WALL STREET banking giant Morgan Stanley has downgraded to “underweight” its tag on Philippine shares, along with Thai equities, according to a note it sent to clients on Tuesday that laid out its outlook for the second half.
It did not give a specific explanation for the downgrade, but the report was released amid mounting dissatisfaction with political regimes, including in the Philippines and Thailand, and following a change in leadership in Indonesia.
It was just last month when Morgan Stanley said it was keeping its “overweight” tag on Philippine equities at a time when the Philippine Stock Exchange index (PSEi) was hitting multiple-month peaks to court 7,000 level.
But the PSEi has come off that peak since, partly because of the US Federal Reserve’s plan to end its bond-buying by October and also recently because of rising political tensions stemming from the controversial Disbursement Acceleration Program (DAP) and a string of impeachment complaints against President Benigno S.C. Aquino III.
Morgan Stanley’s latest assessment also came on the heels of a similar downgrade by another US banking giant HSBC.
“We downgrade the Philippines to underweight from overweight. While the macro story remains intact, the recent market run has raised the already high equity market valuations further. An even bigger risk is a tighter monetary stance later this year, due to lingering inflation risk,” HSBC said in its second quarter Asia Equity Insights report, which was released on June 6.
PESO TO WEAKEN
Morgan Stanley said it expects the Philippine peso to average at P43.70 per dollar in the third quarter, before weakening to P44 per dollar in the fourth quarter.
Its peso forecasts for next year are the following: P44.10 (first quarter), P44.20 (second quarter), P44.30 (third quarter), and P44.40 (fourth quarter).
Morgan Stanley said it downgraded Thailand, from “overweight” to “underweight”, on doubts a power struggle there is nearing its end.
Thailand’s government was taken over by the army which imposed martial law, and the “recent coup means that a democratically elected and fully functioning government is unlikely in the near term and we expect elections only to be held in 12 months’ time by end 2Q15,” its report read.
“What should one do with the Thai equity market at this stage? We remain cautious on the market and believe that risk-reward is skewed to the downside, with relatively full valuations, rising risks and slowing growth,” it said.
On Indonesia, where it gave an “equal-weight or hold” tag, Morgan Stanley said “there is a risk that equity markets may overshoot fundamentals as expectations of accelerated reforms may rise, on a Jokowi-Kalla win,” referring to the resounding victory in Indonesia’s presidential race of Jakarta governor Joko Widodo.
Elsewhere, Morgan Stanley said it remains “overweight” on China and Singapore.
“We believe that [China’s] recent and potential targeted policy easing and fiscal spending will continue to alleviate the hard landing concerns which peaked in March due to cyclical weakness in the economy,” the report read. — from a report by Daphne J. Magturo, Businessworld
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