to its affiliated corporations (Camp John Hay Development Corporation, Metro Railway Transit and Fil-Estate Company).

As a result, CAP had incurred P1 billion loss in bad investment in FEMA alone, a holding company of the Sobrepeña family, which also controls CAP. Moreover, CAP engaged the trust fund in a 14 wrong mix of investments from related parties at questionable prices. On the other hand, PPI and its trustee bank, RCBC, both owned by the Yuchengco Group of Companies (YGC), have interlocking officers. While PPI is in financial distress, the YGC has earned a whopping 1055% ROI on its P165 million investment in just 8 years.

Planholders Holding the Empty Bag
As pre-need companies collapse, plan holders were left holding the proverbial empty bag. Their hopes were dashed. If you browse some of the forums on educational plan, you'll read nasty comments about these plans. Anger, rage, resentment and fury enveloped the mood of the forums. Typical questions "What to do now? How can I recover my hard earned money? How can I contact them?" filled the thread.

Solution

1. Stop Open Ended Plan
When tuition fee skyrocketed after The Education Act of 2002 was passed, yields on investments cannot cope up with the increase in tuition fees. Forecasting the pre-need's maturing obligations in the future became difficult. An open ended plan requires the pre-need company to pay the tuition fee charged by schools regardless of cost.

Before the Education Act of 2002, the maximum tuition fee increase is 15%, can you imagine the increase when the education sector is deregulated? The increase of tuition fees for ten years since 2002 was 1,200%! Now, the pre-need companies needs to find a way to compensate this increase in tuition fees which was not factored anyway in their initial investment programs.

Stock market offers the highest yield on any investment. It is also the riskiest. The average return of the stock market for 20 years is 14% compounded. If a pre-need company went to the stock market to cover the increase in tuition fees, it is not enough.

A fixed value educational plan on the other hand will sway other prospective clients into doing their own investment plan to cover their children's education in the future. However, majority of the working Filipinos have little technical knowledge on investments. Dipping in this new territory will be challenging for them.

I am doing my own educational plan for my daughter through stock market. Once she reaches college, she'll have enough to pay for her tuition fees and other expenses.

Thus, fixed value plan still offers significant value to prospective clients if pre-need companies will just explain how their monthly payments compounded into ten percent can result into significant value in the future and cover the majority of the tuition fees.

2. Independent Trustee
As mentioned above, there could be a possibility that a collusion between affiliate companies may happen if the pre-need company and trustee are related. In order to avoid this, the regulator must strictly implement the policy of having an independent trustee.

3. Sound Investment Policies
What is a sound investment policy in the first place? Risks must be assessed and considered in investment decision. The Asian financial crisis in 1997 reduced some of the pre-need companies' trust fund value considerably. I believe that you should not invest more than 25% of the fund in stock market because of the heightened risks associated on it. The portfolio must be a mix of various investments which should include real estate, stocks, government bonds, corporate loans, various projects.

4. Pre-need Insurance
Similar to a bank whose deposits are insured to certain extent, a portion of the premiums paid by planholders must be insured. This is to ensure that plan holders who typically belongs to the lower income bracket of our society are sure to get at least a portion of their hard earned money.

5. Strong Regulatory Implementation
According to the Senate Economic Planning Office, one of the major reasons of the pre-need industry's collapse is the lax monitoring of SEC and its failure to act decisively on a troubled pre-need company.

Sources:

http://www.senate.gov.ph/publications/PB%202009-02%20-%20%20What%20the%20pre-need%20industry%20needs.pdf

http://www.congress.gov.ph/download/cpbd/07-Pre-Need.pdf

http://www.oecd.org/finance/private-pensions/2763673.pdf

http://newsinfo.inquirer.net/488207/ppi-collapse-dashes-dreams-of-245000-policyholders

http://newsinfo.inquirer.net/488919/plan-holders-seek-to-defer-liquidation-of-preneed-firm

http://newsinfo.inquirer.net/489799/only-20-preneed-firms-remain-out-of-200-plus

http://business.inquirer.net/143337/list-of-distressed-preneed-firms

http://www.abs-cbnnews.com/business/01/20/09/pacific-plans-gets-new-lease-life

Term Insurance Only, Please...

2013-09-19T10:16:00.000-07:00

http://www.flickr.com/photos/86530412@N02/8266216454

Recently, I just applied for a term insurance from AXA. When I saw the application details, the insurance name is called Flexi Protect. You know insurance companies has a lot of names under their sleeves for any type of insurance you can imagine. I wrote an e-mail to the insurance agent who gave me a draft of the insurance policy so that I can take a look at the program, coverage and costs.

