Weekly Equities Summary and Outlook : March 19 – 23, 2018
Written By Lloyd Brian Laurilla
Published on Mar 28, 2018
Reading time 4 mins
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Market Outlook. We expect PSEi to trade between 7,800-8,000 as worries that the US-China tariff threats could lead to a full-blown trade war weigh on the market in the near-term.
Drivers. Domestic catalyst will likely surface in the second week of May when the gov’t releases the Q1 2018 GDP results, which we expect to be strong given robust figures in job creation, manufacturing (+21.9% y-o-y in Jan), tourist arrivals (+16.2% in Jan-Feb), and gov’t expenditures (+15.5% in Jan). A bit of an offset, however, is the weakness in consumer confidence for Q1 2018, which declined from 9.5% in Q4 2017 to 1.7% (lowest since Q2 2016) due to consumer expectations of higher prices, low income and increase in household expenses and debt. BSP considers the consumer index as a leading indicator of consumer spending for the national account.
Market Review. PSEi fell for the 5th straight week, shaving 267 points (-3.2% w-o-w) to close on Friday at 7,970.8 amidst heightened concerns over brewing trade war between US and China, coupled by worries over PHP weakness after the Monetary Board (MB) decided to keep key rates unchanged during its policy meeting on Thursday. US announced on March 22 its plans to slap China with tariffs on up to $60bn of imports in sectors that China has identified as key to its development strategy (i.e. aerospace, ICT and machinery), while China laid out its $3bn retaliatory measures targeting US agriculture.
Except for Malaysia, Asian markets retreated w-o-w led by Hong Kong (-3.8%), China (-3.6%) and the PH (-3.2%). PSEi dropped by 6.9% YTD and 12% from its Jan. 29’s peak of 9,058. PSEi’s RSI was at 33.6.
MTD net foreign outflows accelerated to P17.5bn from P15.3bn in Feb. YTD net foreign outflows tallied to P31.4bn (as of Friday).
PHP dropped to its 11th year low on Friday to close at P52.38/$. PHP weakened by 0.9% w-o-w and 4.7% YTD.
Most sold stocks by foreign investors last week were AC, BDO, ALI, BPI and JGS for an aggregate amount of P2.8bn, while the most bought stocks were MEG, PGOLD, MBT, URC and TEL totaling P492mn.
Monetary Board (MB) maintained its key rate at 3% during its March 22 meeting, citing manageable inflation outlook especially after the Feb. inflation using the new base year 2012 clocked in at 3.9% which was well within the BSP’s 2-4% inflation target. Inflation in 2019 is expected to further slow as TRAIN impact subsides. Using the new base year, BSP is now projecting inflation to average 3.9% for 2018 from 2.9% in 2017, and easing to 3% in 2019. Upside risks to inflation would come from pending petitions for wage and transport fare hikes, while proposed reforms in rice importation is expected to temper inflation, especially that rice accounts for nearly 10% of the CPI basket. BSP expects the lifting of rice import restrictions to lower inflation by 1.2 percentage points in 2018 and 2019.
Bureau of the Treasury (BTr) disclosed that revenue collection in Jan. jumped 19.3% y-o-y to P238.9bn due to higher taxes collected from TRAIN, while expenditures grew 15.5% to P228.7bn. This resulted in a wider budget surplus of P10.2bn vs P2.2bn in the same period last year. For 2018, gov’t aims to grow its revenues by 16.8% y-o-y to P2.8trn and expenditures by 18.6% to P3.3trn, and to hit budget deficit of P523.7bn or 3% of GDP.
Foreign tourist arrivals in Feb. sustained its growth (+16.3% y-o-y) from previous month to 673,831 visitors. This brought the YTD tally to 1.4mn, up 16.2% from 1.2mn in the same period last year, on track to DOT’s target of 7.5mn visitors for 2018. Growth for the first two months of 2018 was driven mostly by strong Chinese tourist arrivals (+56.4%) with 256,880 visitors resulting from improving relationship between China and PH, albeit Koreans remained the country’s top tourist source with 354,700 arrivals (+16.3%). US came in third place with 193,985 arrivals (+7.8%).
Ayala Land, Inc. (ALI) disclosed that its has agreed to exchange its 75% equity stake in Laguna Technopark Inc. (LTI) into additional shares of stock in Prime Orion Philippines, Inc. (POPI) to bring its direct ownership in POPI from 54.91% to 63.9%. The value of the transaction is P3bn. ALI is grooming POPI to become the leading real estate logistics and industrial developer in the PH. ALI’s share prices closed on Friday at P40.35/share, -9.5% YTD.