The Market Call | April 2015

 

Macroeconomy

 

Strong job creation over the past year continues to overshadow other economic data as this would likely lead to higher consumption and investment spending. Meralco electricity sales recovered from a two month slump (December 2014 and January 2015), indicating that there is more zip in the economy than naysayers think. It is likely also that more economic activity, relatively speaking, is occurring in the provinces where LGUs have even more fiscal space to take advantage off for the 2016 elections. Headline inflation rate will likely trek the downward path, with stable food prices and soft fuel prices in the horizon. It may even go below 2% by July if the current trends continue. With inflation at the low-end of its target and money growth at a single-digit pace until Q2, the BSP will likely keep rates on hold not only next quarter, but all the way to the end of the year.

 

Fixed-Income Securities

 

The outlook for the bond market will depend on the developments in the US market and in the local market. Although the US economy is expected to do much better in Q2, the more relevant data releases will be more towards the end of the quarter, and so we do not expect much pressure from this source. In the domestic front, the local bonds yield curve conundrum will weigh on market trading until the government executes quickly a bond swap that would reduce the number of outstanding issues most of which are illiquid, and lump them into larger benchmark issues. Besides there are other issues that regulators need to address quickly to restore confidence in the benchmark yield curve. ROPs will continue to track US Treasuries with a slight tightening of spreads as markets consolidate their view that indeed the macro fundamentals of the country, especially the external sector, are solid.

 

Equities Market

 

We think our call of sustained rich valuations and foreign inflows to inundate Philippine equities is intact for much of Q2. There could be hiccups in May due to seasonality and Morgan Stanley Capital International's (MSCI) semi-annual index rebalancing. We prefer to remain invested and take advantage of market corrections to increase exposure. There could still be gains in the next five months as risk associated with the market are likely to be more pronounced later in the year. Our index target remains at the 8,300-8,500 range. Preferred sectors are modern retailing, gaming and power.

TMC04

 

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