Initially, I was given a Flexi Protect policy with a few riders attached into it. Insurance riders are additional coverage with additional cost. Insurance riders are called as such because they "ride" on main types of insurance. They cannot be sold alone or separately. They are dependent on main insurance policies.

During the coverage period, if you die prematurely, your loved ones (beneficiary) will receive the insured amount from the insurance company. These funds reduces the financial burden of your loved ones considerably for the burial and wake expenses. At the same time, if you shoulder most of the financial burden of your family, your loved ones will have something to fall back while they cope up and adjust with your death.

The covered insured amount is Php 2.4 M and I'm paying Php 1,000 per month. I asked for a lower premium because the riders that were initially suggested were already removed. However, the agent told me that they have a minimum payment threshold and I could not go lower than that. Anyway, since the insured amount went higher, I did not squabble with the agent anymore. I trust him.

http://www.flickr.com/photos/11599314@N00/2848983753

I know the covered amount is more than enough to cover my daughters tuition fee in case I'm called by God to return home with Him. Also, my wife won't struggle that much in raising our daughter alone. One million in the stock market over a long period of time will be enough to cover my daughter's education. That gives me a sense of security in my daughter's future. Since I basically shoulder my family's major finances, I need to get an insurance to avoid the shock of financial loss.

Term insurance is the most basic type of insurance. From the word "term", it means a specific period of time. It can be 1 year, 10 years or 20 years. It is the cheapest type of insurance. I don't need investment related insurance products because I want to invest on my own.

Since I only wanted a term insurance, I ended up with a term insurance. No ifs, no buts.

What To Do with Oddlot Shares From Stock Dividend?

2013-09-17T03:11:00.003-07:00

Have you guys received your 30% stock dividend from MBT (Metrobank)? I received mine. Whenever I am receiving dividends from publicly listed companies, it’s always a great feeling. And it never grows old.

MBT’s price is around 80 so its board lot is 10 because its price is between 50 and 1000 pesos. Please see below board lot table.

If stock price is 1000 pesos or more	Board lot is 5
If stock price is between 50 and 1000 pesos	Board lot is 10
If stock price is between 5 and 50 pesos	Board lot is 100
If stock price is between 50 centavos and 5 pesos	Board lot is 1000
If stock price is between 5 centavos and 50 centavos	Board lot is 10,000
If stock price is between 1 centavos and 5 centavos	Board lot is 1,000,000

Let’s say I received 312 MBT shares as dividends. I can sell the 310 MBT shares at the main board while the remaining 2 shares can only be sold at the oddlot board.
When I checked the number of shares I received from MBT, I noticed that the number of shares credited is not rounded off to ten. May butal siya.

Dreaded Oddlot Shares

So what will I do with these 2 oddlot shares? The bid and asking price for oddlot shares generally deviate from the current price of the stock considerably. To illustrate what I am trying to convey, see below BPI’s real time quote.

COLFinancial screengrab

The bid and asking price were heaven apart from each other! Yesterday, BPI price is 96.50. If you want to buy 8 oddlot shares, you need to pay 144.50 per shares, a 50 increase from yesterday’s price! On the other hand, if you want to sell your 2 oddlot shares, a buyer is willing to acquire your 2 oddlot shares at 90.15, a 7% decrease from yesterday’s price. The price fluctuations at oddlot board are quite huge.

Now, let’s take a look at the main board lot. The bid and ask spreads are reasonable. They are sensible. The bid and asking price do not deviate much from yesterday’s price.

COLFinancial screengrab

Strike While the Iron is Hot

MBT’s 30% stock dividends were distributed yesterday. The recipients include owners, institutional investors, and of course us, the retail investors. I am 100% sure that I am not the only one who receives an oddlot shares from this 30% stock dividend. Since the oddlot shares are still hot and fresh, retail investors having oddlot shares dilemma flock the market to either buy or sell their oddlot shares. Take a look at the oddlot board of MBT today.

COLFinancial screengrab

The bid and ask spreads did not deviate much from yesterday’s price because there are retail investors who either want to buy or sell their oddlot shares. Hundreds if not thousands retail investors received oddlot shares in this 30% stock dividend of MBT. The evidence is not lying. Did you notice the number of MBT trades for oddlot today? The total is 97. That was a sizable number for oddlot shares trading. If you compare it with BPI’s oddlot shares above, BPI’s number of oddlot trades is only 3.

