Macroeconomy
Most recently released economic data tend to portray an economy sufficiently robust to withstand the global slowdown. After all, the economy has relied much on domestic demand, and the signs confirm our view. Vigorous gains in July employment, some recovery in the Manufacturing sector and likely rebound in infrastructure spending support this. While inflation above 6% may cut into consumer spending, the significant peso depreciation puts more money in the hands of OFW families, BPO workers, and exports and their suppliers. This should blunt most of the negative impact of inflation and enable the economy to expand by 6.5% in Q4-2022. Peak inflation may be at 6.7% by September or October this year.
Fixed Income Outlook
The bond rally in August revealed to be temporary as yields quickly reversed to the upside after Fed Powell’s hawkish remarks during the Jackson Hole symposium. Furthermore, global risk sentiment soured in September amid stubbornly high U.S. August inflation at 8.3% pushing the Fed to raise its policy rates by 75 bps in its September 20-21 meeting. Consequently, we see local yields to easily break the 7% barrier as nominal yield spread need to keep up with inflation and PH-US spread. Thus, BSP did hike policy rates by 50 bps in its September 22 meeting, and another 25 bps before the end of the year, especially if inflation remains above 6.5%.
Equities Outlook
The PSEi experienced a 4.2% uptick in August as local investors provided support as foreigners exited the market. The upside in robust domestic demand and earnings growth contributes to a constructive outlook for local equities. Like previous election years, the economy tends to slow down in H2, however, the positive factors will likely offset negative ones. As inflation remains above 6% which results in a cut in consumer spending, peso depreciation may offset the elevated inflation as some 70% of the population benefit from said depreciation. On the other side of the spectrum, infrastructure and private construction spending and financial sectors should boost bottom lines and drive PSEi-constituents above average earnings growth in 2022. For the full details of The Market Call, please click the link https://www.firstmetro.com.ph/the-market-call/2022TMC09.
