Marcos Recovery Plan Gives Boost to Philippine Peso, Stocks

(Bloomberg) -- Philippine stocks and the peso rose after the nation’s President Ferdinand Marcos Jr.’s pledge to pursue “prudent” fiscal management and press ahead with tax reforms. 

Marcos, in his maiden state-of-the-nation speech on Monday, said he aims to raise revenue and sustain infrastructure spending at 5% of gross domestic product to spur annual economic growth of up to 8% from 2023 through 2028. The Southeast Asian nation is targeting to expand the economy by 6.5% to 7.5% this year.

The country’s benchmark stock index advanced as much as 0.4% Tuesday before closing 0.2% higher while the peso jumped as much as 1.5%, the most since November 2007.

The Philippine Stock Exchange Index has slumped more than 17% from its peak in February as a weakening peso, combined with rising interest rates and elevated inflation, spooked investors. The policy direction, however, provides a clear and positive path for Philippine’s equities in the next six years and may deliver an attractive payback for those buying stocks amid the current downturn, analysts said. 

A gauge of the nation’s biggest listed holding companies, which are expected to benefit under Marcos’ policy focus, led gains among sectoral measures. JG Summit Holdings Inc. and Aboitiz Equity Ventures Inc. climbed at least 2.3% each. Energy stocks such as ACE Enexor Inc. and Aboitiz Power Corp. also advanced as Marcos pushes for solar power and an expansion of the local natural gas industry to bring down power costs and boost the nation’s energy sufficiency.  

Still, some analysts are hesitant about Marcos’ broad economic policies. “There is cautious optimism but given the headwinds and until it materializes, it may be too soon to tell,” said Robert Dan Roces, chief economist at Security Bank Co. in Manila. 

Marcos asked Congress to prioritize laws to right-size the government, raise agricultural productivity, attract investments and expand the nation’s power supply by increasing renewables, back the development of the natural gas industry and explore nuclear plants. He also wants financial assistance extended to distressed enterprises critical to the economic recovery. 

Meanwhile, Philippine central bank Governor Felipe Medalla narrowed the options for the next policy decision to a quarter or half-a-point interest-rate increase, after the bank earlier this month delivered a surprise, out-of-schedule 75-basis-point increase on its benchmark overnight borrowing rate to 3.25%

Here is what analysts are saying:

Carlos Temporal (AP Securities)

• The speech “eased some of the uncertainties over what Marcos will do” and if the negative external factors can be isolated, stocks will respond positively
• Marcos’s statement that there will no longer be any lockdowns amid the pandemic removes an overhanging uncertainty
• Marcos said what the market wanted to hear, and it’s a “clear roadmap” for investment decision and for investors to gauge his administration
• Renewable energy, Internet-related ventures will be among some of the businesses with “bright prospects” based on Marcos’s pronouncements
• His determination to pursue the private sector as a partner for public investments would be favorable for conglomerates and infrastructure and construction-related stocks such as Ayala Corp., DMCI Holdings, Metro Pacific and cement companies

Jonathan Ravelas (eMBM Services)

• “It is well thought out and full of promises. It’s a very broad-based speech and has identified sectors that will be his focus such as agriculture, technology, healthcare, energy, education, tourism and infrastructure”
• “If all his plans are done, the main beneficiaries will be the real-estate sector and consumers as property values and per capita income will rise”
• Marcos has provided a clear course for recovery from a “difficult time,” which is enough reason for some investors to make a “long-term bet”
• “If you are confident this will be achieved, this could be the time to buy when there are still dark clouds above”

Cristina Ulang (First Metro)

• “Investors should welcome and cheer this policy direction. His policies are very defined and clear. It’s definitely pro-growth and pro-business”
• “Investors will like his continuity on policy reforms and emphasis on the basics, like water supply, energy, food security and infrastructure. It is a big assurance for the market”
• Investors will also like that he will continue with private-sector partnership for infrastructure projects, ensuring this will work by amending investment laws
• Based on the sectors that Marcos wants to focus on, some areas of opportunities are in infrastructure, transport, energy, healthcare and the agro-industrial value chain
• Conglomerates and holding companies are in a position to benefit from Marcos’s roadmap as they are exposed in multiple industries and have the financial capability to partner with the government

Read More: Marcos Bats for Digital Tax, Solar Power in 8% Growth Push

Other highlights of Marcos’s Roadmap:

• At least $4,256 income (GNI) per capita and the attainment of upper-middle-income status by 2024
• Less than 60% national government debt-to-GDP ratio by 2025
• 9% or single-digit poverty rate by 2028
• Disbursements for 2022 to 2023 will be maintained at above 20% of GDP, or 4.96 trillion pesos and 5.09 trillion pesos, respectively, to ensure implementation of priority programs

(Adds details on central bank rate deliberations)

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