Market Edge | ANC (9 June 2023)
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Hello everyone, I'm Michelle Long at 9Man Manila at 10am in Tokyo and 9pm in New York, The Headlines.
Kung talagang sigurado na tayo na attain na yung target very, very firmly, then na-cut.
Pero tingin natin alakaning pa, then hindi pa rin pwede.
And we're getting jobs and trade data for the month of April any moment now.
The country's unemployment rate dipped to 4.7% in March.
Jobs quality also improved with underemployment falling to its lowest since April 2005 at 11.2%.
Can we sustain the numbers?
Will our trade deficit widen to 4.93 billion dollars in March?
We bring you the numbers as soon as they are out.
Speaking of the labor market, over 80,000 jobs up for grabs on Independence Day job fairs happening next week.
And for today's breakthrough, we meet a sneaker maestro. Guess who?
Asian stocks poised to trade higher today as enthusiasm over the S&P's bull run spills over to the region.
The regional index set for its second weekly gain.
Looking at that board, everybody firmly in the green led by the Nikkei 225 up by 1.7%.
The KOSPI index at a distant second up by four tenths of 1% and the ESX by a quarter of 1%.
Today, China's inflation figures will be in focus and it's expected to show consumer prices state almost flat again in May, reinforcing the need for further stimulus.
Elsewhere, the Bloomberg Commodity Index is headed for its first weekly advance since mid-April as gains in gold and iron ore helped offset the slide in oil,
which essentially just shrugged off Saudi Arabia's pledge for additional output cuts.
Stateside, the S&P 500 enters bull market as the rally in tech shares resumed on Thursday, pushing the benchmark's gain since its October low past 20%.
Also helping boost sentiment on Wall Street, a jump in jobless claims to its highest since October 2021, making a case for a Fed pause.
The S&P 500 added, as you can see, six tenths of 1% while the tech-heavy Nasdaq rose by over 1% as chip makers like NVIDIA and advanced micro devices supercharged amid the frenzy in stocks linked to artificial intelligence.
Adobe Inc. also gaining 5% on plans for a new AI subscription with copyright services.
Meanwhile, Wall Street's volatility gauge, the CBOE or VIX, dropped to record lows ahead of an eventful economic and policy calendar next week,
which includes the Fed's next policy meeting happening on June 13-14, where it's widely expected to pause before hiking again in July.
Back here in Manila, our top story. The Philippine Central Bank announced a cut in the reserve requirement ratio or RRR of banks.
This refers to the amount of cash banks are required to hold as standby funds.
By cutting the RRR, banks can now lend more.
For universal and commercial banks, the cut is 250 basis points, while for thrift, rural and cooperative banks, the reduction is 100 basis points.
Digital banks, meanwhile, will see their RRR lowered by 200 basis points.
The BSP, though, clarifies the lower reserve requirements do not constitute any shift in a monetary policy setting.
This comes ahead of the BSP's June 22 meeting with Governor Felipe Medallia, saying policymakers will likely keep interest rates unchanged.
Kung talagang siguradong-sigurado na tayo na attain na yung target very, very firmly, then a good cut.
Pero tingin natin alakaning pa, then hindi pa rin pwede.
So what will this fresh injection mean for the economy?
Joining us this morning, BPI's Chief Economist, June Neri. Hi, June. Welcome back. Good to see you.
Hi, Mimi. Good to be back. Good morning to your viewers.
All right. So, June, exactly how much additional firepower do you think will this inject into the financial system, which means essentially more money for banks to lend out?
Yeah. Well, actually, first of all, Mimi, we really welcome this decision to cut the reserve requirement.
We've been waiting for this for a long, long time.
You know, everyone in the region has, like Malaysia has 2% reserve requirement, Thailand has 1%, even Indonesia is only 9% on the reserve requirement.
So it's good that we finally got this through and brought it down to single digit.
But as far as liquidities, the impact on monetary policy, this has been made neutral by the BSP for June 13.
Why? Because in case the market participants forgot, we are allowing the RRR, zero RRR for MSMEs to finally expire.
So BSP will make that expire. And the implication is something like a 250 billion reduction in liquidity.
So with the 350 to 400 billion coming from the 250 basis point RRR cut, you would say there's a net easing of about 100, 150 billion.
But BSP has an instrument to be able to map that out.
They will be introducing a 56-day bill, a BSP bill, also on June 13, Mimi.
So putting these three together, the impact is supposed to be neutral, supposed to be a wash.
