RP economy seen to recover right away

THE Philippine economy is expected to recover right away from the devastation wrought by Tropical Storm “Ondoy” and Typhoon “Pepeng” in recent weeks.

“The Philippines has a lot of good potential,” Citiseconline head of research April Lee-Tan said in a recent briefing. “Demographic-wise, we have a young population and we have real demand, because our population is young and growing.

“Then we have the growth story from OFWs (overseas Filipino workers). Remittances are very strong and, despite the storms, we’re quite confident that we will do well because we are not dependent on Philippine income [since] we also have income from abroad.”

Lee-Tan said money sent by overseas workers would help households affected by the twin calamities.

“Also, we were relatively less affected by the global crisis,” she added. “Our banks are actually quite strong. They have no substantial exposure to derivatives. Capitalization is strong and bad loans are low so banks can continue to lend to consumers.”

She also said that demand was real.

This is not speculative demand,” Lee-Tan explained.

According to representatives of listed companies, they do not expect any serious dent on earnings, she said.

The local stock market surged to breach a crucial 2,900 barrier, seen by many as a bullish breakout, indicating confidence on the domestic economy and ample liquidity in the financial system.

Lee-Tan said the large liquidity in the market was driving up share prices for lack of other investment alternatives given record-low interest rates.

However, she said, local stocks were becoming expensive and may be bound for a correction.

“But this will be more of a sideways movement. We are waiting for more drivers or more convincing evidence that will allow market to go up further,” she said.

It’s possible that the main-share index would test 3,000, but she said this could prove difficult.

If the market indeed surges further, she said, it would be due to excess liquidity rather than attractive valuations.

“Fundamentally, stocks are no longer cheap,” she said.

Although many companies have seen signs of bottoming out, she said the earnings improvement was still below their trend growth.

“Although we are still below peak levels (for the stocks index), the fundamentals have not improved to that point that will drive it up. So we prefer to exercise discipline,” she said. –Doris Dumlao, Philippine Daily Inquirer