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Investors to still favor the Philippines

Posted on July 03, 2013

THE PHILIPPINES, seen as an Asian economy least exposed to risk, is likely to be favored by investors once the US Federal Reserve starts unwinding a stimulus program, a Japanese investment bank yesterday said.

First-quarter growth was a better-than-expected 7.8% -- BW File Photo
“When the Fed starts tapering its quantitative easing, the likely implication is increasing investor differentiation across Asia, with a preference for sustainable over fast growth,” Nomura said in its Global Markets Research report.

Foreign investors have been taking money out of emerging markets -- earlier favored given better returns -- after the Fed said it could start dialing back a bond-buying program given likely US economic recovery. In the Philippines, the peso and stock market fell to multi-month lows late last month but have since made up some ground.

“The Philippines and Taiwan seem among the least vulnerable to any sort of macro crisis,” Nomura said, adding that in the former, “sustainable growth” and “structural reforms” provided a cushion.

The Philippine economy grew by 7.8% in the first quarter, beating market expectations and the government’s 6-7% full-year goal. Inflation settled at 3% as of May, at the low end of the central bank’s 3-5% target.

An “infrastructure investment-led model supported by remittances, business process outsourcing and electronics exports continues to be highly supportive of strong growth momentum, which looks to be set in motion for the next couple of year,” the bank said of the country.

“With Standard & Poor’s and Fitch Ratings having upgraded the sovereign to investment grade, we expect Moody’s to follow in due course,” Nomura added.

Countries tagged as high risk, meanwhile, were China, Hong Kong and India. Korea, Malaysia, Singapore and Thailand were tagged as medium risk.

“China’s high debt, property prices and slowing potential growth, Hong Kong’s debt, property prices and current account and India’s current account deficit, property prices, inflation and slowing potential growth” placed the three in dangerous territory, Nomura said.

It said that once the Fed tapers its stimulus, countries with “either weak economic fundamentals or that are too slow in normalizing macro policies and implementing structural reforms could struggle to attract investment.”