Bourse seen standing on solid ground amid turmoil

FUNDAMENTALS of the Philippine stock market remain strong, the chief of the local bourse said, as the impending start of monetary policy normalization in the United States and a slowdown in China threaten to drag local equities into bear territory and end a six-year winning streak.

PSE President and Chief Executive Officer Hans B. Sicat told reporters on Friday last week that investors may be overreacting to global growth concerns, sending the bellwether Philippine Stock Exchange index ( PSEi) down 4.4% for the year and dropping 15.6% off its peak of 8,127.48 in April.

A 20% drop from a peak is the common technical definition of a bear market.

‘TOTAL INSTABILITY’

“If you take a look at the Philippine financial markets today, it probably does not reflect the values of underlying companies and even the macroeconomy,” Mr. Sicat said.

“It’s total instability. You can’t blame investors globally. There seems to be an overreaction. If you look at the macro universe — say from second quarter to now third quarter — has it really changed that much that suddenly it’s doom and gloom?”

Fears of the impact of higher interest rates in the United States and faltering economic growth in China have triggered five straight months of foreign fund outflows that erased the blue-chip PSEi’s gains for the year.

“If the economy is going to grow by 5.5- 6%, then is that too radically different from 6%, which is the original expectation? It may be lower, but not fatal,” Mr. Sicat said.

The government has set a 7-8% economic growth target for this year and next, but a lackluster 5.3% expansion last semester prompted Economic Planning Secretary Arsenio M. Balisacan to say late last month that a 6-6.5% full-year pace would be “quite realistic.” This, after the economy grew by 6.1% last year, 40 basis points shy of a 6.5-7.5% official target.

The US economy “appears to be stable” and China, with its massive economy expanding at a pace of 7%, will continue to be one of the positive drivers of global

growth, he said. The world’s secondbiggest economy grew 7% annually last semester, on track to an official full-year target.

Even the rout in commodity prices is expected to benefit the domestic economy, since the Philippines is a net importer of oil, Mr. Sicat said.

“The real economy is not much different from what we saw. I would think financial markets should calm down at some point; hopefully, sooner than later.”

Meanwhile, the PSE is preparing the framework for the listing of public-private partnership (PPP)-related securities. “Hopefully, the framework is ready by the beginning of next year,” Mr. Sicat said.

But listing such infrastructure projects would have been easier if rules for real estate investment trust (REIT) were more favorable, he said. REITs are companies that own and operate income-generating real estate assets. “You can use that REIT structure today if it were operating to do the infrastructure projects. Just inject it in. That’s a simple application, but it’s very powerful because you’re not reinventing anything,” Mr. Sicat said.

Republic Act No. 9856, or the REIT Act of 2009, lapsed into law in December that year, but developers have yet to form such vehicles due to taxation and other issues.

The PSE and the PPP Center — the central coordinating and monitoring agency for big-ticket infrastructure projects of the government — have been exploring the prospect of opening up the stock market to PPP- related securities, expanding financing options for concessionaires. —