The Market Call – August 2012

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We are pleased to release the August 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 August issue:

• Macroeconomy

The economic numbers being reported and the increasing number of foreign analysts seeing the country to continue its strong run despite the turmoil in the Eurozone are confirming our bullish view on growth.  With agriculture likely to expand by 2.5% in Q2 as against 1.0% in the previous quarter, and more rapid expansion in the manufacturing and construction sectors, we maintain our view that Q2 GDP growth will be 6.5% to 7.0%, or even better than Q1’s 6.4% surge.  Inflation will keep close to the lower end of the BSP’s 3-5% target range, and hover around 3.2%, much of it being due to base effects.

• Fixed-Income Securities

With inflation kept close to the lower bound of BSP target of 3-5%, and more liquidity with the policy rate cut (possibly another 25 bps), the demand for GS will remain robust, and so yields will tend to have a slightly downward bias.  However, the specter of RTB issuance to be combined with a bond swap (to longer tenors) would create a temporary upward movement especially at the long end of the curve, since there may be oversupply at that end.

• Equities Market

We remain constructive on the Philippine equities in medium- to long-term. However, we prefer to lighten positions in August on market strength. While we are on a view of strong local growth, market valuations have become “somewhat” stretched. Early 2^nd quarter earnings results so far have come in expected or slightly above. But on a forward price-to-earnings (P/E) ratio metric, earnings growth has been largely priced-in. Unless 2^nd quarter earnings come in well above expectations, it is hard to envision a sustained rally in Philippine risky assets. Download it here: THE MARKET CALL (AUGUST 2012)