US banks fall under renewed scrutiny while local banks demonstrate strength

Global and Philippine Market Update
April 20 to April 26, 2023

Global Markets

Global Stocks fell on weaker than expected earnings.

• Banks are in focus once again as First Republic Bank, which is a regional lender considered as a bellwether for the recent liquidity crisis, posted its first quarter earnings. The bank showed earnings that beat expectations but also lost 40% of its deposits during the quarter as customers pulled their money following the collapse of Silicon Valley Bank (SVB). Investors are concerned about the stability of the bank and the sector. Smaller banks help provide credit to middle America and the current strain on the sector will likely be negative for future growth.
• The US Commerce Department has released its initial estimate for the first-quarter gross domestic product (GDP), which shows an increase of 2%. However, the Atlanta Federal Reserve’s data projects an even larger increase of 2.5%. While the growth is not expected to last due to a cooling economy and strain on small banks, it still increases the possibility of a shallow and short-lived recession if it occurs towards the end of the year. 

Philippine Stocks

Philippine Stocks moved higher on the back of the banking sector.

• Strong earnings from major banks provided a lift to the local market. Bank of the Philippine Islands (BPI) and BDO Unibank (BDO) posted strong first quarter results. BPI saw its net profit rise by 52% while BDO grew by 40.44% compared to the same period last year. The sector is expected to outperform this year as banks take advantage of higher interest rates and a growing loan book.
• The Development Budget Coordination Committee (DBCC) maintained its 6-7% growth target for 2023 and 6.5-8% for 2024 to 2028. National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan sees growth continuing despite the risks. Growth is expected to hold even with rising geopolitical tensions, possible global economic slowdown, and weather disturbances in the country. 

Philippine Bonds

Philippine Bond Yields increased for bonds with a maturity of 5 years or less but dropped for longer maturities.

• Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla stated that it is “dangerous” to cut rates faster than the US Federal Reserve (Fed) as it may lead to further depreciation of the peso. Mr. Medalla also does not see the need to match the Fed in case it hikes rates next week. He sees Philippine inflation to slow within their target of 2-4% by the end of the year.
• April inflation is forecasted to ease to 6.9% in April according to ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa. He expects a pause in rate hikes if inflation comes in below 7%. However, some economists still believe that the BSP will hike rates by 0.25% this May before pausing. This will put the policy rate at 6.5%.

FWD Guidance: Uncertainty leads to downside risks, but diversification and a long-term investment horizon still provide the best chance for financial success.

Sources: (1) https://www.cnbc.com/2023/04/25/the-banking-crisis-is-having-a-slow-burn-impact-on-the-economy.html (2) https://www.cnbc.com/2023/04/25/first-republic-falls-more-than-40percent-to-record-low-after-reporting-massive-deposit-drop.html (3) https://www.bworldonline.com/stock-market/2023/04/16/516905/psei-may-move-sideways-amid-lack-of-leads/ (4) https://www.bworldonline.com/top-stories/2023/04/25/518793/dbcc-maintains-gdp-growth-targets/ (5) https://www.bworldonline.com/top-stories/2023/04/27/519414/medalla-says-dangerous-to-cut-rates-faster-than-fed/

Disclaimer: The purpose of this article is to inform and should not be taken as an advice or offer to purchase securities. Seek professional advice before making a decision based on this presentation. Information given does not represent the views of FWD and its agents and employees.