ASIA-Pacific markets, including the Philippines, will remain strongly linked to developments in advanced economies outside the region, a Bangko Sentral ng Pilipinas (BSP) official said.
BSP Deputy Governor Diwa C. Guinigundo said the near-zero interest rates adopted by major economies following the 2008 global financial crisis have boosted investor appetite for relatively higher-yielding, but riskier, assets in emerging markets.
Those assets, he noted, include equities, government and corporate bonds, and credit default swaps.
The central bank official made the statements in a paper titled “What have emerging market central banks learned about the international transmission of monetary policy in recent years? The Philippine case” written for the Basel-based Bank for International Settlements.
Mr. Guinigundo noted “large swings” in the country’s registered foreign portfolio investments -- or hot money -- in 2013 and early this year, in reaction to the US Federal Reserve announcement of a gradual end to its massive stimulus program. With the start of quantitative easing last January, outflows of portfolio investments rose to $3.1 billion from $1.6 billion a month earlier.
“The volatility in foreign portfolio investment took a toll on the stock market as foreign investors became more cautious, despite the positive news of a robust Philippine GDP (gross domestic product) growth for all quarters and credit rating upgrades throughout 2013,” he said.
The Philippine economy grew at a higher-than-expected 7.2% in 2013, topping a 6-7% growth goal and faster than 2012’s 6.8%.
The country won its first ever investment grade rating from Fitch Ratings in March 2013. Standard & Poor’s and Moody’s Investors Service followed suit in May and October that year, respectively.
Mr. Guinigundo said concerns over tighter liquidity conditions and higher interest rates in the US also fueled volatility in the peso-dollar exchange rate.
“As investors sought relatively safer assets, EME (emerging market economies) currencies, including the peso, started to depreciate,” he noted.
Against this backdrop, the official, said: “It is highly unlikely that the Asia-Pacific region will decouple from developments elsewhere in the near future.”
“Conditional on underlying macroeconomic volatility, advanced economies outside the Asia-Pacific region are likely to continue having large effects on the economies in the region,” Mr. Guinigundo said, underscoring the need to develop a “formal framework” to mitigate potential shocks. -- D.E.D. Saclag
source: Businessworld
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