PSEi, peso seen to gain from new upgrade

MANILA, Philippines - The local stock market and the peso are expected to gain this quarter following the new investment grade rating awarded by Moody’s Investors Service to the country, an ING economist said.

“We expect a significant retracement in the PSEi’s (Philippine Stock Exchange index) loss in the fourth quarter. We also expect the associated hot money inflows eventually to appreciate the Peso but BSP (Bangko Sentral ng Pilipinas) US dollar buying to replenish reserves will delay the effect,” Tim Condon, head of research for Asia at ING Financial Markets, said.

The PSEi has breached the 7,400-mark during intraday trading on May 15 although it closed at 7,392.20, its 31st and last record high for the year so far. But since then, the US Federal Reserve’s announcement of a possible tapering coupled with tensions in the Middle East prompted a sell-off in the local bourse, which even saw its gains for the year wiped out and its level returning to below its end-2012 finish of 5,812.73 in August.

The PSEi last Friday managed to climb 0.04 percent or 2.83 points to 6,390.48 from the previous day, while the all-shares index rose 0.31 percent or 12.04 points to 3,854.36.

Condon also expects last week’s credit rating upgrade to lead to an increase in capital inflows to the country, which earlier saw outflows due to the volatility in global markets.

These inflows may cause the peso to strengthen, he said, although the central bank’s presence in the foreign exchange market may limit the currency’s appreciation.

The peso in August has hit its weakest level in almost three years time when it closed P44.75 to a dollar, although it has gone back to the P43-per-dollar territory last month.

The peso last Friday finished P43.050 to a dollar, strengthening from its P43.080 per dollar close on Thursday.

Moody’s on Thursday assigned a Baa3 credit rating to the Philippines with a positive outlook amid the country’s robust economic performance, improved fiscal management and current political stability under the Aquino administration.

The positive outlook means a further upgrade maybe given in the next 18 to 24 months, and Condon said that the country may need to raise investments to get that.

“We think what Moody’s means by ‘improvements in growth dynamics’ is that the investment rate, which has languished near 20 percent since 2005, needs to rise,” Condon said.

Moody’s action came following two investment grade ratings given by Fitch Ratings and Standard & Poor’s earlier this year.

It was welcomed by the government and the private sector, and is seen to further boost investor confident in the country.