Weekly Equities Summary and Outlook : September 24 – September 28, 2018

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Equities Outlook

Outlook. We expect the PSEi to sustain its weakness this week as the market awaits the September inflation print to be released on Friday (Oct. 5) which is anticipated to reach as high as 7.1% y/y, coupled with lingering external headwinds from trade concerns. On a positive note, US and Canada’s last minute deal to salvage the trilateral pact with Mexico after more than a year of negotiations may lift sentiment.

Market Review. The PSEi shed 54.7 points yesterday (-0.8% from Friday’s closing) to end at 7,222.1. Last week, the local bellwether sustained its fourth straight week of decline, dropping 106 points (-1.4% week-on-week, w/w) to close on Friday at 7,276.8. The local market bucked regional markets’ rebound as investors digested the Monetary Board’s 50-bp rate hike and the upward revision of inflation forecasts for 2018 (from 4.9% to 5.2%) and 2019 (from 3.7% to 4.3%). Month-to-date (MTD), the index recorded its steepest drop at 7.4% since March 2016’s 8.9% decline as net foreign outflows in September rose to its fastest pace in three months totaling P11.5bn. Year-to-date (YTD), net foreign selling amounted to P84.7bn.

• YTD, the Philippines led the underperformers in Asia, down by 15%, followed by China (-14.7%) and Hong Kong (-7.1%). Meanwhile, India (+6.4%), Japan (+6%) and Taiwan (+3.4%) were the major gainers.
• PHP ended flat last week to P54.02/$ after the MB followed thru on their pronoucement for a strong monetary action with a 50-bp rate hike on Sept. 27. PHP climbed above the P54/$ level after the Bangko Sentral ng Pilipinas (BSP) released the H1 current account data on Sept. 19, which saw the deficit ballooned to $3.1bn, equal to the central bank’s full year projection.
• Last week, foreign investors unloaded BPI, MPI, ALI, SECB and MBT totaling P1.2bn, while bought AC, GLO, MEG, ICT and AP for net flows of P767mn.

Economic News

Inflation is widely anticipated to reach a fresh high of 6.8% y/y (median) in September from 6.4% in the previous month as super typhoon Ompong is expected to push food prices higher. Analysts’ inflation expectation for September is in line with BSP’s forecast of 6.8% (or a range of 6.3-7.1%) but ahead of Department of Finance’ (DOF) estimate of 6.4%. The median inflation projection implies an inflation of 1% m/m, the fastest monthly price uptick this year. BSP attributed the faster consumer price increase on higher crude and food prices, which would be partially offset by lower electricity rates. Meralco rates went down last month by P0.1458/kWh to P10.0732/kWh due to lower generation and transmission charges. BSP maintained that inflation will peak in Q3 this year.

Domestic liquidity (M3) slowed for the third straight month in August to 10.4% y/y (net of RRP) from 11% in the previous month. Meanwhile, bank lending slightly decelerated to 18.9% y/y in August from 19.6% in July. This was reflected by the slowdown in credit for production activities (+19.1% from previous month’s +19.7%) and consumers (+15.8% from +16.9%). Growth of bank lending for production activities was led by manufacturing (+19.9%), construction (+36.9%), wholesale and retail trade (+24.5%), real estate (+15.6%) and financial and insurance (+37.2%). Meanwhile, consumer loans for credit card and motor vehicles slowed to 22% (from 22.9%) and 16.7% (from 18.1%), respectively, with the latter being reflected by the 14% y/y decline in car sales in August.

Corporate News

BDO Unibank, Inc. (BDO) has entered into partnership with Osmanthus Investments Holdings Pte Ltd, a unit of Singapore-based private equity firm Archipelago Capital Partners, wherein Osmanthus will acquire a 15% stake in BDO’s rural subsidiary One Network Bank (ONB). BDO will retain 85% ownership of ONB. The transaction formalizes the working relationship between ONB and Osmanthus wherein the latter has been helping ONB to develop the framework for its MSME lending business. BDO closed yesterday at P120/share, down 26.8% YTD.

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