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Navigating Through A Sea Of Crisis1

A presentation on the Challenges and Opportunities in the on-going Global Crisis

By

Jonathan L. Ravelas
Chief Market Strategist, BDO

Introduction

Good afternoon,

I am pleased to share with you our forecasts for 2009. Your presence today is indicative
of your continued interest in doing business in the Philippines, thereby raising hopes for
improving market fundamentals and a better business climate ahead.

The night is darker before dawn.

It is evident that the US and other developed countries are still some distance away from
recovery. Asian economies remain fragile as trade and financial linkages with recession-
battered markets have weakened them too. But it is not as bleak as it seems because
financial stability is now slowly being regained and market confidence gradually being
restored.

The US government and other nations have actively and decisively sought to rapidly
rebuild confidence by putting in place major reforms especially in their financial system,
which bore the brunt of the global crisis.

The Philippines, so far has been more fortunate than other countries in avoiding the
worst effects of the on-going recession. Our banks and other financial institutions,
through the guidance of the BSP, wasted no time in instituting measures that will protect
the health of our banking system and thereby insulate the country to a certain extent
from the global financial fall-out.

Summing up the current situation, we strongly believe that the Philippines have been
fairly successful in stabilizing the domestic economy despite a very difficult global
environment. Going by results, the Philippines fared well given the depth and far-
reaching impact of the US financial crisis.

Despite the turbulence in the markets, good business opportunities still exist. The savvy
investor knows and sees amidst all the market volatility an opportunity to position early
and be ready to take advantage of the next Bull Run.

What lies ahead?

I think I can be a little bit more upbeat in my prognosis than in the past. I am of course,
mainly encouraged by the resilience and stability our economy has demonstrated so far.

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1
Delivered during the economic briefing held on 26 March, 2009 at the Marco Polo Davao
However, I would not advise any excess exuberance just yet as some risks remain -
risks that we need to be prepared for. Risks stemming out from expected decline in
consumption, decline in business spending and decline in investments globally. We
have seen the tentacles of this crisis but up to now we are not fully cognizant how far
they can ensnare. We know that OFW remittances and exports will be affected too.

In contrast with most of the other affected economies in the region, the Philippines may
yet avoid a full-blown economic recession but may experience a marked slowdown. Our
economy’s resiliency does not mean complete immunity. Along with it is proactiveness
and constant vigilance. In these turbulent times, expect the following sectors to remain
strong: power and energy, food, healthcare, infrastructure and business process
outsourcing. However, some sectors like electronics, property, automobile and tourism
to be negatively affected.

On price movements, most likely, we are looking at a lower inflation rate this year of
around 6.75 percent on the basis of lower commodity prices and a recovery in
agricultural production. We believe a modest growth in our domestic economy of around
4.00 percent is quite attainable aided by increased government spending to pump-prime
a slowing economy.

Interest rates, currently at the 4.00 – 4.50 percent levels, will be significantly lower than
last year’s high of 7.25 percent. Before the events of Red October, these were at the
5.50 – 6.00 range. We continue to see interest rates remaining stable and averaging at
5.00 % in 2009.

The peso has recently weakened to around 49.00 – 49.30 slightly lower from last year’s
50.17, broadly in line with the cumulative depreciation of the Korean Won, the
Indonesian Rupiah, the Thai baht and the Malaysian Ringgit. We expect the currency to
remain volatile and may range between the 45.00 to 52.00 levels. Our yearend target
for the peso is at 48.50 to the greenback.

The outlook for our stock market in 2009 is not as easy to predict as in the earlier years
of this decade. Thus year 2008 was a year of reversals. A reversal, by my definition, is
when bullishness starts gaining momentum and suddenly crests at a certain point. After
which, downside targets are being lowered and lowered, then suddenly a sharp rally
occurs.

From a larger perspective, the market is actually not trending. In this type of market, a
buy and hold strategy does not work.

Fortune favors the brave - Terence, Phormio

The year 2009 will be characterized by sharp corrections and increased volatilities.
Volatility will attract the market investors again. In this part of the market cycle, chart
reading becomes hazier. In a situation like this, it is best to ask what are improbable to
happen:

An index level beyond 2,500 and an index level below 1,500

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1
Delivered during the economic briefing held on 26 March, 2009 at the Marco Polo Davao
Taking a look at the current market information, our market should head towards the
2,400 levels, which would translate to 12.00 times 2009 forecasted earnings. However,
we all know that this type of analysis rarely happens without a lot of surprises along the
way.

For example, external factors, which were not anticipated before they happened, have
created the roller coaster ride we experienced last year. One can recall the US Subprime
Crisis, the US Banks’ Bailout, the Oil Crisis and our own rice crisis.

In a bull market, these factors that I have mentioned would have had very little downside
effect. Just look at how huge the U.S. budget deficit, it does not seem to scare the US
dollar holders. The mere fact that ‘negative’ events are causing massive drops means
we are in a bear market.

The phrase “with it or on it” harkens back to Sparta and the culture of war as Mothers
told their sons to come back home with their shield or on it. Whether this is sound
advice for those brave enough to invest or actually create value in today’s global
economy may be worthy of a long debate. The key is having access to the right set of
investment strategies. Some of which are

Trade if one has the skill (buy-and-hold may not be optimal at this time)
Protect yourself with a Stop-Loss
Buy only after a good-enough correction

All told, 2009 is a year to be cautious. Money can still be made, by waiting for the
correction and going for a tradable bounce.

Currently, the market support lies at the 1,525 – 1,650 levels while resistance lies at the
2,000 – 2,150 levels. Trade the range. Watch for breakout/down from these levels.

Given the risk aversion sentiment dominating the markets, going beyond 2,500 is
doubtful. Any rally will be susceptible to sell-offs since we are in the cycle where news
will be interpreted negatively. It is in those sell-offs where the best returns can be
achieved by positioning for the inevitable bounce.

Concluding Remarks

Let me now conclude.

The country’s economic record has been far from smooth and faultless. In fact we had
to weather so many crises in the past. Today, the challenge is less dramatic but by no
less urgent. We must repeat the feat we did roughly eleven (11) years ago during the
Asian Financial Crisis by hastening our social and economic transformation. The
resilience and the stability of our economy give me the confidence to say “ Vero
Possumus,” roughly translated as “Yes we can” – weather this crisis.

Thank you and Good Evening.

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1
Delivered during the economic briefing held on 26 March, 2009 at the Marco Polo Davao