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Monday, November 26, 2012

JP Morgan: Philippines is one of top markets in 2013

JP Morgan Picked - the Philippines as the top - most favored market for 2013. Photo: NYtimes

Global investment bank JP Morgan has picked the Philippines as one of its three most-favored stock markets for 2013, marking the fourth straight year that the local bourse is expected to outperform most of its regional peers.

"We are still very bullish for 2013," JP Morgan Securities Philippines Inc. executive director and head of equity research Gilbert Lopez said in a press briefing yesterday. The two other Asian markets seen by JP Morgan as top market picks for next year are Thailand and India, citing favorable demographics as a common denominator with the Philippines.

At the beginning of 2012, JP Morgan's emerging market and Asian equity strategist Arian Mowat also cited the Philippines as among its most favored markets along with Thailand and Indonesia. This year, he said the Philippines was still on Mowat's favored list.

Lopez said JP Morgan had an "overweight" rating on Philippine equities for the last four years. An "overweight" rating refers to a recommendation to buy in excess of the prescribed weight in a closely followed index like MSCI Asia ex-Japan, which JP Morgan expects to rise by 15 percent next year.

Local Indices

JP Morgan does not target local indices like the Philippine Stock Exchange index but Lopez said that based on its price targets on monitored stocks, the PSEi might have room to rise by another 20-25 percent from current levels. The company covers 30 Philippine stocks, at least 27 of which are part of the PSEi.

"The reason we like the Philippines is that in a global context, earnings environment is still good," Lopez said, adding that JP Morgan was expecting average earnings per share in this market to grow at a faster pace of 17 percent next year from about 12 percent this year.

The stronger corporate earnings growth for 2013, he said, would be on the back of increased investments and improving consumption. In terms of sectors, he said JP Morgan was overweight on conglomerates, consumer, banks and real estate. But because merger and acquisition excitement had boosted banking stocks recently, he said JP Morgan might now only be "neutral to slightly overweight" on Philippine banks.

The only sectors that are not likely to perform as well as the others are telecoms and utilities. He said 2013 would continue to be a tough year for telecoms, but noted this would be more of a "micro" or "sectoral" issue while utilities, with a few exceptions, were not likely to offer exciting growth prospects like their counterparts in other countries.

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How the Philippines Managed to Stand up against the China threat?

Global Filipino pushed the Philippines to stand up against the bullying china. Photo: indybay.org

How Manila Stands Up to the Goliath

Philippines is increasingly emerging as a 'frontline state' in the ongoing Sino-American competition over the destiny of the Asia-Pacific region, the situation is really difficult, but don't expect the Philippines -- defined by an undying sense of resilience -- to just roll over anytime soon. It even managed to rename the South China Sea to West Philippine Sea, despite Beijing's repeated condemnations.

By any measure, the Philippines is increasingly emerging as a 'frontline state' in the ongoing Sino-American competition over the destiny of the Asia-Pacific region -- the world's new center of economic and geo-strategic gravity. Desperate to secure its territorial claims within the South China Sea, the Philippines is not only struggling with China's growing territorial assertiveness, but also exploring ways to maintain a measure of self-autonomy amidst America's plans to re-assert its Pacific hegemony.

For Manila, the history is somehow repeating itself, whereby the tiny archipelago is once again finding itself squeezed amid an intensifying great power rivalry. Back in the 19th and 20th centuries, the Philippines was at the forefront of America's competition with colonial Spain and the Soviet Union in East Asia. Obviously, this time Manila is eager to avoid being stamped upon by the march of history, unlike the past.

It's hard to understate Manila's strategic dilemma. On one hand, without America's military-diplomatic support, the Philippines stands heavily outmatched against its Chinese neighbor. While the Philippines' decrepit and under-equipped armed forces subsists on a meager annual expenditure of around $1.5 billion, ranking 59th in the world, the Chinese are the world's second largest spenders, with their $129 billion budget set to double by 2015 -- most of it will feed China's expanding naval 'anti-access' (A2/AD) and blue-water capabilities.

On the other hand, if Manila tilts too much into the U.S.' orbit, it might risk its national sovereignty as well as important bilateral ties with China. (Not to mention, there are lingering doubts as to the extent of the U.S.' commitment to Philippines' security, especially in an event of a direct Sino-Filipino confrontation over disputed features in the South China Sea.) Beijing is already irked by an increasingly revitalized U.S.-Philippine military relations, with elements within the Chinese military repeatedly calling for sanctions against Manila and its alleged role in stoking tensions in Sino-American relations.

