Resilience of the Philippine stock market

Resilience of the Philippine stock market ; Despite numerous global shocks that have caused the Philippine stock market to correct, Below, we enumerate the drivers of our stock market’s continued strength:

1. Trust in the Aquino administration.
President Noynoy Aquino has so far enjoyed high net satisfaction ratings. His administration has not been rocked by any major scandal and his team has so far been focused on improving the country’s fiscal situation.

2. OFW remittances and BPO revenues.
Our GDP has been supported by the steady inflow of OFW remittances which amounted to $18.8B in 2010, equal to 9.4 percent of GDP. BPO revenues, on the other hand, have grown faster than remittances and have likewise contributed to the economy, bringing in ~$8.9B in 2010, equal to ~4.5 percent of GDP. As such, the performance of the consumer and property sectors in our local stock market has been strong.

3. Strong fiscal performance.
With the help of strong OFW remittances and BPO revenues, the Philippine government has delivered a strong fiscal performance. Compared with the same period last year, government revenues for the first five months of 2011 increased by 16.3 percent to P582B while expenditures decreased by 10.7 percent to P591B. This resulted to a 94.1 percent reduction of the budget deficit, bringing it down to P9.5B as of May 2011. Gross International Reserves remained high at $69.9B as of June 2011 while year-to-date Balance of Payments surplus was at $4.8B as of May 2011.

4. Credit rating upgrades.
The strong fiscal performance of the Philippines has driven rating agencies such as S&P, Moody’s and Fitch to upgrade our country’s credit rating. As a result, our country is just one to two upgrades away from attaining investment grade status.

5. Public-private partnerships (PPP). PPP projects for roll-out in 2011 to 2012 are estimated to amount to $2.5B. Anticipation of the PPP has kept stocks such as DMCI Holdings, Metro Pacific Investments and San Miguel Corp. buoyant as they are expected to bag some of the projects in the program.

6. Local M&A – alive and active.
There were a number of M&A events in 1H2011, namely: the pending acquisition of Digitel by PLDT, the Philex and Manila Mining joint venture, the possible Gold Fields and Lepanto Mining joint venture, and SM’s purchase of a 17.9 percent stake in Atlas Mining. The M&A mania has caused many of the stocks involved to reach all-time highs, thereby keeping the Philippine stock market buoyant.

7. Increasing stock market participation from locals.
Local participation in the stock market has been increasing. Government financial institutions took advantage of the market’s swings to increase their exposure to local equities. Local bank UITFs (unit investment trust funds) and Philippine mutual funds have grown to become more active players in the market. Lastly, local retail investors, encouraged by the profits they have made, are becoming more active participants in our market.

8. Strength of metal prices.
Gold reached a record high of $1,594.90 / ounce, while copper and nickel prices continue to be strong. Strong metal prices contributed to the strength of the local mining sector, which has outperformed the rest of the Philippine market.

9. Flow of funds from DM to ASEAN.
ASEAN countries like the Philippines continue to benefit from the influx of foreign funds due to their strong fiscal performance. Like the Philippines, Malaysia and Indonesia’s stock markets recently established new highs. Bangko Sentral ng Pilipinas Governor Amando Tetangco, Jr. even remarked that the flow of foreign funds into ASEAN countries like the Philippines may accelerate in the instance of a US credit rating downgrade. (source http://www.philstar.com)