MARKET CONDITIONS
Introduction
A variety of factors in 2022 have impacted the Philippine national economy. The economy is gradually
opening up again, and this renewed economic recovery has given businesses and ordinary Filipinos hope
because it encourages more economic activity like trade, investment, and employment. The RussianUkraine War was one of many previously unheard-of factors that contributed to uncertainty as the economy
attempted to recover. The market has been affected, as evidenced by higher inflation and rising oil prices.
The upcoming rainy season and election sentiment are two additional factors that are thought to have an
impact on the economy. The government does, however, pledge to fully assume control over the
normalization of policy.
A. Gross Domestic Product (GDP) and Gross National Product (GNP)
Figure 2.1 illustrates the GDP and GNP of the Philippines
The Philippine Gross Domestic Product (GDP) posted a growth of 7.6 percent in the third
quarter of 2022. The main contributors to the third quarter 2022 growth were: Wholesale and retail
trade; repair of motor vehicles and motorcycles, 9.1 percent; Financial and insurance activities, 7.7
percent; and Construction, 12.2 percent. Major economic sectors, namely: Agriculture, forestry,
and fishing, Industry, and Services all posted positive growths in the third quarter of 2022 with 2.2
percent, 5.8 percent, and 9.1 percent, respectively. On the demand side, Household Final
Consumption Expenditure (HFCE) grew by 8.0 percent in the third quarter of 2022. The following
items also recorded growths: Government Final Consumption Expenditure (GFCE), 0.8
percent; Gross capital formation, 21.7 percent; Exports of goods and services, 13.1 percent; and
Imports of goods and services, 17.3 percent Net Primary Income (NPl) from the Rest of the World
grew by 94.6 percent bringing the Gross National Income (GNI) to grow by 10.5 percent in the
third quarter of 2022.
Forecasted Gross Domestic Product (Rest of 2022)
The Philippines’ gross domestic product (GDP) will grow 6.5% in 2022, the same as forecast in
July but up from the bank’s April forecast of 6.0%, according to Asian Development Outlook
(ADO) 2022 Update. The growth projection for 2023 is kept at 6.3% as monetary policy tightening
and accelerating inflation both crimp domestic demand.
Interpretation:
Underpinned by pent-up domestic demand, the Philippine Gross Domestic Product (GDP) posted
a growth of 7.6 percent in the third quarter of 2022. In broad terms, the increase in the GDP is a
sign that the economy is doing well.
In addition to its GDP growth, the GDP per capita also has been increasing, which translates
to an increase in household consumption expenditure of 8 percent. This means that the
purchasing power of Filipinos has increased to include more than the basic necessities.
Filipinos have more disposable income and the fast food industry would benefit greatly since
Filipinos can dine more and shop more.
Despite the series of rate hikes, the growth in the Philippines averaged 7.6% in the third quarter
helped by the full reopening of the economy as the government continuously lifted COVID-19
restrictions from early this year.
https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/gross-domesticproduct-GDP
B. Inflation Rates
Figure 2.2 shows the inflation rates of the Philippines for the past quarters
The annual inflation rate in the Philippines climbed to 7.7% in October 2022 from 6.9% in August,
topping market forecasts of 7.1%. It was the highest print since December 2008, being near the
top end of the central bank's target of between 7.1% to 7.9% for the month, with food prices rising
the most in 4 years (9.4% vs 7.4% in September). Additional upward pressures also came from
cost of housing (7.4% vs 7.3%), transport (12.5% vs 14.5%), alcoholic beverages (10.4% vs 9.8%),
clothing (3.1% vs 2.9%), health (2.6% vs 2.4%), household maintenance (3.8% 3.5%),
communication (0.5% vs 0.5%), restaurant (5.7% vs 4.6%), recreation (3.0% vs 2.7%), and
miscellaneous (3.7% vs 3.4%). Meantime, cost of financial services was flat for the 7th month.
Core inflation, which strips out volatile food and fuel items, rose 5.9% yoy in October, the most
since January 2009. On a monthly basis, consumer prices rose 0.9%, the most in 4 months, after a
0.4% gain in September, above consensus of 0.45%. source: Philippine Statistics Authority
Forecasted Inflation Rates (Rest of 2022)
Inflation is now expected to quicken to 5.3% in 2022, up from the July forecast of 4.9%
and 4.2% in the April ADO 2022 report, underpinned by sharp upward shocks to global energy
and commodity prices. The negative impact of natural disasters on domestic agricultural supply
will likely lead to higher food prices until the end of the year. The inflation forecast for 2023 is
kept at 4.3% since the return to steady economic growth will keep inflation relatively stable, and
with energy prices likely to decelerate. Inflation is projected to remain elevated in the near term
before easing to within the target range. The latest inflation forecast has been revised upwards to
show that inflation for 2022 and 2023 will likely be above the 2-4 percent target range before
easing to the low end of the target range in 2024.
Interpretation:
The Philippines’ headline inflation accelerated to 7.7 percent in October 2022 from 6.9 percent in
September 2022 as by-product prices increases. In fact, the main drivers of higher inflation are
food and non-alcoholic beverages.
Of the food items, the foremost drivers of higher food inflation are sugar, confectionery, and
desserts (30.2 percent); corn (26.2 percent); oils and fats (20.1 percent). The high oil prices also
hit businesses and consumers with higher transportation and manufacturing costs.
