MANILA, Philippines – After majority of Britons voted to leave the European Union (EU), the Philippine equities market still looks bright for British banking giant HSBC, as it encourages investors to take advantage of the “risk aversion” scenario by buying more shares.
“The Philippines is quite good. We are ‘overweight’ at this point in time. The impact of Brexit in the Philippines is not very big, as Asia in general does not have a lot of trade going on with the UK,” Herald van der Linde, HSBC head of equity strategy in Asia-Pacific, said during a media briefing in Makati City on Monday, June 27.
“Even for financing, European banks have reduced their presence in Asia,” he added.
Overweight is a recommendation by investment experts to buy stocks in excess of a benchmark index. The opposite recommendation is called underweight.
Last Friday, June 24, the bellwether Philippine Stock Exchange index declined, losing another 100.06 points or 1.29% to settle at 7,629.72.
Meanwhile, the peso depreciated against the dollar, losing 41.5 centavos to P46.950:$1 from P46.535 when the market closed on Friday at 4 pm. (READ: Philippine stocks, peso fall on Brexit victory)
These negative effects are mainly caused by risk aversion, where investors who were taken by surprise cash in their gains, the HSBC investment expert told reporters.
For Cheuk Wan Fan, managing director and head of Investment Strategy – Asia at HSBC, the decline in stocks and depreciation of the Philippine peso against the US dollar last Friday were more of an “overreaction” from investors.
“People shy away from certain markets, and the ASEAN markets are not an exception to that,” Fan said.
But this will not be a long-term effect for the Philippines, according to the HSBC investment experts. (READ: Philippine gov’t on Brexit: Do not be complacent)
“I do think risk aversion will continue, but not in the long term,” van der Linde said. “The Philippines is less exposed compared to other markets.”
On Monday, June 27, Philippine stocks started easing on Brexit concerns, with the benchmark PSEi gaining 86.18 points to close at 7,715.90. The broader All Shares index also grew 45.31 points to 4,587.95.
Remittances to slow down
Although the Brexit’s impact on the Philippines is minimal, van der Linde said the country might see a “slowdown” in remittances from the UK.
“We’ve got our UK GDP (gross domestic product) forecast. We’re not seeing a recession, but we’re not far off. That might well impact your remittances flow into the Philippines,” he told reporters.
The UK accounts for 5.6% of the Philippines’ total remittance inflows. In 2015, the Philippines received $1.4 billion in remittances from the UK. It had a total of $28.5 billion in remittance inflows last year.
Van der Linde, however, said there may be a counterbalancing effect from other countries, accounting for an increase in the money transfers to the Philippines.
“If one region is not doing good, other regions may just pick up,” van der Linde said.
HSBC sees the US dollar strengthening amid the Brexit victory, which means an increase in the value of the funds sent in from the US.
“It is just a counterbalancing effect,” he added. – Rappler.com