Surge of fixed-term investments seen as investors seek alternatives

MANILA, Philippines – As business confidence in the Philippines reached a record last quarter, Japanese investment bank Nomura said this could be a precedent to a surge of fixed-term investments as investors, worried of high stock valuations, seek new places to park their money.

“The business expectations index (BEI) reached a record-high in the second quarter,” Nomura said in a report released last week.

“This was confirmed during our trip to Manila last week, where we met with corporate clients. Some continued to express strong interest in participating in government-led infrastructure projects,” it added.

According to recent survey by the Bangko Sentral ng Pilipinas (BSP), the BEI peaked at 54.9 percent from April to June, the highest level since business survey started in the fourth quarter of 2007.

According to Nomura, the survey results spoke of how investors agreed with the government’s efforts to “improve governance” and keep its balance sheet in check, amid a stellar economic performance capped by a 7.8-percent growth in the first quarter.

In the long run, the bank said the Philippine economy, about 70 percent of which is consumption-driven, would benefit from a probable surge in long-term investments that would support sustainable growth.

“This bodes well for actual investment spending, which after falling in 2011, is catching up; it has risen by an average of 15.7 percent year-on-year over the last three quarters,” Nomura explained.

“We expect this trend to continue given what we see as a self-reinforcing dynamic between high private sector confidence and prospects for further reform,” it added.

Investments, particularly those coming from foreign entities, have long been tagged as the missing link on the Philippines’ shining economic story – which has also been overshadowed by the highest unemployment rate in Asia.

For instance, BSP data showed foreign direct investments even dipped 2.8 percent to $1.505 billion as of April. That was despite the record-breaking first-quarter growth uptick. Unemployment rate, meanwhile, stayed at 7.5 percent.

“We reiterate our out-of-consensus forecast for GDP (gross domestic product) growth to reach 7.3 percent this year,” Nomura said.

“Beyond the headline number, the quality of growth is also improving, with investment spending now a more significant number,” it pointed out. In addition, an increased in investment spending could provide a relief on an “expensive” stock market. The Philippine Stock Exchange index, which closed at 6,404.23 last Friday, has surged more than a tenth this year. –Prinz P. Magtulis (The Philippine Star)