The expansion of liquidity from the RRR will be offset by the expiration of the zero RRR for MSMEs and the 56-day bills that will be issued by the BSP on June 13.
All right. So when you say neutral, the ordinary Filipinos like myself, I won't be able to feel this.
Not yet. Well, BSP will, as the governor mentioned in your interview, they are poised to cut if they see that inflation is already on the way to its target of 4%.
So they want to be very clear that this is neutral. But they were able to put in a very important reform, which is a RRR cut.
Later on, we can lower the RRR further. Later on, we can cut the policy rate further, Mimi, when the BSP sees that inflation is already well within control.
But these RRR, the reserve requirement ratios, they're put in place for a reason. This is supposed to serve as a buffer for BACs.
So when times get tough, they have something in their reserves, right?
That's right.
What is an ideal RRR?
It's a very old blunt tool, Mimi. Nowadays, the way to ask, well, to require banks to put skin in the game is through more capital.
They are planning to use this in the U.S. further because of what's happened to the regional banks.
In our case, in the Philippines, our banks are very well capitalized, Mimi, within the global standards of the PASEL. So BAS, yeah.
So this is a very old, the reserve requirement ratio is already being abandoned by almost every country, every central bank in the world.
In fact, it's zero in some countries. In the U.S., I think it's zero. In Thailand, as I mentioned, it's 1%.
Why? Because there are other instruments that have been found to be more effective, including the capital requirements.
All right. You mentioned inflation earlier. So let's go to that. We did see good inflation data out earlier this month.
And you did say, your latest tweet said that we're finally back to positive real RRP rate territory.
How should investors and viewers make sense of this number? I mean, we got 6.1% inflation figure for May, breaking a three-year run of negative policy rate.
Why is negative policy rate bad? And why is it good to acknowledge or recognize we're back to positive real RRP rate territory? What does this mean?
Yeah. So remember last year, Mimi, was a very traumatic experience for many markets, including the equity markets.
The same with 2018. What happened during these years? These were the years when the policy rate were a lot lower than the inflation rate.
And as you mentioned, not only 10 straight months, not only 20 straight months, but more than 30 straight months of the policy rate being lower than the inflation rate.
Now, why do I say that's traumatic, 2018 and this last episode that we had?
So when our inflation rate is so much higher than the policy rate, and something triggers us to bring back our policy rate to more normal levels.
Like what happened last year, the U.S. started hiking interest rates aggressively 75 basis points at the time.
And we were caught flat-footed with a 2% policy rate in an economy that is, on a long-term basis, unable to sustain inflation below 3% on a sustained period.
It means big interest rate hikes, Mimi. So that's what I mean by trauma.
The market has not been able to sustain its gains since its peak in early 2018 because of these two trauma episodes where we have had to hike our policy rates in a substantial way, almost.
Some would describe it in a relentless manner because things outside our control will always emerge, Mimi, including last year's rate hikes in the U.S.
We were already seeing inflation in the U.S. at 6.1% in March 2022, and yet we have not adjusted our own.
So clearly, I'm very happy to see that we're finally, after a very long period, in positive real territory.
Hopefully, with good governance, improving governance, more companies listing in the market, this will pave the way for us to finally see our record high back again, our February-January 2018 record high index back again soon.
Alright, keeping our fingers crossed that that happens sooner rather than later.
June, we have this just in. Philippine unemployment slipping again to 4.5% from 4.7% in March.
This 4.5% translates to 2.26 million Filipino workers who are jobless out of the 50.31 million in the labor force.
This was lower than the 2.42 million unemployed the month before.
Now, meanwhile, underemployment also fell to 12.9%, sorry, moved to 12.9%.
That is higher than March's 11.2%.
Underemployed workers are those with jobs but wish to add more work hours, indicating quality of work.
So that's unemployment slipping, but underemployment rising.
And underemployment really tells you more about the quality of jobs.
June, just very quickly, are these numbers surprising to you?
Yes, we're happy that the headline unemployment number continues to remain low, in fact, lower than pre-pandemic.
So that even if, as you said, the underemployment rate hasn't really, didn't really improve month on month,
we welcome that the demand implications of Filipinos still finding jobs despite the high inflation environment
tells you a lot about consumer and overall demand remaining generally firm.
Of course, the medium-term goals are still very much needed.
We all know that our PISA scores are behind the region.
We all know that our primary school classrooms are all too full.
We need more classrooms and they all have to sit in the aisle and we have to have two shifts and everything.
