Philippine Markets Newsletter

MONDAY MACRO: Investors should be careful about celebrating too early, according to this measure of business sentiment

October 25, 2021

A near certain sign of future economic growth is when all groups in the economy are indicating the same positive signals.

Recently, investors and consumers are slowly indicating optimistic signals, but this measure of business sentiment suggests there will still be bumps on the road to recovery.

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Last week, we discussed the Consumer Confidence index and how expectations for the succeeding quarters have remained muted. That said, consumer expectations for Q4 2021 still displayed a more optimistic outlook, likely due to the upcoming holiday season.

COVID-19 vaccine doses are also a factor for optimism. With over 50 million doses already administered, quarantine restrictions are slowly being lifted—movie theaters and amusement parks are now allowed to open.

Investors are sharing the same sentiment. In the past week, the PSE index exceeded 7,300 for the first time since the pandemic began.

Since the market is forward looking, the PSE index’s rally suggests investors are expecting a stronger performance in the near-term, including Q4 2021.

However, it seems business owners do not share the same optimism that consumers and investors have.

Apart from monitoring consumer confidence through the Consumer Expectations Survey (CES), the Bangko Sentral ng Pilipinas (BSP) also tracks the sentiment of business owners through the Business Expectations Survey (BES).

One part of the survey is the Business Confidence index, which measures the outlook of businesses pertaining to the economy. Negative results indicate pessimism, while positive results indicate optimism.

Historically, business owners have been more optimistic than consumers. Since 2010, business confidence for the next quarter has averaged around 45%.

During the pandemic, the index plummeted to as low as 17%. Expectations for Q2 2021 did drive the index to recover to 43%, but the return of more stringent quarantine measures led the index to fall to 31% for Q3 2021.

Now, with the release of the Q3 2021 survey results, expectations for Q4 only show minimal change from 31% to 32%. Such levels are significantly below Q2 2021 expectations and 2010-2021 averages.

As a result, the index implies that Q4 2021 will not be as big of a step-up in economic recovery compared to what investors, and to a lesser extent consumers, are expecting.

Constraints in the global supply chain and rising input costs are likely contributing to the pressure business owners face. Rising demand is fruitless if supply is unavailable to meet it.

In addition, there have been growing concerns recently about oil. Oil prices have gone up significantly in the past two months, which will have significant repercussions to businesses and the economy.

That said, it could also be the case that business owners are just being conservative in their expectations, that growth is still likely in Q4 despite the headwinds.

Regardless, for investors, the Business Confidence index suggests caution. As the stock market inches higher, the higher the risk that the market may start getting excessively optimistic.

About the Philippine Markets Newsletter
“The Monday Macro Report”

When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available.

Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data.

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 Newsletter
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