The Market Call | November 2018

Macroeconomy

Sustained by durable equipment and construction investments and a modest rebound in exports, we see a faster GDP growth of 6.6% in Q4, accelerating further in 2019. Higher dollar remittances in Q4 should likewise support consumption and should somehow buffer the contractionary spending effect of inflation, unless the Bangko Sentral ng Pilipinas (BSP) allows significant appreciation of the peso. With the peaking of inflation in September-October, we think the Monetary Board’s (MB) latest policy rate hike of 25 bps on November 15 will be the last until next year, even if the Fed continues its hiking cycle.

Fixed-Income Market

With crude oil plunging into bear territory and food prices heading south, the inflation outlook both here and abroad has brightened and makes bonds (especially in the Philippines) more attractive. Corporate bond issuances will then wait for days in 2019, while ROPs may recover its allure if the Philippine economy rebounds as expected, and stabilizes or lowers its balance of trade deficits.

Equities Market

External (policy uncertainties with mixed US mid-term results, US Fed rate hikes) and domestic (elevated inflation, moderate Q3 earnings) factors provide headwinds to a definitive resumption of PSEi’s upward trend, which would come only in 2019, likely before the mid-term elections and better economic growth recovering to a 7% trajectory.