January 11, 2022

First Metro Investment Corporation expects the prospects of the Philippine economy to be brighter in 2022 after nearly two years of grappling with the pandemic.

First Metro president Jose Patricio Dumlao said, “Last year the Philippine economy rebounded from a deep recession, registering 4.9% growth in the first three quarters of the year. This growth momentum likely spilled over in the fourth quarter given further economic reopening and easing mobility restrictions. Notwithstanding the ongoing pandemic, and Omicron sparking the third wave of infections, we are still optimistic that Philippine growth will further accelerate and get back on its trajectory of 6-7% in 2022.”

Economic growth will be driven by sustained domestic demand, easing inflation, election expenditures and accelerated government spending on infrastructure projects.

“Business and consumer confidence are also cautiously positive given wider availability of vaccines and relaxation of lockdowns, quarantine measures and mobility restrictions. Our external position remained robust, supported by manageable external debt, steady US dollar inflows from remittances and BPOs, and high gross international reserves,” said Mr. Dumlao.

OFW remittances, which grew by 5.3% from January to October 2021 will likely grow by at least 4% this year.

Inflation remains transitory as it is driven by higher crude oil and food prices. It is, however, anticipated to decelerate faster to 3.5-3.7% in 2022. With lower inflation rate, the BSP is expected to keep policy rates unchanged.

The peso will continue to depreciate slightly due to the strength of the US dollar and balance of trade deficit. It is projected to hover at P51-52 vs the US dollar.

First Metro also has a positive outlook on the capital markets. After a record year for equity capital raising, despite the pandemic, the momentum is seen to persist this year. The debt market will likewise continue to be attractive to issuers as they continue to ramp up their capex for expansion and as liquidity remains high.

Interest rates will have an upward pressure with government borrowing and US Fed actions, tempered by moderating inflation.

The Philippine Stock Exchange index (PSEi) is projected to hit 7,900-8,100 fueled by positive investor sentiment and attractive valuation. Corporate earnings are likely to increase by 35% in 2022 from 28% in 2021 as a reflection of growth acceleration. The local market’s price earnings (PE) ratio will improve in 2022 and 2023 as PEs are expected to fall to 16.9x and 13.9x, respectively.

Stock selection will be critical and investors should focus on stocks that: 1) can withstand inflation and the rising cost of raw materials; 2) will benefit in an election year; 3) have very strong balance sheet; 4) will do well in a high interest rate environment; and 5) have the ability to declare superior dividends.