September 12, 2024 | 12:00am
MANILA, Philippines — The Philippines will likely benefit from a renewed wave of investor interest if the country is re-included in JP Morgan’s widely tracked emerging markets bond index (EMBI), according to Metropolitan Bank & Trust Co. (Metrobank).
In a report, Metrobank chief economist Nicholas Mapa said talks between government officials and JP Morgan are a positive sign, suggesting that the country may have a more significant presence in the index.
“The return of the Philippines to any potential bond index would translate to increased foreign investment flows. This is important because it could bring more foreign money into the Philippines,” Mapa said.
He said that when a country is included in bond indexes, investors who follow them closely often buy bonds from that country.
For example, if the Philippines was given a five percent share in the index, investors might also put about five percent of their funds into Philippine bonds, he said.
“Given that investment houses that track the index would be required to hold a fixed percentage of Philippine investment products, this could suggest that investor flows would be less volatile and more ‘sticky’. These funds will be more likely to stay in place for a longer time,” Mapa said.
With stickier funds for as long as the Philippines remains in the index, trading volatility is minimized, which could translate to a stronger peso, Mapa said.
“Given all of the positive attributes of the Philippine economy such as relatively upbeat growth prospects and moderating inflation, we believe the potential return of the Philippines to a bond index simply acts as a validation of the attractiveness of the country as an investment destination,” he said.
Finance Secretary Ralph Recto earlier said the Philippines is working on being added back to JP Morgan’s bond index after it was removed due to lower liquidity. This is to encourage more participation from foreign investors.
Recto had said this could lead to about $10 billion to $12 billion in new portfolio into the government bond market.
The EMBI is a widely recognized benchmark index that tracks the performance of sovereign and quasi-sovereign bonds issued by emerging market countries. It includes government bonds that are denominated in major foreign currencies, typically the dollar.
The index is used by global investors to assess and manage their exposure to emerging market debt.
However, Mapa said there are hurdles to the re-inclusion such as tax issues, market liquidity and benchmark securities. These challenges may take time to address.
“India’s recent inclusion into a bond index finally occurred after a gestation period?of roughly two years, so we do see the Philippines’ inclusion as more of a 2026 story,” he said.
Still, if the inclusion does happen, more opportunities will open up for the economy and for investors, he added.
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