So clearly, MEDA is doing something about that.
The plans in the PDP are fairly clear on how we can generate high-quality jobs in the medium-term.
But in the meantime, we welcome the positive news on unemployment because you know what this means, Mimi?
It means the credit scores of consumers continue to be strong.
During the pandemic, we lowered the policy rate to 2%, but nobody could bow because their credit scores were very low,
because people couldn't move around.
Now, they have jobs.
Some people have two or three jobs to be able to cope with high prices.
It's really helping that we are providing personal loans.
BPI's personal loans are up 90% year over year.
Our credit card loans are anywhere between 30% to 40% up year over year so that people can cope with high prices.
You can just imagine how much stronger our economy would be if we hadn't gone through this high inflation patch in the first quarter and late last year.
So 6.4% could have actually translated to another 7% growth if all the inflation were under better control.
And speaking of the other indicators we're watching, so you've got inflation, we just covered jobs.
I wanted to bring in trade numbers.
For the month of April, trade deficit, balance of trade, the difference between the value of exports and imports coming in for April 2023 at $4.53 billion.
That is a trade deficit of $4.53 billion.
What are your thoughts on trade deficit and its impact on the Philippine peso, the currency?
Well, Mimi, I think our exports are still lagging behind.
We thought that the trade deficit would narrow significantly this year because import costs have gone down, food and commodity prices have started going down.
But unfortunately, the export numbers are actually falling as well.
So your imports fell but so did your merchandise exports.
Hopefully, there will indeed be a catch-up.
I saw your program with the Exporters Federation late last week and they're very hopeful that we will see positive numbers as we move to the middle of the year.
I'd like to relate this, Mimi, with the policy rates of our country.
Whenever we grow, when we reopened our economy last year, if you remember, our imports really surged substantially causing our current account deficit to widen to I think 4.2% of GDP.
So this is really the tendency for the Philippines because we don't really manufacture that much anymore.
Agriculture is behind Thailand.
Whenever our economy grows faster, it will almost always imply big jump in imports.
Now, if your country has such a structure, very different from Thailand, more likely than not, when the U.S. starts hiking rates or cutting rates, you will probably be copying them.
Thailand didn't have to hike rates so much last year.
Why? Because they have a very productive agriculture sector.
They didn't really import as quickly as we did when we reopened.
Now, the point I want to make is before we consider cutting policy rates, we're at 6.25%.
Who knows? It could go to 6.5%.
If the Fed does skip the next meeting and hike in the next one, we could still go up to 6.5%.
We shouldn't be overly eager in cutting rates too quickly.
Why? Because number one is maybe we can reduce the reserve requirement further.
As you said, the consumer will only benefit more from lower reserve requirements if it will mean more liquidity expansion.
That's number one.
Align our reserve requirements with the rest of the region.
Number two is our buffers.
Not all economists agree with me that we need dollar buffers.
But if your tendency is if you grow, you import very sharply, you really need more international reserves than everybody else.
This is the perfect time when our interest rate is higher than the U.S.
When they start cutting, let's keep the gap wide between our interest rates and theirs and build up our GIR.
We can build it up to about 18 months like Mr. Tatangco did during his time.
It's now just at eight times of imports.
If you consider the 12.5 billion import peak last year, that's only about seven months of import coverage.
That's very thin, I think, at least based on our analysis of our history.
I guess the point I want to make is, again, this is an opportune time for us.
The rate hike cycle is almost over, Mimi.
When the U.S. starts cutting, maybe we shouldn't cut as quickly as they do.
Let's put in place the RRR cuts.
Let's put in place our foreign reserve buffer regalia.
Among journalists who cover, we call it the more surgical approach to unleashing liquidity versus cutting or lifting rates, which is a very broad-based impact.
Overall, Jun, when you look at the second half of this year, are you pricing in a significantly deteriorating economic picture or are you more bullish?
Are you a little bit more optimistic when you look at all of these indicators that we just talked about?
We are actually more optimistic, Mimi.
Before the 6.4 figure came out in early May, we were only looking at about 5.9% growth for the whole year for the Philippines.
But after we saw the first quarter numbers, we were pretty much encouraged.
Now that inflation is starting to slow down sharply, that we think will create more confidence for Filipino consumers to spend.
People are putting too much weight on the rate hikes.
You can see in the U.S., they've hiked so much and yet the unemployment rate is still very low at 3.7%, 3.4% in the last few prints.
Really, we're actually looking at acceleration in the second semester.
