The Philippines boasts one of the few banking sectors around the world to have evaded many of the consequences of the US-led financial turmoil.

Certainly much is owed to lessons learned in the form of strong monetary and fiscal policy reforms after the Asian financial crisis in 1997-98. Relatively conservative banking practices also played a significant role in sheltering the country’s finances during what has proven to be one of the most siginificant economic downturns in recent history.

The overall risk management framework of the banking industry has improved greatly, thanks to sensible banking supervision and monetary guidance. Reforms initiated by the country’s central bank, Bangko Sentral ng Pilipinas (BSP), have created solid fundamentals that are currently underpinning the banking sector today. The BSP’s adoption and implementation of Basel II in July 2007 was a significant step in ensuring that the Philippines’ banking sector is in line with international standards.

Sanjiv Vohra, the country officer of Citibank, told OBG, “There is certainly a correlation between the Asian countries that were impacted by the Asian crisis and those that have managed to limit the effects of the current financial turmoil. Those countries, such as the Philippines, that were affected in 1997-98 have generally been able to implement the necessary reforms to withstand the current crisis.”

In fact, today’s average capital adequacy ratios (CARs) among banks are pushing close to 15%, well above the international standard of 8%. Asset quality ratios also performed well in 2008, as non-performing loans (NPLs) fell below 5% of total assets last year.

Despite the solid progress made in the financial world, other sectors of the Philippine economy, particularly those heavily reliant on foreign demand, such as the manufacturing of semiconductors, have been caught up in the global economic slowdown. The decrease in activity in these sectors is expected to feed through to the banking sector.

Nevertheless, in recognition of its stability, especially within the financial arena, Moody’s Investors Service has upgraded the Philippines credit rating from B to Ba3 for the first time in over four years in late July. In a statement to the press Moody’s executive vice-president, Thomas Byrne, said, “The upgrade was prompted by the relatively high degree of resiliency exhibited by both the country’s financial system and external payments position in the face of the global financial and economic crises.”

Indeed, liquidity in the country has reached a new high as foreign currency reserves have peaked at $39.6bn, while some economies are suffering from declining foreign capital.

Headline inflation, which peaked just 12 months ago at 12.3%, dropped to a record low of 0.2% in July, bringing the average of the first seven months of 2009 to 4.3%, as increases in prices of commodities have slowed recently. The BSP predicts an annual inflation rate between 2.5% and 4.5% in 2009 and 3.5% and 5.5% in 2010.

The dramatic decrease in inflation over the past year has provided the BSP with adequate room for monetary policy easing. The crucial inter-bank lending rate is currently at an all-time low of 4%, having been decreased six times since December 2008.

Responding to questions from local press, the governor of the BSP, Armando Tetangco Jr, said, “We believe our current stance remains appropriate. Nevertheless, we are closely monitoring developments, particularly the firming of global demand to check for any price press build-ups. We will then make adjustments to our stance as needed.”

Perhaps one of the most positive signs of a return to substantial growth is the fact that foreign direct investment (FDI) in the Philippines, which dropped dramatically by 77% in 2008, has posted an 86% increase in the first seven months of 2009, reaching just over $1bn in FDI, according to the BSP. Tetangco later hinted at the emergence of some positive signals, stating, “The emerging signs of stabilisation of global financial markets and economic conditions are expected to encourage the gradual return of capital flows to Asia. With the ongoing realignment in risk perceptions, flows to emerging economies, particularly those with sound macroeconomic policy and good growth prospects, are expected to improve in the second half of 2009 and in 2010.”

Despite the current stability in the sector, some experts have observed a large number of relatively weak small and medium-sized banks in the industry. Consolidation within the sector has slowed due to the current economic climate and it is not likely to see any major movements within the top tier of the banking sector in the remainder of the year. The merger between Philippine National Bank and Allied Bank, which was due to take place in 2008, appears to have stalled again and likely won’t take place for another six to nine months. For its part the BSP has strongly encouraged mergers and acquisitions in an effort to strengthen efficiencies within the sector. Typically mergers are subject to regulatory penalties, which the Monetary Board has been willing to waive if the merging banks are able to prove substantial friction costs.