NOW is the time to buy oddlot shares while the price is still reasonable. In my case, I need to buy 8 oddlot shares so that all my shares can be traded at main board in the future.

Alternatively, if I want to sell my two oddlot shares, I’ll do it now while the price is still sensible. It won’t be too long before MBT’s trading of oddlot shares will exhibit absurd bid and ask spreads similar to BPI above.

What to do?

If you have oddlot shares, I suggest that you either buy or sell them NOW while the prices are still sensible and buyers and sellers abound. Since I am long term investor, I just bought 8 shares of MBT so that in the future, I can sell them at the main board and within the market’s reasonable fluctuations.

Related Reading: What Stocks Can You Buy for 5000 Pesos

Why MBT Went Down From P99.50 to P76.5?

2013-09-04T05:31:00.000-07:00

Last August 29,2013 I opened my account in my stockbrokers online platform trading and was surprised that Metrobank (MBT) is trading at 76.5. It went down from 99.45 to 76.5, a massive fall of 23%!

Obviously I immediately investigated what had happened. I checked if it is included in the top losers of the day, it was not there. I’m having an idea already that the 30% stock dividend was already distributed. I checked the ex date of the stock dividend and the date was August 29, 2013. So there you go, that was the answer on why MBT massively went down.

When I saw my portfolio, my MBT stock is having more than 30% loss! Wow! Can you imagine that, a 30% loss! Since a blue chip stock like MBT doesn’t fall as much as 30% in one day, where is the stock dividend? Why it is not reflecting in my portfolio? You know seeing that 30% loss is a sore eye to me.

Last August 28, 2013, MBT price is P99.50. The following day, which is the ex date of the 30% stock dividend, the price was amended to P76.50.

In stock dividend, here are some of the rules you need to observe.

a. The market capitalization remains the same

b .Number of shares are increased by the % stock dividend

c. Price is decreased by the % stock dividend

Before 30% Stock Dividend
# of Shares	2,111,386,017
Price	99.5
Total Market Capitalization	210,082,908,691.50



After 30% Stock Dividend
# of Shares	2,111,386,017
30% stock dividend (2,111,386,017 x 30%)	633,415,805
Total # of shares	2,744,801,822
Price (210,082,908,691.50 ÷ 2,744,801,822)	76.53846154125
Total Market Capitalization	210,082,908,691.50

Notice that Total Market Capitalization is the same. In essence, your shares value did not change at all. The price decrease was offset by an increase in the number of shares.

The correct price is 76.53846154125. However, you will never see that price in the stock market. The allowable fluctuations for prices between 50 to 99.50 is .05 only. Thus, the rounding off 76.53846154125 is 76.50.

This is the reason why the price of MBT is 76.50 last August 29, 2013.

Currently, the price already reflects the 30% stock dividend but the 30% additional shares are not yet issued to stockholders because the payment date is on Sep 16, 2013.

Presently, you’ll see a big loss in your MBT’s portfolio but that is not a concern because you will receive additional 30% shares on Sep 16, 2013.

By the way, stock dividends are also called scrip dividends.

Bigger Salary First Before You Can Budget and Save?

2013-08-26T13:20:00.002-07:00

http://www.flickr.com/photos/76657755@N04/7027596629

What is budgeting? Budgeting is the act of preparing a budget. Sorry guys it’s that simple.

Do you guys make a budget from your salaries? Perhaps some of you will say no and the majority will say yes. I for one am doing a budget from my salary. I allocate my salary to my savings, bills, remittances and household expenses. Having a budget helps me organize my finances and gives me a sense of security on where my money is being spent. Basically I have financial goals and in order to achieve that, I’ve got to have a plan. Planning involves the creation of budget. For example, if I want to have 1 million Peso of savings, then I need to budget my salary and follow the allocation of funds therein. Obviously it requires a lot of discipline to stick with my budget but it’s the only way to do it if you want to achieve your goals.

Bigger Salary First Before I Can Save

I knew some of you would say that if only you have a larger salary, then saving won’t be a quandary. You’ve got kids who need diapers, milk, and clothes. Their well being is more important you might say. Aside from that, you need to pay rent, provide food, remit money for your love ones back in the Philippines, and pay the bills. At the end of the day, there is no more left to save for your future.

I have a friend whose salary is twice as I have. He is already a manager of his department and reports directly to the president. However, every now and then he will call me if I have some extra money to lend. Anything extra, he would say. It has become a habit that I’m already expecting his call once the 3^rd week of the month approaches. He’ll borrow money and pay it once the salary comes in. I can easily charge him with an interest but since he is a friend, I’m just lending him interest free.

