Avoid PH stocks, investors told
Investors should steer clear of Philippine stocks and keep exposure to local assets below typical levels at this time, a unit of London-based Oxford Economics said, warning that economic risks are likely to worsen even if the Middle East conflict eases.
In a note to clients, Yan Wang, chief emerging markets and China strategist at Alpine Macro, said the Bangko Sentral ng Pilipinas’ (BSP) decision to begin a new rate-hiking cycle in response to the oil shock had delivered a “double hit” to an economy still recovering from the fallout of a major corruption scandal.
Wang described the country as caught in a classic emerging-market policy trap: tightening monetary policy into slowing growth risks setting off a vicious cycle in which higher rates deepen the downturn, weaken the currency and force further rate hikes.
The combination of weaker growth and tighter policy, he noted, is negative for asset prices.
Macro stability remains intact, he said, but is “deteriorating at the margin”.
“Philippine equities trade at a discount to the emerging market benchmark, but the near-term outlook remains unfavorable,” Wang said. “The Philippines has been among our least favored markets since the Iran conflict and the shift toward tighter policy further reinforces the bearish case.”
Last week, the BSP raised its key rate by a quarter point to 4.5 percent, the first tightening move in more than two years. Officials described the move as “preemptive,” citing a deteriorating inflation outlook as the conflict in the Middle East drags on.
Wang acknowledged the central bank’s dilemma, noting there are few alternative policy levers to cushion the shock. The fiscal deficit is almost 6 percent of gross domestic product—leaving limited room for meaningful fiscal support.
Administrative measures are also constrained, he said. Despite the declaration of a national energy emergency, the country’s highly deregulated energy sector limits the scope for government intervention.
The oil crisis, in turn, is making it more difficult for the Philippines to address the economy’s deeper structural challenges, including its heavy reliance on crude imports from the Middle East and limited domestic refining capacity, Wang said.
He added that the country’s remittance- and business-process-outsourcing-driven growth model is already under strain. Remittances from overseas workers remain critical to household income but contribute to a brain drain that erodes domestic productive capacity.
At the same time, the large business process outsourcing industry faces long-term disruption from artificial intelligence.
“Fiscal and current account twin deficits are already near historical highs and could deteriorate further if the energy shock persists,” Wang said. “This implies a sustained bias toward tighter macro policy in the years ahead, creating persistent headwinds for growth.”
