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| How the economy is doing during the Covid pandemic? |
The outbreak of pandemic Covid-19
all over the world have disturbed the political, social, economic, religious, and
financial structures of the whole world. It has greatly affected even the
world’s topmost economies such as the US, China, UK, Germany, France, Italy,
Korea and Japan as well as many others are on the verge of collapse. The Philippines isn’t spared because we have also been badly hit by the virus that
has plagued the globe.
Stock markets around the world
have been pounded and oil prices have fallen off a cliff. There were
establishments that have declared bankruptcy such as The Century Seafood restaurant in Manila and
there are those that needed to close down like The Marco Polo Hotel in Davao.
People have filed for unemployment and have started searching for jobs online.
Also, many experts on economic and financial matters have warned about the worsening condition of global economic and financial structure.
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| Sun Life Asset management Company Inc. Market Outlook Forum 2020 |
Due to the Covid-19 outbreak, people
are all going digital. Meetings are done using Zoom and Skype, while the
remaining classes were done online. Even press conferences are now being held
online. I recently attended a webinar on Sun Life Asset Management Company Inc.
[SLAMCI] about their Market Outlook Forum in 2020. Sun Life Philippines’
President Ms. Valerie N. Pama said that the company had always been digitally
active.
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| Sun Life PH Sun Rise Portal |
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| Yes you can invest online mobile way with Sun Life |
Sun Life’s Sun Rise Portal is a
more convenient way to invest because you need not leave your house and you can
do so in the comfort of your home. Invest in mutual funds thru salary
deductions through your chosen investment scheme. Ms. Parma also shared that
Sun Life also leads in terms of conducting financial literacy online. They held a various online webinar on mutual funds, investing online with SLAMCI’’s Bills
Payment program etc.
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| Sun Life Philippines conducts online financial literacy webinar |
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| Sun Life Philippines make our lives convenient |
Mr. Michael Gerard Enriquez, Sun
Life Philippines’ Chief Investments Officer also gave a talk on the market
outlook. Sun Life currently has 15 Sun Life Prosperity Funds, 2,500++ licensed
mutual fund advisors, 10 bank partners, and broker partners as well as Php87
billion assets under management as of the end of April 2020.
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| Sun Life Asset Management Inc. |
Covid-19 is harming the global economy
because the world has been experiencing the most difficult economic situation
since World War-II. When it comes to the human cost of the Coronavirus pandemic
it is immeasurable therefore all countries need to work together with
cooperation and coordination to protect human beings as well as limit the
economic damages. For instance, the lockdown has restricted various businesses
such as traveling to contain the virus consequently this business is coming to
an abrupt halt globally.
Keeping in a view of the staggering
situation, we should all prepare for worsening conditions and do a strategy to
combat Covid-19 as losses could be reduced. The spread of the pandemic is
picking up speed and causing more economic damages. As for the jobs of
common people are concerned, there is also a real threat of losing their jobs
because with business shutting down that shows that companies will be unable to
pay to workers resultantly they have to lay off them. While when it comes to
the stock market, it is severely damaged by Covid-19 such as the stock market
of the country is down by about thirty percent. So, the impact of Covid-19 is
severe on the economic structure of the world because people are not spending
money resultantly businesses are not getting revenue therefore most of the
businesses are shutting up shops.
It has been observed that the
economic recovery from this fatal disease is only possible by 2021 because it
has left severe impacts on the global economy and the countries face multiple
difficulties to bring it back in a stable condition. Most of the nations are
going through recession and collapse of their economic structure that points
out the staggering conditions for them in this regard almost 80 countries have
already requested the International Monetary Fund (IMF) for financial help. Most of
the economists have already predicted the recession to happen because
there is no surety and still, no one knows how for this pandemic fall and
how long the impact would be still difficult to predict.
We had never seen anything like this, we have a portion of
the economy and people under lockdown has a huge impact on what can be produced
and not produced. As Covid-19 has already become a reason for closing the
multiple businesses and closure of supermarkets which seems empty nowadays.
Therefore, many economists have fear and predicted that the pandemic could lead
to inflation.
Since the NCR will be put into
GCQ starting June, major economies are starting to reopen, but not yet at full
capacity. But there are several risks involved such as the Covis-19 impact on the world economy may not yet be fully priced-in by the market. About 36mn have
filed for jobless claims in the US in the last 8 weeks. However, the continued drop
in global oil prices due to OPEC+ price war and slowdown in demand. There are
positive developments in several experimental drugs but the credit market may be
facing a liquidity crisis and heightened defaults.
ARE WE BENDING THE CURVE?
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| Are we bending the curve? |
Countries like Thailand, Vietnam , and New Zealand have all successfully flattened the curve. They have been no
reported new Covid-19 cases in their respective countries. How come these
neighboring countries were able to control the spread of the virus? But nearby
countries like Indonesia and Korea (now experiencing the “second wave”) and the
Philippines, where Covid-19 cases are still spreading with mixed results
despite the efforts done on community quarantine.
There are various sectors and
economies that seem most vulnerable because of this pandemic, such as, both the
demand and supply have been affected by the virus, as a result of depressed
activity Foreign Direct Investment flows could fall between 5 to 15 percent.
