Equities Summary and Outlook
Outlook. We expect the PSEi on a downward bias due to run-away inflation worries. Despite the expected 50bps rate hike of the Bangko Sentral ng Pilipinas’ (BSP) on Thursday, the market may not do a relief rally back to near-term high of 7,500 given emerging consensus forecasts of 7%-7.4%. It implies inflation is yet to peak. Standard Chartered economist Chidu Narayanan expects 2018 inflation to clock in at 5.5% (versus consensus estimate of 4.9%) with peak in December at 7.4%. There’s a view inflation will remain elevated due to Typhoon Ompong’s crop damages which left a challenged food supply chain. The recent approved rice importation (details below) may not fully ease inflation as oil, specifically Brent, reached $81.20/barrel, its highest level since November 2014. Actual inflation for September will be released next week, October 5.
Market Review. The market lost another 30.15 points or -0.4% week-on-week (w/w) to 7,383, its third consecutive week of losses. Before the surprising rally on Friday (+3.5% d/d), the bellwether touched a low of 7,134, its lowest since June 28 over fears of escalating trade war between US and China and inflation breaching the previous month’s 6.4% as typhoon Ompong’s damage reach a new estimate of P26.8b (see discussion below). Overseas, the US imposed a 10% tariff, which could rise to 25% on January 2019, on $200b worth of Chinese goods starting September 24 while China also imposed tariffs of 5%-10% on $60b worth of US goods. This, however, was lower than the previously proposed rates of 5%-25%. Foreigners continued to sell their positions with total sales at P1.7b, lower than the previous week’s P3.5b net foreign selling. From its peak of 9,058 in January, the market was down by -18.5%.
- The PSEi bucked regional trend as it finished as the second worst next to India’s -3.3%. Year-to-date (YTD), the PSEi was down -13.73%, the second worst next to China’s -15.4%.
- Average daily value traded was at P6.4b, below this year’s average of P7.0b. Yesterday, trading was still thin with value traded at P4.6b. 58% of the trading participants last week were foreigners.
- PHP was down by -0.1% w/w to P54.04/$. The peso was the second worst performer in the region, down by -8.3%, next to Indonesia at -9.2%.
- YTD net foreign selling amounted to P83.2b. Foreigners’ top buys last week were GLO, URC, TEL, ICT and PGOLD for a total of P968m while top sells were BPI, MBT, AEV, AC and SECB for P1.6b.
- YTD index gainers were SMC (+51%), GLO (+14%), MER (+11%), JFC (+8%) while the biggest losers were AEV (-37%), SECB (-33%), GTCAP (-33%), MBT (-30%) and MPI (-28%). W/w, the top gainers were URC (+7%), JGS (+4%), BDO (+3%), GTCAP (+3%) and PCOR (+3%) while the losing stocks were RLC (-10%), SECB (-7%), MPI (-7%), SCC (-6%) and LTG (-6%).
The Philippines’ overall balance of payments (BOP) position in August was at a surplus of $1.27 billion in August 2018, a swing from the $7 million deficit recorded in the same month last year. The dollar inflows came mostly from the government’s Samurai bond issue worth $1.4b and income from the BSP’s investments abroad. Partially offsetting the inflows were payments by the national government for its foreign exchange obligations and foreign exchange operations of the central bank. This brought ytd BOP position from January to August to $2.44b, 75.5% higher than the $1.39b BOP deficit recorded during the same period in 2017. According to the central bank, the higher ytd BOP deficit can be attributed to larger merchandise trade deficit from January to July on the back of strong imports for raw materials, intermediate goods and capital goods.
Meanwhile, the country will import a total of 750,000 metric tons (MT) of rice until end of this year and a standby volume of 1 million metric tons for 2019. According to Secretary Piñol, importation of premium grades of rice will not be allowed to help address the high prices for lower grades. Bidding will start in October while the first batch amounting to 250,000 MT will arrive not later than November 30. This is expected to help stabilize prices, improve national inventory and ease damages from Typhoon Ompong which was estimated at P14.5b (versus last week’s estimate of P11.5b) for rice crops. The total agricultural damage was estimated at P26.77b, higher than the P17b estimate last week and Sec. Pinol’s first estimate of P11b-P12b. Corn damage was at P8.2b almost twice last week’s P4.5b estimate.
Cemex Holdings Philippines (CHP) denied involvement concerning the landslide that happened in Sitio Sindulan, Barangay Tina-an, Naga, Cebu and clarified that although APO Land and Quarry Corporation (ALQC), the owner of mining rights covering the affected area, is a principal raw material supplier of APO Cement Corporation, a wholly-owned subsidiary of CHP, CHP does not own any direct stake in ALQC. CEMEX Asian South East Corporation, CHP’s parent, owns a minority 40% stake in Impact Assets Corporation, ALQC’s parent company. Meanwhile, CHP said it is currently assessing the impact of the quarrying suspension of ALQC to the production output of APO cement. ALQC is the main supplier of limestone and other raw materials of CHP plant in Cebu.
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