My friend has bigger income than me and yet he doesn’t have any savings at all. I don’t know where the money is going, but one thing I’m sure though is that he needs a fix on his finances. One day I asked him, “Why you are always short on money?” His succinct reply was “I have a lot of expenses here in Dubai and in the Philippines”.

I never asked him again about his finances because I do not want to be viewed as busybody. The only way for him to talk about it is through example and perhaps through my blog.

Saving is not about money. It’s about attitude and discipline. You’ve got to find a way to make your budget work.

Differentiate Needs from Wants

http://www.flickr.com/photos/83346641@N00/3408649524

Maybe, you are spending beyond your means. Buying branded clothes is not a necessity but a wants. There is big difference between wants and needs. You can live without wants but needs are necessary.

Having an Iphone is cool but if it will destroy your budget, it will ‘burn’ you. Perhaps after you’ve got a sizable savings then you can reward yourself and Iphone might be the perfect gift.

However while you are still building your fortune, it will be desirable if you stay away from it. My mobile phone is worth 100AED. That is around 1,100 Php. It’s the cheapest phone available here. My purpose in having a mobile phone is to call and text my loved ones. I don’t have the need to worry about what others will say about me when I hold my useful mobile phone. It’s none of their business. If I have lots of money, or have achieved my financial goals then I can turn to that Iphone anytime.

Limit your wants as much as possible and focus more on your needs (savings is a need for your future).

Entertainment Fund

Obviously, you don’t need to be harsh on yourself. You can include an entertainment fund in your budget. If you love to watch movies, go and watch your favorite movies. A little play here and there to shake out the stress of the week will go a long way in improving your well-being.

http://www.flickr.com/photos/69135870@N00/3426085250

I love going to park with my family. It refreshes me. The time spent with them is holy. Chasing my daughter along the green grasses or guiding her through the walkways of the playground is a great feeling. Chatting with my wife and discuss about anything under the sun, showbiz gossips included, her favorites. These are the moments I treasure and will keep forever in my heart.

The fee for this relaxing moment is 5 AED per person. Can you imagine that? 5 AED for a quality time with your loved ones under the shade of a lovely tree, or over a barbecue stick. It doesn’t get any better than that! Having an amazing and meaningful life doesn’t have to be expensive.

You just have to be grateful.

Please read this previous article I wrote way back in year 2011.

It's Christmas Time in Stock Market!

2013-08-22T05:23:00.001-07:00

Ber months are not yet officially here but I can feel the spirit of Christmas already.

http://www.flickr.com/photos/94991702@N00/4100476726

The Philippine Stock Exchange Index (PSEi) plummeted by 6% today. After two days of non trading due to massive flooding around Metro Manila and a public holiday, the PSEi resumes trading in a bloodbath.

The fall of the PSEi is expected considering the region’s slide for the past few days. Philippine wasn’t spared from the onslaught.

Indonesia stock market (JCI) plunged by more than 8% last Monday and Tuesday. It technically hit the bear market as the fall from its highest peak is more than 20%. Thailand’s stock market (SET) dived by more than 6% for the past three days. Indian stocks (SENSEX) is down by 8% in four days.

The biggest drop we’ve seen in the PSEi recently was last Jun 13, 2013 when the market went down by 6.75%. Today’s drop has the same magnitude as it was back then. Basically, due to the three days of suspended trading, PSEi catch up with red numbers of the region’s stock market. We’re now at par with most of them.

Who in his right mind will jump in joy after seeing his net worth massively reduced through stock market? Nobody. However, if you are willing to ride out this slump and continue to invest every month of your salary while the prices are still down, then you’re likely earn a better return in the long-term.

My goal in stock market has always been long term. You know, I’m kind of establish this barat price to the stocks I’m following and believe me, this barat price I computed and calculated are now within the striking distance of getting hit.

Generally, I don’t care about the ups and downs of the market. At the very least, the period of holding should be ten years. However, there are instances when fate will favor you and the stock market will give you a chance to buy at low prices. Today is one of those days.

http://www.flickr.com/photos/12836528@N00/5478331001

So, while majority of the investors are scared to death on their reducing net worth and fund managers scrambling to find answers to the clients, we the long-term investors are relaxing in our home watching our favorite TV program or playing with our kids. The stock prices are at fire sale discount and life’s just getting better.

Happy days are ahead.

