Weekly Equities Summary and Outlook : July 23 – 27, 2018

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Equities Outlook

Outlook. We expect the PSEi to hover around 7,600-7,900 as the market awaits the release of PH’s Q2 GDP (est: 6.7%) and the Monetary Board meeting, which is widely anticipated to raise policy rates by at least 25 bps, both are scheduled on Aug. 9. So far, H1 earnings results were mixed: MBT (+16% to P11bn, outperform), BDO (+13% to P13.6bn, underperform), and MER (+7% to P10.9bn, outperform).

Market Review. The PSEi bucked regional markets, rising for the fifth straight trading session yesterday, up 71.9 points (0.9% day-on-day) to close at 7,777.3. Last week, the local bellwether gained 301.8 points (+4.1% week-on-week, w/w) to end on July 27 at 7,701.4. PSEi was the 5th best performing market in the world (in USD terms) last week. The rally was buoyed by positive sentiment over Pres. Duterte’s economic reform focused SONA, optimism over positive Q2 earnings results, and favorable outlook on the PH economy from IMF, ADB, Moody’s and Fitch Ratings.

• Net foreign buying returned in five of the last six trading sessions totaling P1.9bn. This reversed 25 consecutive weeks of net foreign outflows amounting to P75.3bn. Year-to-date (YTD), net foreign selling totaled P69.3bn.
• PSEi’s YTD decline was trimmed to 10%, albeit still one of the top underperformers next to China’s 13.1% drop. India (+9.6%) and Taiwan (+4.1%) were the only gainers YTD in Asia.
• PHP climbed 0.4% w/w to P53.29/$. YTD, it weakened by 6.3%.
• Last week, foreign investors flocked to ALI, SM, BDO, MBT and JGS for a net amount of P2bn and sold MPI, AGI, LTG, PGOLD and SCC for P910mn. YTD, MER and TEL were the only index stocks with net foreign inflows totaling P3.7bn, while SM, ALI, BDO, AC and MBT were the most sold stocks for an aggregate amount of P31.5bn.

Economic News

The International Monetary Fund (IMF) expects the Philippines’ current account deficit to reach 1.5% of GDP, five times higher than its initial forecast of 0.3%, amidst higher importation of capital goods and raw materials to support the country’s growing economy. IMF’s projection is higher than Bangko Sentral ng Pilipinas’ (BSP) revised current account deficit projection of 0.9% of GDP or $3.1bn. Earlier, the IMF said that the domestic economy is likely to sustain 6.7% growth in 2018 and 2019 on the back of robust government spending and investments. It also guided for an elevated inflation of 4.7% in 2018 from its initial forecast of 4.2%, albeit it is projected to decelerate to 3.8% in 2019 from earlier projection of 3.3%. IMF called for further monetary tightening to anchor inflation expectations.

Department of Budget and Management (DBM) expects government outstanding debt to reach P7.3trn by end-2018 (+10.2% y/y from end-2017’s level of P6.6trn) and P8.1 trillion by 2019 (+11% y/y). The increase in debt levels is attributed to the government’s projected additional borrowings of P1.2trn in 2018 (with P710bn in principal payments) and P1.9trn in 2019 (with P1.1trn in principal payments). In June, the government’s outstanding debt breached the P7trn mark, with domestic debt comprising 65.3%.

Corporate News

Banco de Oro Unibank (BDO) reported recurring income of P13.6bn in H1 2018 (excluding the impact of PFRS 9 on investments portfolio of BDO Life and One Network Bank), up 13% y/y. First half income was behind FY 2018 consensus of P31.8bn. BDO’s net interest income grew at a robust pace of 19% to P46bn, while non-interest income declined by 2% to P22.8bn. Operating expenses expanded by 12% to P46.8bn due to expansion-related expenses and higher DST. BDO closed yesterday at P134/share, -18.3% YTD.

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