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What will ‘investment-grade’ status bring?

QUESTION: There have been a lot of news about “investment grade,” what is it all about and what will it really bring?—Isaiah Clemente, employee via e-mail

Answer: There is a reason why we should be celebrating Fitch’s recent credit upgrade of the Philippines. With the upgrade, we are now officially “investment-grade” which really means many things. An investment-grade status is a confirmation that the Philippines is a sound nation financially and that it has the capacity to pay its debts.

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President Aquino is obviously ecstatic with the upgrade. In a statement,  he said “this is an institutional affirmation of our sound good governance agenda.”

In a nutshell, the new status will effectively reduce the cost of our borrowings which, when managed properly, can be used for key investments and infrastructure that will further spur economic growth. The upgrade will also usher in the inflow of more institutional investments such as foreign investment funds that usually require investment destinations to be ‘investment grade.’ This will translate to further growth of the local stock market which has been bullish in the last three years. The market has reflected the positive sentiment brought about by the news of the upgrade and it is likely that the stock and bond markets will continue to ride on this upgrade.

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It is important to note that while Fitch is a very reputable rating organization, the two other rating agencies—Standard & Poor’s and Moody’s—must also upgrade the status of Philippines to confirm our being an ‘investment-grade’ country.

I believe the upgrades merely affirmed what the market already knew as shown by how the Philippine investments have been faring. For some time now, Philippine sovereign issues (ROPs) have been trading with yields much lower than other nations with the same credit rating. In fact, the yield-to-maturity (YTM) of our ROPs are even lower than those of the debts of other nations that are rated ‘investment-grade.’ Returns are always an indication of the risks involved so when the market trades our debts at lower yields, it means the market views us as low-risk.

I asked some of my friends about what the benefits of the upgrade means to them and to the nation as a whole and here are what they say:

“We deserve the upgrade, but remember that a credit rating is just a confirmation of what is already present in a debt issue, the debt security issuer and the economy as a whole. In other words, we and not the rating agency made ourselves investment grade. So upgrade or not, the country is indeed on its way to becoming an economic force in the world arena. We just need to learn how to spread wealth better.”—Efren Ll. Cruz, RFP- president of Personal Finance Advisers Corp., best-selling finance author

“This is definitely the seal and proof that the Philippines is a good country to invest in and supports my bullishness in the Philippines. This will open up our markets to more investors who were not allowed to participate before. Increased Investments will surely open up better opportunities for the ordinary Filipino.”—Marvin Fausto, chief investment officer of BDO Universal Bank

“The investment upgrade will propel our stock market even further as it will allow more foreign funds to invest in the Philippines. It will also help our economy as it will allow our government to borrow cheap, build more infrastructures and allow businessmen to expand their businesses further.  To the common Filipino, it will give them an opportunity to take housing and car loans cheaper. This upgrade has triggered a signal to the world that—‘Hey! The Philippines exists and is now a safe haven for your money!’ This is such a great time to be a Filipino.”— Marvin Germo, RFP, stock market Market expert and investments speaker

“Investment grade is not an end objective.  It is a recognition that a country has graduated from a condition of doubt to a reasonable level of investment risk. Fitch’s ratings upgrade to the Philippines is a validation of the core improvement in the country’s international credit and investment status.  This upgrade means the Philippines has to do its homework.  It has leveled up in the eyes of the investment community globally.  The upgrade does not necessarily translate to immediate economic betterment as being investment grade simply means that one can borrow at cheaper rates in the international market.  What the investment grade is telling us is that ‘we believe your country will be able to institute the needed structural reforms to translate our trust into productive pursuits.’”—Dr. Alvin P. Ang, economist and president of the Philippine Economic Society

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“Companies that would not otherwise invest in the Philippines as they require investment grade status would now do so. Our borrowing costs would also go down. This means more jobs and a stronger economy as money goes towards industries, infrastructure.”—Rizalina Mantaring, president  and CEO of Sun Life Philippines

We are very excited and while there is much work to be done, I believe we are in the right path. We must also never forget where all these blessings are coming from and knowing our responsibilities for such blessings, lest all these gains will be for nothing. Blessed is the nation whose God is the Lord, the people he chose for his inheritance. —Psalm 33:12, NIV

Catch me with Efren Cruz, Chinkee Tan, Marvin Germo and Dennis Sy for the biggest investments event this year—iCon 2013: The No Nonsense Investments Conference on June 22 at the SMX. Check out http://www.randelltiongson.com/i-con2013/

Randell Tiongson is a registered financial planner of RFP Philippines. To learn more about financial planning, attend FREE personal finance talk on April 11, 7pm at PSE Ortigas. Email at [email protected] or visit www.rfp.ph

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