UCPB Exec: Now best time to borrow and invest
The head of the trust banking unit of one of the Philippines’ largest universal banks advises people that now is the best time to borrow and invest due to a confluence of factors in the local and international markets.
Steven S. Sevidal, First Vice President & Chief Investment Officer of the Trading and Execution Department, Trust Banking Group, United Coconut Planters Bank (UCPB) stressed this point during his presentation on the UCPB Economic Briefing held at a local hotel last June 19.
Mr. Sevidal’s presentation was keyed around 5 Pop Questions often asked by bank clients: the best time to borrow, the best time to invest, impact on investments of the public perceptions of the current president, trends of the local currency and the power situation in Mindanao.
To start, Mr. Sevidal noted how with interest rates still relatively low, it remains the best time to borrow. “Still, it remains the best time to borrow considering where interest rates are now compared to where they were a few years back.”
Since peaking at 2008, interest rates have been trending downward and hit the lowest in 2013, and thereafter it has been headed higher in anticipation of a hike in US interest rates, he said.
“Domestic interest rates are moving higher in anticipation of the hike in US rates and will continue to trend higher,” he noted. This could be partly attributed to the near term weakness of the peso due to the outflow of portfolio funds and in anticipation of a US rate hike.
“We are experiencing a funds outflow due to higher demand for the US dollar,” Mr. Sevidal said. “Thus, the impending interest hike by the US Fed makes dollars more attractive.”
Despite this however, the peso remains relatively strong and stable because it enjoys structural support primarily brought about by the steady USD remittances from abroad and the burgeoning IT-BPO Sector.
“Together, these two sectors alone contributed USD 45.4-billion revenues in 2014 or USD 3.7-B monthly,” he noted. In addition, the country has been enjoying a surplus in its current account dating back to 2003, an improving debt profile brought by the falling debt to GDP ratio and the shift to domestic borrowings vs. foreign denominated loans.
“We have a very manageable fiscal deficit that, in fact, the government is not spending enough that our fiscal deficit vs. GDP has fallen to 0.06 percent last year vs. a target of 2 percent,” Mr. Sevidal said. “Together with our very benign inflation, all these make for a very healthy economy driven by healthy demand.”
The bank executive also downplayed widespread apprehensions that the world could be returning to the USD80-110/barrel of oil milieu.
“Probably not,” Mr. Sevidal said. “OPEC will not cut production, we are expecting more oil from Iran (up to one million barrels of oil a day once it reaches a nuclear deal with the US and its allies) and more oil from Iraq and Libya once the fighting stops. With continued pressure from shale oil in the US, low crude prices are good for the Philippines.”
“We have observed a direct correlation between crude oil prices and inflation in the Philippines; in fact as much as 15% of the country’s consumer price index is directly affected by a movement in the price of international crude, so that’s pretty heavy.”
Although GDP figures from the first quarter of 2015 has been lower than expected at 5.2%, Mr. Sevidal said he expects growth to recover for the remainder of the year due to increased government spending, timing and investments in durable equipment.
“We have the figures to show that government spending always surges a year before elections,” he said. Although public construction fell 24.6% for the first quarter of 2015, infra and capex spending increased by 11%.”
He showed a chart showing a pattern wherein government expenditures surges on the preceding year of the scheduled elections in 2002, 2006, 2009 and 2012.
“My thesis is, most probably, government spending will accelerate in the coming months in 2015,” Mr. Sevidal asserted. “In fact, just two days ago DBM said it has already released 95% of all budgets to all departments.”
Spending in durable equipment has also been rising from 4.0% growth and 12% of GDP in the first quarter of 2014 to 14.3% growth and 13% of GDP in the first quarter of this year.
Another positive aspect of present trends in the Philippine economy is direct relation between public perception of the presidency and aggregate investment.
He exhibited a chart showing how investments rose in the initial years of Pres. Cory Aquino’s term from 1986-90 before dropping in 1991-92. Again, investments rose during the tenure of Pres. Fidel V. Ramos in 1992-1997 before dropping steeply when Pres. Joseph Estrada took over in 1998-2000. The first two years of the Arroyo administration (2001-02) again showed a steep rise in investments before dropping in 2003-09 when controversies rocked her presidency.
“Investments per GDP were highest under FVR at 24.1% but the fastest growth was experienced under President Benigno Aquino III so far with 5.9%,” he stressed.
Not the least, Mr. Sevidal identified important developments including the privatization of the Davao and Laguindingan airports and the Davao Sasa seaport under similar Operations & Maintenance + Upgrading contracts made possible by PNoy’s Public-Private Partnership (PPP) initiative.
Coupled with the imminent normalization of the power supply in Mindanao, Mr. Sevidal said all these are compelling reasons to borrow and invest now, the positive impact on investments of the current president, and favorable trends of the local currency.
As chief investment officer of UCPB’s Trust Banking Group, Mr. Sevidal is charged with advising clients how to manage their investments, keep records, manage assets, prepare court accountings, pay bills medical expenses, charitable gifts, inheritances or other distributions of income and principal.