Chief economist update: A pretty portrait of an emerging market

Citing Sean Taylor - DWS chief investment officer for Asia Pacific and head of emerging market equities - Financial Standard editor, Darren Snyder, penned a report titled, "Asia, emerging markets to lead in 2019" last week.

"Speaking at the Financial Standard Chief Economists Forum in Sydney yesterday, DWS chief investment officer for Asia Pacific and head of emerging market equities, Sean Taylor, said Asia's debt-to-equity ratio currently sits under 30% - a marked improvement in the past three years."

Ergo, "Asia's debt-to-equity ratio and safer company balance sheets are making a convincing case for DWS to increase its exposure in the region as well as broader emerging markets."

I set out to investigate (fake news or not?). There's no point investigating China, we all know it's in a bear market and is still locking horns with America on trade.

The second biggest loser in the Asian emerging market space - the ones that I track - is the Philippines. The country's benchmark equity market index dropped 12.8% in 2018 at the same time that the peso depreciated by 5.1% versus the greenback over the same period.

Normally, a depreciating currency would boost equity prices. The rationale being a cheaper currency boosts exports and company profits et cetera.

But in the case of Manila, the peso's depreciation compounded the inflationary pressure brought on by rising oil prices (at the time), the TRAIN (Tax Reform for Acceleration and Inclusion) law that took effect on 1 January 2018. Together they erode disposable income.

The Fed's normalisation policy brought more downward pressure on the Philippine peso.

As a result, Philippine inflation surged to nine year highs. Headline CPI inflation jumped to a high of 6.7% in 2018 and core inflation surged to a peak of 5.1%.

Latest data show that the uptrend in inflation is on the reverse, thanks to the Fed's pause - the Philippine peso has appreciated by nearly 1% against the US dollar since the start of 2019 and by 4.3% to P52.08/US$1 from its 2018 low - and the downswing in crude oil prices - Brent oil down by 27.8% from its 2018 high.

Philippine inflation has started to slow - headline CPI inflation eased to 4.4% in the year to January from 5.1% in the previous month; core inflation's softened to 4.4 from 4.7% -- and closing in on the Philippine central bank's inflation target of 3% +/- 1%.

This allowed the Bangko Sentral ng Pilipinas to keep interest rates steady at 4.75% at its 7 February meeting - following five interest rate increases that took the overnight repo rate from 3.0% to 4.75% in 2018.

This is starting to bear dividends. The PSE index has risen by 8.1% this year to date and by 17.9% from the lowest level plumbed in 2018.

It's getting more fun again in the Philippines - an emerging market.

Read more: DWSCPIPhilippinesSean TaylorFinancial StandardBangko SentralBrentErgoManilaPilipinasPSE
Link to something hxdnR0dA