The Market Call | April 2022




The economy will likely continue its growth trajectory and reach pre-pandemic (Q2-2019) levels by Q2. Greater business confidence founded on job growth of 5.7% in February (MoM) and intensified election spending should provide the impetus. We also expect a faster pace of inflation in Q2, due to elevated oil and food prices caused by the extended Russian-Ukraine war. We expect a policy rate hike only after a clear outcome in the May elections and Q1 GDP growth hits at least 10% YoY. The peso should remain weak to flat on strength of the U.S. dollar and large PH balance of trade deficits.


Fixed Income Market

Investors demanded higher premiums for peso bonds amid geopolitical uncertainties, Fed’s 25 bps rate hike on March 16, and the sharp rise in domestic inflation at 4% in March. We see local 10-year yields reaching 6.5% in Q2 (n.b. it already hovered around 6% in April) when inflation will likely average to 4.5%. Hawkish signals from the Fed (may raise up to 50 bps if needed in some of the coming FOMC meetings) also contribute to its upward pressure. Meanwhile, there is little downside for ROPs spreads over U.S. Treasuries as these have returned closer to pre-pandemic levels.


Equities Market

Volatility characterized the local equities market in March, but the PSEi slid by only -1.5% by month-end as it recovered some lost ground. Supply constraints caused by the prolonged Russia-Ukraine conflict sent commodity prices spiraling and side- lined investors. We expect any major movements only after credible Presidential election results emerge while foreign investors take a wait-and-see stance. So volatility will continue until then. Nonetheless, we observe resiliency in some corporates, like BDO, BPI, Wilcon, PXP among others, to weather the storms of the war, higher inflation and interest rates.







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