Investor confidence soars to new high in first quarter - ING survey

MANILA, Philippines - Investor confidence in the Philippines reached a new high in the first quarter of 2010, rebounding from its rock-bottom level in early 2009, despite political uncertainties in the May polls.

Based on the quarterly Investor Dashboard Survey conducted by ING, one of the largest global financial services group, the Philippine index remained in the “optimistic” zone for the third consecutive quarter, climbing to 139 in the first three months of 2010 from 134 at the end of 2009.

ING Bank N.V. Manila branch trust officer Paul Joseph Garcia attributed the upward trend to investors’ improved expectations on the growth prospects for the Philippines and the rest of the Asian markets.

“The country’s confidence rating has been climbing since reaching a low of 89 at the onset of the global financial crisis in the first quarter of 2009,” Garcia said in the report.

He said other factors that contributed to the optimistic view are heavy election spending, increased exports and remittance inflows.

An improving valuation of the peso - due to factors such as benign inflation and the government’s improving fiscal condition – likewise contributed to improved investor confidence in the country.

But the survey also indicated that investors want the next Philippine president to prioritize economic policies, education and trade relations.

The survey said the number of investors who expect the May elections to positively impact the economy and their respective investment portfolios is down slightly to 40 percent in the first quarter of 2010. The same proportion of investors are not sure whether the effect of the elections will be positive or negative, which, compared to the last quarter of 2009, has increased slightly (from 33 percent), possibly due to the closeness of the race and the varying economic policies of the candidates.

The different investor segments were likewise optimistic in the first three months, with the biggest increases seen in the medium- to high-risk sectors (up seven and six percentage points, respectively, over the last quarter of 2009),” the report said.

Fifty-eight percent of the investors surveyed described their investment strategy as balanced, focused on medium- to long-term growth and stable return. This is up from 52 percent in last year. Cash and deposits remain the top investment tool for investors (81 percent), followed by self-occupied local residential estate (48 percent) and foreign currency (35 percent).

According to the survey, expectations that the local stock market will rise in the next three months fell slightly, from 42 percent last year to 40 percent in the first quarter this year, although the expected average increase rose from 7.77 to 8.07. Those who are invested directly in local stocks are prioritizing opportunities in the construction and real estate sector (42 percent), financial services (41 percent) and information technology and consumer goods-related sector (30 percent).

The survey results also show a slight dip in the impact of inflation on investment decisions for Philippine investors. Sixty-one percent of the respondents said their investment decisions in the preceding quarter were affected by inflation in the past three months, compared with 66 percent in last year. Following the 4.4 percent rise of local inflation in March 2010, half of those surveyed expect inflation to rise further in the next quarter, edging out the Pan-Asian average of 57 percent.

The most popular investment tools for the survey respondents to beat inflation are cash/deposits (55 percent), property (35 percent) and foreign currency (33 percent).

Half of those surveyed also believe that interest rates will rise in the coming quarter. Among respondents who expect domestic interest rates to rise in 2010, 63 percent believe it will impact the local economy positively.

Local investors are less positive about the US economy improving and have greater expectations that interest rates will rise in 2010. They also indicated that the US economy’s impact on their investment decisions is weakening.

ING said it believes long-term investors could benefit from allocating assets into equities vis-as-vis bonds, which are sensitive to hikes in interest rates. Garcia pointed out that Philippine corporates, already poised to ride the momentum of the spending-heavy election year, are supported further by sound macroeconomic fundamentals, including strong remittance flows from the overseas Filipinos sector.

“In general the outlook looks similarly favorable for equities across the Asia-Pacific region,” Garcia said in the report.