July 19, 2023

First Metro affirms the strength of the Philippine economy amid persistent global uncertainty and volatility.

First Metro president Jose Patricio Dumlao said, “Amid a challenging global environment, the Philippine economy has demonstrated remarkable resilience. In the first quarter of this year, we achieved robust growth of 6.4%, outperforming our peers in the region. This is a testament to the strength of the country’s macroeconomic fundamentals. We continue to be optimistic and we believe that the GDP will expand by 6.1% this year, as we expect strong domestic demand to remain a key driver of growth. This positive momentum will be supported by prudent fiscal management, heightened infrastructure spending, and enhanced business and consumer confidence.”

Driven by higher employment rate, consumer spending increased by 6.3% year-on-year. The employment level for April and May (year-on-year) registered above 5% and unemployment rate continues to fall, further reinforcing the expectation of elevated consumer spending.

The 12.1% increase in the budget of the Department of Public Works & Highways will ensure continuation of major infrastructure projects across the country. Furthermore, with the revised Build-Operate-Transfer (BOT) implementing rules and regulations becoming more investor-friendly, there are public-private partnership (PPP) projects that are expected to commence. The revised Public Service Act, aimed at limiting “public utilities” to the bare minimum, is expected to encourage foreign investors to participate in sectors such as airports, electricity generation, and distribution. These developments highlight the country’s commitment to enhancing its infrastructure and attracting foreign investment in key sectors.

With weaker crude oil and food prices, inflation will decelerate faster. It is projected to average 5.5% and hit the BSP’s target of below 4% by the end of the year.

OFW remittances, which grew by 2.8% to USD2.494 billion in May, will likely increase by 3% to 5% this year. The top 10 countries of origin, which accounted for 79.3% of total cash remittances, include the United States, Singapore, Saudi Arabia, United Arab Emirates, Japan, United Kingdom, Canada, Qatar, Republic of Korea and Taiwan.

After reaching its all-time low in September 2022, the peso has maintained a relatively stable level this year. However, the volatility of the peso is expected to continue due to a widening trade deficit, with projections indicating a trading range of P56-58 against the dollar. Despite this volatility, it still holds positive implications for the Philippine economy, benefiting approximately 70 million Filipinos.

Given the pause on BSP rate hikes, interest rates are projected to fall by about 10 to 20 basis points across the yield curve.

In the debt market, as inflation decelerates and interest rates are expected to follow suit, issuers are strategically positioning for the last quarter of 2023 and the first quarter of 2024.

In the equity market, investors can anticipate a promising landscape in 2024 with the return of IPOs and REITs, offering potential investment opportunities. This is from a combination of lower interest rates and good equity values resulting from strong corporate earnings growth, providing upward momentum to the PSEi.

The second half of the year presents a favorable buying opportunity and accumulating assets in preparation for a significant recovery towards year-end and the first quarter of the following year. The Philippines Stock Exchange Index (PSEi) is projected to reach a range of 7,300 to 7,500, supported by robust earnings per share (EPS) growth of 13% to 15% and a price-to-earnings (PE) ratio between 13.5x and 14x. This anticipated rally will be fueled by expected interest rate cuts from both the Federal Reserve and the BSP as inflation subsides.

In terms of investing strategy, it is advisable to prioritize companies with low leverage, demonstrating strong balance sheets, ample liquidity, and minimal debt. Additionally, focusing on low volatility stocks that exhibit dividend growth, affordable valuation providing a margin of safety, and cyclical industries with high profitability, excellent return on equity (ROE), pricing power, and dominant market share would be beneficial.