FMIC sees 7% GDP growth in 2Q, PSEi hitting 5,500 by yearend

First Metro Investments Corp. forecast the Philippine economy to grow by at least seven percent in the second quarter, maintaining its bullish outlook despite the euro zone crisis .


The investment banking arm of the Metrobank Group on Monday said the Philippines would be able to stay on its growth path due to its strong fundamentals, thanks to lower interest rates, benign inflation and the promise of more infrastructure spending from the government.


Dr. Victor Abola, University of Asia and the Pacific economics professor, said Philippine gross domestic product will continue to enjoy a growth momentum set by the first-quarter expansion of 6.4 percent. He said there is substantial jobs creation on top of good weather for agriculture.


In terms of demand, public spending would make up for the belt-tightening seen last year, even as private sector spending remains robust.


He said Philippine GDP would expand by 6.5 percent in the third quarter, before easing to six percent in the fourth quarter. This would bring the average growth to between six and seven percent for the entire 2012.


Abola said inflation would settle between 3.2 and 3.4 percent, well within the Bangko Sentral ng Pilipinas' target range of three to five percent.


The peso would depreciate to within 42 to 44 against the US dollar, as investors will likely continue to seek a safe haven in the greenback, he said, adding that Philippine foreign exchange reserves would rise to $84 billion, higher than the central bank’s forecast of $77.5 billion to $78 billion.


The economist however trimmed his forecast for exports growth from a range of five to seven percent, to a lower band of one to four percent, mainly supported by the recovery of the US economy and demand in East Asia. 


Abola said low interest rates would be sustained, keeping money supply abundant at P2.5 trillion, P1.7 trillion of which would be in special deposit accounts. This excess liquidity would be enough to support private construction, housing, and public-private partnership projects, he said.


PSEi to hit new highs


Because of the promise that these PPP projects will bring, Bede Lovell Gomez, FMIC investment advisory deputy group head, said infrastructure firms, as well as gaming and mining companies, would likely outperform the Philippine Stock Exchange index. Strong household spending also would help consumer companies rise faster than the PSEi.


Gomez recommended staying invested or increasing the weight of equities in investor portfolios, adding that the PSEi would touch the 5,500 level by yearend, higher than FMIC’s earlier projection of 5,000. This would price the market at a P/E of 13 times, assuming corporate earnings would grow by 12 to 14 percent at yearend. 


"Corporate issuances are expected to bulge in the second half of 2012, particularly in the consumer/retail sector. A number of refinancing and mergers and acquisitions are forthcoming, retail bonds issuance, IPOs and follow-on offerings are also in the pipeline. A credit upgrade will definitely open up new investor base," FMIC president Robert Junachito Dispo said.-Interaksyon (June 18, 2012 6:50PM)