BSP: Investors returning, worst is over for markets

MANILA, Philippines - The worst is over for the financial markets and investors are already beginning to realize that the Philippine economy remains safe and sound as they return to developing nations, a senior central bank official said recently.

“The initial market reaction has started to subside. We can see that in the middle of June, investors have started coming back,” Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo said in a speech last Friday.

Fund managers have started re-positioning their portfolios back to the US from emerging countries after the Federal Reserve signaled it could wind down its stimulus measures “later this year.”

As a result, regional stock markets have plummeted in value for weeks, with the Philippine Stock Exchange index (PSEi) losing as much as 6.5 percent to enter the “bear” territory last week.

The PSEi, one of the world’s best last year, has since bounced back, closing up 2.17 percent at 6,465.28 last Friday. Guinigundo attributed this development to the level of domestic participation in the local bourse.

“Unlike in many stock markets in the region, that of the Philippines is supported by domestic investors with ratio at 50-50,” he said, adding that the recent correction was in fact “healthy.”

“Many have become bear market in recent days but let me clarify that that is not the case in the Philippines,” he said.

As for the foreign exchange market, Guinigundo said the BSP expects the peso’s depreciation versus the dollar “to be reversed in the next few months of 2013.”

At the height of market volatility, the peso sank to P44 to a dollar from P41.

The peso, Asia’s second best performer last year, has lost 5.24 percent of its value versus the greenback to end trading at 43.20 last Friday. Losses ballooned to as much as 6.7 percent two weeks ago.

“Let me also assure you that we have buffers that are comfortable and that we will be able to supply the dollar needs of the market anytime,” Guinigundo said.

“The BSP’s toolkit is also sufficient to ride up the turbulence,” he said.

The bond market, meanwhile, has also been showing “stronger discipline,” with credit default swaps (CDS) of government securities already rebounding to stable levels, Guinigundo said.

Local CDS spreads – which gauge insurance acquired by investors for holding Philippine bonds – have decreased to 139 basis points from 157 basis points against US Treasuries. 

“This means it is favorable to us... There is better trust and confidence in Philippine bonds,” he said.

At the end of the day, Guinigundo said the volatility in the financial markets has amplified not only the government’s resilience, but also those of market participants.

“Let me share with you a quote from Warren Buffett which said, ‘Only when the tide goes out do you discover who’s been swimming naked,’” he said. “The tides have begun to recede and the Philippines was found to be wearing decent swimming trunks.”