The Philippines will remain an attractive investment destination in the months to come despite recent volatility in Southeast Asian markets caused by a combination of the weak performance of countries like Thailand and the prospect of higher interest rates in the United States.
Dutch financial giant ING said the local equity and foreign exchange markets have not been spared from the effects of fresh speculation on the US Federal Reserve’s plan to start tapering its bond-buying program this year.
However, swings in foreign exchange and local stock prices have been relatively modest compared to neighbors in the region—a reflection of the sound fundamentals of the Philippine economy.
“Over the last month the peso has depreciated 2.09 percent, which is in the middle of the pack for Asian [currencies]. The PSEi (Philippine Stock Exchange index) has lost 8.8 percent in peso terms, again in the middle of the pack among Asian markets,” ING chief economist Tim Condon said.
Condon said the most crucial period for Asian markets would be the next three months as market players reprice yields on US treasury bills, which the Fed’s bond-buying program has kept artificially low since late 2009.
Low interest rates in the United States pushed investors to emerging markets like the Philippines in search of higher yields. The end of the bond-buying program means yields in the US would start to improve, reversing the trend seen in the last three years.
“Once the repricing has finished, the economic fundamentals—expected real growth and inflation—will re-assert themselves as drivers of financial asset prices. When that happens, the Philippines is attractive,” Condon said.
He said the Philippines was less vulnerable to contagion than its Southeast Asian neighbors because it had a stronger external payments position.
Overseas Filipino workers (OFW) remittances, which reached a record $10.7 billion in the first half of the year, helped sustain a comfortable current account surplus while latest data showed the trade deficit has narrowed in the first five months of the year.
Condon said it was unlikely that the Philippines would be the source of any balance-of-payments (BOP) crisis, referring to the potential risk that may be caused by foreign money leaving Asian economies.
“However, if a BOP crisis breaks out elsewhere, the Philippines won’t be spared the contagion (no economy in Asia ex-Japan would),” Condon said.