Rising prices of basic commodities affect JFC in terms of rising cost of raw materials, rising
transport costs and quite possibly supply chain snarls. This would ultimately bite into the
company’s bottom line.
https://www.bworldonline.com/corporate/2022/07/04/458815/jollibees-near-pre-pandemicoperating-income-last-year-brings-optimism-to-investors/
C. Interest Rates
Figure 2.3 shows the interest rates imposed by the BSP from 2018- 2022
The central bank of the Philippines raised its key overnight reverse repo rate by 75bps to 5% on
November 17th 2022, a sixth consecutive rate hike and pushing borrowing costs to the highest
since early-2009. Policymakers said the increase aims to tackle inflation and prevent the peso to
weaken further. The move was line with market forecasts after governor Medalla said early in the
month he would favour a 75bps increase to match the latest Fed move. Meanwhile, inflation
forecasts were increased to 2022 (5.8% vs 5.6%), 2023 (4.3% vs 4.1%) and 2024 (3.1% vs 3%).
Inflation in the Philippines topped 7.7% in October. The central bank added that it stands ready to
take all necessary actions to tame inflation towards the target of 2% to 4% in the medium
term. source: Bangko Sentral ng Pilipinas
Forecasted Interest Rate (Rest of 2022)
Interest Rate in Philippines is expected to be 5.50 percent by the end of this quarter, according to
Trading Economics global macro models and analysts expectations. In the long-term, the
Philippines Interest Rate is projected to trend around 6.00 percent in 2023 and 5.50 percent in
2024, according to our econometric models.
Interpretation:
Growth of companies have been stunted due to hawkish increase of interest rates by the FED,
subsequently depreciating securities, bonds, and economic development of nations worldwide while
currencies depreciate in buying power. As evidenced by the PSEi’s subsequent decrease in value, increase
interest rates makes it more expensive for companies to borrow money and therefore decrease expansion
for domestic corporations.
However, despite dwindling economic growth, JFC’s financial performance indicate a positive trajectory
with historic highs in gross sales and revenue for the current year 2022 with a 351% in 3rd quarter sales
compared to previous 3rd quarter fiscal year.
This is indicative of increase of system-wide sales of JFC and surge of food delivery apps. System-wide
sales indicate that a big portion of food orders are through food apps.
RECOMMENDATIONS AND CONCLUSIONS
Geo-political affairs and hawkish increase of interest rates by the FED have created a tumultuous
economic environment for economic entities worldwide, facilitating a rapid change in financial
policies that clamp down on trade relations and national economic growth which is significantly
evident in Philippine market conditions. The Philippine Stock Exchange Index valuation has
decreased throughout the first 2 quarters of 2022 and has only seen a rebound in performance in
the later interim periods but is currently down 2.24%. the beginning of 2022 which is caused by
several factors affecting the Philippines’ market conditions. Despite the Peso appreciating in value
for the last quarter against the dollar, the latent effects of the hawkish interest rates have
effectively crippled performance of companies within the Philippines and consequently, valuation
of securities. Yet, the government agencies remained positive about policy normalization and
retention of interest rates to preserve the ongoing recovery of the economy. Hence, for investors
who would want to take risks despite the status of the global market being in a vulnerable position,
the researchers suggest to Hold for shareholders and buying in for short-term, mid-term, long term
investors.
JFC stock is good to buy especially for long-term investment since the company have displayed
outstanding revenue performance despite current local and global market conditions and therefore
indicate a slow but upward trajectory of company financial health and performance. The company
display outstanding Return on Equity compared to industry averages and had historical highs in
gross revenue despite PSEi valuation indicating depreciation due to FED interest rates. For the
technical analysis however, indicators suggest a strong selling position for investors who are
looking to take advantage of the recent week volatility as stock prices continue to plummet relative
to MA5 but overall signify a strong Buy position as the recent 3 rd quarter performance of the
company will bring significant market interest for retail investors and indicated by the recent
increase of volume over the recent weeks.
Recommendations Summary
SUMMARY OF INVESTMENT DECISIONS
For investing (long-term)
For trading (short-term) – Technicals
If investing/trading for the purpose of wealth accumulation and
capital appreciation
Overall suggestion considering the financials, stock performance,
and effect of macro-economic conditions to the company
STRONG
BUY
BUY
STRONG
BUY
BUY
Table 6.1 shows the recommendations of the researchers
Geo-political affairs and hawkish increase of interest rates by the FED have created a tumultuous
economic environment for economic entities worldwide, facilitating a rapid change in financial policies
that clamp down on trade relations and national economic growth which is significantly evident in
Philippine market conditions. The Philippine Stock Exchange Index valuation has decreased throughout
the first 2 quarters of 2022 and has only seen a rebound in performance in the later interim periods but
is currently down 2.24%. the beginning of 2022 which is caused by several factors affecting the Philippines’
market conditions. Despite the Peso appreciating in value for the last quarter against the dollar, the latent
effects of the hawkish interest rates have effectively crippled performance of companies within the
Philippines and consequently, valuation of securities. Yet, the government agencies remained positive
about policy normalization and retention of interest rates to preserve the ongoing recovery of the
economy. Hence, for investors who would want to take risks despite the status of the global market being
in a vulnerable position, the researchers suggest to Hold for shareholders and buying in for short-term,
mid-term, long term investors.
Using MA20, MA50, and M100 moving averages, we can deduce that a strong sell position is suggested
for day traders looking to trade within a 1 week time frame as technical indicators suggest a temporary
dip in share price as evidenced by recent decrase for the last week as share price draw closer to MA5
resistance level. However, it is expected to rebound as MA20 indicate share prices being nearer support
levels. MA5 and M100 averages indicate a strong but position for investors looking for mid to long-term
investments as stock prices are way above moving averages thus suggesting a stable increase in stock
growth. Fundamentals indicate that the company has had historic sales operation with revenues
increasing despite domestic and foreign pressure from rising interest rates. Red flags can be discovered
with JFC’s pe’ ratio being 27.4x which almost doubles industry averges of 16.5x.