With inflation out of the way, we should actually surprise the markets with better growth prints.
Again, of course, the usual risks of bad weather and the like, we cannot avoid those possibly hindering us from achieving higher growth rates.
But it's very easy to imagine, for example, next year growing at 6.5% or more if inflation does indeed go back within the BSP target.
All right. So, Jun, did I get that right? You're expecting the second half to see accelerated growth, to see even stronger growth?
It sounds like you're not pricing in a slowdown from the West, at least an impact on our growth story.
It's actually been surprising us on the upside.
Earlier this year, everyone was talking about recession in the U.S., second quarter growth numbers based on the Atlanta Fed is showing growth rate of anywhere between 2.5% to 3%.
So, the first contraction in the economy is not yet being recorded.
You need two consecutive quarters of contraction in growth, maybe, for us to be able to say that the U.S. is in recession and the second quarter is clearly not a contraction.
When will we see the third quarter growth numbers in the U.S.? That will be late, the fourth quarter of this year.
So, it's very hard for us to see a recession in the U.S. at this point just yet.
And that encourages us that we believe that because the U.S. remains strong, the services sector remains strong, unemployment will remain low, the job market is very strong.
The Philippines will benefit from this indirectly.
China is reopening, but they're not importing as much from Southeast Asia.
So, it's really the West that will still probably keep the water higher for everybody else.
All right. And on that optimistic note, thank you so much, Jun, the oracle of BPI, for joining us this morning.
Thank you.
All right. Have a great weekend, Jun. See you soon.
Now, more on the trade numbers released a few minutes ago.
The Philippines trade deficit posted an annual decrease in April to $4.5 billion as imports and exports.
Both actually fell.
Preliminary data from the Philippine Statistics Authority shows total export sales hit $4.9 billion in April.
That's down 9 percent from the previous month and down more than 20 percent year on year.
Well, total imports fell for a third straight month at $9.43 billion on a drop on mineral fuels, lubricants and related materials imports.
The country's top export item, electronics, posted the biggest annual decline, falling by $582.6 million to just $2.7 billion.
The Philippine Energy Chief challenges the World Bank to do more for energy, pointing out how little it has done so far for the sector at an event hosted by the global multilateral lender.
Jackie Pascual tells us more.
Energy Secretary Rafael Lotilla calls out the World Bank for the apparent lack of support for the Philippines' energy sector.
Delivering the keynote speech at the World Bank's own forum, Lotilla lamented how the Philippines is still not a beneficiary of World Bank financing for energy transition projects.
He says this is making the Philippines' shift to cleaner energy more difficult.
The green transition or the climate transition or securing a clean energy future must be a just and fair transition.
And that means that transition financing or climate financing or call it by any other name, such financing should be available to the country.
Lotilla also wonders why the Philippines is not benefiting from the World Bank's Just Energy Transition Partnership or JETP,
designed to support developing nations and coal-dependent nations, even though the Philippines has already accomplished a substantial amount of energy sector reform.
In the case of the Philippines, with its reform, its power industry, 20 years ago, by privatization and by unbundling,
unfortunately, we are not part of any of the just energy transition partnerships that have already been put in place.
In order to avoid any accusations of perverse incentives that those who have remained centralized, government-owned and not market-driven
should be the ones to receive the support of the international community,
I challenge the brain trusts that we have in the room to develop precisely alternatives that are meaningful for those who have undertaken that particular reform a decade or a generation ago.
Lotilla says the Philippines needs financial support and investment, particularly for transmission projects, in order for electricity to reach areas that need it most.
His call for more help is backed by the Danish ambassador to the Philippines. Denmark is already providing support for renewable energy development here.
I challenge, particularly World Bank, because I know that they have enough brains in the institution, as well as among our development partners, to put to work in order to provide solutions for this great challenge.
I want to make sure that countries where you do not have a state-owned, state-governed energy system also can become applicable.
And Denmark strongly favors that there should be a just transition that also includes help to the Philippines to move towards cleaner energy.
One World Bank representative says they will work to answer Lotilla's call.
And thank you, Secretary Lotilla, for that exciting keynote address and the challenges you raised to the World Bank and other development partners.
Without the permission of my country director, I would say we are ready to work with the government to address those challenges.
According to the World Bank, its active portfolio in the Philippines consists of 14 operations with net commitments of $5.44 billion.
Projects are mostly in urban resilience and land, health, nutrition and population, agriculture and food, and social sustainability and inclusion, among others.
