Marcos comeback draws mixed reactions from investment banks
MANILA, Philippines — The impending return of presidential frontrunner Ferdinand “Bongbong” Marcos Jr. to Malacañang drew mixed reactions from economists of investment banks.
For one, JP Morgan said in its latest ASEAN Equity Strategy that it has downgraded the Philippines to underweight as it recommended to investors selling into a possible post-election hope rally.
JP Morgan said that Philippine equities face myriad challenges, including twin deficits, higher inflation, slower government spending in the quarters after the election, high public debt, risk of a valuation de-rating and potential earnings growth disappointment.
The investment bank sees the trade deficit of the Philippines widening further in the coming months after increasing to $5 billion last year, while the current account deficit may balloon to a record high of $16.9 billion or four percent of gross domestic product (GDP).
“We expect reopening benefits for the GDP growth trajectory to wane next year and put strong pressure on the government to deliver outlay spending acceleration,” JP Morgan said.
According to JP Morgan, inflation would serve as a drag on private consumption, which accounts for more than 75 pecent of GDP, and accelerate monetary tightening by the Bangko Sentral ng Pilipinas (BSP).
The investment bank said a 20 percent rise in oil prices would push inflation higher by 0.8 percentage points and cut the GDP by 0.4 percentage points.
Aside from sharp increases in oil prices, JP Morgan said that the prices of other commodities, including agricultural commodities, have also surged and created fresh inflationary pressures.
“This is likely to challenge the BSP’s capability to control inflation and could force to raise the policy rate more quickly than anticipated,” JP Morgan said.
It added that headwinds from inflation, a depreciating peso and weaker sentiment could impact on the pace of the recovery and GDP growth disappointment, adding downside risk to earnings per share estimates.
“There is increasing risk of a valuation de-rating that could be exacerbated by portfolio outflows, the domestic monetary tightening cycle, and retail investors shifting to safe havens like bonds or bank deposits,” JP Morgan said.
Dutch financial giant ING Bank said in its latest “Asia Morning Bites” that Philippine markets may face a sell-off, based on a Bloomberg survey that Marcos was the least favored candidate by the investor community.
“Among other campaign promises, Marcos has vowed to subsidize food and fuel items, which will adversely affect the country’s fiscal sustainability goals. The peso is likely to come under selling pressure today as foreign funds exit,” ING said.
ING Bank Manila senior economist Nicholas Mapa said the Philippine economy likely grew by 6.1 percent in the first quarter, slower than the 7.8 percent expansion booked in the fourth quarter of last year.
“Household spending likely bounced back after partial lockdown in January. Modest pick-up in capital formation, but government spending was likely flat from last year,” Mapa said.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said investors are closely monitoring if the elections would be clean, honest, credible and peaceful as an important first part of democracy.
Ricafort said that the next step would be to evaluate the incoming administration’s platforms, policies and reforms for the first 100 days, especially the members of the economic team.
He said the key success factors for the new Philippine president that would help sustain economic recovery and development as well as attract more investments into the country include a credible and competent economic team, policies that promote environment, society, governance (ESG) to help attract more investments, strengthen institutions and rule of law, as well as a more effective response to the pandemic.
Ricafort said the next administration should also focus on economic recovery measures, continue economic and fiscal reforms, promote greater inclusion or unity among politicians, improve diplomatic relations with the biggest trading partners, offset risk factors that are external in nature, including the recent increased volatility in the global financial markets due to more aggressive US Federal Reserve rate hikes, as well as the effects of Russia’s war with Ukraine.
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