JP Morgan tells investors to dump local stocks

After reducing its own exposure in the Philippines, JP Morgan is now advising investors to take the profit gained from the previous months and dump their stocks while waiting to see the ultimate impact of the Makati siege on the country’s fundamentals.

J.P. Morgan said yesterday that after the knee-jerk reaction, it would take some time for the market to digest the events of July 27 and most investors were on a wait-and-see mode to see how fundamentals would react.

David G. Fernandez, JP Morgan vice president for research, told reporters that while the impact on economic fundamentals were unlikely, there was still a possibility that the events could spiral and affect key indicators such as interest rates, exchange rates and inflation.

"If the market has already seen double-digit profits and then this happens, naturally they would wait and see," Fernandez said. "So we are telling people to take a profit and see if domestic interest rates go up higher, as well as foreign exchange rates."

The stock market has been trading on a downturn since last week, but Fernandez said portfolio investments were already small anyway.

Fernandez said it was unlikely for the mutiny to have a lasting impact on fundamentals but the possibility was still present. "For the international market, the noise is distracting so it is prudent to wait," he said.

JPMorgan announced earlier that it had cut its exposure to the Philippines and increased its exposure to Nigeria in its model emerging debt portfolio.

JPMorgan decided to cut exposure to the Philippines to underweight in response to a 19-hour siege on Sunday when about 300 Philippine soldiers took over the Glorietta Shopping Complex.

JPMorgan said it did not think the short-lived military mutiny would damage the government’s budget directly, but it would draw external investor attention to Philippine politics, probably raising volatility.

According to Fernandez, however, the timing of the failed siege was not as damaging as it could have been, especially since the government has already raised the bulk of its financing requirements for 2003.

At present, the Arroyo administration only needs to raise about $400 million from the international credit market to finance the remainder of its budget deficit for the year.

According to Fernandez, the government has not changed its directive for 2004 and the market was still expecting the administration to source between $1 billion to $1.5 billion from the foreign market.