Jackie Pascual, ABS-CBN News.
Up next, what's up for risk assets? It's rate hike for your swamp traders anew.
We speak with AIA Group Market Economist Irv Leavor, Market Edge. We'll be right back.
Joining us for more in the markets and the economy in the region is AIA's Group Market Economist Irv Leavor. Irv, welcome back. Hi, good to see you.
Good to see you, too. Good morning.
All right. Big picture. Do you like the stock markets globally more today than yesterday?
Well, judging by what the U.S. market has done overnight, yes, I tend to prefer the market today than where it was the day before.
But bear in mind that what is currently driving the markets may not be fully sustainable because, as you are probably aware, again, focusing on the U.S. markets, the vast majority of the performance that we have observed on the S&P 500, for example, came from seven stocks.
If you exclude these seven stocks, the market hasn't done that much. And if you want to get a vivid example of that, just take a look at the Dow Jones index. It's up year-to-date by only 2% when the S&P had been up by almost 12%, not to mention the NASDAQ at 26%.
So, it gives us a clear illustration of how narrow the dynamic of markets can be at the moment. And the reason for this situation is actually twofold. On the one hand, we've got this growing theme about the artificial intelligence and the fact that most of the algorithms would need super powerful processing units.
Your CPU in your machine is not fast enough. You need to have GPUs, so graphic interfaces, to drive these algorithms. And the world leader in producing GPUs is obviously NVIDIA. And NVIDIA has been the very much story of the past few months, I would say. That's one part of the story.
The other part of the story is an economy that is suffering because central banks are still tightening monetary policy as much as they can. We've seen that recently in various parts of the world. And at the same time, governments are, again, in most parts of the world, reducing their support to the economy.
And because the resources accumulated during COVID-19 are getting depleted every day even more, it's quite logical to see the performance of everything that is not tech companies suffering a little bit or at least not showing the same kind of return as what we have seen for the mega tech caps in the US.
Herve, you mentioned central banks. I'm very curious. Are you now expecting a reversal of the narrative? Because all the while, we were all just counting on a pause and then maybe wait a little, wait for the cut. The cut is coming. But after what RBA pulled off earlier this week, the Bank of Canada also, which happened to be, by the way, the first of developed economies to take a pause, they resumed hiking rates.
Do you think it's time to reprice in rate hikes instead of pause and cuts?
Personally, I don't think so. Because even in the case of RBA, if you remember when the Central Bank of Australia came out with this pause at their previous monetary policy meeting, it was generally deemed as sort of a hawkish pause. They retained this sort of tightening bias and then great caution with regard to what was to be expected. And we now know why they did so. It's because they were not done.
Quite interestingly, if you look at the other central bank of the region, which is the Reserve Bank of New Zealand, they also gave a rate hike earlier in May. But this one was widely perceived as being a dovish hike in the sense that the communication of RBNZ was very clear going forward. They are not expecting to hike anymore. And a period of status quo is going to dominate.
So, I presume what RBNZ has done is going to be the dominant narrative for the next three to six months. Yes, there are still a few central banks that are keen to hike, but the magnitude of the hike is going to be fairly limited. Obviously, it wasn't priced in a few weeks ago, so that's why futures market has been so reactive. But no, to answer your question, the narrative hasn't changed and we are very close to peak rates.
All right. And given these expectations and these assumptions, how do you think the attractiveness of different assets are today? You've got fixed income bonds versus equities, the riskier assets versus growth. How attractive are these?
Yes, that's an interesting question because if we are right in our perception that we are getting close to peak rates and that this inflation is going to remain in place even though at a slightly slower pace than expected in the second half of this year and going into next year, then duration calls are quite appealing as we speak.
So, basically, getting exposure to government bonds, especially for long-term maturities, given the fact that the short end of the curve, which reacts much more to central bank policy, will remain anchored for some time because central banks, again, if they are not going to hike much more than where they are today, they are not going to cut either before at least the beginning of next year.
All right.
So, that's the case for doing long bonds and duration. Now, the tricky question is probably for risky assets because as you probably heard me saying earlier, the success of equities since the beginning of the year is very much narrow-based. It's only a few names that are driving the market as a whole and it makes for a fairly unstable situation.
There is an even more tricky situation, which is more on the credit side of things, so corporate credits. So far, both investment-grade and high-yield bonds have seen their credit spreads remain very well anchored, especially in a context where GDP growth is slowing down, where central banks are tightening monetary policy.
