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Macroeconomy

GDP growth accelerated to 6.4% in Q4, due to robust government and infrastructure spending and softer inflation. These same factors, along with a low base and positive employment print, should sustain faster growth in 2020. Robust residential and commercial building demand and the various Private-Public Partnership (PPP) projects should also further stoke investment demand. Inflation will likely stay within 2.5% to 3% as crude oil prices have returned to mid-$50/barrel. However, a much stronger eruption of Taal volcano and prolonged spread of novel coronavirus could slow the economy slightly.

Fixed-Income Market

While we saw domestic bond yields rise in January in reaction to faster December inflation, we view this as unsustainable, given stubbornly low interest rates abroad. US 10-year T-bond yields have trended downward in January due to the global slowdown and fears of a pandemic from China’s coronavirus. Besides, the inflation upsurge may have limited upside since oil prices have gone back to mid-$50/barrel (for WTI) while caused a downward trend for 10-year US Treasury. Thus, we see profit opportunities in the market, especially when BSP cut rates during Q1.

Equities Market

Despite the expected volatility that global equities will face in 2020, we think that PSEi will trace a generally upward trend, to hit 8,600-8,900 level sometime this year. Expected strong corporate earnings (10%) and the PH economy’s return to above-6% growth path should provide the impetus. However, uncertainties surrounding water and media issues could dampen PSEi gains, aside from the recent Taal volcano eruption and the spread of the coronavirus across the globe.

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