The Market Call – September 2013

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Dear Colleagues, Partners and Clients: We are pleased to release the September 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 September issue: §  Macroeconomy Given the backdrop of decelerating inflation and increased government infrastructure spending, we remain opti­mistic that GDP growth in H2 will again exceed the 6-7% target of the government. Despite high crude oil prices, pushed up primarily by po­litical tensions in the Middle East, mild increases in non-food prices and better harvests starting October should keep inflation very much in check in H2. OFW $-remittances should maintain its 5-6% (revised) growth pace, but the peso depreciation will mean more income in the hands of OFW families and exporters which should translate in stronger consumer demand in H2. §  Fixed-Income Securities Despite the exaggerated reaction of financial markets to the Fed’s general plan of tapering its bond purchases sometime this year, the outlook for the domestic bond markets remains sanguine. Yields are expected to be lower at the belly and the 25- year part of the curve, as these have risen too fast with the developments in the U.S. The financial markets will remain well supplied in terms of liquidity as rapid economic growth fuel more savings and as the winding up of SDAs continue in H2. We expect a rush of corporate debt issuances in Q4 as the pipeline has bulged in the expectation that interest rates have bottomed.

• Equities Market

As of the end of August, the PSEi valuations remain expensive on a historical perspective even after the sell-off. We think valuations will contract further to normal levels as bond yields rise globally and amid lack of catalysts for an expansion of earnings multiples. While on a macro perspective the Philippines remains sound, we believe that it is already reflected in recent price levels. At the micro level, companies continue to report healthy profits. Q2 profits were mostly in-line with market expectations, hence, unexciting. Looking from EPS perspective, growth is slower primarily as a result of top up placements in the past 12 months.   Download the full PDF here! DOWNLOAD