Economy 3 MIN READ

Zooming in on external debt

The Philippines’ share of external debt to GDP remains the lowest among its ASEAN peers, and there is room to expand further. What are crucial are the mechanisms to keep it manageable and the productive channels to spur the country’s desired growth.

July 27, 2022By Ina Calabio

In our previous article, we emphasized that despite the country’s growing debt, the Philippines is not the next Sri Lanka, which continues to be beset by crisis.

It’s mainly because the country’s debt remains manageable and its dollar debt is backed up by dollar assets. Debt-wise, the Philippines is doing okay: its external debt—or the money owed to foreign lenders in foreign currency—is in a much better position compared to some of its ASEAN peers.

Much like in the Philippines, the COVID-19 pandemic pushed neighboring countries into deeper deficits, which prompted more borrowings to finance a pandemic response and fund recovery, subsequently pushing up debt-to-GDP ratios.

In terms of real GDP growth, external debt-to-GDP ratio, and external debt-to-GIR (gross international reserves) ratio, the Philippines is doing well compared to its ASEAN peers. ( a2021 data, bExternal Debt as of Q1’22, GIR as of Q2’22, nd: no recent data available; Source: BSP, various news sources)

It might seem alarming that the Philippines’ first quarter 2022 debt-to-GDP ratio is at 63.5%, but Malaysia and now Thailand are already at 60% levels as well. More importantly, the proportion of our external debt to our GDP remains the lowest among the group at 27.5%, which simply shows that we are less vulnerable to risks associated with external financing, keeping our foreign debt manageable.

Our gross international reserves (or GIR, a measure of the foreign currency assets of the country) are also at good levels, with an external debt-to-GIR ratio next to Thailand. To a foreign lender, it would be more appealing to lend to Thailand and the Philippines because of their sufficient dollar reserves, and more so to the Philippines because we are expected to have better economic growth versus our peers.

Stimulating faster growth

Our debt might be rising, but so is our ability to pay it off as the economy is growing and continues to recover. In fact, our debt service for our external debt is at 1.4% of GDP as of the first quarter of 2022 versus 4.6% during the same quarter last year. Thus, if the goal is to recover at a much faster pace, there is still room to seek external financing to fund programs and projects that can stimulate faster growth.

This is not to say that we should borrow more just because we can, but to borrow smarter because we should. We have earlier noted how infrastructure spending can be a catalyst for growth and therefore a productive medium to which we can channel the country’s debt.

There’s also the tourism industry that would benefit if given more financial support to facilitate recovery. Its recovery means growth not only in terms of foreign currency revenues, but more importantly, growth in local economies.

Right systems, right priorities

This then calls for the right systems to be in place for micro, small, and medium enterprises (MSMEs) to thrive and for initiatives to ease the country’s supply chains. There is a lot more to improve to bring us closer to growth, and these can be fulfilled with sufficient financing.

Some Filipinos are worried about the rising debt, and that is understandable. But what matters most is ensuring that debt remains manageable and anchored on the right priorities—to spur the country’s desired growth and improve future tax revenues. With that in mind, the country can definitely accommodate more external debt.

INA CALABIO is a Research & Business Analytics Officer at Metrobank in charge of the bank’s research on industries. She loves OPM and you’ll occasionally find her at the front row at the gigs of her favorite bands.

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Rates & Bonds 3 MIN READ

Go for the “sweet spot”: Buy 7- to 10-year bonds

With the Bangko Sentral ng Pilipinas (BSP) raising overnight interest rates quite aggressively now, it’s time to revisit your bond portfolio.

July 25, 2022By Patty Membrebe

This article is exclusive to Metrobank preferred clients.

Log in your Wealth Manager account to get access to investment insights, bank views, and webinar videos.

After the surprise 75-basis-point interest rate hike by the Bangko Sentral ng Pilipinas (BSP) last July 14, you may be wondering what to do. If you have sizable investments in bonds or government securities, should you stay on the sidelines and await better yields?

That’s what some, as advised by their investment specialists, have done. Strategic players are looking to “catch the peaks”, taking advantage of yields when they are at their most attractive and then taking profit when yields become lower.

Others have also trimmed their investments in shorter-term peso bonds because short-term bond yields are most susceptible to upward pressure from the upcoming rate hikes by the BSP.