Besides, the most affected sectors have become vulnerable such as tourism and
travel-related industries, hotels, restaurants, sports events, consumer
electronics, financial markets, transportation, and overload of health systems.
Firstly, continue with essential
containment measures and support for the health system. Secondly, shield
affected people and firms with large timely targeted fiscal and financial
sector measures. Thirdly, reduce stress to the financial system and avoid con
tangent. Fourthly, they must plan for recovery and must minimize the potential
scaring effects of the crisis through policy action. Concerning the serious and
worsening conditions all over the world, nations need cooperation and
coordination among themselves including the help and mature as well as sensible
behavior of people to effectively fight against Coronavirus. Otherwise, because
of the globalized and connected world, wrong actions and policies taken by any
state will leave a severe impact on other countries as well. This is not the
time of political point-scoring and fight with each other rather it is high
time for states to cooperate, coordinate, and help each other to defeat this
fatal pandemic first for saving the global economic and financial structure. While
there is no way to tell exactly what the economic damage from the global
COVID-19 novel coronavirus pandemic will be, there is widespread agreement
among economists that it will have severe negative impacts on the global
economy.
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| Stocks have plummet down |
To curb the spread of the
coronavirus, authorities around the world implemented lockdown measures that
have brought much of global economic activity to a halt.
Many businesses have been forced
to reduce operations or shut down, and an increasing number of people are
expected to lose their jobs. Companies in the services industry, a major source
of growth to many economies, were among the hardest hit in the coronavirus
pandemic. Manufacturers have also been
hit, and world trade volume could once again plummet this year.
Since emerging in the Chinese
city of Wuhan late last year, the coronavirus disease has spread to 185
countries and territories — infecting more than 2.7 million people and killing
over 190,000 globally, according to data compiled by Johns Hopkins University.
To stem further spread of the
virus, authorities around the world implemented measures to lock down countries
and cities to varying degrees. That includes closing borders, shutting schools
and workplaces, and limiting large gatherings.
Those restrictions, which the
International Monetary Fund called the “Great Lockdown,” brought much of global
economic activity to a halt, hurting businesses and causing people to lose
their jobs.
AGGRESSIVE RESPONSE OF THE PHILIPPINE GOVERNMENT
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| We expect the economy to contract |
BSP has already cut 125bps to
2.75 this year and we expect this to still go lower by another 50bps in the
coming months. Another 200bps was cut from the RRR to 12% and likely to see
another 200bps going forward.
The BSP has also bought (for the
first time) government bonds from the BTR in the amount of P300bn and an
unspecified amount from the open market.
Bayanihan Act As One Law has
allowed the President to realign budget to fight COVID19 which includes P200bn
for direct handouts to 18mn families (P5-8k/month for 2 months).
Multilateral borrowings from ADB,
World Bank, and AIIB in the amount of $6bn.
As of May 18, the lower house
passed the Philippine Economic Stimulus Act (PESA) which is a P568bn stimulus
package that targets private enterprise/SMEs/banks/ and features a combination
of spending, negative interest loans, guarantees, and subsidies.
Government to allow Build, Build,
Build projects to proceed.
ECONOMIC CYCLE RECESSION CURVES AND FORECAST SUMMARY: GDP VIEW
Enriquez thinks that country is
under a “U-shaped” curve where the GDP contracts by several quarters the slow
recovery. In another 1-2months to restart the economy, this brings us to 3rd
quarter 2020 to see the start of a recovery. By 4th quarter of 2020, we
think this will be a strong quarter as the rebound should be underway. In
2021, we expect vaccines to be available. By this time, the economy should be
at or close to normal levels. “We are expecting the economy to contract,” says
Enriquez during the webinar. This is one of the major contraction since the
Asian crisis of 1998 and an even worse contraction in the household than the
1984/85 Debt Crisis. We expect a probability-weighted GDP of -2.2% for GDP and
Consumption of -8.4%.
PESO BOND YIELDS RECENT LOW
Bond yield went down due to
additional liquidation bond-buying operations to aid financial support to the
marginalized communities. There is still a lot to be done regarding the
government’s funding plans. It is inevitable that the government will have to
borrow heavily to fund the stimulus. In that regard, we think rates will tread
higher from here.
PSEi has recovered from 4,600 low
The PSEi bounced as much as 28%
from this year’s low of 4.623. Next resistance is seen closer to the psychological
6,000 then 6,268, while support rests closer to 5,300 then 4,623. Year-end the target of 6800 on a base case scenario given an earnings contraction of 10%.
POINTS TO CONSIDER
Financial markets have rebounded
from their recent lows but volatility will continue. Major economies are about
to re-open, but the new norms may hamper as its road to recovery. Until a
vaccine is produced [which will be more likely to happen early next year],
things will remain uncertain. [Low touch economy]. Market sentiment can quickly
change from Fear to FOMO.
“This is a truly global crisis as no country is spared,”
Gita Gopinath, the IMF’s chief economist, wrote in a blog post earlier this
month. But Sun Life Philippines Chief Investing Officer, Mr. Michael Gerard Enriquez is still very much optimistic about it. He says the economy will be able to bounce back soon although it will surely take some time as people will slowly embrace the "new normal" and hopefully when the vaccine becomes available early next year, we will be able to gain whatever we may have lost. But overall, he still sees brighter days ahead.
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