Philippine Markets Newsletter

PH Monday Macro: Philippine companies’ asset growth indicate that we are in an economic expansion

July 31, 2023

Investors typically focus on a company’s recent profitability and potential for future profits, along with the stock’s market value. Yet, they might overlook the crucial aspect of the company’s growth trajectory.

Today, we will talk about Philippine aggregate Uniform asset growth for PSE-listed companies.

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The Monday Macro Report
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Our previous report on Philippine aggregate return-on-assets (ROA) for PSE-listed companies revealed a robust recovery from the pandemic-induced recession.

Understandably, the nationwide lockdowns and spending restrictions had led to historic low profitability for these companies. However, as-reported ROAs showed an understatement of the true economic profitability of the largest and most traded corporations in the Philippines.

Applying over 130 adjustments under Uniform Accounting, the actual ROA figures unveiled companies’ resilience and adaptive capacity.

While investors tend to automatically look for companies with above-cost-of-capital profitability when considering their investments, they should also be looking at the components of that profitability metric.

As a component of ROA, appropriate asset growth should be monitored. After all, a company’s ability to consistently generate decent returns partially lies in its ability to continue growing as necessary.

Before the 2020 recession, Philippine corporations experienced a period of robust asset expansion from 2005 to 2015. This growth was fueled by the Bangko Sentral ng Pilipinas’ (BSP) loose monetary policy, featuring a series of interest rate cuts ranging from high 7% levels between 2002 and 2007.

This was followed by 5% to 4% levels from 2008 to 2012, and finally stabilizing at 3% levels from 2013 to 2014. This accommodative stance led to rapid economic growth and impressive quarterly GDP performance.

However, as the economy reached a certain threshold, concerns arose regarding the sustainability of such rapid expansion. In response, the BSP changed its long-term policy trajectory, opting for higher interest rates.

Consequently, the once exuberant asset growth plummeted from a tremendous 32% to a more tempered 14%. There was still growth, just toward a more moderate economic path.

Since 2015, the BSP has maintained interest rates within the 3% to 4% range, fostering an environment where companies gradually adapted to the new monetary policy. As a result, asset growth commenced a steady rise.

Amidst the challenging backdrop of a recession and low economic activity induced by the pandemic, the resilience of Philippine corporations shone through as they were still able to grow their assets by 4% in 2020. This momentum persisted, with assets continuing to expand at a steady rate of 4% in 2021.

In the dynamic landscape of 2022, PSE-listed companies experienced an impressive 6% growth in Uniform assets, capitalizing on ultra-low interest rates to invest and expand their businesses.

Supported by positive indicators that have been closely monitored, the surge in asset growth signals the potential for the Philippines to be in the expansion phase of the economic cycle, paving the way for a promising future of economic optimism and advancement.

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
Powered by Valens Research

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