Macroeconomy
The economic recovery appeared to gain momentum as GDP bloated beyond consensus in Q3-2021. The 3.8% QoQ (seasonally adjusted) rise tends to confirm this, amidst muscular rebounds in consumer spending and the output of the Services sector. With milder quarantine restrictions in Metro Manila+ starting, and headline inflation going below 4% by December at the latest, business and consumer sentiment should further boost economic activity to a full-year GDP growth slightly above the 4%-5% revised government target.
Fixed Income Outlook
Given U.S. inflation and Fed’s tapering starting November, local 10-year T-bonds may have a short-term upward bias. But we don’t see the 10-year U.S. Treasuries will hit the roof, as crude oil prices have flattened and will encounter strong resistance at higher yield levels. Thus, local bond yields should respond more to local inflation and BSP setting. With BSP still asserting the need to support the economic recovery, and inflation likely to go below 4% by December at the latest, we expect 10-year yields to go below 5% by end-December.
Equities Outlook
PSEi broke through the 7,000 barrier and settled above it for the rest of October and through mid-November. PSEi would have fared better had foreign investors not become net sellers in the last three days of October. With early corporate reports showing muscular Q3 gains and GDP expansions in Q3 both exceeding market expectations, the positive sentiment towards PH equities has gained further traction. PSEi should breach 7,500 before the end of the year or in January 2022 at the latest. These developments, together with easing quarantine restrictions and more vaccinations/less cases, bolster our view that we have entered a bull market.
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here.The Market Call | November 2021
