What S&P ratings upgrade means to PH stock market

Posted at 05/09/2014 5:13 PM

MANILA – The Philippine Stock Exchange index (PSEi) surged to a new high on Friday following a ratings upgrade from Standard & Poor’s.

The PSEi closed at 6,847.26, setting a new high since June 2013.

Luz Lorenzo, regional economist at ATR Kimeng, said the upgrade is naturally a catalyst for the stock exchange, but warned that prices of Philippine shares are still expensive.

“Even in this level, the market is quite expensive, so we try to never lose sight of that. At our estimated earnings this year, the market is trading close to 20 times, it should be 20 times now given the increase to date so that's expensive for the Philippine market. Now one can argue that we received an upgrade, but it will have to translate to earnings,” she told ANC.

Lorenzo added that earnings growth may see a boost in 2015, but noted that what the upgrade says is that the Philippines is a “long-term growth story.”

“I should say that the S&P upgrade actually says the Philippines is a long term growth story. So we don't talk about the index target for this year and the next, it's a long term growth story and we will see this in the index, we will keep hitting new highs looking forward,” she said.

Gus Cosio, president of First Metro Asset Management, said that while the upgrade came as a surprise, coming only a year after S&P raised the Philippine sovereign debt rating to investment grade, it is inevitable because of the economy’s growth in the past few years.

“The way the country is behaving over the past few years, it doesn’t surprise me that the risk perception of the country is much better than it has been over many, many years,” he said.

Cosio also said the ratings upgrade recognized the stability of the Philippine economy, which has been steady despite negative factors, including the Asian financial crisis and natural calamities.

“This economy has been quite resilient over many years, it’s just that nowadays, we are seeing it being translated to solid financial numbers. We have good international reserves, we have very positive payments flows, and the domestic economy is doing well,” he said.

S&P upgraded on Thursday the Philippines' long-term sovereign credit rating to "BBB" with a stable outlook from "BBB-".

"We expect ongoing reforms on a broad range of structural, administrative, institutional, and governance issues to endure beyond the term of the current administration," S&P said in a statement.

S&P expressed optimism that the Philippines' gains in revenue generation, spending efficiency and improvements in public debt profile and investment environment will be continued by the next administration.