Philippine Markets Newsletter

PH Monday Macro: Businesses still think the worst might not yet be over, especially with inflation and the Peso depreciation remaining as overhangs

October 3, 2022

The stock market is an excellent leading indicator of a country’s economy. When investors are optimistic about the country’s growth prospects—and therefore of businesses’ potential—they buy more stocks, pushing prices higher.

The opposite holds true as well. When investors become more concerned about the state of the economy, they tend to pull out of the stock market and seek less risky asset classes to invest in.

Apart from investor sentiment and consumer confidence, this indicator helps us understand what to expect from the stock market as the Philippine economy is on the road to recovery.

Philippine Markets Newsletter: 
The Monday Macro Report
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From peak new cases globally in late January 2022, we are now down to the lowest count since mid-2020. With over half of the world already vaccinated, more and more countries are opening up to tourists ready to spend on their revenge travels.

However, the aftermath of the pandemic, coupled with a global supply chain issue and geopolitical conflicts, has made it more difficult for businesses and countries to quickly recover.

For example, the Philippines is dealing with currency depreciation, hitting PHP 56 to USD 1 for the first time in over 15 years. Inflation also soared to 6.4% in July 2022, more than double the rate in February 2022. Even consumer confidence, which was getting less negative through the months, momentarily turned more negative in the latest survey.

So, it’s not surprising even businesses are feeling more pessimistic about the future, even as we enter the holiday season.

According to the Business Expectations Survey (BES) conducted by the Bangko Sentral ng Pilipinas (BSP), businesses grew even less confident about the next 12 months. This indicates businesses don’t think the economy’s current situation will change in the near future.

The BES highlights a decline in the percentage of optimists and an increase in the percentage of pessimists, resulting in 26% net confident businesses for Q3 2022 versus 35% in Q2 2022. It’s the same pattern even for business sentiment for the next quarter and for the next year.

When we see multiple indicators point to the same direction–in this case, a bump on the road to recovery for the Philippine economy–the market gets alarmed, and understandably so. Around the same time last year, we saw consumer confidence improve and investors grow more confident as evident in the PSEi exceeding 7,300 for the first time since the pandemic began.

That said, investors should not be spooked by the short-term issues, especially when the BSP still has a few tools in its arsenal to keep the Philippines from hitting another recession.

Furthermore, at a lower 16.4x P/E, the Philippine stock market has become relatively inexpensive once again, providing an opportunity for investors to enter the market.

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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