Market Pulse

Market Outlook for 2020

What happened 2019 and what to expect this year

Ricky So

Market Pulse

COVID-19 has taken center stage since February and perhaps to carry over until the second quarter of the year

The Philippine’s experienced a slowdown last year due to the delayed budget, which reflected in the country’s GDP number. The full year GDP growth was at a less than expected 5.9%. This is an eight-year low. The PSE index likewise barely grew to end at 7,815 from 7,466 at the beginning of the year or a 4.7% increment. Inflation tamed in a range targeted by the monetary policy makers hence, interests eased accordingly.

2020 Inflation - Within Range

After a spike in 2018, 2019 inflation numbers tamed dramatically with the confluence of slow economic activity at the start until the end. This ease spilled over 2020, which prompted the policy makers to further cut rates in the first quarter. However, with the threat and the current crisis brought about by the COVID-19 pandemic, inflation is likely to move towards below 2% for the second quarter of the year with some uncertainly on the second semester. This depends on how the current containment efforts on the pandemic will fare.

Monetary Policy - Getting Aggressive

Central Bank chief and former budget secretary Benjamin Diokno was quick to make the essential move to ease interest rates and lower the reserve requirement ratio (RRR) of banks further. As of this writing, interests rates had been slashed 150 basis points to almost erase all the increases in 2018. The RRR on the other hand, had been slashed by 200 basis points, which may result to a liquidity release of about PhP4 trillion into the system. This brings the RRR of banks to 12% and may possibly be further cut by the same rate if the need arises.

Trade War - Sidelined

COVID 19 has taken center stage since February and perhaps to carry over until the second quarter of the year. Hopefully, not beyond the second half of the year. This global crisis trumps the tension between the US and China for a moment, with all efforts currently centered into containing the spread of the virus. More so, the US right now seems to take a bigger toll on this crisis as their number of COVID-19 cases has surpassed that of Italy.

Foreign Investors - Flip Flop

Foreign investments come and go amid recent turmoil. For one, the Hong Kong protests were beneficial for Philippine markets, which saw some capital flights to domestic markets. The recent fall of the stock market could attract investors as Philippines is the worst hit stock index in this crisis. At the lowest, the market’s average PE ratio hit a single digit at 9.4x.  Foreign investors should be able to notice this. 

Peso Dollar Exchange Rate - Stable

The silver lining to this crisis is our Peso being stable at about 50 to 51 range versus the US Dollar. After hitting its lowest in late 2018, the Peso started to come back amid cheaper asset prices as well. For the rest of the year, analysts see the Peso gaining ground more than weakening. Moreover, as the aftermath of this COVID-19 crisis could present some opportunities in the market that would attract foreign funds to flow in.

 Economy - Depends on COVID-19

As a lesson from 2019, 2020 budget was in full swing in the first two months of the year. However, activities were truncated by COVID-19. The lockdown Luzon, which accounts for about 70% contribution to the GDP, is worrisome for the economic managers. While the overall outlook is positive despite this or after this crisis, the uncertainty of the extent is a dilemma for all.

2020 - Boom or Bust?

It is still a boom and bust scenario for 2020 which presents a lot of variables considering the current COVID-19 crisis resulting into an unprecedented and never experienced lockdown or quarantine in a massive scale. So, anything goes after this crisis… but as always there will be a resurgence of economic activity after all these settles down.

 

About the Author

RICKY SO is an independent financial adviser with more than 30 years’ experience in the financial services industry. He is currently the Chief Knowledge Officer for Investment Planning and Director of Wealth Management Center for Communications and Research, Inc. He has co-authored the book “Dare to Journey: The Path to Meaningful Wealth. He was a faculty for the RFP Philippines and has lectured Portfolio Management for Asian Institute of Management– EXCELL’s Strategic Investment Management Program. At present, he lectures for various learning organizations and conducts certification courses on Certified Investment Planner, Philippines (CIPP®)



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