Macroeconomy
The outlook for continuing fast economic recovery for H2 still looks reassuring as the economy added nearly half a million jobs in May (esp. Trade, Construction and Manufacturing) and consumer sentiment improved. The slew of supportive data included expansive Manufacturing PMI, “adjusted” National Government spending, capital goods imports and steady growth in exports and OFW remittances. While we expect a slight easing of growth starting Q2, we still see GDP climbing by 6% to 7% for the full year. We see the peso depreciation to boost income of some 70 million Filipinos and offset likely softer consumer spending due to the elevated inflation. We expect a short-run respite for the peso with the U.S. dollar weakening from its peak and PH trade deficit lower in H2 from record highs in May and June.
Fixed Income Outlook
The domestic 10-year T-bonds climbed further in June in the wake of higher interest rates across the globe. BSP unexpectedly raised policy rates by a hefty 75 bps on June 14 to stabilize prices. However, BSP will not religiously follow Fed’s pace since the inflation situation in the U.S. greatly surpasses the PH’s case (e.g., U.S., 9.1% in June while 6.1% in PH). In the near term, pressure on the local 10-year yields may be limited amid improving fiscal position as tax revenues exceed targets and cooling inflation on lower oil prices.
Equities Outlook
PSEi experienced a -9.1% dip in June associated with high inflation globally and the increase of global interest rates. Specifically, the BSP recently announced its off-cycle 75 basis points rate hike to address inflationary risks and to anchor inflation expectations. Thus, we see a volatile trend associated with uncertain global market conditions, which may keep investors averse to the risks in the equities markets. We, however, still expect a good recovery in H2, and good stock picks with high dividends, opening economy plays and logistics.
