The investment grade rating on the Philippines’ long-term foreign currency credit may usher in greater inflow of “hot money” as investors seek instruments that are more secure and promise decent yields.
According to First Metro Investment Corp. and the University of Asia and the Pacific, investors are said to adopt a “wait-and-see” attitude in the coming months as they seek confirmation from Moody’s Investors Service and Standard & Poor’s Ratings Services (S&P).
The Bangko Sentral ng Pilipinas earlier reported that portfolio investments reached $7.3 billion in the first quarter of 2013, jumping by 79 percent year-on-year from $4.1 billion.
The BSP attributed this growth to “investor optimism … buoyed by positive economic developments in the country.”
Also, FMIC and UA&P said in the latest issue of Market Call that “further buying activity is expected in the secondary market as investors seek out gains for longer dated bonds, which the Bureau of Treasury limited for auction in the second quarter of 2013.
Based on the borrowing plans for the second quarter, the BTr is issuing only three-year, five-year and seven-year treasury bonds.
Earlier this month, Barclays Bank said more global investors would focus on Philippine sovereign bonds, but only after a second major agency gives the Philippines an investment grade rating.
Barclays said in a research note that Fitch Ratings’ upgrade for the Philippines came earlier than expected.
A similar move from either S&P or Moody’s is still needed before the upgrade is reflected on Philippine government-issued dollar bonds, Barclays said.
The bank said domestic demand for these bonds would continue to determine the debt paper’s performance rather than demand that is based on inclusion in the indices.
Moody’s and S&P may raise the Philippines’ credit standing once the government makes a breakthrough in addressing the country’s “key weaknesses” such as by implementing structural revenue reforms, reducing the government debt stock, and accelerating investment spending, Barclays added.