Higher short-term bond yields, specifically those with less than five years to maturity, mean that the prices of these bonds become cheaper. With the expected rise in the policy or overnight rate, i.e., the benchmark interest rate for lending, investors are going to demand higher yields from new bonds.

Therefore, these new bonds will be relatively more attractive compared with those that have been issued before and are already being traded in the secondary market

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Equities 3 MIN READ

Stock Market Weekly: Keeping an eye on the SONA and US interest rate decision

The market is expected to trade sideways this week. The president’s State of the Nation Address (SONA), announcement of a rate hike by the US Fed, more earnings releases, and possible oil price rollbacks will influence stock market movements.

July 25, 2022By First Metro Securities Research


The Philippine Stock Exchange index (PSEi) rose by 68.13 points ( up 1.10% week-on-week) to close at 6,263.39. At the start of the week, investor sentiment improved due to lessened expectations of larger US Fed rate hikes and upbeat US corporate earnings releases.

By the middle of the week, the market pulled back as investors factored in the country’s wider balance of payments deficit as of June 2022 and the Bangko Sentral ng Pilipinas (BSP)’s comment on reviewing both the public and private sectors’ foreign borrowing limit.

Top index performers were Ayala Land Inc. (ALI) which was up 10.4%, GT Capital (GTCAP) up 6.3%, and Ayala Corporation (AC) up 5.7%. Index laggards were Globe Telecom (GLO) which was down 3.5%, SM Prime Holdings Inc. (SMPH) down 2.7%, and Jollibee Foods Corporation (JFC) down 2.5%. The index breadth was positive with 21 gainers versus nine losers. The average daily turnover value was PHP 4.1 billion. Foreigners were net sellers by PHP 777 million.


The market is expected to trade sideways this week as investors await President Ferdinand Marcos Jr.’s State of the Nation Address (SONA) and more earnings releases locally and in the US. Investors will be closely monitoring the US Fed’s interest rate decision (a 75 basis point rate hike expected) and if there will be more fuel price rollbacks in the coming days.


Jollibee Foods Corp. (JFC) — BUY

Despite cost pressures, earnings recovery appears to be sustainable and continues to gain traction amid the unwinding of COVID-19 mobility restrictions, better store economics, and turnaround of Smashburger and Coffee Bean and Tea Leaf. Accumulate once the stock breaks above PHP 225.00. Set cut loss below PHP 208.00 and take profit at PHP 250.00/PHP 260.00.

Megawide Construction Corp. (MWIDE) — BUY

We expect a significant recovery of Mactan-Cebu International Airport’s earnings as the economy further reopens, supported by the enhancement of its airport infrastructure, strategic location, and its improving connectivity to popular local tourist destinations and international airports. As for the construction business, looser quarantine measures should bode well for the segment. MWIDE’s order backlog is at PHP 56.4 billion, equivalent to around 4 years of revenue visibility. Accumulate once the stock breaks above PHP 5.00. Set cut loss below PHP 4.68 and take profit at PHP 5.55/PHP 6.00.


DITO’s share price has broken downward out of a consolidation period, suggesting a continuation of the prior downtrend. According to Technical Insight, our automated chart pattern recognition program, the measured price target once DITO breaks down of the continuation diamond pattern is from PHP 2.90 to PHP 3.30. Lighten position on DITO should the stock break below PHP 4.00. Next support levels are at PHP 3.50 and PHP 3.00


Resistance: 6,400 / 50-day moving average price (MA)

Support: 5,700 / 6,180

The PSEi traded within 6,160 to 6,400 last week. The 6,400 level also proved to be a strong resistance as the market’s rally was not sustained. We reiterate our view that a break below 6,180 opens the possibility of retesting its year-to-date (YTD) low of 6,054. A further break below 6,054 can result in a retest of 5,700.


Continue setting stop limit orders. Slowly accumulate once the PSEi breaks above the 50-day MA, or moving average, which is currently at 6,448).


