Weekly Equities Summary and Outlook : March 12- 16, 2018

EQUITIES OUTLOOK

Market Outlook. We expect the market to trade lower as investors remain on a sell down position ahead of the Bangko Sentral ng Pilipinas (BSP) and US Federal reserve policy meetings. The Federal Open Market Committee (FOMC) will discuss its monetary policy today and tomorrow while the BSP Monetary Board will hold its meeting on Thursday, March 22. Consensus expects the BSP to keep the current policy rates unchanged while the Fed is expected to increase rates by 25 basis points.

Drivers. Signs of a faster monetary tightening strategy from either of the two central banks may bring the market below 8,000.

Market Review. The market lost 134.4 points, down 1.60% week-on-week (w-o-w) as foreign selling continued. Last week, we saw an outflow of foreign funds amounting to Php6.6bn (net), the second biggest net outflow recorded for the year, bringing year-to-date (ytd) net foreign outflow to Php24.1bn. Regional markets ended in the red with the Dow Jones losing 1.54% and S&P with 1.24% over continued concerns on trade war. The departure of free trade advocate Rex Tillerson (following Gary Cohn’s resignation the previous week), added to concerns over US economic and foreign policy. Pres. Donald Trump replaced Rex Tillerson with CIA Director Mike Pompeo because of disagreements on foreign affairs with the former secretary. The PSEi was the second worst performer following Indonesia (-2%) and followed by China (-1.5%), India (-0.4%). There were gainers in the region last week. The top five best performing were: Thailand (+2.0%), Hong Kong (+1.6%), Taiwan (+1.5%), Korea (+1.4%) and Tokyo (1.0%). The most sold stocks last week were AC, JGS, BPI ALI and MBT for a total of Php3.53bn while the most bought names were MER, ICT, PGOLD, MEG and FGEN amounting to Php353mn). Ytd, foreigners bought TEL, JFC, PGOLD, MER and FGEN (Php3.97bn) while SM, BDO, ALI, SMPH and AC were the most sold stocks (-Php16.9bn).

Economic Summary and Outlook

The current account deficit was up 110% to $2.5bn in 2017 from $1.2bn in 2016, equal to 0.8% of gross domestic product in 2017 versus 0.4% in 2016. In the last quarter, imports of goods, services, primary and secondary income (+20.3%) outpaced exports (+10.7%) bringing Q4 2017 current account deficit to $3.3bn, higher than $566mn in Q4 2016. Imported goods alone grew 20.4% to $24.5bn in Q4 2017 while exported goods was sluggish at 2.0% growth to $11.3bn. Meanwhile, full-year 2017 trade-in-goods deficit rose to $41.2bn from $35.5bn in 2016 as exports, up by 12.8% to $48.2bn, were outpaced by imports, up 14.2% to $89.4bn. As a result, Balance of Payments (BoP) registered a deficit of $863mn larger than the $420mn deficit in 2016. This is equal to 0.3% of GDP. BoP position ended in a deficit of $429m in February, slightly lower than the $436m deficit recorded last year. This brought year-to-date BoP deficit to $961mn versus $445mn during the same period in 2016. The outflows in February 2018 was attributed to the foreign exchange operations of the BSP and payments made by the National Government (NG) for maturing foreign exchange obligations. Overseas Filipino Workers’ remittances grew 9.7% to $2.38bn in January 2018 versus $2.17bn in 2016. The main drivers were the following: 14.3% growth in remittances from the United States which accounted for 33.53% of total remittances.

• Increase in remittances coming from the United Arab Emirates (UAE), Singapore and Japan, up 14.4%, 22.0% and 6.0%, bringing total contribution of the three to 20.4% in January 2018 versus 19.5% in 2017. Remittances from United Kingdom (5.06% of total) was flat, up 0.9%.
• Slightly offset by a 12% drop in remittances from Saudi Arabia which now accounted for 7.5% of total from 9.3% in January 2017.
• The mentioned countries (US, UAE, Saudi Arabia, Singapore, UK and Japan) accounted for 66% of total remittances. Qatar, Canada, Kuwait, and Germany (14.5% of total) grew double-digits in January.

Corporate News

Shell FY17 net income grew 39% to Php10.4bn, above consensus estimates. Retail sales grew by 4% year-on-year (yoy) while margins improved post-maintenance shutdown. Commercial segment volumes grew 1.2% yoy while non-fuel business grew 11%. As of end-2017, total retail stations was at 1,044. Megaworld will turn over around 2,300 residential units from five condominium developments equal to Php30bn, the company’s biggest inventory turnover in Fort Bonifacio within a year. These condominiums include, The Florence Tower 1, Viceroy East Tower and The Venice-Giovanni Tower in McKinley Hill; St. Mortiz Private Estate in McKinley West; One Uptown Residence and Uptown Ritz in Uptown Bonifacio.

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