Weekly Equities Summary and Outlook : March 11 – March 15, 2019

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Equities Outlook

Outlook. The PSEi is trapped between the range 7,700-7,900 as investors ponder many uncertainties arising from: (1) the delay in the approval of the national budget that could lead to growth slowdown in 2019; (2) a record high current account deficit in 2018 at $7.9bn or 2.4% of GDP from just $2.1bn or 0.7% a year ago; (3) unimpressive corporate earnings in 2018; and (4) FOMC and MB decisions this week that are widely expected to keep policy rates unchanged. Meanwhile, corporate earnings results were mixed. Out of the 28 companies that have released their full year earnings, nine outperformed the consensus, nine were in-line and 10 were behind.

Other key economic data to be released this week are the Philippines budget balance for January (March 18) and BOP for February (March 19).

Market Review. The PSEi was unchanged last week (+1.2 points) to end on Friday at 7,798.3 after the government announced a slower Philippine growth outlook of 6-7% for 2019 citing the delay in the approval of the national budget and ahead of the FTSE rebalancing effective March 18. The local bellwether has gained 4.5% year-to-date (YTD), trailing MSCI EM’s rise of 9.5% for the period.

Market Flows. Net foreign inflows returned last week totaling P1.4bn, bringing the YTD net buying to P27.9bn ($524mn).

Regional Markets. Asian markets were mostly gainers last week on risk-on sentiment amid optimism on US-China trade deal and China’s stimulus to prop up its slowing economy. Gainers were led by India (+3.7%), Hong Kong (+2.8%) and Japan (+2%). YTD, only Malaysia is a decliner (-0.6%), while China (+21.2%), Hong Kong (+12.3%) and Taiwan (+7.3%) are the top performers.

Currencies. The Philippine peso was the worst performing Asian currency last week, down 0.8% to close at P52.66/$ following the release of the country’s record high current account deficit for full year 2018 of $7.9bn or 2.4% of GDP. YTD, the peso has shed 0.2% of its value and has underperformed the MSCI EM Currencies index’ 1.8% gains.

Economic News

Bangko Sentral ng Pilipinas (BSP) reported a surge in current account deficit to a record high of $7.9bn in full year 2018, nearly 4x the shortfall of $2.1bn in 2017. This is equivalent to 2.4% of GDP and much higher than 2017’s 0.7% and BSP’s revised guidance of 1.9% to $6.4bn. The deterioration in external position was mainly attributed to wider trade-in-goods deficit which grew by 21.9% year-on-year (y/y) to $49bn due to robust imports (+9.4%) amid flat exports (-0.3%). This more than offset the healthy net exports of services (+20.7% to $10.5bn) and net remittances (+4.4% to $30.7bn). BSP said that the current account deficit reflects the economy’s underlying trends of excess investments over savings and point to a highly productive economy. The central bank expects current account deficit to further increase to $8.4bn in 2019, equivalent to 2.3% of GDP.

January OFW cash remittances rose 4.4% y/y to $2.5bn, slightly beating the consensus of 4% increase,albeit slower than January 2018’s increase of 9.7%. Growth in remittances was driven by the healthy inflows from the US (+10.6% to $882mn) and Asia (+9.6% to $552mn), which offset the sustained decline of remittances from the Middle East (-13.9% to $523mn), especially in Saudi Arabia (-3% to $172mn), United Arab Emirates (-28.7% to $136mn) and Qatar (-23.7% to $87mn). Collectively, these three sources comprised 78% of the total cash remittances from the Middle East. Likewise, personal remittances improved by 3.4% to $2.7bn in January. We (house view) expect OFW remittances to sustain its 2-4% expansion in 2019.

Corporate News

San Miguel Corporation (SMC) reported consolidated recurring net income growth of 1% to P55.2bn in 2018 buoyed by strong performance of its food, beverage, packaging, power and infrastructure segments which was partially tempered by fuel inventory losses for its fuel and petrochemical business due to the sharp decline in crude prices in the fourth quarter of 2018. Meanwhile, consolidated revenues expanded by 24% y/y to P1trn, while operating income increased by 5% to P117.1bn. Consolidated EBITDA edged higher by 7% to PP157.9bn. SMC closed on Friday at P174.20/share on Friday, up 18.5% YTD.

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