Wed, July 27, 2022
– US Federal Open Market Committee (FOMC) interest rate decision (consensus estimate: 75 bps rate increase)

Thu, July 28, 2022
– US first reading of GDP annualized quarter-on-quarter for the second quarter of 2022 (consensus estimate: 0.5%, actual for first quarter of 2022: -1.6%)

Fri, July 29, 2022
– Bank lending net of RRPs (Reverse Repurchase rate) year-on-year for June 2022 (actual: 10.7% in May2022)

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Fine Living 3 MIN READ

Style Guide for Men: Bringing the runway to the boardroom

Men may find it hard to introduce something novel yet sophisticated into their wardrobe. Why not take inspiration from the latest fashion trends on the runway this time?

July 21, 2022By Kristabel Penafuerte

Men’s fashion in the boardroom has evolved over the years. Back then, the suited corporate titans in leather oxfords were the staple figures. Today, you have the Mark Zuckerbergs of the world in a hoodie and a black shirt with the same decision-making power.

Let’s face it, we’re in 2022 and fashion trends can be worn by whomever loves what.

But if you wear uninspired clothes, you may not get the attention or earn the reputation you need to move up to the C-suite.

Since you are entering the board room, which is the most powerful room in the office, it wouldn’t hurt to do some power dressing in style. This shows you know how to play by the rules and you can bend them as well, if you will.

Now, let’s spice things up. We’ve handpicked a few looks from the 2022 runway for you so you can stride in style in that board room.

Runway trend #1: The sartorial look with the double-breasted jacket

trend 1

This ‘70s fashion trend has been doing the rounds for quite some time, but in 2022, we’re seeing more double-breasted jackets hit the runway.

The double-breasted jacket carries an air of formality and will give you good posture as it pins your shoulders back with its wrap-around style.

Try recreating the runway look by pairing it with your collared long sleeves or collared polo, trousers, and black loafers.

Some of the well-known fashion houses, such as Versace, Hermes, Dior, and Louis Vuitton, have them in their Autumn Winter 2022 collection.

Runway trend #2: Standout with red

trend 2

Adding a pop of color to your outfit wouldn’t hurt. Red surprisingly matches everything and can replace your neutral colors for a change.

If you have a red coat, you can mix and match it with some go-to wardrobe staples such as your long-sleeved or polo shirt, navy trousers, and a pair of loafers. Finish off your look with a pair of Clubmaster sunglasses and a leather belt if need be.

Red pieces were seen in Off-White, Givenchy, Prada, and Hermes.

Runway trend #3: The all-black look

trend 3

The all-black look is always in. It never goes out of the fashion calendar and out of all the runway trends. This would be the easiest one to pull off, as it could work from day to night.

Try putting together your black polo shirt, leather belt, jeans, and low-cut boots, as if you’ve just stepped off the runway.

The all-black trend can be seen in Dolce & Gabbana, Louis Vuitton, and Off-White.

Runway trend #4: The statement piece with leather

trend 4

For a light day at work, put together an outfit that will make you look effortlessly cool. A dark leather jacket can be your statement piece.

Pair it with a trusty polo shirt, khaki pants, a leather belt, and white sneakers for a preppy-meets-edgy look.

Leather pieces were seen in Dolce & Gabbana, Dunhill, Fendi, and Hermes.

Now, let’s see you sport these runway trends with confidence when you enter the boardroom and make heads turn.

KRISTABEL PENAFUERTE is a Corporate Affairs Officer at Metrobank, in charge of the Bank’s internal communications and engagement for products and channels. Prior to her role in corporate affairs, she was into fashion marketing and was a freelance fashion stylist. She is also into film photography and is an advocate for local fashion designers.

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Currencies 3 MIN READ

Exchange rates: A game of tradeoffs

Who wins and who loses when the peso appreciates or depreciates? Who determines the price of the peso in a floating exchange rate regime? Contrary to what most may think, it is neither the BSP nor the government that sets the price.

July 19, 2022By Anna Isabelle Lejano

With the peso breaching PHP 56 to a dollar, concerns over a weakening economy have been raised. This depreciation was caused by surging global prices due to energy supply chain disruptions from the Russian-Ukraine conflict and the subsequent US Federal Reserve (Fed) rate hikes to tame inflation, strengthening the US dollar. Now, what are the implications of this depreciation? And what are the tradeoffs?

A peso depreciation can make imports more expensive since it costs more in Philippine pesos to buy foreign goods. Basic commodities also become more costly with rising inflation, and debt that is denominated in foreign currency gets bloated.