Although the financial industry of the Philippines remains strong, its overall economic performance continues to be called into question after posting a surprisingly low first quarter of just 0.4% growth. The slow economic growth of the country has created an air of caution among bankers as they have seen some adverse affects on profit margins. However, the financial stability of the country, combined with the resiliency of the economy will certainly bode well for the country in 2010.

With Taiwanse exports falling the least for 13 months in October, it may be time to revisit the country ETF, as the nation looks to emerge from recession.

Although total exports remain down on 2008, a drop of 4.7%, it is clear that the tech heavy Taiwanese economy is moving to more stable ground, as Bloomberg reports that nine economists surveyed had polled a consensus 7.2% drop for October.

Exports account for more than 60% of Taiwan’s GDP & the government is looking for the Christmas holiday season to help pull the economy out of the countrys worst performance in more than 30 years.

“Given the fourth quarter is traditionally the peak season for Taiwan exports & as the global economy gradually recovers, coming from a low base last year, we estimate November exports will likely turn positive from a year ago,” Lin Lee-jen, director of the Finance Minister’s statistics bureau, said in a briefing in Taipei today. “December exports will likely show a big increase.”

”Demand is mainly supported by rising orders from mainland China, as well as a pickup in shipments to the US & Europe before Christmas,” said Tony Phoo, a Taipei-based economist at Standard Chartered Plc. “Going by current trends, exports will likely return to growth in November.”

The IMF last month raised its forecast for Taiwan’s economy, predicting it would shrink 4.1 percent this year, from an earlier estimate of a 7.5% contraction.

In September, the central bank said it will continue to keep interest rates low to assist in rejuvenating consumer spending as the recovery is expected to remain slow. Governor Perng Fai-nan on Sept. 24 left the benchmark interest rate unchanged at a record-low 1.25 percent and told lawmakers the following week that prices are likely to remain “stable” over the next six months.

Across Asian economies, foreign investors have been among the most aggressive in buying Taiwanese shares, presently foreign inflows into equities is running almost 173% above the same period in 2008. Looking at the iShares MSCI Taiwan Index: EWT , we can see that it is up 64% year to date, bearing in mind that this is the worst recession the economy has had to contend with. When compared to fellow developing peers such as Hong Kong (EWH) & South Korea (EWY) over a 6 month period, it would seem that the ETF has some upside in the near future.

With real green shoots (remember that one from a few months back?) being seen in other developing regions such as Latin America, it is pretty safe to say that demand for electronics & particularly chips will be on the rise. Coupled with the tight monetary control & obvious regional investor interest in Taiwanese stocks, in our opinion EWT will be in line for some substantial growth over the next two quarters.

Asia Pacific ETFs posted big gains on Thursday following the release of updated growth projections from the International Monetary Fund which included upward revisions for the region for both this year and next.

The region as a whole – including Japan, Australia, and New Zealand – is expected to grow by 2.8% for 2009 and 5.8% in 2010, about 1.5% more than the organization had projected in its previous May report.

The IMF data highlights the gap between Asian economies and the rest of the developed world, and sets the stage for a change in roles in the recovery that is already underway. While Asian economies and central banks have historically taken their lead from the U.S. following global downturns, that scenario is now reversed. Asian markets, both developed and emerging, have clearly emerged from the recession, while doubts continue to swirl around the U.S. and western Europe. Earlier this month, Australia became the first country to raise interest rates (Norway followed suit on Wednesday, proof that some pockets of Europe are much closer to a sustained recovery than others).

Not all Asian economies are in the clear. Japan is expected to record a full year contraction of more than 5% in 2009, and only expected to squeeze out growth of about 1.7% in 2010. Advanced economies in aggregate are projected to contract by 3.4% in 2009 and grow by 1.3% in 2010.

