The Market Call | March 2020

Macroeconomy

Undoubtedly, PH GDP growth will take a big slice in Q1 thanks to COVID-19, albeit the magnitude remains uncertain. Positive prints in employment and inflation, and a 50 bps cut in policy rates by the BSP should offset some of the output loss. In addition, front-loading of infrastructure and government spending should also ease the pain. We see a V-type of recovery as soon as the spread and fatality rates of the virus clearly decelerate.

Fixed-Income Market

The bloodbath in equities and commodity markets, which continued until mid-March, has investors turning to local bonds for safety and best returns. We expect large policy rate cuts by the Fed and BSP and these, together with the plunge in crude oil and commodity prices, will pull down the yield curve further.

Equities Market

COVID-19 dealt a crushing blow on global equities markets, including the PSEi. The hemorrhage continued into mid-March after the collapse in crude oil and commodity prices by a third with little hope for a quick recovery in the absence of an effective vaccine and governments resorting to draconian measures to minimize the bloodletting. We, however, think that a recovery would ensue once the spread and fatality rates of the virus slow down significantly.