The Market Call | May 2021




Despite another decline in GDP in Q1, a spate of positive economic news—such as the outsized job creation, surge in infrastructure spending, surprising jump in exports, softer increase in inflation—may help the economy recover faster. Release of GDP caught everyone’s attention as the economy unexpectedly slowed down in Q1-2021 by -4.2%. However, the continued extension of MGCQ in Metro Manila+ does provide some headwinds in the future.


Fixed Income Market

The local GS bond market rallied as 10-year U.S. Treasuries trekked down and March inflation eased to 4.5%. In addition, the government successfully raised $2.5-B from Euro bonds in April, following a $0.5-B Samurai bond issuance in March. We see a slight upward bias in longer tenors supported by our outlook in inflation domestically (above 4% until Q3) and elevated inflation and Treasury yields in the U.S.


Equities Market

While advanced economies’ equity markets made further gains in April and ASEAN equities had a mixed record, DJIA has moved sideways with a downward bias starting May, as the effects of the initial COVID-19 dole outs by the Biden administration wore off. Rising inflation, admittedly more cost-push in origin, has also helped cool investor enthusiasm. PSEi which lost another -1.1% MoM to end April YTD with -10.8%, and has gone below 6,200 in May despite more than respectable Q1-2021 YoY earnings growth. Extended tight quarantine restrictions in Metro Manila+ have kept consumers and producers constrained and investors uneasy to expand their equity portfolios. These and the Q1-2021 GDP dropped, call for a review of earnings forecasts. While traction in infrastructure spending makes related counters attractive, investors should remain wary about private construction weakness and the increased volatility in the months ahead.







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