There is a strong correlation between projected growth and ETF performance so far in 2009. India, China, and the Asia Pacific region (excluding Japan) have posted strong gains, while Japan, Europe, and the U.S. have lagged far behind.

Michael Johnston is the senior analyst and founder of ETF Database, a Web-based investment resource providing actionable ETF investment ideas and an ETF Screener for investors analyzing potential ETF investments. Johnston oversees ETF Database’s free ETF Newsletter, one of the most popular sources for news and commentary focusing exclusively on the exchange-traded fund industry.

As part of these efforts the Malaysian stock exchange is looking to encourage wider bond activity, having announced plans to launch a secondary trading platform for bonds, including Islamic paper.

Though no exact timeline has been set for the move, Raja Teh Maimunah Raja Abdul Aziz, Bursa Malaysia’s global head of Islamic capital markets, said the introduction of a secondary bond trading platform was a response to demand from retail investors and would improve transparency.

“The only way to bring retailers on would be through the exchange,” she said in an interview with the Reuters news agency in early October. “The over-the-counter market is not transparent in terms of pricing so you cannot get the retailers to come on.”

Once issued, there is little trading in most Islamic bonds, with Raja Teh describing the focus on fixed income as a defensive investment. Defensive or not, there are some, such as Mohd Razlan Mohamed, the chief executive officer of Malaysian Rating Corporation Berhad (MARC), who question the timeliness of the proposed secondary trading platform.

“The local markets are not ready for a secondary trading system for three reasons, investors can invest in bond funds already, which provides them with exposure; there are cost implication for bond issuers, this will drive up costs; and thirdly, this is for sophisticated investors only, most don’t understand a lot of the existing products on the market.”

For Steven Choy, the chief executive officer of Cagamas Berhad, Malaysia’s national mortgage corporation and leading securitisation house, said there needed to be more issuance to develop the secondary bond market.

“We are already the largest in South-east Asia, the third in Asia, but it is mostly buy-and-hold insurance companies who want long term-paper and they do not trade. Therefore, we need more depth and issuance,” he told OBG.

The government has moved to address the question of issuance, setting up Danajamin Nasional, a state-owned institution tasked with providing financial guarantees to issues of private debt and Islamic securities, in March this year as part of its economic stimulation programme.

The agency was provided with a paid-in capital of $290m when established, a figure officials said could be doubled, and its charter allows it to offer insurance for investment-grade public debt or Islamic securities totalling up to $4.3bn.

On October 8, Prime Minister Datuk Seri Najib Razak told a press conference that Danajamin had already received seven applications so far, though he did not clarify whether these had been finalised.

While the government believes Danajamin will broaden the base of the bond sector and encourage more investors to buy into the market, not all agree, taking issue with the agency’s focus on the already well-served triple-A bonds segments.

Cagamas’ CEO warns that rather than strengthen the bond market, Danajamin could have an adverse effect by targeting triple-A bonds to the exclusion of others.

“Danajamin’s role in the market has been to distort it. If they issue for only triple-A bonds then who will buy BB for example,” said Choy.

With the economic crisis having hit at lesser rated bonds, there has been a drying up of credit for smaller companies, according to Razlan.

“Up until Q2 2008 business was good, but then risk aversion set in and investors did not even want to know about single-A rated bonds, they would only look at triple-A bonds,” he said. “No one wanted to invest or underwrite these bonds yet they form 30-40% of the market. This was not because of a lack of liquidity but risk aversion.”

Tan Sri Datuk C Rajandram, the executive deputy chairman of Rating Agency Malaysia Holdings (RAM), concurs, saying that the demand side has become more risk averse, with bonds lower than AA not coming onto the market.

“The economy is down and so the requirement for funding has also dropped. Much will depend on the stimulus packages,” he said in an interview with OBG. “Everyone is avoiding the corporate sector, with no attraction to place bonds on the market, even though in Malaysia banks are very liquid.”

