Philippine Markets Newsletter

MONDAY MACRO: Given the Philippine market’s PE is 24x, not 18x, concern over remittances should be even higher.

January 22, 2020

When most of the world was impacted by the Great Recession in the US over a decade ago, the Philippine economy remained resilient.

The Philippines did not enter into a recession even though the US is one of the Philippines’ largest trading partners and contributors to foreign direct and equity investments.

OFW remittances, especially from the US and the Middle East, continue to be a main driver of the Philippine economy’s stability despite global economic turmoil.

Philippine Markets Daily:
The Monday Macro Report
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Official relations between the Philippines and the United States of America go as far back as when the Americans landed on Philippine shores, fought side by side with the Filipinos, and won the war against Spain.

Through the Treaty of Paris of 1898, the US received the territories of Puerto Rico, Guam, and the Philippines through Spain’s cession of these lands and the payment of $20 million to Spain.

In 1899, the Philippines officially became a colony of the US.

Fast-forward to 1935, the Philippines was declared an autonomous commonwealth government of the US, and in 1946, the Philippines became recognized as an independent nation.

Since then, the Philippines has been considered as one of the US’s major non-NATO allies, entering in various trade and military agreements over the years.

The US currently accounts for 15% of Philippine exports. They are also one of the largest contributors to Philippine foreign direct and equity investments, as well as the largest source of OFW remittances, which make up over 10% of the Philippines’ annual GDP.

OFW remittances peaked at 13% in 2005 and has since declined. As a percentage of GDP, OFW remittances have remained within the 9%-10% range in the last eight years, while GDP growth was between 4%-7% in this period.

When inflation reached a record high at nearly 7% in 2018, the country still managed to report GDP growth thanks to a 3% growth in OFW remittances.

But because of those inflation concerns, the Philippine stock market declined from historical highs. Valuations now appear to be at 10-year lows, leading investors to believe that the market is cheap once again.

In reality, Uniform P/E shows that valuations have not come down yet – on an aggregate level, Philippine corporations are not as cheap as they appear to be.

Compared with regional peers like Singapore and China whose true P/Es are 20x, not 13x or 15x, respectively, the Philippine market is trading at a slight premium at 24x.

To support these valuation levels, something as important as OFW remittances had better keep going.

The potential growth from the government’s “Build, Build, Build” program may not be enough to justify these higher P/E levels, despite lower stock market levels.

Fortunately, Uniform ROAs for US corporations as a whole are higher than they have ever been. The US economy still has legs, and therefore, OFW remittances can still continue to grow.

About the Philippine Markets Daily
“The Monday Macro Report”

In a highly digitalized world, information is readily available and accessible even while you’re on the go. Gone are the days when you had to get your daily news through newspapers, the radio, or on the TV.

The internet has become a convenient tool to keep updated on local and global news.

It has also become a popular destination for just about anyone to write just about anything.

Oftentimes, it gets difficult for someone to navigate through the noise just to find useful and reliable information. And not everyone has the time or patience to do that.

Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms.

Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.

Hope you’ve found this week’s macro chart interesting and insightful.

Stay tuned for next week’s Monday Macro report!


Angelica Lim
Research Director
Philippine Markets Daily
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