The Market Call – July 2012

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We are pleased to release the July issue of The Market Call, as published by the FMIC & UA&P Capital Markets Research. This is a result of an in-depth analysis on the emerging and leading trends in the global and local markets that have shaped the direction of the Philippine capital markets in the last four weeks. Here are the highlights of the July issue:

• Macroeconomy

While the world frets and worries about the impact of the Eurozone banking and debt crises, the Philippine economy appears to be on a roll as the economy seems to be in a “sweet spot” of faster growth and slower inflation.  With industrial electricity sales growth zooming to a 2-year high of 19.7% in May, and public spending up by 18.3%, and new jobs still over 1 million in April, the out­look for GDP hike in Q2 looks even more promising than Q1. These enable us to upgrade our full year projection for GDP growth to 6-7%.  Furthermore, inflation in Q3 is likely to average 3.0%, which is at the low end of the BSP’s target range of 3-5%.

• Fixed-Income Securities

Given the external developments, the easing of expected infla­tion rates, and small size of NG’s intended borrowings (which are probably in the high side, given its below-tar­get spending record) relative to the increased amount of money market funds due to rapidly rising savings, the tendency will be for the yields, especially at the long end to ease. The 4.2% rate on SDAs puts a floor on yields for the shorter-end of the curve.

• Equities Market

While our medium- to long-term outlook for the Philip­pine equities market remains constructive, in the next 3 months, odds are high that our market could move lower. From an asset allocation standpoint, we would move to underweight ourselves in equities. We anticipate market disruptions from the political divide in the EU and possibly weak economic data. There is also the phenomenon of fund managers taking their vacations during the quarter as well as the dreaded “hungry ghost month” in East Asia. Download it here: THE MARKET CALL (JULY 2012)