The Market Call | February 2020

Macroeconomy

The PH economy’s return to fast growth in H2-2020 should be supported by resurgent domestic demand, infrastructure and consumption. COVID-19 and Taal volcano eruption will negatively impact growth especially in Q1. Higher residential and construction of various PPP projects, along with the improvement in manufacturing activities and strong NG spending, should provide the added impetus.

Fixed-Income Market

BSP’s policy rate cut and the negative impact of COVID-19 on global and PH growth should push interest rates southbound. Thus, we expect the yield curve to shift downwards with an additional 25 bps policy rate cut by BSP (by Q2 latest) and the cumulative effect of the trimmed RRR in the last two months in 2019. Foreign interest rates show a downward bias as US 10-year T-bond yields have headed for multi-year lows in addition to our expected two Fed policy rate cuts in 2020.

Equities Market

The unchecked spread of COVID-19 has dimmed global growth outlook and investor sentiment once again with equity investors scampering for safe assets and havens. We foresee that the outbreak will negatively impact the local equity market in H1. Faster economic growth and better reported earnings for Q2 should provide returns in H2.