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THE UNITED STATES\u2019 recent credit rating downgrade may advantageous for the Philippines and other developing markets as it could encourage inves<\/span>tors to diversify their holdings.<\/span><\/p>\n \u201cThe US credit downgrade negatively affects the US dollar and US dollar-linked assets but is advantageous for the peso as global funds move towards non-dollar investments, which includes emerging market asset categories. The Philippines is included in the emerging market spectrum,\u201d <\/span>Cristina S. Ulang, the research head at First Metro Investment Corp., stated.<\/span><\/p>\n \u201cIt\u2019s conceivable that the downgrade might prompt some investors to steer away from dollar assets,\u201d Luis A. Limlingan, sales head at Regina Capital Development Corp., mentioned in a Viber message. \u201cThis might create an opening for markets like the Philippines, but any transition would hinge on overarching risk sentiment and how local factors compare with those of other emerging markets.\u201d<\/span><\/p>\n Moody\u2019s Ratings last week reduced the US\u2019 long-term issuer and senior unsecured ratings to \u201cAa1\u201d from \u201cAaa,\u201d modifying its outlook to \u201cstable\u201d from \u201cnegative.\u201d<\/p>\n The credit agency indicated that this downgrade \u201creflects the growth over more than ten years in government debt and interest payment ratios to levels that are notably higher than similarly rated sovereign entities.\u201d<\/p>\n This action stripped the US of its final triple-A designation from the three major credit agencies. In 2011, S&P Global Ratings lowered the US\u2019 sovereign long-term credit rating to \u201cAA+\u201d from the highest investment grade of \u201cAAA.\u201d Fitch Ratings in 2023 also downgraded the nation\u2019s rating to \u201cAA+\u201d from \u201cAAA.\u201d<\/p>\n The Philippines maintains investment-grade evaluations from all three credit agencies. S&P in November of the previous year upheld its \u201cBBB+\u201d long-term credit rating for the nation, one tier below the \u201cA\u201d level grade desired by the government, and upgraded its outlook to positive.<\/p>\n Conversely, Fitch and Moody\u2019s assess the Philippines at \u201cBBB\u201d and \u201cBaa2,\u201d respectively, with stable outlooks, a tier beneath S&P\u2019s rating. Fitch reaffirmed its long-term rating in April, while Moody\u2019s most recent sovereign rating action was disclosed in August 2024.<\/p>\n The Philippines\u2019 manageable debt-to-gross domestic product (GDP) ratio might render it a more attractive option for investors, Ms. Ulang remarked.<\/p>\n The government aims to reduce the debt-to-GDP ratio to 60.4% by the conclusion of 2025, and to 56.3% by 2028. The debt as a fraction of GDP was at 62% by the end of the first quarter.<\/span><\/p>\n BDO Senior Vice-President and Trust and Investments Group Head Frederico Rafael D. Ocampo stated that the fiscal issues highlighted by Moody\u2019s for the rating downgrade could lead to a weaker performance of US assets in the short term as investors seek alternative markets.<\/p>\n \u201cWhile the immediate response following the announcement was a sell-off across most US assets, this move has been partially corrected as investors aim to capitalize on lower valuations,\u201d Mr. Ocampo noted in a Viber message.<\/p>\n \u201cLooking ahead, we expect US-denominated portfolios to underperform following a broader risk-off sentiment in US assets in the near future, particularly if the US government fails to tackle the more systemic challenge of an enlarging deficit funded by increased borrowings.\u201d<\/p>\n Mr. Ocampo emphasized that elevated long-term rates could \u201cexert pressure on portfolios with considerable exposures at the tail end of the yield curve, such as those belonging to insurance companies and pension funds.\u201d<\/p>\n BORROWING COSTS \u201cInvestors may seek higher yields on US government debt to offset the perceived increase in risk,\u201d Mr. Neri mentioned in a Viber message. \u201cThis could affect local corporations in the Philippines with dollar-linked debt, as they may encounter higher borrowing costs.\u201d<\/p>\n However, the increase in interest rates might be minimal as the US\u2019 credit rating remains high, even with the recent downgrade.<\/p>\n \u201cMoreover, local corporations or investors holding US Treasuries could experience a drop in the value of their assets if yields rise, since bond prices generally move inversely to interest rates,\u201d he continued.<\/p>\n \u201cSpillover effects on emerging markets overall might result in increased borrowing costs when there is a demand for higher premiums with heightened risk due to the downgrade pushing rates relatively higher,\u201d Mr. Limlingan added.<\/p>\n Meanwhile, Leonardo A. Lanzona, an economics professor at Ateneo de Manila University, expressed that while the downgrade might induce a shift away from US risk assets, the Philippines may not necessarily be the primary choice for investors.<\/p>\n \u201cGiven that the Philippines is linked to the US, I doubt (there) will be significant investment in the Philippines. Nations that have divested from US assets are more likely to benefit. Canada and Europe might have already done this,\u201d he stated in an e-mail.<\/p>\n \u201cFilipino investors can redirect their investments in different countries, although the choices might be restricted to China.\u201d<\/p>\n Mr. Lanzona added that the US economic concerns flagged by Moody\u2019s would also adversely affect the Philippines.<\/p>\n \u201cThis can result in both real and financial repercussions for the nation. In a real sense, the country will be impacted since the US stands as the top importer for the country.\u201d<\/p>\n The Philippines ought to adopt economic policies that \u201cpromote domestic production and enhance protections for workers,\u201d he asserted, especially amid global uncertainties.<\/p>\n \u201cAccelerating technological innovation within the country and providing greater flexibility for firms and workers should be prioritized,\u201d Mr. Lanzona concluded. \u2014 Luisa Maria Jacinta C. Jocson <\/b>and<\/i> Aaron Michael C. Sy<\/b><\/p>\n
\n<\/b>Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. similarly remarked that rising rates could influence borrowing expenses.<\/p>\n