Though most experts agree that there are high levels of liquidity in the market, more needs to be done to increase the appeal of bonds below triple-A. According to a report issued on October 9 by MARC, the value of newly rated bonds assigned and announced in Malaysia for the first nine months of the year totalled $9.3bn, mainly at the top of the ratings range.

While this trend is expected to continue in the short term, with the Malaysian economy set to move out of recession and post solid growth next year, investors could be less adverse to a bit of risk, and more enthused for bonds.

HSBC

“We are delighted to make this further investment in our business in New Zealand.” said New Zealand CEO, David Griffiths ”This expansion of our offering also helps to further deepen our position within New Zealand.”

Last year, HSBC relaunched their Premier Banking service in order to offer Global Unit Trust products to retail investors in a number of territories. The strategy would seem to be paying off, as it allows customers to indulge in investing into new & emerging markets via the existing HSBC global network of 86 countries.

“We are excited to be a part of bringing the funds to New Zealand investors” said HSBC’s CEO Asia-Pacific Rudolf Apenbrink ”providing them with the opportunity to invest in emerging markets that may typically be difficult to enter.”

The “broader reach” of HSBC would seem to be paying dividends for the bank when compared to its peers. Barclays Capital H1 2009 profits almost doubled to $1.35bn whilst HSBC Global Banking & Markets reported record H1 profits of $6.2bn against $2.7bn last year, an, encouraging seven fold increase on H2 2008. Asia contributed about 90 % of the group’s profit in the first half.

Meanwhile, HSBC is looking to be the first non-Chinese bank to gain a listing on the Shanghia stock exchange & has started the process for an IPO, timing is still unclear according to Vincent Cheng, Executive Director & Chairman for Asia-Pacific.

“Emerging markets’ contribution will account for about 60 % of the total after the U.S. market returns to profit. This is our target and, of course, we would not mind if the portion from emerging markets is bigger.”

As HSBC has a long history with & is inimically tied to Hong Kong, I can see it being able to achieve it’s aim, the choice of partner will remain open for some time. Amy successful IPO combined with the potential of Chinese retail investors to access HSBC’s global network, would have a massive impact on revenues & profitability. A big ask at the moment, but I for one will be placing a reasonable bet if & when the IPO gets clearance.

Possibly bolstered by Moodys recent Aaa rating for its fixed backed bonds, traditionally bullish Macquarie are involved in a potential takeover of ailing Citigroups Australian operations, as reported  in the Australian Financial Review. The acquisition would bolster Macquarie’s position as the largest full service retail in Australia with about 430 advisers, Citi Smith Barney, the retail stock broking and wealth management unit, had sales of more than A$150 million ($100 million) and net profit of A$21.4 million last year.

Further away from home, Macquarie has signed a deal with China’s Hengtai Securities, which will allow Macqaurie to realise access to the potentially lucrative capital markets, which are currently valued at $70Bn per annum. The deal would see the Australian investment firm take a 33% stake in a joint venture. Hengtai, based in Hohhot, Inner Mongolia, owns more than 30 outlets in Shanghai, Beijing, and Shenzhen. Its businesses include stock underwriting, stock trading, brokerage and fund management

‘Macquarie is less affected by the crisis and China’s capital markets still have huge potential to grow,’ said Liang Jing, analyst at Guotai Junan Securities Co. ‘So it’s understandable that Macquarie wants to be in China for long-term growth.’

China pledged on Saturday to quicken reform and innovation of its capital markets to lay the groundwork for future growth. Such reforms included expanding the corporate bond market, launching NASDAQ-style start-up boards when appropriate and developing real estate investment trusts (REITs) on a pilot basis.

China has in the past year tightened approval on securities joint ventures. So far, Morgan Stanley, Goldman Sachs, UBS AG ,  Credit Suisse AG  and CLSA Asia-Pacific Markets have obtained licences to operate in China. Macquarie, which offers banking, investment and fund-management services, has been investing in China’s residential real estate for more than a decade.