Equities Summary and Outlook
Outlook. We expect the PSEi to continue trading around 7,200 as investors remain on the sidelines amidst the lack of catalysts and ahead of the first half earnings which starts by end of the month. Key economic data to monitor are Overseas Filipino Workers remittances and Balance of Payments to be released next week.
Market Review. The PSEi ended flat at 7,186.71 last week, down by 0.10%, as June-2018 inflation and gross international reserves announced last week dampened investors’ sentiments. The market reached a high of 7,348.42 on Wednesday but lost its strength on Thursday (-1.56% day-on-day to 7,233.57) after inflation surprised the market with a 5.2% reading in June, higher than consensus and government estimates. Meanwhile, gross international reserves (GIR) fell further to $77.7b in June from end-May’s $79.2b leaving the country with a 7.5x months’ worth of imports of goods and payments of services and primary income (see discussion below).
- Year-to-date (YTD), the PSEi was down 16.0%, the second worst performing market in the region ahead of China’s 16.9% decline. YTD, the only gainer was India (4.7%). W/w, most Asian markets declined except for Thailand (+1.2%) and India (+0.7%).
- The market is still in the bear territory, down by 20.66% from its peak of 9,058.
- Net foreign selling bounced back to P1.6b (from P415m on the week of June 29), now at its 23rd consecutive week. This brought YTD net foreign selling to P67.4bn.
- Last week’s trading volume was the thinnest for the year at P4.9bn. This was far from the ytd average daily value traded of P7.5b.
- PHP was flat at P53.42/$ (-0.02% w/w). YTD, it was down 6.8% from its end-2017 close of P50.02/$.
- Foreigners’ top buys last week were MER, GTCAP, URC, SMPH and MEG for an aggregate amount of P807m. Meanwhile, foreigners sold BPI, ALI, MBT, JFC and MPI amounting to P1.6b.
- YTD index gainers were SMC (+23%) and MER (+9%) while the biggest losers were MPI (-32%), JGS (-31%), GTCAP (-29%), AEV (-28%) and MBT (-28%). W/w winners were GLO (+8%), RRHI (+6%), DMC (+5%), RLC (+5%) and MEG (+3%) while the losers were MBT (-5%), JFC (-5%), ALI (-3%), LTG (-3%) and AEV (-3%).
Economic Summary and Outlook
Inflation accelerated to 5.2% year-on-year (y/y) in June on the back of higher prices for alcoholic beverages and tobacco (+20.8%), housing, water, electricity, gas and other fuels (+4.6%), furnishing, household equipment and routine maintenance (+3.0%), transport (7.1%) and education (+4.0%). Higher prices of oil and rice, depreciation of the peso and effects of the tax reform were among the factors behind the higher reading. This was way above consensus expectations of 4.8%, the Department of Finance’s (DOF) 4.9% estimate and the Bangko Sentral ng Pilipinas’ (BSP) range of 4.3%-5.1%. Using 2006 prices, inflation was at 5.7%, the highest reading since April 2009. Second quarter 2018 inflation averaged 4.8% but consensus expects inflation to peak further to 5.0% in the third quarter before easing to 4.5% by the last quarter. The central bank vowed to review and update its assessments and forecast inflation and shape the strength and timing of their next policy response.
Meanwhile, end-June 2018 GIR level was lower at $77.7b from end-May’s $79.2b (-1.9% month-on-month) and June 2017’s $81.3b (-4.4% y/y). According to the Bangko Sentral ng Pilipinas (BSP), the GIR was still at an ample external liquidity buffer level. This was equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income, the least import cover multiple since 2008 at 6.4 months. It was also equivalent to 6 times the country’s short-term external debt based on original maturity and 4.1 times based on residual maturity.
Metro Pacific Investment Corp. (MPI) is starting initial works for the P23.3b Connector Road, an 8km link road for the North and South Luzon Expressways). Rodrigo E. Franco, Metro Pacific Tollways Corp’s president, announced that the group wants to mobilize construction by fourth quarter of the year and to start the full-blast construction within the first quarter of 2019. The government’s deadline is to deliver the first section during the second quarter of 2019.
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