On the other hand, a depreciated peso also has its benefits as it can help increase dollar inflows. It can boost exports since trade partners can buy more goods and services from the Philippines using the same amount of US dollars, which results in the competitiveness of the country’s products.

It can also make tourism, particularly accommodation and other travel-related amenities, more affordable for international tourists. Additionally, families receiving remittances from overseas Filipino workers (OFWs) will see more pesos for every dollar sent home. There would also be an increase in the value of the dollar earnings of the Business Process Outsourcing (BPO) sector. Also, a depreciated peso can serve as a deterrent to buying non-essential imports, which can help conserve dollars.

The reverse process goes for peso appreciation. An appreciated peso would make exports more costly and would result in a less competitive BPO and tourism sector. It would also lower the peso value of OFW remittances. On the upside, it could make imports cheaper, reduce consumer prices or temper inflation, and shrink the value of foreign currency-denominated debt. On the other hand, it can induce the buying of non-essential imports, which can deplete dollar reserves.

All about tradeoffs

So, is there a real answer as to which is better? Is it currency appreciation or depreciation? An exporter would want a depreciated currency, but an importer would want otherwise. Would you side with the exporter or the importer? An OFW would want a depreciated peso, but this might elevate prices back at home. Would you side with the OFW?

This goes to show that there are no real solutions or answers. There are only tradeoffs. With this, the tension between these tradeoffs pushes the market towards one way or another, towards appreciation or depreciation. That is, it is the market that gets to decide where the exchange rate would be.

Since there are only trade-offs, what is clear is that a too fast appreciation or depreciation can destabilize markets. Ideally markets best operate in a smooth and regular way, able to sort things out in an orderly fashion. The chaos and confusion caused by very fast currency movements can result in market panics that only make things worse as players exaggerate market swings and make adverse self-fulfilling prophecies.

This is where the BSP comes in. It manages volatility because it does not want too fast movements in the exchange rate. It does not set the exchange rate itself, but it can buy or sell dollars in the markets to manage volatility or tweak policy rates to contain inflationary pressure from a fast-depreciating peso. However, neither the BSP nor the government actually decides who wins or who loses. In the end, it is the market that decides in this ever-moving game of trade-offs.

ANNA ISABELLE “BEA” LEJANO is a Research & Business Analytics Officer at Metrobank, in charge of the bank’s research on the macroeconomy and the banking industry. She obtained her Bachelor’s degree in Business Economics from the University of the Philippines School of Economics and is currently taking up her Master’s in Economics degree at the Ateneo de Manila University. She cannot function without coffee.

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Currencies 4 MIN READ

A perfect storm for the Philippine peso

Many factors are contributing to the peso’s woes. Inflation in the US is a major one. High inflation, however, may be over in a few months, if history is any guide.

July 18, 2022By Ruben Zamora

Despite the peso appearing oversold a few weeks ago, the local currency has continued to weaken against the US dollar. It seems it’s only a matter of time before the peso will breach the all-time exchange rate high of PHP 56.45 to the dollar in March 2004. From there, it’s uncharted territory.

As discussed in my previous article, the main driver of the abrupt peso weakness has been the stark difference in the path of US interest rates compared to that of peso interest rates. Since late May, global markets have been pricing in a faster pace of increase in US interest rates, and, naturally, as the rate of return in a currency rises relative to others, the more attractive that currency becomes.

Fast forward to mid-July and what was already an incredibly fast pace of rate hikes in the US by historical standards has sped up even more after the higher-than-expected inflation print in June of 9.1%. Take a second to digest that: over 9 percent inflation.

The US Federal Reserve has made it clear that they are willing to do everything to cool inflation down, but this latest data point suggests that what they’ve done so far (and what they’re saying they’ll do) hasn’t been enough. This means that the Fed has no other choice but to carry on raising rates until its effects translate into stabilizing prices.

Rising inflation, rising rates

The market is worried, however, that if inflation keeps surprising on the upside, then US rates will need to continue rising higher and sooner. This level of worry has reached a point that even the Banko Sentral ng Pilipinas’ surprise off-cycle rate hike of 75 basis points (bps) on July 14, an attempt to stem the slide of the peso, was effectively shrugged off.

The Monetary Board’s next rate policy setting meeting is scheduled for August 18, and based on recent memory, it has revised its benchmark policy rates outside of the official meeting only once, back in March 2020 at the very onset of the COVID-19 pandemic to support the banking system and prevent panic setting in the economy.

