While the financial markets in the US and Europe go through days of wild roller-coaster ride as they seek solutions to trillion dollar-worth toxic mortgages, Philippine analysts and regulators continue to hammer messages that could be summed up with this: Relax.
Markets all over the world, especially in the US, Europe, and some Asian exchanges, plunged immediately after the US congress thumbed down Monday the proposed $700 billion bailout plan that was supposed to solve the core of the mortgage problem that rippled to various financial players beyond the banking system.
Yet, the Philippine Stock Exchange, an indicator of investor sentiments, ended its Tuesday trading only 1.4 percent lower, better off than other markets, some of which ended in historic lows. The Dow Jones, an index that tracks financial performance heavy industries in the US, was down by as much as 7 percent overnight, wiping out up to $1.2 trillion in a single day. Britain's FTSE index was down 5.3 percent to a three-year low, while Asian markets, like Japan and Hongkong, were lower by 4.6 and 2.5 percent, respectively.
The immediate impact of the US Congress' vote on the bailout to the Philippines would be more of a knee-jerk reaction, analysts said. But while there will be long term consequences to the Philippines, Nestor Espenilla, Deputy Governor of the Bangko Sentral ng Pilipinas (BSP), said "It’s nothing that financial markets in the country can’t handle."
According to the BSP, about 7 Philippine banks have a total exposure of $386 million to bankrupt Lehman Brothers, one of the giant US investment banks that tumbled amidst the panic over toxic US housing debts. That accounts for less than one percent of the entire banking system, which, through the years, has been buffed up so it could withstand shocks.
“In terms of direct impact on our financial system, it’s still very minimal," Espenilla said in an interview at ABS-CBN News Channel’s News at 8. "As we’ve earlier pointed out, we are coming into this crisis relatively well-prepared in terms of capital adequacy, liquidity, and asset quality."
Jojo Gonzales, Chief Analyst of Philippine Equity, also noted in the same cable show, that there is no credit crunch in the country, unlike how it is in the US and Europe where investors and bankers are hardly transacting or lending, thus their economy is in a virtual standstill.
"To illustrate the fact that there is no credit crunch in the Philippines, the auction yesterday for Treasury Bills (indicator of cost of borrowing among banks) was two times oversubscribed. That hardly qualifies as credit crunch," Gonzales stressed.
In other words, the Filipinos will not have to go through a similar decision of whether any local players in the financial system would need to be bailed out too.
Philippine politicians will also be spared with a similar task of voting on whether taxpayers' money should be spent to stem a gaping hole that the rich have created. Unlike their US counterparts, who decided 208 to 205 in favor of thumbing down the bailout plan, the US congressmen have an upcoming elections to think about when deciding whether common Americans should shoulder the losses that high flying Wall Street executives created.
Not now but later
So far, there are anecdotal indicators of Filipino consumers spending less on their mobile phones and retail purchases. Still, according to Gonzales, there is no reason to fret, since it's the Philippine companies that are absorbing most of the US crisis impact now.
"I imagine the impact at this point is not so much on end consumers. Much of what we are seeing right now is pressure on profit margins of corporates because of inflation." Gonzales said.
Filipinos, however, would have to still keep their eye on the goings on in the financial markets abroad, especially in the US, since the consequences to the Philippines will be felt later.
One indicator would be the impact of what's happening in US financials to the credit market. The Philippines is one of the biggest debt issuers in Asia, and several Philippine companies have issued foreign debts to raise funds too. Benchmark interest rates, which banks all over the world use as guide in pricing debt instruments, will affect the cost of debt instruments that the Philippine government and companies have or will issue.
"Right now, we are just spectators watching what’s happening in the US. [And the] Philippine companies and the government don’t have to borrow right now. But 3 or 6 months from now, if the benchmark rates don’t come down, I think it will ultimately impact RP as well," Gonzales pointed out.
PJ Garcia, Chief Investment Officer of ING Bank Philippines, also noted that while some are reacting out of knee-jerk impulse, down the road there could be an impact on the fundamentals of the Philippines as well.
For one, exports volume and value could be affected as Americans, who are still the world's biggest group of consumers, hold on to their cash to cope with the credit crunch.
To Garcia, what this means to the Philippine companies is that “There will definitely be some downward revisions on growth assumptions for the next 12 to 18 months. There would have to be some review on earnings assumptions [of companies] for next year if you see a slower economic growth and lower domestic demand or, in this case, possibly slower export growth."
With the US now facing a possible recession, the impact to the Philippines will ultimately depend on how long and how deep the US economy will be in the doldrums.
The first to be hit will be the pace of our economic growth.
"It is fair to assume that the rates of [economic growth] will slow sharply," Gonzales warned.
Based on a best-case scenario of a "short and shallow" recession in the US, Gonzales projects that the local economy's growth will slow to about 4 percent this year. That's a far cry from last year's economic growth rate of more than 7 percent.
"The worse it gets in the US, the lower number you will see in the Philippines," Gonzales stressed.
Earlier, the range of estimates for economic growth in 2008 was between 4.5 to 5 percent. Gonzales noted, however, that these projections were made a couple of months back, long before Monday's shocking outcome of the US congress vote on the bailout.
"Nobody envisioned what's happening now. So there is room for those [growth] estimates to come down a bit further," Gonzales said.
Ride it out
Whether the current goings on will eventually translate to a major pinch to Filipino's income--and if ever, how much it will hurt--is yet to be seen.
Meantime, the message from analysts and regulators remain: Relax. It's all part of business and economic cycles.
According to Espenilla, these are cycles the Philippines could confidently ride out.
