Return of ‘hot money’ seen with Moody’s upgrade

Foreign investments are seen coming back to the Philippines and push asset prices back to “pre-Fed taper talk” levels following the recent upgrade of the country’s sovereign debt rating by Moody’s Investor Service.

Dutch financial giant ING said “hot money” inflows—industry speak for foreign investments in local stocks and bonds—would return to the Philippines, one of the few countries in the world still expected to post higher growth this year.

“We expect a significant retracement in the PSEi’s loss in the fourth quarter,” ING Bank regional economist Tim Condon said on Friday. “We also expect the associated hot money inflows eventually to appreciate the peso but the [central bank’s] US dollar buying to replenish reserves will delay the effect.”

Condon noted that prior to the US Federal Reserve’s announcement last May of its plan to end its easy-money policies that sent emerging market prices crashing, the local Philippine Stock Exchange Index (PSEi) was one of the few indices outperforming the region.

He also cited the local economy’s 7.6-percent growth in the first half, even in the face of a weak exports sector, which declined 3.4 percent in the same period, as a sign of the country’s resilience.

Following Moody’s upgrade of the Philippines to “investment grade” last week, the country was transformed to what ING referred to as a “9B” market—a country with the equivalent of a “BBB” rating with the three major rating agencies.

Prior to the Moody’s upgrade, other major rating agencies, namely Standard & Poor’s and Fitch Ratings, gave similar ratings to the Philippines in recognition of the country’s improved financial standing and healthy growth prospects.

However, Condon said the country’s main growth driver has so far been “accommodative financial policies” that have boosted domestic spending.

He said investments both by locals and foreigners need to be encouraged to ensure the country’s growth would be sustained in the long term.

“Private and government consumption have been driving growth since [growth was] pushed above 6 percent in 2012,” Condon said.