The Philippines, which has lately seen new record highs in stock market trading, is making good progress in creating a more favorable image in the international community, according to the Filipino chief executive officer of the Bank of Singapore.
“The image is improving a lot… It’s not the sick man of Asia anymore. There’s less corruption,” said Renato de Guzman, CEO of the global private bank, who was interviewed on the sidelines of the Asian Development Bank (ADB) annual meetings Friday.
According to De Guzman, the Philippines has learned well the lessons of the previous Asian financial crisis (of 1997), following which local banking regulators introduced an array of reforms that have kept the banking system “quite insulated” from the subsequent US financial crisis in 2008 and the lingering crisis in Europe.
“I think confidence is high,” said De Guzman who served as one of the panelists at a business forum within the ADB meetings sponsored by BNY Mellon. The forum discussed the impact of the US financial crisis three years after.
Revenue the weak spot
The banker is hoping the Philippines would merit a sovereign investment grade rating but does not think this would necessarily happen within the year.
“It’s the revenue that’s still the weak spot,” De Guzman said.
According to some analysts, the international credit-rating agencies are waiting for the Philippines to pass new revenue-generating measures in Congress before giving the much-coveted investment grade rating.
But even without such a rating, financial markets have priced Philippine debt as if it were investment grade, they said. For instance, they have allowed the Philippines to sell offshore bonds at a lower cost than investment-graded Indonesia.
De Guzman helped build the franchise of Dutch financial giant ING in the Philippines, which was among the 10 new foreign banks allowed to set up local branches in the mid-1990s. He then relocated to Singapore to head ING’s Asian private banking business which was sold to the OCBC Group in early 2010. The Bank of Singapore, which he heads, is an OCBC subsidiary solely focused on the private banking business.
Emerging markets
De Guzman said the Bank of Singapore was still upbeat on emerging markets.
“The growth rates are still there. The banking system is healthy. In terms of debt side, default rates are low and expected to remain low so I think there will still be more debt issuance. And then the debt to GDP (gross domestic product) is very low. Foreign debt against foreign reserves is very low. The fundamentals are very strong,” he said.
The Bank of Singapore has an “overweight” rating—or a recommendation to accumulate more assets than prescribed by the benchmark—on equities and high-yield emerging market debt.
“Even with the volatilities, there’s a lot of opportunity to buy,” he said.
PH stocks ‘very expensive’
In equities, De Guzman said his bank favored the US and China. In the case of China, he said valuations were very attractive.
On the other hand, stocks in the Philippines and Indonesia have become “very expensive,” he said.
Speaking at the BNY Mellon forum, De Guzman said private banking clients are demanding more risk management knowhow from their bankers and have become more selective in investing. They have also started doing business with multiple institutions instead of choosing just one.
Private banking clients now also favor simpler, more liquid assets and are giving a higher allocation to cash.
“They want more diversification,” he said, adding this meant that private bankers would have to offer “more tailored” solutions to high-net-worth clients.
Desmond Mac Intyre, president and CEO of Standish Mellon Asset Management Co., said investors were still chasing yield and in the past two years have been moving funds to emerging markets on a “strategic” instead of “tactical” basis.
“Ultimately it’s not a short-term phenomenon. It (emerging market) will be a structural asset class,” he said.
Whether it’s a central banker or a pension fund, investors will continue to turn to emerging markets as they focus on their liability management, said Mac Intyre.