The Market Call | September 2020

Macroeconomy

Although the deep dive in Q2 which impacts also Q3 suggests full-year GDP to decline by 6.5% to 8.5%, we expect a more positive outlook for Q4 with the Philippine economy slowly recovering and milder restrictions in place starting September. Inflation will be below 2.5% as crude oil prices remain low. We also see more job recoveries and growth in OFW remittances. National Government (NG) spending will continue to increase especially on infrastructure and health facilities.

Fixed-Income Outlook

While bellwether 10-year T-bond yields reached a record low of 2.56% on August 18, these began to rise sharply as the market reacted negatively to the NG’s announcement of a P3.0-T borrowing program in 2021. Also, it raised concerns that NG debt may spiral upwards after the pandemic. Subsiding inflation rates (2.4% in August from 2.7% in July) and the Fed’s commitment to zero interest rates until 2022 should temper the ascent.

Equities Outlook

The PSEi should trade within a wide range of 6,500-7,000 by year-end on more positive corporate developments in Q3 and decreased foreign selling. PSEi stayed relatively flat (-0.7%), while stocks worldwide edged higher in August. The local bourse should stay around 6,000 in Q4 after it bottoms out close to 5,500 amid uncertainty of the wider reopening of the economy and elevated COVID-19 cases (but not deaths).