The 75-bp hike is also much higher than what the BSP had been saying (i.e., 25 bps or 50 bps hike) for the August 18 meeting. In other words, this decision was a major tectonic-level shift in the BSP policy, and it was designed to shock and awe the forex market. It didn’t have the desired effect.

Confluence of factors

It seems the peso is caught in a perfect storm—a jittery global market that views any sign of a more aggressive US rate hike as enough reason to sell risk. This includes emerging market currencies (i.e., flight to safety) and peak import season in the Philippines, which means the third quarter seasonally sees the strongest level of demand for the US dollar. It also includes a widening current account deficit driven by rising coal and food prices, most of which are imported and hence priced in US dollars.

The BSP has not been alone in having to adjust its interest rate policies, with central banks in both developing and advanced economies forced to keep pace with the US Fed to defend their respective currencies. The euro has experienced one of the deepest currency depreciations year-to-date, which explains in part the European Central Bank’s (ECB) guidance for a 25 bps hike on July 21st.

Follow the leader: Many countries are keeping up with the US with regard to setting policy rates in order to protect their own currencies. 

Except for Brazil, most currencies have depreciated against the US dollar.

What now?

Despite this cloudy outlook for the peso in the near-term, the BSP’s unexpected move from “dovish” (i.e., keep rates lower for longer to support growth first) to “hawkish” (i.e., defend the peso to avoid importing more inflation) should at the least help slow the depreciation of the peso against the US dollar. Given the more defensive stand on the peso, the BSP may also re-activate previous actions of supplying US dollars to create a “more orderly” foreign exchange spot market.

The fiscal side of the government, led by the Department of Finance, can also help by attracting more foreign capital into the market, and hence increasing the supply of dollars via direct investments. It begins with preserving the investment grade rating of Philippine sovereign bonds, which involves clearly laying out policies that would target a lower fiscal deficit and hence less government borrowing while supporting the country’s productivity, i.e., continuing the infrastructure build-out. While these may be aspirations in the medium-term, sending the right signals to the market will still help.

High inflation never lasts long

Ultimately, the fate of the peso still rests on what the US Fed will do, which in turn will be dictated by signs that inflation in the US is peaking. These signs remain elusive, but as John Authers, a columnist from Bloomberg, wrote in his recent article, “it is the nature of things for inflationary peaks to be over swiftly and followed by sharp declines. History, going back more than a century, shows that inflation never stays as high as it is now for more than a matter of months (outside of wars and the 1970s stagflation)”.

In the meantime, we still see any drop in the peso-dollar exchange rate below PHP 56 as a chance to buy, even though it is much higher than it used to be.

RUBEN ZAMORA is First Vice-President and Head of Institutional Investors Coverage Division, Financial Markets Sector, at Metrobank, which manages the bank’s relationships with Non-Bank Financial Institutions, including government financial institutions, insurance companies, and asset managers. He is also the bank’s Financial Markets Strategist, focusing on fixed income and rates advisory for our high-net-worth-individual and institutional clients. He holds a Master’s in Business Administration from the University of Chicago Graduate School of Business. He is also an avid traveler and golfer.

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Equities 3 MIN READ

Stock Market Weekly: PSEi may be due for a relief rally

Rosy US retail sales growth combined with oil price rollbacks in the Philippines may ease the stock market slide this week.

July 18, 2022By First Metro Securities Research


The Philippine Stock Exchange index (PSEi) dropped by 166.56 points to close at 6,195.26 (down 2.62% week-on-week), tracking the weak global markets. Bearish investor sentiment prevailed as:

(i) the peso continued to depreciate versus the greenback, trading near the record low of PHP 56.45 to the dollar on Wednesday;

(ii) the Bangko Sentral ng Pilipinas (BSP) raised interest rates by 75 basis points (bps) in an off-cycle meeting on Thursday, with BSP Governor Felipe Medalla saying that further hikes are still on the table in the scheduled Monetary Board meeting next month;

(iii) US inflation for June 22 reached 9.1% (consensus estimate: 8.8%), the highest since 1981 and will likely result in further Fed rate hikes; and

(iv) China achieved a slower-than-expected GDP growth in the second quarter of 2022 at only 0.4% year-on-year (consensus estimate: 1%, actual for 1Q2022: 4.8%).

