Weekly Equities Summary and Outlook : December 31 – January 4, 2019

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Equities Outlook

Outlook. The PSEi may trade between 7,600-7,900 with an upward bias as investors digest the sharp deceleration in domestic inflation to 5.1% and amid dovish Fed, monetary easing in China and resumption of US-China trade talk that could stoke renewed risk appetite.

Key domestic economic data to be released this week are: money supply and bank lending for November (January 8) and external trade for November (January 10).

Market Review. The PSEi advanced for the fourth straight trading session yesterday, up 26.5 points (0.3% from Friday’s closing) to end at 7,787.6. Last week, the local bellwether rose 295.1 points (+4% week-on-week, w/w) to close on Friday at 7,761.1. This was on the back of lower-than-expected December inflation print at 5.1% vs consensus of 5.7% and BSP’s forecast of 5.2-6%, supporting the view of sustained easing of price pressure that would bring inflation within the BSP’s target of 2-4% this year.

Market Flows.. The market raked in P1.2bn ($23.1mn) in net foreign buying in the first week of 2019, reversing two straight weeks of net outflows.

Regional Markets.. Markets were mixed last week. The PH outperformed other Asian markets, +4%, followed by Indonesia, +1.3% and China, +0.8%. Meanwhile, Taiwan, -3.5%; Japan , -2.3%; and India, -1% were the top underperformers.

Currencies.. Most Asian currencies gained last week, with the PH peso gaining 0.1% w/w to end on Friday at P52.52/$. For Most Bought/Sold Stocks, see table in next page.

Economic News

December headline inflation came in at a seven-month low of 5.1% year-on-year (y/y) from 6% in the previous month, bringing the full year 2018 average to 5.2%. Month-on-month (m/m), inflation declined for the second consecutive month by 0.6% from -0.2% in November. Significant drop in heavy-weights food (-0.6% m/m), especially rice (-1.7% m/m), corn (-1.3%) and vegetables (-3.3%); electricity, gas and other fuels (-1% m/m) and transport (-3.9% m/m); and slowdown in restaurant and miscellaneous goods and services (0.1% m/m from 0.5% in November), resulted in slower-than-expected December inflation. Collectively, these comprised 63.5% of the CPI basket. Likewise, core inflation eased in December to 4.7% y/y from November’s 5.1% uptick. We expect inflation to further slow below 4% in Q1 2019 due to food supply normalization and low crude prices.

Philippine Statistics Authority (PSA) announced that Volume of Production Index registered its 11th consecutive month of growth in November, up 1% y/y vs -10.1% in the same period last year, albeit it was the slowest pace this year. While heavy-weight food manufacturing contracted by 18.3% for the month, seven of the 14 sectors that expanded recorded double-digit growth led by textiles (+45.8%), miscellaneous manufactures (+25.6%), petroleum products (+22%), tobacco products (+21.1%), paper and paper products (+15%), beverages (+11.7%) and electrical machinery (+11%). Eleven of the 20 sectors had capacity utilization of at least 80% led by petroleum (89.9%), basic metals (89%), and non-metallic minerals products (86.5%). NEDA attributed the deceleration in factory output last year to less optimistic consumer and business outlook in Q4 2018 as indicated in the BSP survey.

Corporate News

International Container Terminal Services Inc. (ICT), through its wholly-owned subsidiary ICTSI Middle East DMCC, has signed a concession agreement to operate, manage and develop the South Port Container Terminal (SPCT) at the Port of Sudan. SPCT has a capacity of 1mn TEU. The transfer of the facilities to ICT will take place in Q1 2019. ICT closed yesterday at P100/share, flat YTD.

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