By Prinz P.
Magtulis (The Philippine Star) | Updated June 20, 2013 - 12:00am
MANILA,
Philippines - There is no more reason to fear asset bubbles in the Philippines
after sharp corrections in recent weeks pulled down stock market valuations
while a backlog in the real estate segment remains a problem, an economist
said.
“Should we be
afraid of asset bubbles? The answer is not anymore because the US and Japan
have done the pricking of the bubble for us,” said Victor Abola, senior
economist at the University of Asia and Pacific.
“It would
take a while before risk appetite increases and this has a very healthy effect
on us,” he said in a forum yesterday.
An asset
bubble is characterized by sharp increases in asset prices, whether financial
or tangible assets, on projections of fake demand.
Over the past
weeks though, financial markets plummeted in value on fears the US Federal
Reserve would scale down its stimulus measures that have flooded the world
economy with cheap money for the past five years.
Concerns were
centered that cheap money will be withdrawn and that interest rates will soon
go up in the US, prompting investors to pull out their emerging market
portfolios back to the world superpower.
For Abola,
the Philippine Stock Exchange index (PSEi) could recover some of its lost
ground by the second half, likely ending at 7,200 points by year-end, up 23.4
percent. Yesterday, the local bourse closed 5.57 points lower at 6,513.20.
Local
investors will still drive the market, which hit as high as the 7,400-level
this year, supported by the country’s sound fundamentals.
Based on
Abola projections, economic growth could hit 7.3 percent this year on the back
of below-target 2.8 percent inflation and a peso that could weaken between 41
and 43 to a dollar.
“I believed the floor was already reached at
6,100 and in a matter of days, you will see it (PSEi) reach 6,500… Remember if
there are sellers, there should be buyers and buyers are local,” he explained.
“If you are
looking for yields, the stock market will still be a good investment,” he
added.
As for the
real estate sector, Abola shared the view of policymakers that the backlog in
residential houses should be enough reason why fears of asset bubbles are
unfounded.
With the
current backlog of 3.6 million, and annual production of just 250,000 homes,
Abola said “there is a lot more room for housing to grow.” In effect, “that
will be a very good driver for the economy,” he added.
He warned
though that the high-end of the real estate market is now “saturated” and that
investing in that particular market segment may be “dangerous.”
In a related
development, Nomura economist Rob Subbaraman said equity markets in Asia will
recover once investors get a clear signal from the US Fed on the fate of its
quantitative easing measures.
“We believe that the market sell-off in Asia
excluding Japan is simply a healthy short-term correction, not the start of a
bear market,” Subbaraman said in a research note yesterday.
“After
correction, if investors remain more discerning about macro risks, there will
be more differentiation across Asia,” he added.
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