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‘No more reason to fear asset bubbles’

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Concerns were centered that cheap money will be withdrawn and that interest rates will soon go up in the US, prompting investors to pull out their emerging market portfolios back to the world superpower.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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