5-6% is the ‘new normal’ for PH GDP – BPI’s Oyson


Fed move on interest rates to weigh on PH equities

THE “new normal” is for the Philippine economy to grow by 5 percent to 6 percent this year on the back of consumer spending.

The consumer-led gross domestic product (GDP) “can only grow 6 percent if the government spends a lot of money” to counter the underspending at present, said Michael Angelo Oyson, BPI Trade chief executive officer and managing director.

Officially, the Aquino administration is still betting on economic output to grow by 7 percent to 8 percent his year.

“In terms of the GDP growth, what we have to realize is that we are now entering ‘a new normal’ in GDP growth. A 6 percent to 7 percent GDP is on the high side. What is more realistic for the Philippines at this stage is a 5 percent to 6 percent GDP growth. That would be the new normal of the Philippines,” Oyson said in a briefing on Wednesday.

In comparison, Bank of the Philippine Islands forecasts a 6.2-percent growth for 2015. The GDP grew by 6.1 percent last year.

Oyson said the Philippines is “still a consumption-based economy” and noted that consumption expenditure accounted for 410 basis points or about 4 percentage points of 5.6 percent GDP growth in the first quarter.

The upsides beyond the 4 percent growth due to consumption will be coming from government expenditure and strong capital formation.

“The net exports have been rather weak. So we’re still not a net export economy,” Oyson noted.

PH ‘not yet out of the woods’
In the stock and the foreign exchange markets, the Philippines is “not yet out of the woods,” the BPI Trade official said. It depends on the “macro overhang” of international developments such as the US Federal Reserve interest rate hike and the slowdown in China.

“The key message is we are not yet out of the woods in terms of the stock market. We are yet to see the guidance from [US Fed Chairperson Janet] Yellen. And second, we have to have a clear understanding on how deep the problem is in China,” he said.

“Until there’s clarity in the US interest rates, the Philippine peso can shoot up to P47 a dollar,” he added.

“Once we get rid of this macro overhang—the overhang from the international developments—we’ll continue to retrace previous PE [price-to-earnings] multiples. So the strategies for most investors at this stage are to buy on dips, high quality names, and investors have to realize that it is very difficult to catch the bottom of the market. So the strategy is based on the risk tolerance to the downside,” he said.

Big consumer names will be the best bet in the next four to five years, considering that the Philippines is “very much a consumption driven economy so companies that are exposed to the consumer sector will continue to do very well.”

But this does not mean the economic growth is synonymous to stock market growth. Rather than a direct correlation between the GDP and equities, Oyson said the stock market feeds off on investor sentiment on the pace of the economy.

Oyson said the earnings per share (EPS) growth is seen at 13 percent, excluding without the outliers like Bloomberry Resorts Corp. and Megaworld Corp. Forward PE ratio is at 19 times, indicating that the Philippines remains as an “overpriced” market compared to counterparts like Indonesia at 14.3 times.

In terms of sectors, not only consumer stocks under the services sector are in for a positive stride, but also the power sector. But the underperformers are the banking and gaming sectors, while the property and holding firms are neutral.

Oyson cited five stocks that investors should consider for their portfolios: Semirara Mining and Power Corp., Manila Electric Co., Century Pacific Food Inc., Max’s Group Inc., and Ayala Land Inc.


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