Cautious bothways

Last week, the market ended lower by 22.56 points or 0.43 percent at 5,263.35 from the week before. Total volume was 7.07 billion shares valued at P20.58 billion. Despite having only four trading days, as trading was suspended on Tuesday due to the monsoon rains, total volume of transaction for the week was comparatively more by 400 million shares. Obviously, the market turned to smaller cap stocks during the week. As a result, total value turnover was P7.34 billion less than the previous week’s.

There should nothing be notable or remarkable about the market’s trading results last week except that these happened when human movement was greatly hampered and productivity could have been badly affected as a result. Floods did not only occur and made life difficult in Metro Manila but to a big part of the population nationwide. Up to late Sunday, some parts of Metro Manila and low-lying farming regions in the north were still under water and not passable by light vehicles.

Judging from the amount of rainfall that caused the floods and the area affected, it would seem that business may have been greatly affected. As reflected in the market, transactions for the week did not look that bad. Average daily transactions did not show any marked deterioration or change as average daily value turnover fell by only 7.86 percent to P5.14 billion compared to the previous week’s normal average daily value turnover of P5.58 billion.

Contributory factors

Despite the impact of the floods, reported damage to property and life was estimated to be yet far less significant as compared to that suffered by the country from typhoons in 2011. Accordingly, total production loss from rice, corn, high-value crops, livestock and fisheries, as of Aug. 8—the day before the heavy rains stopped—“had only hit approximately P167.9 million.” This covered the provinces of Abra, Benguet, Kalinga, Mt. Province in the Cordillera Administrative Region; Ilocos Norte, Ilocos Sur, La Union and Pangasinan in Region 1; Cagayan in Region 2; Aurora, Bataan, Bulacan, Nueva Ecija, Pampanga, Tarlac and Zambales in Region 3, and Aklan, Antique and Negros Occidental in Western Visayas.

The explanation for the low level of damage, as further explained in the news report, was because “most of these (pertaining to the rice lands, which accounted for about 80 percent of the total damage estimate) were in the seedling/vegetative stage and with chance to recover.” The damage in Cavite, Laguna, Batangas, Rizal and Quezon of Region 4-A was yet to be accounted for.

As reported, too, First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) issued last week their report about the economy for the second quarter, which they said “can top the 6.4-percent (growth rate of the economy) seen from January to March.”

Domestic electrical consumption in the industrial sector, which serves as a strong gauge of productivity, was found to have been robustly “growing by about 8 percent year-on-year.”  Exports, the reports added, “hit double-digit growth in May, surging by nearly a fifth compared to 2011.”  Imports, on the other hand, only expanded by a tenth. Inflation, a major impediment to growth, was also found benign. It was well below the 3 to 5 percent tolerance rate of the Bangko Sentral ng Pilipinas. Inflation was only 2.8 percent in June and 2.9 percent in May.  Both institutions projected that inflation would remain benign for the rest of the year.

Due to the weak state of the global economy, they believed that the “price of oil”—a major cost component—“will remain tepid.” Along with a better weather for the remaining period of the year, this will redound to higher productivity in the agricultural sector, at the same time allow the country to realize its annual export target of 5 to 7 percent, the reports added. Also, the mild outlook on inflation for the remaining period of the year will be favorable to the government’s move to “cut overnight borrowing and lending rates to new lows of 3.75 percent and 5.75 percent, respectively.” The effect of which is expected to significantly boost the economy till the end of the year.

Even at the present lending regimen, FMIC and UA&P said that the economy grew faster than earlier estimated that they adjusted their growth projections for June to 6-7 percent. This was equivalent to the administration’s growth target and a radical departure from their original forecast of 5-6 percent.

On the fiscal side, both said that the country’s “deficit is likely to hit P220 billion only this year due to low interest rates and solid economic growth.”  This is about 80 percent of the government’s deficit goal of P279.1 billion. Additionally, it was observed that the government’s deficit for the first semester was only P34.48 billion. This was far less than the ceiling of P109.34 billion for the period. This may also lead to a “credit ratings upgrade by the first quarter of 2013” that will lower public and private sector borrowing costs and attract more foreign investments to the country, they claimed.

Bottom line spin

At the opposite end of these encouraging forecasts about the Philippines is the storyline that economists are cutting their growth estimates for Asia’s biggest economies, saying that while “the worst of the downturn have been over, they have considerably slowed down and may no longer perform as strongly as they did in the rebound during the 2008-2009 global crises.” For instance, they placed China’s growth at only 8 percent this year, while India’s was at 6.3 percent.

They believed that China’s economy still had to show how its fine-tuning policy would work to boost growth. For India, they found it difficult to see how it could do better. As reported, India’s “rupee has been hitting all-time lows against the dollar, the government is struggling with bloated fiscal and current account deficits and inflation has remained stubbornly high, giving policymakers less room to maneuver.”

Since the business of Singapore, Taiwan and South Korea are all heavily exposed to the West, they are expected to be badly affected as the situation worsens in Europe. In the end, though, they agreed that “Southeast Asia is a bright spot.” Nevertheless, while the forecasts and storylines are very positive, it is probably more prudent to stay cautious than bullish in the meantime that the instability in Europe and the US continues to be unpredictable and difficult to read.

More on P.A.R.T.

The Philippine Association of Religious Treasurers chaired by Sister Maria Lirio Gavan, SPC, just concluded the update for their members in the Visayas last Aug. 10. The update for counterpart members from Mindanao, called the “Mindanao Update” on “Investing in Bonds and Equities,” among others, will be held at St. Benedict Priory in Ulas, Davao City, on Aug. 21.

(The writer is a licensed stockbroker of Eagle Equities, Inc. You may reach the Market Rider at [email protected] , [email protected] or at www.kapitaltek.com)