It was sort of a repeat of the “taper tantrum” of 2013, when the US Federal Reserve first signaled that it would reduce the aggressive monetary stimulus that had propped up global markets for years. After posting record highs, the local stock barometer pulled back too sharply that it technically slipped into the bear’s lair then, although it managed to recover swiftly and ended the year with a modest gain. This year, there were other internal and external factors at play, resulting in heavy fund outflows in the first semester of the year.
Having completed its tapering of its liquidity-inducing bond buyback operations, the next step is for the US Fed to actually raise interest rates—currently at near zero levels—to more “normal” levels. While this is seen imminent, the guessing game on the timing has only escalated.
There is also debt-strapped Greece. Although this southeastern European nation is some six thousand miles away from Manila, its inability to pay back last June 30 a $1.73-billion debt to the International Monetary Fund—the same bailout package that had kept it afloat for five years—spooked global financial markets. After all, it was the first developed country to default on an IMF debt and this was the single biggest unsettled repayment in the IMF’s history.
Will it end up exiting the European Union? Amid the uncertainties, the natural reaction would be for investors to seek safer haven by dumping emerging market assets. Investment-grade or not, the Philippines is still part of that basket of emerging markets whose asset classes international investors tend to unload at the slightest excuse.
BUSINESS
BUSINESS
BUSINESS
Whether it’s a risk of an asset bubble bursting in China, a liberalization of China’s external accounts or a recovery seen in the world’s wealthiest economies—US, Japan and Europe—it has become more difficult to compete for funds in an environment where global interest rates are bottoming out.
Internally, the slower-than-expected first-quarter economic growth did not make it any more compelling for investors to look at Philippine equities, which are now trading at very expensive levels compared to regional peers. Philippine stocks are trading at price-to-earnings ratio of 18 to 20 times, which means investors are paying 18 to 20 times the money they expect to make from the market. In the past, investors were willing to buy local stocks at only 14 to 15 times what they expect to make.
