The Market Call | January 2022




Robust economic data—record employment, inflation to within BSP target, capital goods imports on double-digit growth to hit an 18-month high—have boosted nascent optimism among firms and consumers. GDP growth in 2022 should take a faster pace, by at least 1 percentage point to 6% to 7%. Factoring in high crude oil prices notwithstanding, we still see full-year inflation easing to 3.7%, within BSP target range, since food prices have steadied. Infrastructure spending should accelerate as the May elections ratchet up. After a minor appreciation in December, the peso has skidded to above P51/$ in January 2022. Huge trade deficits and likely policy rate hikes in the U.S. should keep the peso above P51/$ in 2022.


Fixed Income Market

Despite a more hawkish Fed, local 10-year yields diverged from the 10-year U.S. Treasuries as it fell by -19 bps while the latter edged higher by 9 bps in December. Limited supply pressure underpinned the appetite for government securities (as BTr only accepted P20.0-B in auctions). Moving forward, yields will likely trade in a range in the near term amid softer inflation at 3.6% in December, ample liquidity, and BSP’s accommodative policy. But if the Fed decides to be more aggressive in raising policy rates (e.g., by 50 bps by March or three 25 bps in H1-2022), risk aversion may again dominate the local bond markets. Meanwhile, ROP yields should mirror the movements of the U.S. Treasuries but could potentially decline hinging on the robustness of the PH economic recovery.


Equities Market

Despite huge P86.2-B net foreign buying in December, the PSEi ended the year at 7,122.63—down -1.1% MoM. The month featured only two sectoral gainers—Financial (+2.3%) and Mining & Oil (+1.7%). The Property sector had the worst record with -2.3% MoM, implying only minor slides in the other sectors. Moreover, telco giants led full-year 2021 gainers. While we see the PSEi rising to 7,900-8,100 in 2022, we expect sideways movement in Q1, unless Q4-2021 GDP growth exceeds expectations, and inflation continues to ease closer to 3%. Investors will watch closely the GDP and inflation numbers, even as they retain some risk aversion due to possible tighter restrictions as Omicron COVID-19 variant spikes, and await the Fed’s forward guidance of their policy rate hikes in 2022 in the next FOMC meeting. We think corporate earnings report, corresponding still to 2021, may provide a boost for selected stocks only.








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