First the good news, then the bad news.
The Philippines recorded a stunning 7.8% growth in its Gross Domestic Product (GDP) during the first quarter of 2013 compared to the same period last year, becoming the fastest growing economy in East and Southeast Asia. And yet this good news failed to boost the local stock market, with the benchmark Philippine Stock Exchange index (PSEi) incurring heavy losses yesterday to close at 6,953.35, down 3.81%.
The National Statistical Coordination Board (NSCB) said yesterday that the Philippines’ 1st quarter GDP increased 7.8% from the same period last year. Gross Domestic Product (GDP) refers to the market value of all final goods and services produced within a country. The GDP is a measure of economic activity, and an increasing GDP means a flourishing economy within that country.
Good News: Philippines is fastest growing economy
With a 7.8% year-on-year growth, the Philippines is the fastest growing country in East and Southeast Asia, even beating economic giant China that reported GDP growth at 7.7%.
Other Asian countries reported GDP growths as follows:
- Indonesia: 6.02%
- India: 5.5%
- Thailand: 5.3%
- Vietnam: 4.%
The country’s 7.8% growth beat most of analysts’ expectations. It was higher than Bloomberg’s poll of analysts that shows median expectation of 6.0% growth.
Bigger investments, higher industrial output
The Philippines benefited from higher construction and government spending. In the first quarter of 2013, construction spending increased 33.7%, while government spending rose 13.2%. Private domestic consumption is up 5.1%.
Various industries also experienced robust growth during the quarter. The industrial sector, which includes manufacturing and construction, rose 10.9%. The country’s services sector, accounting for half of the Philippines’ GDP, grew 7%. Farming output also increased 3.3%.
Exports, however, declined 6.2% as the country’s trading partners continue to experience economic woes. Europe is still reeling from a financial crisis that affected Greece, Cyprus, and the United Kingdom, among others. In the United States, uncertainty remains as rumors abound that the Federal Reserve will cut back on its monetary stimulus program that involves the government buying securities from the open market. Analysts fear such decision could slow down the US economic recovery.
Bad News: Philippine stock market slumps
Despite the good news about the country’s GDP, Philippine stock market tumbled heavily yesterday due to fears of expensive valuation.
The PSE index, a 30-company basket of publicly traded companies that tracks the overall economic performance of the country, sank 3.8% to close at 6,953.35. All sectors suffered at least a 3% one-day decline, led by the Property sector (-4.12%); Financials (-4.00%); and Holding Firms (-3.57%).
Biggest losers among PSEi stocks include: Jollibee Foods Corp (JFC), down 7.28%; International Container Terminal Services (ICT), down 6.45%, and Ayala Land Inc (ALI), down 6.29%.
Metrobank (MBT), San Miguel Corp (SMC) and Universal Robina Corp (URC) were all down by more than 5% while SM Investments Corp (SMIC), Aboitiz Equity Ventures (AEV), Energy Development Copr (EDC) and Alliance Global (AGI) lost at least 4%.
The PSE index reached a peak valuation of 20.8 times projected 12-month earnings, the highest since Bloomberg began tracking said data in 2006.
Recent market reversals pared down this valuation to 19.5 times forecast profits, but still way above the MSCI Emerging Markets Index’s valuation of 10.3 times.
Brokers and analysts, however, remain to be optimistic about the Philippine stocks and the overall economy. Here are some brokers’ and analysts’ opinion culled from various sources:
Julian Tarrobago (ATR Kim Eng Asset Management Inc): ”This is a healthy correction and nothing surprising given valuations and the performance of the peso. You’d rather have this kind instead of a market that keeps rising otherwise you’d be in for a deeper correction.”
Luz Lorenzo (Maybank ATR Kim Eng): “I don’t think foreign investors will stay away for a long time because growth is here and when growth is here, we become attractive to investors whether domestic or foreign, so I think they’ll come back. The market could finish at the 7,400-level by year-end, a very reachable target since the PSE index already hit this during intraday trading on May 15.”
Jose Vistan (AB Capital Securities): ”The concerns about the winding down of quantitative easing and valuations are easily overwhelming the GDP data. Our market was a beneficiary of [the Fed's] fund inflows. With the reduction in available funds to help push up asset values, the market has taken a position to lighten up. Support is pegged at the 6,700-6,900 levels with the PSEi likely to experience a dead-cat bounce after the sharp losses.”
Bernard Aw (Forecast Pte. of Singapore): “We remain bullish on growth prospects, mainly because of the solid domestic demand outlook and adequate fiscal capacity. The government has been undershooting their fiscal deficit target. We expect improvement in the Philippines’ risk and debt profile to help shield the peso from external vagaries and given a manageable inflation outlook. Policy rates are expected to be held steady in the year, while the BSP (central bank) continues to fine-tune its policy tool kit.”
* For more brokers’ opinion and stock recommendations, head over to www.pinoyinvestor.com.
Sources: Bloomberg, Inquirer, Interaksyon, GMA News