At the height of Philippine-China territorial conflicts, when both sides dangerously squared off over the Scarborough Shoal earlier this year, Beijing imposed travel as well as non-tariff barriers against the Philippines' $200 million banana exports. So, Manila has no choice but to take China's threats seriously.

The Post-Cold War Rollercoaster

Like many of its post-colonial peers, the end of the Cold War provided an opportunity for Manila to become a master of its own destiny by veering away from the long and deep shadow of American military-political patronage.

In 1992, the Philippines managed to terminate the U.S. military's forward-deployment presence in Clark and Subic. But, just within three years, Manila watched in horror China's forceful seizure of the previously Philippine-controlled Mischief Reef. Failing to develop a minimum deterrence capability, Manila witnessed an increasingly assertive Chinese expansion in the South China Sea.

In absence of a coherent and effective regional regime to rein in China's alarming behavior, the Philippines' recourse was mere moral suasion and relatively marginal military cooperation with the U.S. and regional powers such as Australia, though primarily focused on the 'Global War on Terror.' At best, Manila was able to secure a non-binding, highly symbolic agreement with China to prevent open conflict over disputed territories. However, the 2002 ASEAN-China Declaration on the Conduct of Parties in the South China Sea was never a substitute for the Philippines' glaring lack of self-defense capabilities. When China stepped up its naval maneuvering in adjacent waters, the Philippines was left little choice but to welcome and encourage America's pivot to the region.

A Tough Balancing Act

The truth is, the tiny archipelago nation has found itself in a tricky situation vis-à-vis China: It faces a rapidly rising China that has simultaneously become an economic boon and a strategic threat. On the economic front, China's booming economy -- buttressed by large local companies eager to invest in emerging markets that are desperate for cheap capital and technology -- represents a huge opportunity for Manila to revitalize its historically anemic economy, strengthen a flailing infrastructure, and expand markets for increasingly high value-added exports. Mainland China is already the Philippines' third largest market, with bilateral trade hovering around $30 in recent years.

Last year, the two sides expressed their hopes of increasing bilateral trade and investment relations to around $60 billion in coming years, potentially making China the Philippines' biggest trading partner. According to some estimates, China's investments in the Philippines could reach as much as $8 billion, with Beijing heavily (or poised to be) involved in major infrastructural projects in the country.

We should bear in mind that in the first decade of the 21st century, Sino-Filipino relations experienced a period of growing economic and strategic ties, thanks to the former Filipino President Gloria Arroyo's efforts to diversify her country's heavily U.S.-centric external relations. However, recent years have introduced a new element of tensions into Sino-Filipino relations, as China stepped-up its efforts in adjacent water of East and South China Seas to cement its hyper-nationalist/populist territorial claims. After all, based on its notorious 9-dotted-line, China claims 'inherent and indisputable' sovereignty over almost all features within the South China Sea. It is particularly this position that has complicated, if not totally obstructed, any multilateral efforts to resolve ongoing territorial conflicts in the South China.

Moreover, China has also been using its economic influence over Southeast Asian countries such as Cambodia, the current chair of the ASEAN, to block any attempts by countries such as Vietnam and the Philippines to put greater pressure on China by (i) forging a unified regional stance and (ii) establishing a binding regional Code of Conduct (CoC) to regulate inter-state behavior over territorial disputes. As a result, the Philippines' diplomatic efforts within the ASEAN have been constantly sidestepped in recent months. But, Manila is still investing in diplomacy, because it knows that it can't risk confrontation and jeopardize booming bilateral trade-economic relations with China.

So, in the meantime, the Philippines is left with little choice but to hedge its bets: It intends on rapidly improving its minimum deterrence capabilities by welcoming greater aid, joint-exercises, and military hardware from as well as deeper operational interoperability with U.S. forces as well as other regional allies such as Japan, Australia, and South Korea.

The situation is really difficult, but don't expect the Philippines -- defined by an undying sense of resilience -- to just roll over anytime soon. It even managed to rename the South China Sea to West Philippine Sea, despite Beijing's repeated condemnations.

The Huffington Post

(http://is.gd/PJHtsw

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