EQUITIES MARKET

Philippine equities remained weak in September, with the PSEi declining 4.6% month-on-month, extending its year-to-date loss to 6.2%. Investor sentiment was weighed down by elevated inflation, higher global bond yields, sustained foreign selling, rising oil prices, and continued peso weakness. High-dividend and rate-sensitive stocks led the decline, while foreign investors remained net sellers for the eighth straight week, with September outflows reaching US$131 million.

Looking ahead, the market may remain range-bound as inflation, slower economic activity, and currency weakness continue to pressure sentiment. However, current valuations already reflect much of these risks, which could help support the market. We continue to maintain a balanced positioning, favoring high-dividend stocks and quality deep-value cyclicals amid the challenging environment.

FIXED INCOME MARKET

Philippine fixed-income markets weakened in September as inflation accelerated to 7.2%, ending four months of easing and reinforcing expectations of additional monetary tightening. Government bond yields rose across the curve, with the 10-year benchmark reaching 7.71%, while the peso continued to depreciate, adding to inflation concerns. Despite the challenging environment, demand for government securities remained strong, as evidenced by the successful issuance of RTB 32, which exceeded its fundraising target.

Looking ahead, the market is expected to remain cautious ahead of the BSP's October policy meeting, where a final 25-basis-point rate hike is widely anticipated. While elevated inflation and currency weakness may continue to pressure bond prices in the near term, a potential peak in policy rates could provide support for fixed-income markets. We maintain a defensive short-duration stance while monitoring opportunities to gradually extend duration should inflation show signs of stabilization.