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March 27, 2013 9:51 am
The Philippines has won its first investment-grade rating, the latest sign of confidence in one of Asia’s fastest-growing economies.
Fitch said on Wednesday it had raised its rating for Philippine government debt from BB plus to BBB minus, making it the first rating agency to upgrade the country to investment grade.
Fitch highlighted resilient growth, improvements in fiscal management and successful efforts from the central bank in controlling inflation as contributing factors for the rating change. It added that the country’s strong external balance sheet was more consistent with an A rating, than with those of BB or BBB peers.
Trinh Nguyen, economist at HSBC, said the upgrade was “not much of a surprise. The government has made a lot of positive progress and the international community has taken notice. The country has a lot of strong fundamentals.”
However, Fitch cautioned that the Philippines lagged behind the standard for BBB-rated countries on measures such as per capita income, tax revenues and governance levels.
The Manila stock market has been among the world’s best performers over the past 12 months, rising more than a third and reaching multiple fresh record highs in the process. The index has risen 18 per cent this year alone, making it the fastest rising emerging market in the world, as defined by MSCI.
Catherine Yeung, investment director at Fidelity, said that while the run-up in equities had made the Philippines a “very crowded trade”, the economic fundamentals meant that the country was still “very, very attractive” for investors.
Meanwhile, the Philippine peso has been Asia’s best performing currency over the past year, gaining 5 per cent against the US dollar, 9 per cent against the euro and 20 per cent against the Japanese yen.
Anticipation of an upgrade and low global interest rates have helped push government borrowing costs down rapidly. Yields on the 10-year benchmark Philippine sovereign bond have fallen from 4.7 per cent yield in October last year to 3.5 per cent, a move that should fuel future growth in investment.
“Infrastructure remains quite weak – it ranks among the lowest in Asia,” said Ms Nguyen. “Attaining this investment grade will allow the government to access cheap and sustainable funding [to help fund infrastructure development].”
The Philippines follows in the footsteps of Indonesia, which secured investment-grade status in January last year with upgrades by Moody’s and Fitch.
A rating of BBB or equivalent by two of the three major international agencies enables fund managers who target investment-grade bonds to buy a country’s debt. Both Moody’s and Standard & Poor’s currently rate the Philippines as junk.
The Manila benchmark equity market rose 2.8 per cent on Wednesday following the announcement from Fitch.
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