Equities Summary and Outlook
Outlook. We expect the market to trade between 7,500-7,700, with a downward bias as the market awaits May inflation data which is expected to hit a fresh new high, coupled with lingering concerns that US tariffs on its key allies could reignite a trade war. Nonetheless, we expect the market’s strong support to hold at 7,500. Key economic indicators to watch out for this week are inflation on May 5 and external trade on May 8.
Market Review. PSEi closed flat (-17.3 points or -0.2% week-on-week, w/w) on Friday to 7,630.3 after the market recovered its losses from the May 30 selloff that shaved the index by 132.2 points triggered by the political turmoil in Italy and renewed fears of a trade war between the US & China. Month-on-month (m/m), the local bellwether sustained fourth straight month of decline, albeit the slowest at 2.4%. From its peak of 9,058 on Jan. 29, the local bellwether went down by 15.8%.
- Year-to-date (YTD), global equities were mixed. Top performers were US Nasdaq (+9.4%), India (+3.4%), Taiwan (+2.9%) and France (+2.9%), while the underperformers were the Philippines (-10.8%), China (-7%) and Indonesia (-5.9%).
- Net foreign selling was unabated for the 18th consecutive week totaling P57.2bn. Last week, it sustained net outflows of just P2.3bn despite the MSCI rebalancing on month-end.
- PHP closed slightly stronger on Friday at P52.55/$ (+0.3% w/w). YTD, it weakened by 5.3%.
- Foreign investors flocked to SMPH with net inflows of P917mn last week due to higher weights on the rebalanced MSCI. Other top buys were RLC, MER, AC and MEG for an aggregate amount of P1.4bn. Net outflows were seen in ALI, MBT, AEV, SM and BDO amounting to P1.7bn.
Bangko Sentral ng Pilipinas (BSP) guided for an accelerated year-on-year (y/y) inflation in May to 4.6%-5.4% from April’s 4.5%, driven by higher global oil prices and rice prices and partially offset by lower MER rates and price normalization of selected fruits and fish items. Economists expect May inflation to average 4.9%, the fastest pace in at least five years.
- On a m/m basis, however, consensus estimate translates to the slowest pace of price upticks this year at 0.3% from April’s 0.5%.
- Average global oil prices in May rose to nearly $70/barrel (+5.5 m/m and +44.2% y/y) amid concerns on tighter supply due to political tensions in Venezuela and the Middle East. Meanwhile, MER rates dropped in May by P0.5436/kWh due to lower generation and transmission charges.
- We expect May inflation at a faster pace of 4.6% y/y. However, we see price increments to head back closer to BSP’s upper target of 4% by Q3 given that the US Department of Energy is projecting global oil prices to peak in May and June, before steadily declining until next year. Also, Russia and Saudi Arabia are said to be in talks to boost oil production by 1mn barrel per day amid growing concerns that oil price rally has gone too far. On the domestic front, the arrival of rice imports from Thailand and Vietnam in late May totaling 250,000 MT is expected to temper rising rice prices.
Philippine’s money supply (M3) grew at 14.2% y/y to P10.9trn in April, slightly slower than previous month’s 14.4%. Meanwhile, bank lending (net of RRPs) expanded by 19.9% y/y from April’s 18.5%, driven by faster growth in lending for productive activities (+19.6% y/y from +18.2% in March) led by transportation & storage (+30.9% y/y), construction (+30%), and wholesale and retail trade (+23%). Consumer loan growth was still robust, +19% y/y from 19.8% in the previous month, driven by strong loan growth in credit cards (+21%) and motor vehicles (+23.4%).
Robinsons Land Corporation (RLC) has announced that it will develop a dormitory and shared office spaces in the future catering to individuals who cannot afford to buy their own properties and businesses that cannot afford to rent the entire office floor, respectively. RLC is guiding for a robust growth in its business — net leasable office area is expected to grow by 28% this year to 518K sqm and 18% to 613K sqm in 2019 from end-2017’s level of 405K sqm. Residential reservation sales growth is expected to hit more than 100% in Q2, while mall segment will end 2018 with gross leasable area to 1.5mn sqm and 1.6mn sqm by 2019. RLC is one of our two property stock picks during our Annual Briefing in January 2018 on account of a recovery play. RLC share prices closed on Friday at P20.70/share, +1% YTD.
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