|
By Likha C. Cuevas-Miel Reporter
DESPITE the US credit crunch and
the resulting economic slowdown, inflation is likely to become the
bigger threat for financial markets in the second quarter, according
to analysts.
In a briefing, Conrado Bate,
Citiseconline president, said that rising food and oil costs will
temper investors’ risk appetite in the coming months.
“We believe the financial
crisis in the US is no longer a threat as it was in the first
quarter. [But] the second quarter is a different story because the
focus would now be on the threat of inflation. Now that the Fed has
cut rates to ward off the threat of a financial crisis, [US monetary
authorities] believe they don’t have the tools anymore [to address
inflation] in the second quarter,” he said.
Earlier, the Bangko Sentral ng
Pilipinas (BSP) said its inflation forecast for this year may have
to be adjusted in light of the soaring oil and food prices in the
international market.
BSP Gov. Amando Tetangco Jr. said
monetary authorities are still reviewing their inflation forecast
particularly the impact of high oil and commodity prices.
The BSP had set an inflation
target of 3 percent to 5 percent this year and 2.5 percent to 4.5
percent next year. After trimming its interest rates in lock step
with the Fed, the BSP put on hold further cuts in its overnight
rates during its most recent policy meeting, citing the risk of
inflationary pressures building up.
“They did not say they would
change the tack to tightening but interest rates could slowly creep
up,” Bate said.
Jose Vistan, AB Capital
Securities Inc. senior research manager, said there are already
“signs that interest rates are already bottoming out” as
inflation may hit 6 percent this year. The biggest concern for
investors would then be negative returns from their investments.
An investment strategist for an
insurance firm said that as interest rates creep up, companies may
have to time their capital raising activities carefully and it may
be more prudent for them to issue bonds and borrow from banks than
wait towards the end of the year because cost of borrowing is
getting more expensive.
Jose Pacifico Marcelo, First
Metro Investment Corp. (FMIC) executive vice president, said big
firms that regularly issue bonds or tap their credit lines as part
of their annual financial strategy are those that can afford to time
their borrowings and take advantage of cheaper debt. In contrast,
smaller companies are held hostage by the prevailing market rates
since they do not have the luxury of timing their borrowing or debt
issuance.
Marcelo said companies have yet
to lock in rates, citing the debt issuances that FMIC is arranging,
most of which were triggered by the borrower’s funding
requirements.
Eduardo Francisco, BDO Capital
and Investment Corp. executive vice president, said that it would
make sense for companies to lock in rates now but companies mainly
issue debt or borrow from banks at this time because they cannot
raise funds through the stock market. Slightly rising interest rates
have yet to become a concern, he said.
Financing requirements aside,
inflationary pressures would affect companies’ bottom lines in the
near-term since they cannot pass on higher prices of raw materials
to consumers. Last year, the strong peso proved to be the
country’s saving grace as it rendered oil and other imported raw
materials less expensive.
But this has since changed due to
risk aversion in emerging markets. “They are shifting to dollars
that’s why the peso is so weak,” Bate said.
Given this, brokerage houses may
have to revise or cut their year-end forecasts for the stock market
and they would probably do so in the coming three months. “But
today nobody wants to do it yet,” Bate said.
--With Maricel E. Burgonio
|
