The Market Monitor Minding the Nation's Business
By Riza Lozada
While foreign groups issued warnings of the possible backlash of the United Nations-backed arbitral tribunal award that favored the Philippines in its maritime dispute with China, the stock market largely ignored these negative views as the bourse index returned to record levels.
The Philippine Stock Exchange index (PSEi) surpassed the 8,000-point level last Friday to post its highest close for the year at 8,030.06, up by 73.92 points or 0.9 percent.
“While Asian markets, including ourselves, benefitted from the positive news abroad, moving past the 8,000 level shows that investor confidence in our market remains high, and provides some early momentum as companies prepare to disclose their mid-year earnings results in the coming weeks,” PSE President and CEO Hans B. Sicat said.
The last time the PSEI was at 8,000 level was in April 14, 2015, when the index closed at 8,056.49 points.
“The attempt to revisit previous highs is a reflection of continued interest in our stock market. Philippine equities remain a favorite among our peers in the region, given their resilience during volatile conditions. Interest is also fueled by the growth prospects of the country, particularly in sectors that are expected to do well, based on the priorities of the new administration,” Sicat said.
The Bank of the Philippine Islands (BPI) Asset Management Research Team said the local stock index continued its uptrend as risk-on sentiment continued despite China’s trade data showing a trade slowdown.
Fitch Ratings said geopolitical risks are expected with the rising globalization, thus, the need to keep an orderly international atmosphere to thwart negative effects.
In a research note, the debt rater said the Philippines-China dispute in the South China Sea highlighted the rising importance of geopolitics on international policy agenda in the Asia Pacific.
”Fitch Ratings believes a shift in the regional and global balance of power means geopolitical risks will remain prevalent in the long term,” it said, adding that the risks “have the potential to cause significant economic and political instability.”
”Diminishing US geopolitical influence and strength in Asia in the past decade, concurrent with China’s efforts to expand its presence, are fundamentally changing the region’s security paradigm,” it said.
Last July 12, the Permanent Court of Arbitration based in The Hague, The Netherlands, came out with its decision on the case filed by the Philippines against China regarding jurisdiction over some islands in the South China Sea.
In a press release, the tribunal said it “found that Mischief Reef, Second Thomas Shoal and Reed Bank are submerged at high tide, form part of the exclusive economic zone and continental shelf of the Philippines, and are not overlapped by any possible entitlement of China.”
It also said China interfered with Philippines petroleum exploration in Reed Bank, purported to prohibit fishing by Philippines vessels within the Philippines exclusive economic zone, protected and failed to prevent Chinese fishermen from fishing within the Philippines exclusive economic zone at Mischief Reef and Second Thomas Shoal and constructed installations and artificial islands at Mischief Reef without the authorization of the Philippines.
”The Tribunal, therefore, concluded that China had violated the Philippines sovereign rights with respect to its exclusive economic zone and continental shelf,” it said.
Mischief Reef is called Panganiban Reef in the Philippines, Second Thomas Shoal is known as Ayungin Shoal, and Reed Bank is Recto Bank.
The maritime dispute between the Philippines and China is among the numerous overlapping territorial claims in the region.
Fitch Ratings cited Vietnam’s claims on the South China Sea as well as territorial disputes over uninhabited islands in the East China Sea between Japan and China, cross-strait issue between Taiwan and China, and the North Korea issues.
Aside from territorial disputes, the debt rater said terrorism and related security risks are also among the issues in the region that affect drivers of economic growth.
It said recent geopolitical risks in Asia “have largely been constrained” but pointed out that “potential economic implications could be severe in the event of a sudden escalation.”
”Tensions between states could lead to impaired bilateral trade and investment and, depending on the severity, could affect investor confidence,” it said.
Fitch Ratings said these developments “are not currently a direct ratings driver for sovereigns in the region.”
It said developments in Europe, like the Brexit, would also have an impact on Asia’s markets and economies.
In a research note, ING Bank chief economist in Asia Tim Condon issued a warning about an economic retaliation from China. He said “an official boycott” that would reduce Philippines exports to China “to zero would be a significant negative growth shock” for the Philippines.
He explained that exports account for 48 percent of the Philippines domestic output, as measured by gross domestic product (GDP) “so simple arithmetic puts the size of the shock at 6 percentage points.”
He said that although this would also result in lower imports from China, the “closure of the China market would be bad.”
”Netizens take their cue from the government, however, and the baseline is that cooler heads will prevail and trade relations will go on as before,” he added.