"In the end, these are really businesses that have ups and downs. Right now is really a clear 'down' scenario. We have the capacity to withstand this. We can ride this out."source
Markets all over the world, especially in the US, Europe, and some Asian exchanges, plunged immediately after the US congress thumbed down Monday the proposed $700 billion bailout plan that was supposed to solve the core of the mortgage problem that rippled to various financial players beyond the banking system.
Yet, the Philippine Stock Exchange, an indicator of investor sentiments, ended its Tuesday trading only 1.4 percent lower, better off than other markets, some of which ended in historic lows. The Dow Jones, an index that tracks financial performance heavy industries in the US, was down by as much as 7 percent overnight, wiping out up to $1.2 trillion in a single day. Britain's FTSE index was down 5.3 percent to a three-year low, while Asian markets, like Japan and Hongkong, were lower by 4.6 and 2.5 percent, respectively.
The immediate impact of the US Congress' vote on the bailout to the Philippines would be more of a knee-jerk reaction, analysts said. But while there will be long term consequences to the Philippines, Nestor Espenilla, Deputy Governor of the Bangko Sentral ng Pilipinas (BSP), said "It’s nothing that financial markets in the country can’t handle."
According to the BSP, about 7 Philippine banks have a total exposure of $386 million to bankrupt Lehman Brothers, one of the giant US investment banks that tumbled amidst the panic over toxic US housing debts. That accounts for less than one percent of the entire banking system, which, through the years, has been buffed up so it could withstand shocks.
“In terms of direct impact on our financial system, it’s still very minimal," Espenilla said in an interview at ABS-CBN News Channel’s News at 8. "As we’ve earlier pointed out, we are coming into this crisis relatively well-prepared in terms of capital adequacy, liquidity, and asset quality."
Jojo Gonzales, Chief Analyst of Philippine Equity, also noted in the same cable show, that there is no credit crunch in the country, unlike how it is in the US and Europe where investors and bankers are hardly transacting or lending, thus their economy is in a virtual standstill.
"To illustrate the fact that there is no credit crunch in the Philippines, the auction yesterday for Treasury Bills (indicator of cost of borrowing among banks) was two times oversubscribed. That hardly qualifies as credit crunch," Gonzales stressed.
In other words, the Filipinos will not have to go through a similar decision of whether any local players in the financial system would need to be bailed out too.
Philippine politicians will also be spared with a similar task of voting on whether taxpayers' money should be spent to stem a gaping hole that the rich have created. Unlike their US counterparts, who decided 208 to 205 in favor of thumbing down the bailout plan, the US congressmen have an upcoming elections to think about when deciding whether common Americans should shoulder the losses that high flying Wall Street executives created.
Not now but later
So far, there are anecdotal indicators of Filipino consumers spending less on their mobile phones and retail purchases. Still, according to Gonzales, there is no reason to fret, since it's the Philippine companies that are absorbing most of the US crisis impact now.
"I imagine the impact at this point is not so much on end consumers. Much of what we are seeing right now is pressure on profit margins of corporates because of inflation." Gonzales said.
Filipinos, however, would have to still keep their eye on the goings on in the financial markets abroad, especially in the US, since the consequences to the Philippines will be felt later.
One indicator would be the impact of what's happening in US financials to the credit market. The Philippines is one of the biggest debt issuers in Asia, and several Philippine companies have issued foreign debts to raise funds too. Benchmark interest rates, which banks all over the world use as guide in pricing debt instruments, will affect the cost of debt instruments that the Philippine government and companies have or will issue.
"Right now, we are just spectators watching what’s happening in the US. [And the] Philippine companies and the government don’t have to borrow right now. But 3 or 6 months from now, if the benchmark rates don’t come down, I think it will ultimately impact RP as well," Gonzales pointed out.
PJ Garcia, Chief Investment Officer of ING Bank Philippines, also noted that while some are reacting out of knee-jerk impulse, down the road there could be an impact on the fundamentals of the Philippines as well.
For one, exports volume and value could be affected as Americans, who are still the world's biggest group of consumers, hold on to their cash to cope with the credit crunch.
To Garcia, what this means to the Philippine companies is that “There will definitely be some downward revisions on growth assumptions for the next 12 to 18 months. There would have to be some review on earnings assumptions [of companies] for next year if you see a slower economic growth and lower domestic demand or, in this case, possibly slower export growth."
With the US now facing a possible recession, the impact to the Philippines will ultimately depend on how long and how deep the US economy will be in the doldrums.
The first to be hit will be the pace of our economic growth.
"It is fair to assume that the rates of [economic growth] will slow sharply," Gonzales warned.
Based on a best-case scenario of a "short and shallow" recession in the US, Gonzales projects that the local economy's growth will slow to about 4 percent this year. That's a far cry from last year's economic growth rate of more than 7 percent.
"The worse it gets in the US, the lower number you will see in the Philippines," Gonzales stressed.
Earlier, the range of estimates for economic growth in 2008 was between 4.5 to 5 percent. Gonzales noted, however, that these projections were made a couple of months back, long before Monday's shocking outcome of the US congress vote on the bailout.
"Nobody envisioned what's happening now. So there is room for those [growth] estimates to come down a bit further," Gonzales said.
Ride it out
Whether the current goings on will eventually translate to a major pinch to Filipino's income--and if ever, how much it will hurt--is yet to be seen.
Meantime, the message from analysts and regulators remain: Relax. It's all part of business and economic cycles.
According to Espenilla, these are cycles the Philippines could confidently ride out.
"In the end, these are really businesses that have ups and downs. Right now is really a clear 'down' scenario. We have the capacity to withstand this. We can ride this out."source
Posts
No comments:
Post a Comment