Foreign Investments in the Philippines

2013-08-10T23:38:00.002-07:00

During the last couple of months, we’ve seen an increased volatility in our stock market, the Philippine Stock Exchange (PSE). Our Philippine Stock Exchange (PSEi) went down from a high of 7,403.65 to a low of 5,678.73. That was a decrease of more than 20%! Recently, the PSEi has recovered from its low and is now back to the 6.800 levels as of yesterday. Nevertheless, the correction had unnerved the investors and some have become doubtful on the recovery of the market.

One of the major reasons of the sell-off in the stock market is the indiscriminate selling of the foreign investors. Day after day, week after week, the foreign investors are disposing their holdings from the Philippine stock market as if there is no tomorrow. The investors were spooked by the statement of the US FED chairman Ben Bernanke last May 22 who said “In the next few meetings, we could take a step down in our pace of purchases.” With just one sentence, investors immediately sold down their emerging markets portfolio which includes the Philippines.

Let’s take a look at chart below. Since May 22, the PSEi has fallen from 7,385 to 5,678 in a span of five weeks.

From May 20 to June 21, foreign investors have unloaded Php 11.8 billion worth of shares. As of July 26, foreign investors account for 51% of the market's traded value for the year to date. Since foreign investors make up the majority of the traded shares during this period, there is no wonder why the PSEi went down dramatically since May 22 when the foreigners exited from the market.

Foreign investors' funds in the stock market are commonly referred to as Hot Money. They are called as such because of the short duration of their investments in the stock market. Stock market is just one of the financial instruments being targeted by the hot money. Bonds and other financial instruments whose favorable interest rates and exchange rates are subject to hot money inflow also.

The Philippines economic resurgence has been a widely circulated story. Investors are flocking to the country due to the improved fundamentals of the country.

Take a look at the hot money table below. Except for 2008, foreign investors have been pumping money in our financial system.

Foreign Portfolio Investments (Hot Money)

Year	Amount
Y2013 1H	$1.55 Bn net inflow
Y2012	$3.90 Bn net inflow
Y2011	$4.10 Bn net inflow
Y2010	$4.6 Bn net inflow
Y2009	388 M net inflow
Y2008	$1.8 Bn net outflow
Y2007	$3.5 Bn net inflow

Source: BSP

The Quantitative Easing policy adopted by the central banks around the world have pushed interest rates lower. As such investors have looked at countries whose interest rates and exchange rates are better. Philippine's currency is strong and the investors are taking an advantage of it coupled with the rising economic growth of the country.

The Philippines has been one of the best performing stock market in recent years. Foreign investors have been flocking in our stock market as seen in the table below.

Net Foreign Transactions in Stock Market

Year	Amount in Php	Exchange Rate	Amount in USD
Y2013 1H	Php 53.44 Bn net buying	41.24	$1.30 Bn
Y2012	Php 109.98 Bn net buying	42.23	$2.56 Bn
Y2011	Php 56.52 Bn net buying	43.31	$1.37 Bn
Y2010	Php 35.62 Bn net buying	45.11	$0.87 Bn
Y2009	Php 14.92 Bn net buying	47.637	$0.37 Bn
Y2008	Php 22.16 Bn net selling	44.475	$0.54 Bn
Y2007	Php 55.57 Bn net buying	46.148	$1.36 Bn

Source: PSE, NSCB

Much has been said about the hot money coming into our country. While these hot money provides liquidity in our financial system, they are short term in nature and volatile.Hot money can create an asset bubble by investing huge amount of money and then pulling it quickly.

Foreign Direct Investments on the other hand provides stability and has a more direct impact in the economic activity of the country. According to Investopedia, FDI is An investment made by a company or entity based in one country, into a company or entity based in another country. Foreign direct investments differ substantially from indirect investments such as portfolio flows, wherein overseas institutions invest in equities listed on a nation's stock exchange. Entities making direct investments typically have a significant degree of influence and control over the company into which the investment is made. Open economies with skilled workforces and good growth prospects tend to attract larger amounts of foreign direct investment than closed, highly regulated economies.

Foreign Direct Investments (Real Investments)

Year	Amount
Y2013 4M	$1,505M
Y2012	$2,033M
Y2011	$1,852M
Y2010	$1,241M
Y2009	$1,948M
Y2008	$1,544M
Y2007	$2,916M

Source: BSP

FDI's provides capital, increased production level and employment opportunities. It is one of the major steps for developing economies like Philippines towards economic growth. It provides opportunities for increased trading of goods and services in the country.

Likewise, technological know-how and expertise is enhanced as companies with superior technology invest in the country.

I hope more FDI's will come into our country rather than hot money.

THE OFW INVESTOR

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