Robust spending on infrastructure and other capital outlays jumped by 31.4% in May, marking a significant turnaround from April’s 21.2% decline. This, along with other initial economic data up to June, suggests that the economy should improve on its 6.4% GDP growth in Q1. Strong investment spending and resurgent manufacturing, along with improving external demand, will continue to support the country’s fast economic growth. Speedier NG disbursements and higher peso-equivalent of the remittances should likewise push further the expansion to be significantly better than the Q1 GDP growth.
Fixed Income Market
After the sharp rise in U.S. yields due to strong June employment data, a slight upward bias in long-term bond yields will continue but corrections are also expected as the Fed appears willing to adopt a less aggressive stance on monetary policy. Moreover, lower inflation and continued liquidity would likely dampen future increases in local bond yields. Indonesian dollar-denominated bonds should continue to outperform ROPs.
With the spread of earnings yield (EP) to 10-year PH bond yield close to zero, breaching the 8,000 level will prove to be a major resistance level for the PSEi. Nonetheless, the index has shown resilience as it continued to bounce back every time it fell below 7,800. Selectivity will remain the key strategy to capture the value of the market until the end of the year. Attractive stocks may still be found in the Holdings, Banking and Power sectors.