The Market Call (May 2012)

We are pleased to release the May 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.

We are pleased to release the May 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 May issue:

• Macroeconomy

GDP growth in Q2 and the rest of 2012 should remain at around 6-7%, or at the top part of government’s target. More than 80% of infrastructure projects are already on­going, while low inflation and a higher peso-dollar rate would provide more purchasing power to consumers. Inflation, on the other hand, is likely to remain at 3% or lower in Q2 and only slightly higher in Q3 as Dubai crude oil has fallen below the main support price of $100/bar­rel from a high of $123.40/barrel in February, and rice out­put promises to be strong in both quarters (with better weather versus a year ago).

• Fixed-Income Securities

In general, the outlook for the bond markets is positive given the better inflation outlook. However, there may be a slight hiccup surrounding Greece’s elections on June 17 and the resolution of problem banks in Spain. With inflation at the low end of the BSP’s target range, and liquidity continue to abound, bond yields will have a downward bias at the long end in Q3, especially after Greece’s definitive status (in or out of the Euro-zone) in late June.

• Equities Market

The better than expected GDP growth in Q1 should give comfort to investors that the country’s growth story remains intact and stretched valuations are somewhat justified. On the micro side, earnings growth in the first quarter remains at a robust pace. In our view, given the strong first quarter earnings reports, we expect earnings forecast for 2012 to be upgraded. In the near term, however, we prefer to be cautious as most macro headlines have been negative.