The domestic bond market is expected to sustain its growth this year driven by government debt issuances to fund its huge expenditures amid falling revenues and the return of companies in the bond market.
Jean De Castro, head of the Fixed Income of Manulife Asset Management and Trust Corporation (MAMTC), in an email interview with Business Bulletin cited the government’s P2.6 trillion Four Pillar Socioeconomic Strategy against COVID-19.
“The Philippines’ economic slowdown has resulted in lower tax revenues, and this shortfall is partially funded by debt issuance, both local and foreign,” said De Castro. She noted that the domestic bond market grew by 28.9 percent in 2020, driven by government borrowings to raise funds for the pandemic.
Aside from government issuances, corporate bonds are also expected to return to the market following a decline in 2020 as the local companies grappled with the pandemic and its effect on its growth and expansion plans.
“For 2021, we have seen more corporate bonds issuances in the pipeline, as companies prepare for less mobility restrictions, and as the Philippines receives vaccinations and opens more sectors of the economy. Majority of the corporate issuances in the pipeline for 2021 belong to the financial and utilities sector,” said De Castro, In 2020, who was recognized by The Asset Benchmark Research Review as one of the Philippines’ most astute investment professionals.
The outlook for Philippines going returning to the global bond market also looked positive. She noted that the Philippines’ Samurai and Euro-denominated bonds were well-received by the global bond markets, with demand overtaking defined issuance size. It was a prudent move for the government to issue foreign currency bonds at the time that global investors are searching for yield.
She explained that while bond issuance is also a form of debt, it is an avenue for the government to finance its expenditures and projects. Taxation is another potential source of funding. However, it can be argued that taxation could create distortionary effects on economic growth. Public debt can either positively or negatively affect the local economy, depending on the amount of debt and its purpose, among others.
However, since the strength and riskiness of each country is different, the debt-to-GDP ratio and its effects on the economy will vary depending on each situation.
Overall, she expects a recovery of the Philippine economy this year although the elevated number of daily COVID-19 cases coupled with the lockdown in the National Capital Region Plus areas and the slow rollout of vaccines will weigh heavily on the overall growth and our return to pre-COVID GDP levels.
“However, we do expect the second half of 2021 to be an area of faster growth, contained inflation and hopefully vaccination of a larger portion of the population to support our economic recovery,” De Castro said.
However, she said that recovery across Asia has been varied with Philippines ending 2020 at 12 percent below its pre-COVID GDP. To compare, Thailand and Malaysia were 8 to 9 percent below trend, with China and Taiwan just slightly falling short (0.5% and 0.2% respectively) of their pre-COVID GDP trend.
For Manulife Asset Management and Trust Corp., which is part of Manulife Investment Management, the global wealth and asset management arm of Manulife, it is committed to help more and more investors to achieve their financial aspirations through innovative solutions for managing their wealth.
“We are working on developing more differentiated offshore strategies that meet varied investment objectives and risk profiles. All our offshore strategies are available in both US and PHP share classes, making it accessible to many investors,” De Castro said. This year, the company launched the first Global Healthcare Feeder Fund, an equity feeder unit investment trust fund (UITF) that provides investment opportunities in healthcare-related companies listed globally. This was followed with an income-paying fund, the Global Multi-Asset Diversified Income Feeder Fund, unit-paying unit investment trust fund (UITF) that aims to generate high and stable income from multiple sources, offer diversification with a globally unconstrained approach to meet an optimal risk-reward profile, and buffer market downsides via a flexible investment mandate that pivots for income.