RP bourse bright light or black hole?
RP bourse bright light or black hole?
Karl Wilson, Agence France-Presse/Manila
The Philippine stock market appears to be the darling of
foreign investors at the moment, outperforming all regional
markets and the majors alike.
Since the start of the year, the 33-share Philippine Stock
Exchange Composite Index has risen some 22 percent followed by
Jakarta at 18 percent, while Japan's Nikkei 225 index has been
struggling at around 1.5 percent.
In New York, the Dow Jones Industrial Average is down around
four percent while in London the FTSE-100 is up by just over 2.0
percent.
In recent weeks the Philippine market has surged to highs not
seen in more than four years, much of the rise being driven by
inflows of foreign capital.
According to data from the Philippine Stock Exchange and
estimates by ATR Kim Eng Securities, net foreign investment up to
Oct. 7 was worth nearly seven billion pesos (US$125 million) or
some 55 percent of total trade.
And all this in a country facing a budget deficit of some $3.5
billion, external debt worth just over $56 billion and where half
of the country's 84 million people live on less than $2 a day.
Poverty has reached such a level the government recently
announced it was considering giving out food coupons worth 1,200
pesos to some five million families nationwide.
The cost for this programme alone will be six billion pesos a
month to a government struggling to pay its bills.
So what has changed?
According to Martin Enrile of ATR Kim Eng Securities, "in one
word ... it's perception.
"Last year no one cared about the Philippines, least of all
fund managers. The perception outside was one of great
uncertainty. The country was facing an election and a huge fiscal
deficit," Enrile said.
"We have had the election and President Gloria Arroyo is back
in her own right. She has laid out her vision for the future
while at the same time admitting there are problems.
"This honesty I think has given comfort to investors,
especially those foreign fund managers who stayed away. Another
factor has been the surprisingly good corporate earnings so far
this year."
But Enrile did voice a note of caution: "Unless the government
can deliver on its promises the foreign funds will go."
The International Monetary Fund (IMF) said recently the Arroyo
administration with its new mandate had a "unique opening to
break from the past by addressing long-standing economic
weaknesses and boldly pursuing a vigorous far-reaching agenda of
economic reforms.
"Seizing the opportunity will be crucial for addressing the
Philippine economy's vulnerabilities to external shocks while
helping to underpin investor confidence and improve debt
dynamics."
"This will lay the basis for stronger and more sustained
economic growth and job creation and contribute to significant
poverty reduction over the medium term," the IMF said.
This was echoed by rating's agency Standard and Poor's, which
warned last week that failure to pass key tax measures in the
next three months would be crucial.
SP noted Arroyo's admission in August that the country was in
a fiscal crisis and the difficulty being faced in her efforts to
cut costs and get Congress to pass eight key revenue measures to
keep the deficit in check.
Despite Arroyo's efforts and the growing concern over the
issue, the passage of these remedial measures has been "slow," or
even blocked by political pressures and Congressional squabbling,
SP said.
This could be taken as a signal that "the political class is
unwilling to swallow the bitter medicine," and that despite her
victory in the presidential elections in May, Arroyo and her
allies in Congress still could not carry out reforms, SP warned.
"The administration has said all the right things ... it has
sent out all the right signals," ATR Kim Eng's Enrile said. "The
hard part will be the delivery."