Abelardo “Billy” Cortez l August 31, 2023 l Manila Bulletin
The global economy isn’t out of the woods yet. Likewise, the Asia-Pacific region will likely experience slower growth over the next year as exports lose momentum while households and private businesses have been reluctant to spend much and invest while fiscal and monetary stimulus appear limited. Another supply-side shock to food and energy prices may possibly push the Asia Pacific region towards recession.
Global growth is projected to fall from an estimated 3.5 percent in 2022 to 3.0 percent in both 2023 and 2024. While the forecast for 2023 is modestly higher than predicted in the April 2023 outlook, it remains weak by historical standards. The rise in some central banks’ policy rates to fight inflation continues to impact negatively on economic activities.
The Philippines reported a slower-than-expected GDP growth of 4.3 percent in the second quarter from 6.4 percent in the first quarter due to external and domestic headwinds such as high inflation and higher interest rates. This gives a dimmer view of the local economy.
Headline inflation averaged 5.8 percent. However, core inflation, which excludes the volatile food and energy prices, moved higher at 7.6 percent from January to July despite easing to 6.7 percent from 7.4 percent.
The risk to global growth, unfortunately, remains tilted to the downside. Inflation rates remain high and may even rise if further negative events continue to happen like the war in Ukraine and those extremely climate change-related events regularly happening now all over the globe.
In any event, the global economy is certainly in a tender state. A good number of nations nowadays have gotten into a state of what some political analysts call “sedentary agitation”, meaning some leaders are very upset about what’s going on but would not undertake any major action to address those concerns.
This growing list of distressing international and local economic news is fueling investors’ skepticism toward the global financial markets. Investors are holding on to their cash a bit longer than they should and are not much into investing activities nowadays. They are focused on the hole and not on the doughnut.
Some analysts still expect investment and consumption demand to remain weak due to lagged monetary policy effects, global market uncertainties, and possible recession in the US, the biggest economy in the world. On the other hand, China, the second largest global economy, is also facing rising risk of an economic double-dip in its drive for economic growth with negative cross-border spillovers.
Have the world’s equity and bond markets become a cauldron of fears and anxieties? Where are the bottom fishers? Where have all the day-to-day traders gone? How come financial markets are running out of steam, seemed shaky and weakening; most are now scrambling for the magic bullet to get things moving again and stop the spiral of diminishing investor confidence.
Meanwhile, when the financial markets languished without any direction, that might as well be a clear signal to assume the mind-set of a value investor as differed from that of a growth investor. Value investing, simply put, means buying at a cheap price stocks or bonds of quality, listed companies with healthy balance sheets and managed by capable management with utmost honesty transparency, and integrity.
A bearish global financial market clearly offers value investing a better chance of making money purchasing, for instance, known listed stocks/bonds that might not be that bad as the markets think they are.
In the bond market, investors demand higher average real yields. It works out pretty well as long as the actual rate of inflation approximates what’s embedded in the nominal rate. That’s why the fixed-income market reacts so strongly to high or low CPI (Consumer Price Index) that is not a close approximation of what’s already been reflected by bond yields. But, of course, accurate inflation forecasts are more of the exception than the rule.
This is also why many investors always look at the shape of the yield curve for clues to a market’s direction. In fact, yield curve has been proven to be more reliable than many economic indicators. An inverted yield curve indicates slower growth, which is typically followed by a bull market for bonds when yields decline. Yield curve is commonly used by financial analysts to depict yields of different maturities in other market sectors.
In the meantime, what should market investors must do now is to be flexible enough to look at the whole picture from a more balanced perception with a positive perspective angle. They should not be scared to take advantage of potential buying opportunities, whether in equity or bond markets, that could make them money, at some point in time, when an economy begins to improve.
We all know this. There are no guarantees in life. But as Bill Gates Sr. put it simply, “If you were born poor, it is not your mistake, but if you die poor, it is your mistake”. Don’t ignore this truth.
*** Atty. Abelardo “Billy” Cortez is former FINEX national president and chairman of FINEX Foundation, former co-chairman of the Phils. Capital Markets Development Council. He is presently board director and executive committee member of the International Association of Financial Executives Institutes (IAFEI) and former finance committee chairman of San Beda Law Alumni Association. For eight (8) consecutive years, he was CEO/managing director of BPI International Finance Limited in HK. He was former independent board director at First Metro Investment Banking Corp., and now an independent board director in other First Metro companies such as First Metro Securities Brokerage Corp, First Metro Exchange-Traded Fund (ETF), PBC Capital Investment Corporation and First Metro Save and Learn FOCCUS Dynamic Fund (Metrobank Group).