Now, the expectation is that the rate of defaults, especially when you go into high-yield, is likely to start to spike as we get into the second half of this year. There are plenty of models showing that.
And in that case, I would say currently, if there is a domain for which we need to be careful of, it's probably high-yield credits, then probably equities, and then in the peaking order, I would place investment-grade credits.
All right, all right. It's pretty surprising.
I want to end with this question, Herve. I hope it's okay for me to ask you. Sovereign wealth funds, do they work and how are they doing today?
Of course, I'm asking this question because the Philippines is about to launch its own Maharlika Investment Fund. For a broader perspective, when you look at it, is this a good move?
Well, I think it's a good move. But this question about sovereign wealth funds always triggers some questions, especially after what we have observed in Malaysia with 1MDB.
And an important element to bear in mind with how successful a sovereign wealth fund can be is related to governance. How strong governance rules and framework are going to be enforced to protect the institution in order to deliver the targets that was assigned to it.
So, provided that these governance rules are set up in a consistent way and respected by everybody, then a sovereign wealth fund is a fantastic tool in terms of economic development.
Because not only are you going, probably, given past experience in other parts of the world, especially in Singapore, for example, where sovereign wealth fund has been very successful over the past few decades, so it's a great achievement.
Not only can you generate a greater return on your national savings, which is always good, but also you can have a very interesting vehicle for orienting the trajectory of the economy.
For example, if there is a need to move faster into energy transition in the coming years, having a sovereign wealth fund which is dedicated to allocate part of its resources on new projects is, again, a great opportunity to achieve some policy goals.
And I think it's an interesting movement that the Philippines is about to do, provided that governance is respected, obviously.
All right. And on that note, thank you very much, Arvey, for joining us this morning. Have a great weekend. We'll see you soon.
Thank you.
All right. Now, the growth in Philippine manufacturing output continues in April, supported by receding prices of inputs like petroleum products.
Data from the Statistics Bureau show the volume of the country's factory output jumping 8 percent in April. That is the highest in three months and a reversal of last year's 1.3 percent contraction.
The PSA attributed that to the expansion in three sectors, that's food products, transport equipment and other non-metallic minerals.
All of the 22 manufacturing industries monitored also observed capacity utilization rates of more than 50 percent for the month.
And over 80,000 jobs up for grabs this Monday in celebration of the country's 125th Independence Day.
The Philippine Labor Department says more than a thousand employers will lead the face-to-face job fairs in 51 venues across the country on June 12.
Among the main industries that will participate, the business process outsourcing or ITBPO, manufacturing, retail and sales, finance, insurance as well as construction.
DOLA says aspiring applicants need to pre-register first in the agency's regional offices to conduct job matching.
And amid concerns automation and artificial intelligence could cut the workforce, the Philippines' largest ITBPO employer says otherwise, adding it may even create new job opportunities for Filipinos.
Concentrix country head Amit Jaga says while repetitive work will go away, technology will create newer, more complex transactions that will need a human touch.
As an example, he cited the GPS technology that enables the massive ride-hailing industry.
While this created a lot of downstream work for customer experience engagement companies, the ITBPO industry currently employs about 1.4 million Filipinos and it expects to create an additional 1.1 million jobs through 2028.
Now here's a look at the other stories we're tracking today happening within the hour.
The launch of the 2023 DMW Rules and Regulations governing the recruitment and deployment of land-based Filipino workers with Secretary Susan Ofle.
And it's girls in ICT Day Philippines 2023 at the ICT Summit happening in Pasay.
PhilHealth will also hold a press conference this morning with a focus on heart health.
Meanwhile at 11, we look into power distributor Medalco's upcoming rate adjustments for the month of June.
At 12 noon, the Philippine Development Budget Coordination Committee set to hold a press briefing on its review of the country's medium-term macroeconomic assumptions.
And lastly, the coverage on Mayon Volcano continues as evacuations begin for residents along the six-kilometer permanent danger zone.
Now here's a quick look at the flash business headlines from overseas.
U.S. grains merchant Bunch finalizing a deal to merge with Glencore-backed Viterra to create an agricultural trading giant worth over $30 billion.
The agreement comes amid Russia's invasion of Ukraine which tested the security of supply in global food markets.
Bunch, which is currently valued at $14 billion, is among the top three biggest traders of staples such as wheat, corn and soybeans.
While Viterra is the third largest corn exporter and number seven soybean shipper.
