Macroeconomy
Despite another decline in GDP in Q1, a spate of positive economic news—such as, the outsized job creation, surge in infrastructure spending, surprising jump in exports, softer increase in inflation-- may help the economy recover faster. Release of GDP caught everyone’s attention as the economy unexpectedly slowed down in Q1-2021 by -4.2%. However, the continued extension of MGCQ in Metro Manila+ does provide some headwinds in the future.
Fixed Income Outlook
The local GS bond market rallied as 10-year U.S. Treasuries trekked down and March inflation eased to 4.5%. In addition, the government successfully raised $2.5-B from Euro bonds in April, following a $0.5-B Samurai bond issuance in March. We see a slight upward bias in longer tenors supported by our outlook in inflation domestically (above 4% until Q3) and elevated inflation and Treasury yields in the U.S.
Equities Outlook
While advanced economies’ equity markets made further gains in April and ASEAN equities had a mixed record, DJIA has moved sideways with a downward bias starting May, as the effects of the initial COVID-19 dole outs by the Biden administration wore off. Rising inflation, admittedly more cost-push in origin, has also helped cool investor enthusiasm. PSEi which lost another -1.1% MoM to end April YTD with -10.8%, and has gone below 6,200 in May despite more than respectable Q1-2021 YoY earnings growth. Extended tight quarantine restrictions in Metro Manila+ have kept consumers and producers constrained and investors uneasy to expand their equity portfolios. These and the Q1-2021 GDP dropped, call for a review of earnings forecasts. While traction in infrastructure spending makes related counters attractive, investors should remain wary about private construction weakness and the increased volatility in the months ahead.
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