Philippine stocks, the peso and government bonds gained after the nation’s debt rating was raised to its highest level since 2003 by Standard & Poor’s.
The Philippine Stock Exchange Index advanced 0.3 percent to a record close of 5,369.98 in Manila, extending this year’s gain to 23 percent. The peso climbed 0.4 percent to 41.68 per dollar, near a four-year high of 41.60. The long-term foreign currency-denominated debt ranking was increased one level to BB+ from BB, S&P said in a statement yesterday. That’s one step below investment grade and on a par with neighboring Indonesia.
The endorsement will help President Benigno Aquino as he boosts government spending to a record this year and seeks $16 billion of investment in roads, bridges and airports to shield the economy from Europe’s debt crisis. Developing nations from Brazil to Indonesia have won upgrades in the past year as governments reined in budget deficits.
“It’s a confirmation of what the market expected,” said Rajeev De Mello, the Singapore-based head of Asian fixed-income assets at Schroder Investment Management Ltd. “It would be positive for the currency as well as external and domestic bonds.”
The yield on the Philippines’ 4 percent dollar bond due January 2021 fell five basis points, or 0.05 percentage point, to 2.77 percent, according to prices compiled by Bloomberg. The notes gained for a seventh day. That on the 6.5 percent peso bonds due April 2021 declined five basis points, or 0.05 percentage point, to 5.13 percent, according to Tradition Financial Services. The rate was the lowest since March 12.
S&P’s move comes after Moody’s Investors Service raised its outlook on the nation’s rating to positive in May, citing improving debt levels. Moody’s still ranks the $200 billion economy at the second-highest junk level. Fitch Ratings raised its assessment to one step below investment grade last year.
“We can now clearly make our case for an investment-grade status,” Finance Secretary Cesar Purisima said yesterday.
The cost of insuring Philippine debt against default dropped four basis points to 150 basis points yesterday, the seventh decline in a row, according to data provider CMA. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a nation or company fail to adhere to its debt agreements.
Bank of Tokyo-Mitsubishi Ltd. forecasts the peso will weaken to 42.00 per dollar in one month, 42.40 in three months and 42.80 in six months.
“At such levels, and in the midst of a slow moving global economic cycle, we’re reluctant to shift our forecasts of the peso too strongly,” Leong Sook Mei, Singapore-based regional head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd., wrote in a research note today. “Official rhetoric is coming in more cautious.”
The peso is up 5.1 percent against the dollar in 2012, the best performance among Asia’s 11 most-used currencies. Central bank Governor Amando Tetangco said on July 4 that the monetary authority is “watchful for signs the speculative part is not overtaking the fundamental flows.”
Aquino plans to narrow the budget shortfall to 2 percent of gross domestic product by 2013 from a target of 2.6 percent this year. The government has stepped up efforts to catch tax evaders and smugglers, and has drawn up bills aimed at increasing revenue to narrow the fiscal deficit. The $200 billion economy grew 6.4 percent in the first quarter, the fastest pace since 2010. Aquino is aiming for an expansion of as much as 8 percent annually to cut poverty.
S&P’s move is “very positive because it promotes the country’s macroeconomic and fiscal context,” said Fitz Aclan, who helps manage 850 billion pesos ($20.4 billion) at Manila-based BDO Unibank Inc. “There could be some upward movement for our sovereign bonds, even our local bonds. This will also be positive for equities.”