Meanwhile, despite claiming to have pulled out of Russia in 2022, customs records show Taiwan's Acer has been continuing to ship to Russia.
And in record, it supplied at least $70.4 million worth of computer hardware from March 31 to April 8 this year.
It was done through a subsidiary registered in Switzerland.
Acer has denied this and clarified it only supplied a limited number of displays and accessories to the Russian market for civilian daily use.
And it strictly adheres to the international regulations and trade laws regarding exports to Russia.
In other news, Tesla reportedly in talks to build an auto factory in Valencia, Spain.
Source's estimate of investment could be as big as $4.8 billion.
Meanwhile, the Valencia government released a statement denying a deal was sealed with Tesla.
This comes after rival carmaker Volkswagen announced it would build a 10 billion euro battery plant in Sagunto near Valencia, Spain.
Still in cars, Mercedes-Benz beating Tesla and becomes the first carmaker to receive authorization to sell or lease cars with an automated driving system on designated highways without the active control of a driver in California.
California Department of Motor Vehicles had approved a Level 3 Mercedes-Benz Drive Pilot system which will allow drivers to legally take their eyes off the wheel while driving but they must be available to resume control if just in case.
The system can also only operate during daylight on some California highways including the Bay Area, Los Angeles and San Diego among others at speeds not exceeding 40 miles per hour.
And finally, Tycoon Peter Lim's healthcare company Thompson Medical Group now in advanced talks to buy a controlling stake in Vietnam's FV Hospital.
Last year, Quadria Capital, a healthcare-focused private equity firm said it was exploring a sale of its stake in FV Hospital which may fetch around $300 to $400 million.
Discussions are reportedly ongoing between the two and they could still decide against the bid.
Our breakthrough personality this morning calls himself the Sneaker Maestro, a master collaborator who brings the world of sports, arts and fashion together as he shakes up the sneaker industry.
Joining us this morning, Paul De La Fuente of Fincod and Maestro. Paul, welcome to Market Edge. Hi!
Hi, good morning Mimi. How are you doing?
Good, good. I want to start with this question, Paul. What's in a name? Why Fincod and why do you prefer to call yourself Maestro and Chief Enabling Officer?
Right. Well, first of all, Fincod, when it comes to fashion brands, we made it a rule that we need to make up a name for it, a person's name.
Unfortunately, my name, Paul De La Fuente, is not really something that resonates with the sneaker industry. That's why we thought of a different name.
Fin is actually the name of my dog. And then cotton is something that is synonymous to comfort. So we just mashed it together and it actually just rolled on your tongue.
All right. Paul, I know that you're a pandemic business. Two to three years on, how are you doing? Have you ROI'd?
Yes. Actually, we just invested an initial amount.
Paul, sorry, we can't hear you.
Hi, Paul.
All right. What was the initial investment? Yes.
Yes. Oh, okay. We invested an initial investment of 50,000 pesos. I think, yes, we've ROI'd already.
Amazing. 50,000. All right. So why don't you give us a 60-second elevator pitch for your business? What's so special about Fincod? What's the fuss all about? Go ahead.
Right. We are a Filipino brand founded by a Filipino, which is me. We focus on elevating personalities and athletes. So people that are not given a chance by bigger companies, we actually try to elevate them.
That's why if you see our logo, it's actually a wing. It represents us elevating these personalities, athletes, and content creators and bringing them into mainstream.
We target Filipinos of all ages. If you like sportswear shoes, we have sportswear. If you like lifestyle, we have lifestyle. And by Q4, we are releasing new colorways that are inspired by certain personalities. I won't be divulging them yet, but there are volleyball players, basketball players, and YouTube stars there.
All right. Paul, how did you find yourself doing this? Have you always been a sneaker fan? Are you a designer by profession? What was your course in college?
Yes. My course in college is finance from Lasal. Before Fincod, before the pandemic, I used to customize and have a sneaker cleaning business as well. We had branches in BGC, Alabang Town Center, and all of these things.
However, the pandemic, I had to divest, and I had to pivot into an online business. I've always wanted to have a sneaker business or sneaker brand since the beginning. So there you go. We founded this in August of 2020.
Amazing. Amazing. And you're turning three this August. I know that you plan to make all sneakers 100% Filipino-made, and that would mean using Philippine raw materials, using Philippine talent, manufactured in Philippine soil. Is that possible as you try to stay competitive and profitable? I mean, it's all about costs. And you look at the big brands, all of them are made in China because it's cheaper there.
