Philippine Markets Newsletter

MONDAY MACRO: Uniform Accounting and macroeconomic fundamentals show how the Philippine Peso could signal a swift economic recovery

July 13, 2020

Despite over 100 days of economic challenges, the Philippine currency has remained resilient.

Although strong economic fundamentals contributed to its relative stability to other Southeast Asian countries, short-term foreign exchange rate fluctuations are also reflected heavily by sentiment.

This particular metric, along with Uniform Accounting, reveals insight on investors’ optimistic outlook of the economy that has supported the Philippine currency during this pandemic.

Philippine Markets Daily:
The Monday Macro Report
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On our March 9th report, we talked about the Philippine peso’s stability versus the US dollar amid the global economic impact of COVID-19 that started in February 2020.

As of July 9, 2020, this still holds true as the Philippines trades at PHP 49.4 for USD 1 from PHP 50.6 for USD 1 at the end of 2019.

The graph above shows the performance of each currency against the dollar. By inverting the exchange rates, appreciation against the US dollar is reflected by a decline because the value of that currency has depreciated against the US dollar.

The volatility in Asian currencies against the US dollar in 2018 was driven by the tension around the US imposition of tariffs on Chinese goods. Today, Asian currencies face currency volatility from the impact of COVID-19, especially in places where quarantine measures continue to pose challenges on the economy.

Meanwhile, the Philippine peso’s stable performance throughout 2020 has been attributed to the country’s comfortable level of gross international reserves (GIR).

GIR is defined by the Bangko Sentral ng Pilipinas (BSP) as the available foreign assets of the country to directly finance the imbalance of payments. These include gold, interest-bearing reserve assets, foreign investments, and foreign exchange.

As of end-May 2020, the BSP announced that the country’s GIR has improved to an all-time high of $93.29 billion due to foreign exchange operations and investment inflows.

With the GIR rising, the Philippines improved its capability to pay imported goods and services, settle maturing obligations, and transact dollars to prevent sharp currency movements, in case of external shocks.

Furthermore, the BSP has shown that the exchange buffer is equivalent to 8.4 months’ worth of imports of goods and payment of services and primary income, and equivalent to more than four times the amount of the country’s external debt obligations in the next 12 months.

Meanwhile, our Philippine Aggregate chart shows that the current Uniform P/E is 25x while as-reported P/E shows lower valuations of 15x, potentially implying limited earnings growth outlook by investors.

This means that Philippine corporations’ earnings potential is likely to be more than what the market expects amidst the pandemic. It also shows that true valuations of Philippine corporations are already higher than investors are thinking.

Currency volatility could remain a near-term concern globally because of the uncertainty surrounding COVID-19 and the impact this has had on international commerce and travel. However, this should not be a concern for the Philippine peso as it experiences appreciation against the dollar despite the situation due to its strong economic prospects and fundamentals.

Combined with the country’s firm macroeconomic fundamentals, comfortable level of gross international reserves (GIR), and business aggregate earnings, current investor confidence level would likely maintain. A stable currency could also encourage foreign investments in the country and reduce the FX risk when servicing foreign debt and interest.

About the Philippine Market Daily
“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 Daily
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