Foreigners more bullish on RP than local investors

Foreign investors are less affected by the local political issues as reflected on the narrowing spreads on the country’s long-term bonds.

Hongkong and Shanghai Banking Corp. (HSBC) treasurer John McGowan told reporters yesterday that offshore investors appeared to have a different feel of the situation in the Philippines. "They appear to be on the side of optimism," he said. "Maybe they know something we don’t, or maybe we know something they don’t."

According to McGowan, a look at the spreads on ROP (Republic of the Philippines) bonds would indicate that levels have stayed way below last year when bonds had spreads of as high as 640.6 basis points (for ROP 25s) over US treasuries. The same bonds had a spread of 486.3 bps in September this year which went down further to 460 bps as of Nov. 17.

ROP 06 (or ROP bonds maturing in 2006) had a spread of 477.7 bps in December last year and this went down by 88.2 points to 389.5 bps as of Monday although there was a 56.1 bps uptick compared to September’s spread of 333.4 bps.

"The country’s economic fundamentals are not so bad and that’s probably what is obvious to offshore investors," McGowan said.

Foreign bankers said offshore investors appeared less concerned with the noise over actor Fernando Poe Jr. the impeachment of Chief Justice Hilario Davide and all the other political distractions.

Foreign banks said that despite the month-on-month uptick in the spreads of long-term bonds, this year’s spreads were still lower than last year and offshore watchers are less easily distracted by the rising political noise towards the May elections next year.

According to McGowan, even the peso was performing just as expected even with the string of incidents that have been rocking the markets since September this year.

"Its not so much about specific candidates but a generalized uncertainty that any election brings about," McGowan said.

If and when Poe decides to run for president, McGowan said there could be a knee-jerk reaction in the peso-dollar exchange rate but it would also provide relief since one uncertainty would have been removed from the market.

McGowan said that if there was anything that was causing perplexity among foreign investors, it was the absence of a clear platform among competing parties in Philippine politics.

"If you look at it from offshore, its unusual because they’re used to political parties with different and often conflicting platforms," he said. "Here, you don’t see it."

Even without the recent political distractions, McGowan said the peso would have still been trading at 54 to the dollar. The upside in the remaining months, he said, was inflow from overseas workers and equity investments that have been trickling in.