Correct. Correct. As of the moment, I have to be honest, we're still made in China. But the goal of our company is to bring manufacturing here within the next five years. I think it's possible. The Filipino talent is one of the best in the world. And I think just given the right opportunity and the right support by the market, by the Philippines, I think we will be able to make it happen.
And the goal is to make this brand, Fin Cotton, a global brand that is made in the Philippines. So we will be known all over the world as a shoe brand. And by bringing the manufacturing here, will it be you setting up the plant or will you be working with shoemakers here?
I think it's a mix of both. We will definitely need the support of shoemakers as well. I think a collaborative effort would actually bring out the best results. So that's the plan. So it will be us and some other people that we will bring in.
All right. Paul, I imagine this is also a lot of marketing. This is a marketing game. I heard before, you either be Hermes or Walmart. It's hard to be in the middle because the middle is usually what's the most cutthroat. What are your thoughts on this? What are your thoughts on competition? How cutthroat is it?
You know, that question is interesting and thank you for asking that. But we approach it, Fin Cotton, the way we approach it is we don't like to compete with big brands. We're more of really, we're open for collaboration. If anyone would like to work with us, personally, I've reached out to these brands also if they want to collaborate and stuff like that.
We're just here to help the market grow and to open up new opportunities for even the brands that are of the same nature of business that we have to just work with us and hopefully we make the world better with our brands working together.
I think we also have a demographic that the bigger brands haven't tapped yet. So like, take for example, like I said, the athletes and the personalities that are rarely given an opportunity to be elevated by brands. That's where we focus. That's why, like I said, our logo is a wing. We just elevate people and if other brands would want to work with us, we elevate them too.
Paul, are Filipinos hot about wearing local brands?
That's a surprising guess.
Very much.
So people like to wear local. Alright, go ahead.
Yes, just to give you an idea, we're in certain malls and there are times that are, I won't mention names now, but there are times that our store is actually full and the international brands are empty. So you'll be surprised. If you want to check us out, you can go to our branches. We're actually opening tomorrow in SM North EDSA.
Wow, congratulations!
Thank you. This is a perfect opportunity for us to be shown now on ANC. So tomorrow, we'll be opening in SM North EDSA and hopefully before the end of the year, we can open five more branches.
Paul, you're a finance guy. You've probably thought this through many times. As a new entrant in this very fickle market, what is your strategy? Because eventually, the hype will plateau. You'll need to keep coming up with new designs. There is a battle on so many fronts from inventory management, cash flow management, product development, and marketing. What is the game plan? What is the strategy?
Paul, are you still there?
Alright, I think we just lost the connection with Paul, but exciting, exciting times ahead.
Alright, he's back. For a final question, Paul?
Sorry, I'm back.
Alright. Hi, Paul. Can you hear me?
Yes, I can hear you.
Paul, final question. Just very quickly because we don't have time. Number one, you're trying to push locally made shoes. When you look at Marikina, it's now just a shadow of its former glory. What do you think can be done to revive the local shoemaking industry? Very quickly.
What do you need?
Sorry, can you repeat the last sentence?
What do you think government can do for you, for this industry, to be able to revive our local shoemaking industry?
Ah, I see.
Right. Government, I think just open up opportunities for us to be able to apply for business permits and streamline and everything, all the benefits and all of these things.
I think streamlining the process for businessmen and also the industry would make it easy for us. Sometimes the red tape really is really difficult, but I know government is working their hardest and I know that government is doing their best.
If it's just a special request, obviously, of course, streamlining the process so that it is easy for us businessmen and also the others to be able to work better.
To level the playing field as well. And finally, what to you is a breakthrough? How would you define a breakthrough?
A breakthrough for me? I think this is an opportunity of a lifetime for me. I never imagined to have a business like this. This is a breakthrough for me because we started this business in the pandemic and I never knew that people would buy shoes online in the pandemic at this rate.
And the growth rate that we have right now is unbelievable. We're already being known not just in the Philippines, but also worldwide. And I hope that within the next five years, we can be one of the top five sneaker brands, at least in Asia. That's the goal. That's a breakthrough for us and that's our big hairy audacious goal.
All right, Paul. Unbelievable, you say? Well, believe it. Thank you so much for joining us and for sharing your breakthrough story. Congratulations again.
I appreciate you, Mimi. Thank you very much.
All right. And that's it for the show. I'm Michelle Long. Thank you so much for watching. Stay safe and stay with ANC. Have a great weekend, everybody.