Top index performers were Monde Nissin (MONDE) which was up 8.1%, Emperador (EMP) up 6.5%, and Meralco (MER) up 3.7%). Index laggards were Ayala Land Inc. (ALI) down 12.9%, Ayala Corp. (AC) down 10.5%, and GT Capital (GTCAP) down 10.3%. The index breadth was negative, with 12 gainers versus 17 losers. The average daily turnover value was PHP 4.6 billion. Foreigners were net sellers by PHP 2.6 billion.


The market is expected to bounce after Wall Street rallied at the latter part of the week following better-than-expected US retail sales growth. Moreover, big pump price rollbacks (diesel: PHP 2.00 to PHP 2.20 per liter; regular gasoline: PHP 5.30 to PHP 5.50/L) due on Tuesday, July 19, may ease investors’ concerns on inflation. However, gains may be capped as global recession fears continue to weigh on sentiment. The European Central Bank and Bank of Japan interest rate decisions on July 21, 2022, Thursday, will be closely monitored by the market.


Ayala Land, Inc. (ALI) — BUY

After dropping by over 12% last week, ALI’s share price is now trading at oversold levels and near its COVID-19 low of PHP 19.44 in March 2020. ALI tends to rebound when it hits oversold levels. Keep in mind though that ALI is still on a downtrend, so setting tight stops is recommended. Bargain hunters can accumulate at current levels and set stop limit orders below PHP 21.50. Take profit at around PHP 26.00/ PHP 28.00.

Metro Pacific Investments Corp. (MPI) — BUY

Business units Meralco (MER), toll segments (NLEX, CAVITEX, SCTEX, etc.) and Maynilad, all gave positive guidance. MER’s sales volume growth targets are expected to be at 5-6% this year. The toll segments’ traffic volume exceeded expectations, and Maynilad’s water supply will improve amid the La Niña season. Accumulating MPI once it breaks above PHP 4.00 is advisable. Set cut loss below PHP 3.65. Take profit at around PHP 4.50-P4.60.

AbaCore Capital Holdings, Inc. (ABA) — SET TRAILING STOPS

Despite its current uptrend, the price is showing signs of bearish divergence, making the probability of a pullback more likely. Taking profit at the eight-day exponential moving average price (EMA) or 9-day EMA is advisable (currently at PHP 1.64 – PHP 1.65). Next support levels are at PHP 1.40/ PHP 1.25.


Resistance: 6,400 / 50-day moving average price (MA)

Support: 5,700 / 6,180

The market has once again retested the 6,180 level as selling pressure persisted last week. Net foreign selling came in higher at PHP 2.6 billion. A break below 6,180 opens up the possibility of retesting the year-to-date low of 6,054, which, if breached, may then result in a retest of 5,700.


Continue setting stop limit orders. Slowly accumulate once the PSEi breaks above the 50-day MA (currently at 6,482).


July 21, 2022, Thursday
– European Central Bank interest rate decision (consensus estimate: 25 bps)
– Bank of Japan interest rate decision (no change in rates estimates)

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Investment Tips 3 MIN READ

Portfolio Construction 101: Ready Player One

Constructing your investment portfolio is similar to playing a video game. Winning depends on the choices you make and sticking to a well-thought-out plan.

July 14, 2022By Jon Edison M. Munsayac

What do a gaming character and an investment portfolio have in common?

Despite being seemingly unrelated, there are resemblances between creating a gaming character and an investment portfolio. Specifically, the thought process and the logic you need to build are both crucial and will determine your chance of success.

In a nutshell, it’s all about the build. It starts with a well-thought-out plan. Building without a plan increases the likelihood of things moving in a direction not initially intended or can even lead to an earlier-than-expected end. By contrast, a proper build minimizes risks or helps you avoid them while simultaneously raising efficiency.

In video games, “build” means a specific arrangement of items, equipment, skills, etc., to best arm a character for the challenges at a certain stage of the game. This build is bespoke because it is based on the specific stats of the character and the player’s own playing style.

