The Market Call | July 2020

Macroeconomy

Despite gradual relaxation of quarantine restrictions, Bangko Sentral ng Pilipinas’ (BSP) past moves to infuse more liquidity into the banking sector (and more bank lending) allow more gains in manufacturing and construction production as evidenced by the acceleration in PMI. NG spending should also pick up pace starting Q3 with available financing and the likely approval of its P1.3-T stimulus package in August. We also see the peso continuing to slightly appreciate, at least for the short-term.

Fixed-Income Outlook

Enthusiastic foreign investors snapped PH corporate bond issuances abroad bringing in more than $6.0-B since mid-June, despite protests and the recent surge in COVID-19 cases in the U.S. The latter appear to have diminished the positive impact of robust employment gains and other economic data for May and June. Thus, U.S. 10-year T-bonds will likely yield from 0.55%-0.70% until August. Domestically, the effect of BSP’s policy rate and RRR cuts since November 2019 and the successful launch of 5-year Retail Treasury Bonds (RTBs) in July should keep local bond yields on a downward trend. Corporate bond issuance may pick up especially in foreign currency as 10-year ROP yields reached record lows.

Equities Outlook

The extension of lockdowns up to end-July may have spoiled the market’s spirits and countered PSEi’s exemplary performance in June (+6.3%). We see the PSEi to stay within the 6,000 to 6,500 range as investors will likely adopt a wait-and-see attitude until the release of national account figures and corporate earnings for Q2-2020 by August. In spite of this, the fall in bond yields, BSP’s surprise 50 bps policy rate cut to 2.25% and robust corporate fund raising prove that the financial markets have abundant liquidity to continue driving the financial markets.