With the PSEi down, is the Philippine economy a bubble?
Regardless of the conditions of the market, plan your trade and trade your plan
From October 31 to December 12 the Philippine benchmark index dropped by 825 from 6,592 to 5,767. That’s roughly 12.5 percent in just around 30 trading days. December, a month perceived to be a month of upward market rallies, so far has become a month downward swings. This has caused investors to wonder, is this the end for the Philippine economy? Is the Philippines just a bubble?
Do I believe we are in a bubble right now? Certainly not!
Here are a few points:
1. Markets don’t go up forever and they move up and down on a cyclical basis. More buyers bring the prices up and when those buyers take profits, they become sellers and bring the prices down. We have to remember that funds are there to make money and part of that is to actualize gains.
2. Bubbles happen when a market becomes too overheated and when prices go up, but value does not follow. The question is, are prices just rising and value is not? For the Philippines, that is not the case, if you look at our gross domestic product (GDP) it has been steadily surging for the past few years and has been validating the increase in our stock market.
3. Even if we factor the effects of Supertyphoon Yolanda to our economy, fundamentally speaking, the Philippines is still primed for growth and nothing has changed as per the long-term GDP outlook. In fact, the BSP is projecting a GDP of 6.5 percent to 7.5 percent for 2014; 7 percent to 8 percent for 2015; and 7.5 percent to 8.5 percent for 2016. Reconstruction efforts in Leyte will even boost the economy further, we are seeing some movement in some key public-private partnership (PPP) projects which would bring in more construction and earnings in different areas of the country. This would bring in the inclusive growth where everyone gets to feel the change.
4. As of late, it’s the foreign funds that have been selling. They are selling not because there is anything wrong with our country, but rather on speculation that the US’ quantitative easing may taper off soon. Part of that, we may see more and more of an exodus of funds from emerging markets, the Philippines included, back to the developed shores of the US.
5. We are consumption-driven economy, this makes our country so unique compared to our Asian counterparts. Roughly 70 percent of our economy comes from local spending. This means that local spending (attributed to the rise of overseas Filipino workers remittances and business-process outsourcing) will further drive our economy. More spending, more businesses, more businesses thriving, will bring in more expansion and thus, more jobs will be created. This will lead to more opportunities for growth in our country.
6. Our real-estate market is far from where it was in 1997, the time when the Asian Financial crisis hit our shores. In 1997 the NPLs (non performing loans) we’re at its peak, while this year it has hit rock bottom at 2.7 percent. NPLs, to put it simply, are a measure for the number of loans that aren’t paid. This figure means that in spite of the rise of buildings, houses and condos here in the Philippines and the number of loans made. People have the ability to pay the loans. Also, there is still also a huge backlog of houses here in the Philippines along with the shortfall of buildings for the BPO industry.
7. We have so much foreign reserves right now. We are now a net lender than a borrower. We have three credit ratings to push us to investment grade status, we have to note that Moody’s gave us a positive outlook, meaning there’s another possibility for us to be upgraded again within the next 18 months. Both local and foreign analysts find the Philippines as an economic bright spot for the long haul!
Regardless of the conditions of the market, plan your trade and trade your plan. The market maybe more volatile over the next few months due to sentiment, however, what I mentioned above are just a few points out of the many good reasons the Philippines is an amazing economy, why we are not a bubble and why we will flourish through the years! I believe that the greatest days of our country have yet to come! And it’s time for more Filipinos to believe it and for more of us to take our place as investors! Bubble or not, it’s still better to be invested, than us spend our cash with things that depreciate in value!
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Marvin Germo is a Registered Financial Planner of RFP Philippines. He is a Stock market trader and investor and a columnist of Business Mirror. He is the best selling book author of Stock Smarts.
Source: http://www.businessmirror.com.ph/index.php/en/business/banking-finance/24424-with-the-psei-down-is-the-philippine-economy-a-bubble
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