GDP growth of 6.9% in Q3 exceeds expectations, bolstered by infrastructure spending and exports, supported by high investor confidence as PSEi chalks up nine records since October. We expect National Government (NG) infrastructure, capital goods and consumer spending to pick up further in H2 and together with accelerating exports, propelled by unexpectedly stronger world economy, should enable PH GDP growth to hit our 6.5% to 7% projection for the full year 2017.
Fixed Income Market
The slightly upward trend in yields both here and abroad is to be expected, even as the current low interest environment appears intact. However, domestic savings and relatively low NG domestic borrowing needs for the rest of the year would help limit the upside in bond yields. Locally, the further minimal rise in inflation to 3.5% in October does not provide sufficient incentive for the BSP to hike policy rates this year.
With stock price appearing overbought, it may be prudent to take profits. Stocks appear overbought on the basis of the E/P ratio vs 10-year bond yield spread dipping by nearly twice the standard deviation for the 8-year average spread.