Sounds familiar? We can see parallels between how a game player and an investor tackle their tasks. Portfolio construction marries knowledge of both financial market conditions and an investor’s risk profile. From a gamer’s point of view, building and maintaining a portfolio can be done by thinking about the following:

Consider your “playing style”—take note of your risk tolerance, appetite, and objectives. Investors have different perceptions of risk. Some like very little risk, while others welcome or even seek it out (risk appetite). This has to be matched with your capability to handle risks (risk tolerance) and what your investment goal is (objective).

Understanding where you stand in relation to these elements will help you create a risk profile.In video games, the conservative gamer (Player 1) may prefer to hit targets from a distance, whereas the aggressive gamer (Player 2) may prefer to be in the thick of the action.

Choose a character—asset allocation matters. After determining your risk profile, select a portfolio asset allocation that best matches it.Prior studies have suggested that a significant portion of returns are due to a portfolio’s asset allocation.

This step is a balancing act between risk and return. Higher risk means a higher return. Conservative investors have more time deposits compared to aggressive ones who have more stocks. Here, Player 1 has a higher tendency to pick an archer, while Player 2 will go for the swordsman.

Pick your equipment—load up on specific securities. With the allocation set, the investor buys a list of securities (bonds or equities). Now the initial portfolio is constructed. In gaming, Player 1, the archer, goes for the bow and arrows, while Player 2, the sword and shield.

Explore and fulfill mission objectives—scan the market landscape and rebalance your portfolio accordingly. With the objective and portfolio set, you now need to look outward and check economic conditions and financial markets.

Are interest rates high? Is economic growth rising or declining? Are company earnings sustainable? Answers to these questions will paint a backdrop of market conditions that need to be considered in selecting a strategy. It’s like Player 1 and Player 2 are exploring the map to fulfill mission objectives. They face challenges that force them to reevaluate.

Recalibrate player equipment when necessary—work out portfolio allocation and security selection to fit the current market situation. Financial markets and the economy undergo cycles, and your portfolio needs to adapt to these changes. Recalibrating portfolios involves rechecking the portfolio’s asset allocation and securities. Economic booms give you the opportunity to be more aggressive, while recessions require a defensive touch.

Being flexible and not falling in love with portfolio holdings is important. Your financial advisors and portfolio managers, likewise, play a huge role in giving you guidance. Players 1 and 2 need to recalibrate, too, depending on their mission. They can change their equipment to become more effective. This goes on and on until they reach the end of the game and come out triumphant.

Just like with any endeavor, it takes practice to sharpen your expertise, regardless of whether it’s playing a video game or investing. Looking at current market conditions, it may look like the difficulty level in building a portfolio is set at an expert level. In times like these, gamers usually consult with reviews and guides. Investors, likewise, are advised to do the same.

Sounds like a plan? Have a conversation with your investment advisor. It never hurts to have an edge when it comes to investing.

JON EDISON MUNSAYAC leads the Portfolio Solutions Department of Metrobank’s Trust Banking Group which specializes in providing investment-based answers for clients’ portfolio needs. He has a little over 10 years’ worth of experience in trust banking, primarily in markets research, strategy, and investment solutions. He is a storyteller at heart and an avid believer in keeping things simple when possible.

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Economy 4 MIN READ

Infra spending: Expanding and transmitting economic growth

A ballooning debt-to-GDP ratio can become a problem when not managed properly. One way to deal with it is to spend on infrastructure, which can be a catalyst for growth, especially in the countryside.

July 13, 2022By Marc Bautista, CFA

In the discussions on how to reduce the debt-to-GDP ratio of the country, people get invariably drawn to talking about reducing the numerator (the debt) almost immediately, when in fact, increasing the denominator (Gross Domestic Product, or GDP) works equally well.

But because of that, the immediate reaction is to push for higher taxes to increase revenues and reduce the debt requirement. The primary problem with that is that higher taxes tend to pull down economic activity and, thus, GDP. And of course, if GDP comes down, the debt-to-GDP ratio goes up once again since the divisor is now smaller.

Coupled with that is the possibility of avoiding debt and scrimping and saving to reduce the debt burden on top of higher tax rates. The result might be both an economic slowdown and an impairment in basic government services and investments for the future, sacrificing the needs of the population on the altar of prudence from a household debt perspective (see also: Government debt is not like household debt).

On the other hand, assuming conditions are favorable, pushing up GDP through fiscal stimulus programs that are practically large investments by the government may make more sense. Such spending can be recovered via future tax revenues.

