PH investors hold on to US assets
Major Philippine institutions are not shunning American asset classes just because Moody’s decided to downgrade the United States’ pristine credit rating.
However, the global debt watcher’s action has prompted Filipino investors to assess their offshore investment decisions and portfolios.
Yields on long-term US Treasuries briefly surpassed 5 percent while Wall Street stocks ended flat at the start of the week, after Moody’s became the third major global debt watcher to strip the United States of its triple-A sovereign over ballooning debts and deficits.
At home, institutions like the Maharlika Investment Corp. (MIC)—the company managing the country’s sovereign wealth fund—are closely watching how markets respond to the news. For Rafael Consing Jr., president and CEO of MIC, the immediate market reaction to Moody’s decision was “relatively measured.”
“We are closely monitoring all global economic developments, including these rating adjustments, and will thoroughly assess any potential US dollar-denominated investments based on risk-adjusted returns and our national development mandate,” Consing said.
Uncertainties
London-based Capital Economics said in a commentary that while US yields had risen and the dollar fell, news of the rating downgrade “doesn’t seem so far to have made much of a market splash.” But some analysts had said that Moody’s action casts uncertainty over the status of US Treasuries and the greenback as a safe haven for global capital.
In the Philippines, institutions like the Bangko Sentral ng Pilipinas (BSP)—whose foreign investments form the bulk of the country’s international reserves—typically invests in A-rated assets. But it is unlikely that the central bank would make any major changes to its portfolio following Moody’s decision, as there is still no market that can compare with the US Treasuries in terms of size and liquidity.
Reinielle Matt Erece, an economist at Oikonomia Advisory & Research Inc., said the downgrade of the US credit rating would mainly impact institutional investors like pension funds and insurance companies as they require the highest security regarding their investments.
“They may have to re-strategize their investments and look for other assets and securities to accommodate the added risk,” Erece said.
“However, for quick money and small investors, I don’t expect to see a negative impact in the short-term. The credit rating even after the downgrade is still way above the investment-grade level,” he added.
For companies like Sun Life Investment Management and Trust Corp. (SLIMTC), the US is still a secure investment destination. SLIMTC is expecting its insurance-linked assets under management to reach over P400 billion this year.
“In spite of the downgrade, the US continues to be one of the highest rated credits,” SLIMTC President Michael Enriquez said. “Given, we may expect adjustments in yields, but we are still comfortable with the credit.”
Allianz PNB Life, another major player in the local insurance industry, is also monitoring market developments.
“The points raised by Moody’s are valid and worth considering,” Henry Yang, head of investments at Allianz PNB Life, said.
“Our fund managers balance this along with other factors (e.g. US exceptionalism) when forming and executing investment decisions,” he added.
