‘The secondary market for bonds has shown some decline in interest rates, swaying investors from investing in debt instruments to equities. That’s already a signal that we’re starting to price it in; if the BSP cuts rates, there will be interest again in the stock market.’
BDO Capital & Investment Corporation believes investments in equities and riskier assets could rise next year as some analysts see several cuts in interest rates by the Federal Reserve in 2024.
The corporation's president Eduardo Francisco said the secondary market for bonds recently showed some decline in interest rates which sways investors from investing in debt instruments to equities.
"That's already a signal that we're starting to price it in. If the Bangko Sentral ng Pilipinas cuts rates, there will be interest again in the stock market," he said.
The BSP kept its policy rate at 6.5 percent on Thursday as bond rates of short-term debt papers settled below 6 percent.
Latest data
PHP BVAL's latest data for the secondary market showed that the average rate of three-month papers rose to 5.3748 percent from 5.2780 percent, while the six-month papers also fetched a higher rate of 5.3891 percent from 5.3706 percent.
Similarly, the rate for the one-year papers rose nto 5.9732 percent from 5.8498 percent.
"From the bond issuers' perspective, they will not want to issue bonds as they will wait for the interest rates to go down. But this means equities will become attractive and help firms push through with their initial public offering," Francisco said.
However, he said the BSP might opt to keep its policy rate elevated for several months next year to match the level of the US Federal Reserve in order to keep healthy levels of foreign investments and foreign exchange.
Interest rate differential
"If the BSP cuts its rate ahead of the Federal Reserve, the peso will depreciate and the interest rate differential will widen which hurts exporters, BPO workers, and overseas Filipino workers," he said.
Reuters reported some officials of the US central bank expect rate cuts by up to three quarters of a percentage point next year, following a pause in rate hikes this week which maintained its overnight interest rate at 5.25 to 5.50 percent.
Thus, Francisco advised investors to lock in bonds to take advantage of the still elevated rates before they possibly decline within next year.
Considering cryptocurrencies again
Aside from bonds, Francisco said investors are again considering modern assets like cryptocurrencies which further supports economic growth next year.
"There is already a shift back to the riskier assets like Bitcoin because businesses were struggling or closed in the past," he said.
However, Francisco said investors must be highly cautious of cryptocurrencies as several traders have been shut down by the central bank due to scam schemes.
Instead, he advised the public to study opportunities in equities of emerging markets. "Equities in emerging markets have better economic stories," he said.
S&P Global Ratings said many countries in Asia have maintained the minimum investment grade or better-than-average outlook due to their robust economies and manageable debt-to-GDP ratios.