Continue infrastructure program

This will increase GDP while at the same time increasing future revenues that can help reduce the need for more debt, thereby decreasing the overall debt-to-GDP ratio. One such program is the infrastructure program that is being continued from the previous administration.

Consider the country’s 2021 economic heatmap. Guess which region of the Philippines is the biggest contributor to GDP? Which ones are the 2nd and 3rd, respectively?

People normally guess correctly that the biggest is the National Capital Region (NCR), or Metro Manila. Only a few can guess what the 2nd and 3rd regions are, mistakenly believing that the Cebu Region (Central Visayas) is the 2nd top region in the country.

Now look at the chart below.

You will find that CALABARZON—or the areas comprising Cavite, Laguna, Batangas, Rizal, and Quezon—is the 2nd biggest contributor after NCR, with Central Luzon taking 3rd place, while the Cebu region is 4th.

What distinguishes ranks 2 and 3 from rank 4? It’s basically the proximity to Metro Manila, the top region, that once you connect Metro Manila to the adjoining regions, economic growth naturally spills over to these adjacent regions. And obviously, you connect these regions via infrastructure projects.

Catalyst for growth

What exactly happens when you connect these regions to a top region? One, this brings down the cost of moving people and goods from the center of growth, thus expanding the growth outwards. This means people and businesses can now go from Metro Manila and back to the neighboring regions at lower costs, bringing opportunities and growth into these regions.

The real estate surrounding the major roads and highways starts to improve in valuation, as people and businesses find it convenient to establish themselves in these areas, away from expensive Manila, but near enough to make travel cheap. More businesses are set up, while schools, hospitals, etc. expand to serve the growing population, making it more attractive for even more people to move in and resettle.

Just from the increasing real property taxes (aka “amilyar”, from the Spanish “amillaramiento”, meaning an assessment of a tax), the LGUs will be earning more in real estate taxes. Additionally, as more and more businesses grow, the tax base of the government expands, bringing in more revenues down the line in a virtuous cycle.

Investing in the future

Riding on the succeeding waves of growth and tax revenues, at some point, it should be easy to see why government deficit spending can eventually be recovered by the offsetting revenues in the future. That is the effect of building infrastructure to connect centers of growth to the surrounding areas. It is really an investment for the future.

What’s the lesson here? Infrastructure to connect one place to another in the Philippines is an absolute priority to stimulate economic growth for the general population. Just think about this. Why is it that Philippine tourist spots are more expensive for local travelers? Why do they prefer to go to Thailand or Bali instead, rather than to local tourist destinations?

It’s because of the problem of accessibility. And that’s what infrastructure spending addresses, because it helps bring down the cost of moving goods and people, creating lots of opportunities for the population of the impacted areas.

Expanding the heatmap of growth

The heatmap attests to the fact that the three top regions alone account for almost 60% of the Philippine economy. Think of that when you think of infrastructure that interconnects the country and pushes economic growth upwards.

Infrastructure spending is a good way to reduce our debt-to-GDP ratio. It’s spending that should pay for itself when played right.

MARC BAUTISTA, CFA, is Vice-President and Head of Research & Business Analytics at Metrobank, in charge of the Bank’s macroeconomic, industry, and financial market analysis and research. He loves teaching finance and investments, portfolio management, statistics, financial derivatives, economics, etc. in a university setting. He plays guitar in a rock band and loves to learn other languages, especially Spanish, promoting its recovery as a heritage language in the Philippines.

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Economy 1 MIN READ

July 2022 Updates: Higher inflation, more rate hikes ahead

Our economics team has made some revisions to their forecasts because of recent economic developments. This report is meant to guide and help you with your investment strategy.

July 12, 2022By Metrobank Research

Higher expected inflation prints are prompting the Bangko Sentral ng Pilipinas to issue statements indicating they may further tighten policy.

Additionally, the peso has been depreciating substantially towards the end of June and coming into July, trading at the PHP 55-PHP 56 levels.

With the recent 6.1% June 2022 inflation print confirming that inflation has not yet reached its peak, the possible bigger rate hikes to support the peso, and heightened inflation expectations, the forecast table has been revised as shown below, with the updated peso-dollar exchange rate and BSP overnight rate figures:

You may download the full report here.

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