The Market Call | May 2018

Macroeconomy

Led by strong investment spending of both the public and private sectors, Gross Domestic Product (GDP) got back into a faster growth track with a 6.8% uptick in Q1, up from 6.5% in both Q1 and Q4-2017, equaling China’s performance and next only to Vietnam in East Asia. Robust domestic demand and production should drive the PH economy to a faster growth in Q2 and beyond. Apart from infrastructure and capital goods spending, fuller impact of the income tax cut will likely support the economic expansion.

Fixed-Income Market

Slower inflation in H2 and into 2019 (also per BSP) and Bureau of the Treasury’s (BTr) acceptance of higher yields bids should entice investors back to the local bond market. External factors—e.g., mild US inflation and wage increases, and the North Korea-US Summit in June, however, will influence domestic yield movements. ROPs should track US Treasuries’ movements with limited upside.

Equities Market

While further losses in PSEi are seen to be limited and short-lived, we expect the local bourse to undergo a rather gradual recovery, given the lack of positive drivers amid prospects of higher inflation rate, mildly weaker peso and larger fiscal deficits.

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