Tuesday, 12 January 2010

‘RP is privileged to be at the epicenter of global growth’

Erik de la Cruz
Business Mirror

THE Philippines should consider itself lucky this year, being at the epicenter of the ongoing global economic growth, according to the top executive of one of the country’s largest and most active investment banks.

“Asia is the emerging growth engine of the world,” Francisco Sebastian, president of First Metro Investment Corp. (FMIC), said on Monday, as company executives made a media presentation of an upbeat 2010 outlook for the Philippine economy and financial markets.

The country is part of the “VIP” group in Asia that is now taking off, he said, referring to Vietnam, Indonesia and the Philippines—economies, he said, that are benefiting from huge population and strong domestic demand.

FMIC, the investment banking arm of Metropolitan Bank & Trust Co., sees the domestic economy expanding by 3.8 percent this year, slightly exceeding the government’s growth target of between 2.6 percent and 3.6 percent.

Growth will accelerate from a projected expansion of between 1.3 percent and 1.5 percent in the gross domestic product last year, Sebastian said.

Expected to underpin this year’s recovery are consumer spending, which will be kept robust by remittances of Filipinos abroad, and increased government spending.

The government will spend more for the conduct of the May national elections and for the rebuilding of infrastructure damaged by recent natural calamities. Politicians running for elective office are also expected to pour huge amounts of money into their campaign.

Sebastian said remittances are expected to increase by 5 percent to 6 percent this year, a forecast that is in line with the Bangko Sentral ng Pilipinas’s (BSP) projection of a 6-percent increase over last year’s level.

The BSP has projected an increase of at least 4 percent in remittances last year to around $17.1 billion.

Dr. Victor Abola of the University of Asia and the Pacific (UA&P) said the growth forecast of 3.8 percent for this year assumes the likelihood of the BSP keeping its headline interest rate at record low of 4.0 percent until around September.

The UA&P economist is assisting FMIC in coming up with macroeconomic forecasts that are presented to the investment bank’s clients.

Abola expects inflation this year to be around 4.2 percent to 4.3 percent, within the BSP’s target range of 3.5 percent and 5.5 percent.

The US dollar, he said, is expected to trade between P44 and P48. The local unit ended 2009 at 46.20 against the dollar, posting a 2.8-percent increase over the previous year.

Abola, however, considers a strong peso as one of the “weaknesses” of the Philippine economy, as it “weakens the stimulus effect of the remittances and exports.”

Other factors that may weaken economic growth this year, he said, are a tight monetary policy, widening budget deficit and political risks prevailing in an election year.

Still, FMIC’s top executives consider 2010 as “a year of steady growth and recovery for the Philippine markets, that is if and when no further mishaps occur in the global economy.”

Eduardo Banaag Jr., FMIC vice president for investment advisory, painted a rosy outlook for the local stock market, predicting that the key index will challenge its highest peak of 3,873 by the second half of this year.

For the whole year, he said, the index is expected to rise by 10 percent over last year, extending its rebound after advancing by 63 percent in 2009.

“The stronger-than-expected recovery and low interest rates will stretch the rallies in stock markets to 2010,” Banaag said. “The current interest-rate environment will support current Philippine equity valuations.”

Among his stock picks are the independent power producers, utilities and broadcasting companies—describing these as “industries that present profitability at reasonable prices.”

However, he said the possible rise in interest rates “will surely stonewall any rally to 3,800, even if recovery in the major economies continues.”

And should economic recovery falters, he said “even low interest rates will not be sufficient to stop stock markets from falling.”

Sebastian said the implementation this year of key market-friendly legislations, such as the Real Estate Investment Trust (REIT) Act and the Personal Equity and Retirement Account law, should also boost the stock market.

“The IPO [initial public offering] market will reopen with the implementation of the REIT law,” he said.

Still, he said investors should, at the same time, be mindful of the political risks.

“As long as the May election is successful, credible and peaceful, we do not see this as a threat to the economy,” Sebastian said.

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