Capital markets to favor peso assets due to GDP growth—BSP

BSP Governor Amando Tetangco Jr.: Peso favored

MANILA, Philippines—The Bangko Sentral ng Pilipinas expects capital markets to favor peso-denominated assets following the economy’s ability to sustain a healthy growth rate in the second quarter.

According to BSP Governor Amando Tetangco Jr., confidence among market players is expected to be more pronounced following the release of the report on the economy’s growth in the three months to June.

“The better-than-expected GDP growth at 5.9 percent should boost market confidence that the economy will be able to grow at closer to the higher end of the current government target of 5 to 6 percent,” Tetangco told reporters.

The National Statistical Coordination Board reported Thursday that the economy, measured in terms of gross domestic product, grew by 5.9 percent in the second quarter from a year ago. This brought the average growth for the first half to 6.1 percent.

Following the release of the GDP report for the second quarter, the peso closed Thursday’s trading stronger against the US dollar. The local currency closed at 42.23 against the US dollar, up by 11.5 centavos from the previous day’s 42.345:$1.

The BSP said foreign portfolio investments to the Philippines might grow in the months ahead as the country’s ability to sustain a robust growth rate would make peso-denominated assets much more attractive than those from advanced economies, many of which have been suffering either from slow growth or recession.

BSP data showed that foreign portfolio investments to the Philippines hit a net inflow of $2.14 billion from the start of the year to August17. This was, however, still less than the $3.07 billion in the same period in 2011.

Central bank officials saw the likelihood for foreign portfolio investments to rise, especially since the United States has been suffering from slow growth and the European zone has not overcome its sovereign debt and banking crisis.

Meanwhile, Teresita Deveza, acting deputy director at the central bank’s economic statistics department, saw the probability of the Philippine economy growing by 6.5% for the full year, based on her office’s rough estimate.

She said the estimate has been based on the results of the latest Business Expectation Survey (BES), which showed that business sentiment improved in the third quarter from the same period in 2011.

The business confidence index for the third quarter of this year hit +42.5 percent, up from +31.8 percent in the same period in 2011.

The indices for the first and second quarters of this year were likewise in the +40 territory. It stood at +40.5 percent in the first quarter and +44.5 percent in the second quarter.

She said that based on historical data from the BES, business confidence indices in the +40 territory normally came with an economic growth in the 6-percent level.

“We expect GDP [gross domestic product] growth to be in the area of 6 percent for 2012, if we follow the correspondence with results of the BES,” Deveza said Thursday in a press conference.

A positive business confidence index means the percentage of respondents that felt optimistic about the economy and their financial standing exceeded the percentage of those that said otherwise.

There were 1,581 respondents to the BES for the third quarter, results of which were announced on Thursday.