The Market Call | FEBRUARY 2021

Macroeconomy

We see the manufacturing sector leads the recovery in Q1 as PMI rose to a 25-month high in January, and should provide more jobs later on. Meanwhile, Construction will likely make a dent in Q2, even as infrastructure spending remains hampered by financial problems of small to medium sized contractors, but should gain traction in H2 as Presidential elections come closer. Inflation rate will remain above 4.0% since rebuilding supply chains take time while the plethora of health certifications by city/municipality impede people and goods movement. Crude oil prices have speeded beyond 2020-lows, while OFW remittances will hold on to positive territory as advanced economies recover. The dollar-peso rate should have a slight upward bias as the economy revs up.

Fixed Income Outlook

The larger increase of inflation driven by higher food and transport prices and U.S. 10-year T-bonds yields racing closer to 1.54% in February from 1.11% in end-January will push up local bond yields but find stronger resistance exceeding 4.0% in H1. The National Government borrowing program will focus on H1 on a fairly modest scale and will have little added effect to the increase of yields of long-term bonds. In addition, top corporates must hurry in issuing bonds as they may contribute on the uptrend of yields.

Equities Outlook

Although we think that the Philippine economy could show some bounce in Q1-2021 and that volatility will stalk the local market for most of H1, we have guarded optimism looking forward. We hope PSEi may emulate the upswing in East Asian (esp. China and South Korea) economies and equities markets in January, in which ASEAN, U.S., and EU stock markets floundered. However, economic activity should accelerate as we see more quarantine restrictions/health certifications eased and/or more unified and more massive roll out of COVID-19 vaccines. Investors should continue to watch out for continuing monthly gains in the economy and corporate earnings, with the latter focused on firms with strong fundamentals and growth potential in the post-pandemic environment.