The Market Call | JANUARY 2021

Macroeconomy

The PH economy will see light at the end of the long tunnel in 2021 as it recovers from the COVID-19 pandemic. Employment will likely increase in Q2-2021 as infrastructure and consumer spending gain pace with the growth in OFW remittances providing the needed boost. Exports will continue its positive mode as other countries, especially East Asia and ASEAN recover. Dollar-peso rate will see its strongest in Q1-2021 as trade deficit renews and the U.S. dollar rebounds by end of the quarter.

Fixed-Income Market

We expect the runup in U.S. Treasuries to dissipate as most economic data do not suggest a V-shaped recovery. Locally, the demand for funds will remain weak as production will remain constrained by overly broad quarantine measures that take different shapes depending on the city, municipality or province. With unemployment likely to worsen in Q1, we think that the Bangko Sentral ng Pilipinas (BSP) will cut policy rates by 25 bps in Q1 to help bring the economy up against more negative GDP figures that may last until Q1. Besides, the NG has increased its cash hoard by P1.3-T by end-November, and should tide it over until Q3-2021.

Equities Market

Despite the expected volatility that the local equities market will face in 2021, we think that PSEi will end between 7,800 to 8,100. The PH’s economy’s return to positive growth and a rebound of over-20% in corporate earnings for 2021 and 2022 should support the impetus. However, presently, PSEi is fully valued as forward P/E ratio is just on its five-year average that should keep investors focused on good selection and timing in light of lingering uncertainties, especially if results fall way short of expectations.