First Metro: PH economy to turn around from the gloom of 2020

January 14, 2022

First Metro Investment Corporation, the investment banking arm of the Metrobank Group, is cautiously optimistic for the recovery of the Philippine economy in 2021.

First Metro president Jose Patricio Dumlao said, “We experienced one of the worst years in 2020, and yet we have lived through it. Our country’s resilience comes as no surprise. As we have proven time and again, we can survive calamities and crises and emerge victorious in the end. Even in the midst of the pandemic, private companies were able to raise an unprecedented amount of US $8 billion in the offshore market. Our GIR (dollar reserves) hit an all-time high, supporting the peso. OFW remittances and the IT-BPO sector also defied bleak expectations. Considering what we have achieved despite the odds, we expect the Philippine economy to rebound in 2021.”

After contracting 10% for the first three quarters last year, the country’s GDP returns to positive territory and will expand by 5.5-6.5% underpinned by OFW remittances, which are expected to increase by 4-6% this year and government spending, geared towards its program of Reset (health), Rebound (infra), Recover (skills upgrading), as well as its market reform initiatives (Bayanihan 2, GUIDE, FIST, and CREATE) designed to reinvigorate the economy.

Other factors that will boost growth are the mild inflation rate of 2.7% and the completion of big-ticket projects, which include the Metro Manila Subway, North rail, SLEX-Extension, NLEX-East, MRT-7, and Connector-2, easing traffic conditions in NCR. The roll-out of the vaccine and a more focused and localized restriction will likewise improve the country’s economic performance in 2021.

Economic expansion will also be reinforced in the fiscal space by the declining debt-to-GDP ratio and interest-to-total National Government expenditure in the past years. The less daunting external environment with the International Monetary Fund (IMF) being less pessimistic of recovery despite the second wave of COVID-19 infection also bodes well for a faster recovery.

After slumping to -11.1% year-to-date November 2020, exports are expected to perform better this year at 15-18%, while imports will be at 20-24% range, compared to its disappointing performance of -24.5% for the same period. The peso will depreciate slightly because of the stronger demand for imports. It is projected to trade within P49-50 to a dollar.

Interest rates will remain low and expected to move within a tight range (+/-25 bps) from the current levels, depending on how quickly economic recovery gain momentum and the further accommodative measures from the BSP as it can still afford further policy rate cuts.

With the vaccine roll-out, corporate earnings recovery, market reform initiatives, and the foreseen return of foreign funds to emerging markets in Asia, the expectation for the benchmark Philippine Stock Exchange Index (PSEi) is very bullish and constructive. The PSEi is anticipated to hit the range of 7,800 to 8,100. Price earnings ratio (PE) is projected around 18x-19x this year. Corporate earnings will rise to 24%, and can even go as high as 29% with the enactment of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill.

Stock picking in investment should be very selective with preference for stocks with strong balance sheet, good earnings prospect, below market and below sector average valuation, and good dividend paying capability.

In the debt capital market, First Metro sees that 2021 is the strategic time to come to market as the low-rate environment will be maintained, if not, further reduced to spur growth. The interest in offshore bond issuances will be sustained as rates in global markets remain low and liquid. In the equity capital market, more listings – IPOs both in the main board and SME board, REITs, and follow-on offerings – are expected this year as markets stabilize and investor demand grows strong.