Weekly Equities Summary and Outlook : February 19 – 23, 2018

EQUITIES OUTLOOK

Outlook. We expect PSEi to trade between 8,400-8,600 as the market awaits Fed chair Powell’s testimony before Congress on Feb. 27 (US time). Locally, investors continue to digest latest earnings results -- MER, +3% to P20.2bn (outperformed), and BDO, +14% to P28.4bn (in-line with consensus). Earnings are supportive of potential market recovery. Of the 14 companies that have released their 4Q17/FY2017 earnings, six were in line and two outperformed consensus. MPI will release its earnings on March 1.

Drivers. Key event this week is the testimony of Fed chair Powell to Congress on Feb. 27 (US time) that could give insights on Fed’s view on US economy in light of Pres. Trump’s massive fiscal expansion and clues on the track of US interest rates, which some investment houses now predict to rise by more than 3x this year. On the domestic front, Feb. inflation will be released on March 7 that could signal a potential BSP rate hike next month.

Market Review. The PSEi sustained its recovery today to 8,592.38, +1.1% from yesterday. Last week, the local bellwether bucked regional trend, -1.7% w-o-w (-144.88 points) to 8,467.6. Market started last week strong, +1.1% on Jan. 12, lifted by banks after MB announced it would lower reserve requirement by 100 bps starting March 2 that would free up ~P90bn in the system. More hawkish FOMC minutes released last week, however, sparked fresh volatility fears amid expectations that Fed rates would rise faster than initially anticipated. YTD, PSEi was up 0.4%.

• Net foreign outflows now on 4th consecutive week, P2.3bn last week and P10.1bn YTD. Net foreign selling in 22 of the last 24 trading sessions. Market supported by local investors, which accounted for 58% of value traded last week.
• Last week, PHP was best performer in Asia, +0.2% w-o-w. YTD, it was the 2nd worst performing EM currency, -4.2%, next only to Argentina’s 7.7%. PHP was the weakest among Asian currencies amid widening trade deficit which in 2017 reached $30bn.
• URC, SM, BDO, SMPH and JGS were the most sold stocks by foreign investors last week totaling P1.9bn, while JFC, AC and TEL were the most bought stocks for an aggregate amount of P437.1mn.

ECONOMIC NEWS

Philippine tourist arrivals hit an all-time high in Jan., +16% y-o-y to 732,506, driven by double-digit growth in Korean and Chinese tourists. South Koreans remained the main source of tourist arrivals, +28.4% y-o-y to 198,145. Chinese came in second with 111,344 arrivals, +29.5% y-o-y, while the US was in 3rd spot with 109,154 tourist arrivals, +14.9% y-o-y. This year, the DOT is targeting to attract 7.5mn foreign tourists in the country, a 14% increase from 6.6mn in 2017. YTD Oct. tourism receipts surged to P274.3bn, +45% y-o-y. Total approved investments in 2017 (from seven investment promotion agencies) rose 32.5% to P908.7bn, boosted by strong increase in pledged investments by Filipinos, +72% to P803bn. BOI, which accounted for 68% of total investment pledges, grew double-digit (+40% y-o-y) to P616.8bn. Meanwhile, foreign investment pledges fell 51.8% to P105.6bn. Ninety four percent (94%) of the foreign pledges went to electricity, water, gas, and airconditioning supply; real estate; manufacturing; and transportation and storage. Key prospective investing countries were Japan (30% share), Taiwan (10.2%) and Singapore (9.6%).

Corporate News

Manila Electric Co. (MER) reported consolidated core income of P20.2bn, +3% y-o-y. Electricity revenues grew 10% to P275.2bn, while distribution revenues rose 5% to P59.6bn. Total electricity volume sold grew 5% to 42,102 GWH. Consolidated core EBITDA expanded 2% to P34.6bn. MER’s share prices closed today at P327/share, -0.5% YTD.

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