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Intelligent Investing

More signs the PH economy is recovering

/ 05:10 AM August 19, 2019

I admit, my column last week discussing why I remain bullish on the Philippine stock market was poorly timed. After all, the Philippine Stock Exchange index (PSEi) has been very volatile in recent weeks, falling by 0.7 percent just last week, making the readers think, “Is she just writing that because stock brokers need to be bullish all the time?”

Nevertheless, after much thought, I’m maintaining my positive view on the stock market. The strongest argument I have for staying positive is the abundance of indicators pointing to the country’s economic recovery, which I believe will result in stronger corporate earnings.

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Here are some of those indicators:

Bank lending rates down. Last week, I received a call from my friendly banker announcing they had cut their 5-year fixed mortgage rate to 6.8 percent from 8.5 percent. Other banks have also reduced their mortgage rates.

The mortgage rate of 6.8 percent is almost back to the level before inflation shot up last year, which was the main reason why lending rates went up. Lower rates should make purchases of big-ticket items like cars and houses more affordable. Lower borrowing rates should also make it more attractive for businesses to pursue investments, helping the economy grow faster.

Time deposit rates down. From a peak of 5.5 percent during the second quarter, the highest time deposit rate for a 30-day placement is now down to only 3.68 percent. It could go down further as Bangko Sentral ng Pilipinas Governor Benjamin Diokno already hinted the central bank would further reduce banks’ reserve requirement ratio by the end of the year.

High time deposit rates earlier this year hurt appetite for more volatile investments like stocks as investors opted to place their money in time deposits that provide guaranteed returns. In fact, the mutual fund industry suffered from a net redemption amounting to almost P13 billion of non-money market funds during the first half of this year, eclipsing the P4-billion net redemption registered for the whole of 2018. Given lower time deposit rates, appetite for stocks should recover.

Vehicle sales up. After falling in 2018 and the first quarter of 2019, domestic vehicle sales began to recover in April and is already up by 3.2 percent to 205,945 units by end-July. In fact, for the April to July period alone, total vehicle sales were up already by 6.1 percent to 120,557 units.

Restaurants’ same-store sales growth picking up. During the recently concluded first half earnings season, all three listed restaurants (Jollibee, Shakey’s and Max’s) reported faster same-store sales growth in the second quarter of the year and for the month of July. This is after reporting dismal same store-sales growth in the first quarter. Coupled with improving vehicle sales, rising restaurant same-store sales growth is an indicator of improving consumer confidence as inflation has been on a downtrend after peaking late last year.

I admit, not all is perfect, especially as conditions overseas continue to deteriorate. However, Philippine companies that cater to the domestic market should be more resilient, especially since our government has money to pump-prime the economy this time around.

Although I might not be the best person to ask if the stock market has already hit the bottom, I can confidently say that the magnitude of the Philippine stock market’s current drop is unwarranted based on domestic fundamentals. After all, the local market’s sell-off this August was triggered by external developments such as disappointment over the Fed’s lack of commitment on future rate cuts, increasing trade tension between the United States and China, and contagion from the weak performance of global markets.

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Nothing has changed as far as the Philippines is concerned.

Although the performance of the PSEi could get worse before it gets better, the intelligent investor should already be mentally prepared to buy this correction.

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