The Market Call | January 2015

 

Macroeconomy

 

Free-falling crude oil prices which have hit 5-year lows and not expected to recover any time soon has markedly changed the outlook for emerging countries, but analysts unanimously predicted the Philippines as one of the countries to benefit most from the "new normal". We expect GDP to resume its upward trend starting Q4. Already, we are seeing steadily accelerating Meralco electricity sales and exports averaging double-digit growth. This should be underpinned by robust consumer spending as the plunge in crude oil prices appears less transitory. Money supply growth has slowed to a single-digit pace and will likely stay there also for the rest of H1. With low inflation and money growth returning to its desired trend, we see little chance of a policy rate rise before Q4 2015.

 

Fixed-Income Securities

 

With long-term US Treasury bonds trending downwards in Q4, and could go lower in view of the country's better economic prospects compared to the Eurozone and Japan, and with domestic inflation expected to average 2.4% in Q1 2015, and holding on close to it in Q2 yields, especially at the longer end of the curve, should have a downward bias reminiscent of the 2013 boom. The expected rush into bond issuances would likely turn into reality as there is bunching of maturing bonds previously issued. Besides, the usual issuers have exceeded their single-borrower's limit (SBL) and bigger PPP projects are being rolled out.

 

Equities Market

 

Our PSEi end-2015 target is 8,300 to 8,500. Valuations are likely to remain rich. We, however, think that returns may be front-loaded. Come H2 2015, we expect volatility to pick up if US interest rates are raised and if uncertainty associated with the upcoming local presidential election lingers. The following are what we look to be promising sectors: modern retailing, power sector and gaming.

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