Traditional media is currently bombarding the general populace with doomsday scenarios regarding the recent descent of the Philippine stock market into bear territory. In fact, one newspaper notes that the current decline is the lowest level the stock market has sunk since the 2008 global recession. It’s enough for the average financially-illiterate Filipino to want to hoard basic necessities, crawl into a bomb shelter, and wait for the storm to pass over.
Well, don’t fret. For those of you conjuring images of the Philippine economy crashing and leaving millions of Filipinos homeless and jobless, we’re giving you four reasons why the recent Philippine stock market crash is actually no big deal.
1. The economic fundamentals of the Philippine economy are sound.
Don’t take our word for it. Here’s what the Philippine Central Bank Governor has to say:
Bangko Sentral ng Pilipinas Gov. Amando Tetangco confirmed that “movements in the foreign exchange and stock markets are part of investor assessment of global risk.”
“But inflation expectations continue to be well anchored. Underlying fundamentals remain sound,” Tetangco said in a text message to reporters.
In normal-speak, that means that the stock market’s movement has relatively little bearing on the performance of the Philippine economy. In fact, in complete defiance to the Philippine stock market’s recent descent, the local economy actually grew by 7.8% (the highest in the world, narrowly beating China). Apparently, in the same way that the stock market can defy economic gravity, it can also disregard economic ascent.
2. Experts predict stellar economic growth for the Philippines.
If we simply look at economic fundamentals and future growth prospects, we’ll realize that most experts expect stellar performance from the Philippines, with some forecasts stating that the country has the potential to be the 6th fastest growing country in the world. In this case, to put our worries at ease, we need to remember that the stock market is not the economy. The Philippine economy is on track and has a bright future. We should be good.
3. The Philippine stock market crash is a result of external factors not related to the Philippine economy.
The current decline is actually the result of US Federal Reserve Chairman Ben Bernanke’s statement that the U.S. economy may “moderate the pace” of its $85-billion bond purchases later this year on signs of US recovery. The immediate effect of that statement is that investors all over the globe, as a whole, are liquidating their stock investments to re-position their portfolios in consideration of a looming change in investment climate.
If you didn’t understand any of that, here’s the gist of it: It’s not really about the Philippine stock market (or stocks in general). Equities were just caught in the crossfire.
4. A recovering U.S. economy is a good thing.
Note that the decline in stock markets all over the world was, in effect, a result of the U.S. economy’s recovery. (The main reason why Bernanke thought of moderating the pace of cheap money was precisely because of signs of economic recovery). This is a good thing. As Finance Secretary Cesar Purisima points out, “A strong U.S. is good for us, because that will open an export market for us“. In fact, more than being good for us, a recovering U.S. economy should be good for everyone.