Phl resilient to effects of US monetary easing

MANILA, Philippines - Emerging markets (EM), including the Philippines, could withstand the withdrawal of stimulus funds that has kept the US economy afloat without worrying about the occurrence of a credit crunch, a debt watcher said.

“Fitch does not anticipate widespread EM credit distress owing to a secular improvement in credit fundamentals, which reduces risk from tighter global liquidity, higher interest rates and foreign exchange risk,” the credit rater said in a report late Monday.

In its Mid-year Sovereign Review and Outlook, the New York-based agency said the recent market volatility was a “natural” reaction of investors to the possibility the US Federal Reserve may taper off its bond purchases.

Last month marked a massive sell-off in Asian financial markets after investors took their from Fed Chairman Ben Bernanke, who said should signs of US recovery strengthen, the monthly $85-billion quantitative easing (QE) may stop “later this year.”

In the short-term, Fitch said what happened in emerging markets was a healthy correction, noting that prior to the volatility, policymakers were worried of “excessive” capital inflows and asset bubble formations.

“The Fed’s early move may in the long term be better for EMs by taking some froth from the top of the market, slowing the pace of hot money capital inflows, easing the pace of credit growth and preventing a misallocation of risk…,” Fitch explained.

Should the volatility worsens though, the agency said credit would still be supported as developing nations continued to have the arsenal of foreign exchange reserves and “flexible” foreign exchange regimes.

Debt maturities were also lengthened in most territories, Fitch said, easing strains that may occur from the need to settle borrowings that came with the QE-led credit boom. Most liabilities are also funded locally.

Finally, inflation has declined, providing room for central banks to respond by allowing healthy lenders to give out credit.

“Most EMs showed impressive resilience in coming through the stresses of the global financial and euro zone crises,” the agency said.

Nevertheless, Fitch said an end to QE would still “adds to worries over slowing EM growth.”

“Several large EMs are experiencing strains from spillovers from advanced economies and China, difficult policy trade-offs, a declining impact from credit growth and structural bottlenecks,” the credit rater pointed out.

Based on Fitch’s estimates, growth in emerging markets will continue to “outstrip” that of advanced economies. For 2013, the former is seen to grow 4.8 percent against the latter’s 0.9 percent.

In 2012, developing nations grew by an average of five percent, while their developed counterparts expanded one percent.