BDO fears PH headed toward deepest recession in 35 years

BDO chief investment officer Fritz Ocampo

The Philippines may be heading to its deepest economic recession in 35 years due to the coronavirus pandemic, but it is during this crisis that investors should be on the prowl for good bargains that they can keep over a longer-term horizon, BDO Unibank’s chief investment officer said.

BDO’s Fritz Ocampo said the Philippine gross domestic product (GDP) may contract by 5.9 percent this year, with the steepest decline likely to be seen in the second quarter, during which the brunt of the COVID-19-related lockdown was felt by consumers and businesses.

“If we are correct and [second-quarter] GDP is minus 15.4 percent or worse than that, expect us to [see the main-share Philippine Stock Exchange index (PSEi)] head towards 5,500 or 5,700,” Ocampo said in a webinar hosted by Alabang Country Club’s diamond committee on Saturday.

“I think that is the factor that is not being priced by the market today. Many forecasts remain quite relaxed, assuming a [GDP] drop of 7 percent in second quarter and a drop of 2 percent full year. I think that is underestimating what happened during the lockdown,” Ocampo said.

For the full year, Ocampo said the PSEi may be capped at 6,500, down by 16.8 percent from last year’s finish of 7,815.

Given that the domestic economy was mostly consumption-led and the tough quarantine protocols largely curbed spending, Ocampo said the lockdown had crippled tourism and its affiliated industries like airlines, hotels, resorts, country clubs and restaurants.

From an already record high unemployment rate of 17.7 percent in April, BDO sees the country’s jobless ratio peaking at 20-25 percent as 10 to 12 million people may lose jobs during this crisis, including the Class of 2020 college graduates who will likely find it difficult to get employed in the next six to 12 months, Ocampo said.

“In the past, when the labor market was poor, we exported workers offshore,” Ocampo said. This isn’t an option today as the entire world is grappling with COVID-19, with the Department of Labor and Employment itself bracing for close to 700,000 overseas Filipinos who may lose their jobs, Ocampo said.

On the other hand, the likely winners during this crisis are those operating digital platforms, including online banks, sellers of essential items, logistics companies and telecom firms that provide much-needed connectivity.

The key to get out of recession is for the government to spend more than it usually does, Ocampos said. On the other hand, he noted that the Bangko Sentral ng Pilipinas had done its share of aggressively easing monetary settings and unleashing hundreds of billions of money to prevent this public health crisis from morphing into a financial crisis.

On the flip side, he noted that local inflation and interest rates have sharply gone down, giving businesses and consumers cheap money to borrow, Ocampo said.

The peso has likewise appreciated sharply due to the slowdown in imports, which made up for the slump in overseas Filipino remittances. This year, BDO expects the peso to average at 49.70 against the US dollar compared to 50.65:$1 last year.

During this pandemic, Ocampo said investors should have a long-term mindset.

“You can’t invest 30 day-30 day (placements) in a crisis. The winners in previous crises have been those that were able to think long term,” Ocampo said, noting that the SM group built SM North Edsa during the turbulent Martial Law years and also built the massive Mall of Asia in the midst of the Asian financial crisis.

“You can do the same with your own performance funds. In every crisis, there are opportunities, while it is scary. Look at asset prices that will go down during this pandemic.

Have the courage to take action,” he said.

Ocampo recommends investing in money market funds or directly purchasing corporate bonds.

At the stock market, Ocampo noted that the prices of most companies were still down by 10 to 45 percent from their peak. “But it’s not a mega sale anymore, simply because market is now trading at 16 price to earnings because the market is now assuming a 15 percent contraction in earnings,” he said.

“When BPI announced its second quarter results (down by 25 percent year-on-year, they (market) didn’t sell down BPI. That means this will be bellwether now as we enter the earnings season. More and more companies will report a decline in this magnitude,” he said.INQ