INVESTORS are shifting their attention to the equity market from the low-risk bond mart, as the bellwether index is seen breaching the 10,000 level in the next two years, the asset management arm of Bank of the Philippine Islands (BPI) said on Friday.
Carlos A. Jalandoni, BPI Asset Management and Trust Corp. vice president and head of credit and research, said in a media luncheon on Friday that global asset allocation in 2017 has shifted focus to stocks over bonds.
“When you look at the asset allocation, it’s no wonder that investors are saying ‘we don’t want safe returns out of our bonds —we’re going to go in stocks,’” Mr. Jalandoni said.
Data presented by Mr. Jalandoni showed equities had a 60.2% share in global asset holdings from the 39% trough in 2009. Meanwhile, global bond holdings reached a 23.5% allocation last year, from the 34% peak in 2009.
He cited three developments in the global economy which pushed the market players for “massive risk-taking activities” which lead to significant returns in stock markets.
First, Mr, Jalandoni noted the weakness of the US dollar due to longer and weaker-than-expected economic reforms as President Donald J. Trump indicated in his campaign promises.
“Donald Trump was supposed to infuse a lot of growth to the economy because he wants to make America great again, but it took a little longer to fulfill his promises,” he said, adding that his tax reform has only brought the corporate taxes to only 25% from 35%, versus the campaign promise of 15%.
Second in the list of developments were the diffused political risks in the European Union, as Emmanuel Macron won the French presidency over far-right candidate Marine Le Pen and as Angela Merkel notched her fourth term as the German chancellor. The election of the two leaders tempered the political risks posed by the exit of UK in the 28-member bloc.
Lastly, commodity prices also started to recover, led by petroleum.
“[Market players have already accepted that] the global economy is no longer weak or no longer falling through the cracks. We are now prepared to take more risks and it translates to re-rating of growth globally.”
As interest in equities returned, stock markets across many countries grew, including the Philippine Stock Exchange index (PSEi), which rose by 25.1% in 2017.
Looking forward, Mr. Jalandoni said BPI Asset Management’s outlook for the stock market’s growth will for this year be “conservative,” expecting it to land between 8% to 10%, bringing the stock market index to the 9,300 to 9,400 levels.
Despite the expected slower growth, Mr. Jalandoni still sees the PSEi breaching the 10,000 level “within two years.”
Meanwhile, amid continued volatility, Mr. Jalandoni said the Philippine peso’s trajectory will remain mostly downward.
In the latter part of 2017, the local currency dropped to P51.76 versus the dollar, its lowest in more than a decade.
However, BPI Asset Management’s vice president said the weak peso is “totally fine” as this reflects the country’s economic growth.
“Learn to accept a weak currency as a reflection that the economy is actually growing much faster on the back of infrastructure and investments. Unfortunately, we don’t make much machinery; we have to import these stuff [in support of the government’s infrastructure push.],” he said, adding that the depreciating peso is only a “safety mechanism” against overvaluation.
BPI Asset Management and Trust is the biggest index fund manager in the country, with over P54 billion in assets under management for its six index funds. — Karl Angelo N. Vidal