Manulife Investment Management Asia sees better prospects for the Philippine financial market despite high inflation, and recession concerns besetting more mature markets like the US and Europe.
Sue Trinh, Manulife Investment Management head of global macro strategy, said this at a time of an oversold equities market, and an economy still at the throes of a full rebound from the impact of the new coronavirus disease 2019 (COVID-19) pandemic.
“We do think there is scope for the Philippines to catch up in terms of regaining its lost ground versus the pre-COVID trend, the domestic recovery should come into its own and a little bit stronger. The recent pullback in global commodity prices suggests the worst of the terms of trade shock could be behind us as well. And then we continue to see the strong domestic demand as a way to insulate from external shocks,” Trinh said.
Trinh also said the Philippine economy continues to see a sustained domestic demand, underpinned by the infrastructure projects, supportive of an accelerated growth.
“That’s typically quite supportive for equities. For equities, when you look at current market pricing, the Philippine market appears somewhat oversold…on both a cyclical and structural basis, when you look at the extent of the multiple compression to date as well as forward earnings expectations. We do think the outlook ahead looks much more constructive than it has in the last six months for instance,” Trinh said.
Trinh said the peso will also benefit from the easing commodity prices coupled with the Bangko Sentral ng Pilipinas’ (BSP) willingness to be aggressive in its monetary policy.
“The peso (has) weakened to a now all-time low against the US dollar…,” she said, adding the peso is now down 9 percent and is one of the worst performing currency in Asia today.
Apart from the impact of the US Fed’s tightening policy, the peso likewise is challenged by the Philippines’ high current account deficit.
“We had noticed some loss of confidence by domestic residents. So FX deposits have been accelerating year- to- date and really exceed historical levels prior to the pandemic,” she said.
“Even if global risk appetite weakens sharply, we don’t think the marginal impact on the peso should be so much because of the relatively low level of foreign currency debt. Which means that a weakening peso doesn’t affect financial stability the way it does for other emerging markets,” she added.
Trinh said the BSP is likely to raise rates by another 25 basis points for the rest of the year.