Equities Summary and Outlook
Market Outlook. We expect the PSEi to trade sideways as investors wait for catalysts ahead of the first half 2018 earnings results and amidst continued trade war tensions. There’s downward bias as Pres. Donald Trump threatened the expansion in tariffs to more than $500bn worth of goods imported from China. Additionally, G-20 finance ministers and central bank governors in Argentina warned about trade tensions as risk to global growth. Pres. Trump is set to meet European Commission President Jean-Claude Juncker on Wednesday, July 25, to discuss trade relations.
Market Review. The PSEi moved sideways last week, ending flat at 7,399.61 (+0.01% week-on-week (w/w)) as it tracked international markets: Dow Jones, +0.15% and S&P, +0.02% w/w. From its peak of 9,058 in January, the market is down by 18.3%.
- Year-to-date (YTD), the PSEi was down 13.5%, the second worst performing market in the region next to China’s -14.5%. India and Taiwan are the remaining gainers with 7.2% and 2.7% gains ytd. W/w, Asian markets mostly ended in green with Malaysia as the top performer (+1.9%).
- Foreigners were still net sellers, totalling P70.8bn ytd. Last week, total net outflow was at P1.6bn.
- Average daily value traded for the week was the thinnest for the year at P3.8bn, almost just half of the P7.3bn average for the year. 57% of the trading participants were foreign.
- PHP was flat w/w at P53.51/$. Ytd, it is still the worst performer in the region (-7.2%).
- Foreigners’ top buys were URC, SMPH, JGS, TEL and GLO for an aggregate amount of P543.5mn. Meanwhile, foreigners sold MBT, MPI, LTG, AC and JFC amounting to P1.4bn.
- YTD Index gainers were SMC (+23%) and MER (+9%) while the biggest losers were MPI (-37%), AEV (-31%), MBT (-28%), AGI (-26%) and JGS (-25%).
Economic Summary News
Pressure on currency remains with the higher BOP, also negative on equities. The country’s balance of payments (BOP) in June 2018 was recorded at $1.18bn deficit, more than double last year’s $569m, bringing YTD BOP deficit to $3.3bn. Ytd BOP deficit was 4.6x higher than the $706mn deficit recorded during the same period last year and the Bangko Sentral ng Pilipinas’ (BSP) $1.5bn forecast for the year (revised from $1.0bn during the start of the year). The increase in deficit was attributed to increasing imports of capital goods and raw materials. Further, gross international reserves level was revised downward from $77.68bn to $77.53bn as of end-June. This still represents 7.5x import cover (goods and payments of services and primary income) and equivalent to 6.2x the country’s short-term external debt based on original maturity and 4.2x based on residual maturity.
Meanwhile, Moody’s Investor Service affirmed the Philippines’ Baa2 credit rating, just above the minimum investment grade. Two days before, Fitch Ratings also affirmed its BBB rating, also a notch above investment grade. Both agencies kept the current rating and the country’s “stable” outlook but warned that a downgrade is possible if stability was threatened by overheating risks which leads to fiscal deterioration, government debt metrics and erosion of external payments position. Moody’s added that domestic political developments, including the shift of government, weak rule of law and corruption, are also downside risks to the country’s institutional and fiscal profile. But this downgrade risk is offset by passage of train package 2 specifically corporate income tax reduction in the 2nd half and rice tariffication bill.
Metrobank’s second quarter net income grew 31% to P5.2bn, bringing net income for the first half of 2018 to P11.0bn, up by 16%, in-line with consensus estimates. Net interest income (NII) grew 14% to P17.2bn in Q2 alone bringing total NII to P33.3bn (+12%) in 1H18. This is equal to 74% of total revenues (net interest income and non-interest income). The robust NII was on the back of a strong 18% loan growth supported by a 9.6% increase in deposit and expansion in net interest margin (NIM) – reported NIM increased to 3.77% from 3.75% in 1Q18. Fee income was also robust, up by 25% to P3.2bn in 2Q18 alone (+17% to P6.07bn for the first semester). As a result, total other income was up 13.6% to P11.8bn in 1H18. Asset quality remained healthy with non-performing loans ratio at 1.1%.
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