The Market Call | October 2019

Macroeconomy

We see GDP growth accelerating to 6% in Q3 and faster in Q4, as domestic demand revs up further. With inflation holding below the 2% BSP floor in H2, and huge employment gains (supported by 2nd lowest self-rated poverty rate of 42% in Q3 as estimated by SWS), consumer spending shall show even more robust growth. Significantly lower interest rates from last year and NG catching up on infrastructure spending in H2 should drive investment spending higher. The two together and a neutral external account support our view.

Fixed-Income Market

Long-term GS (10-year & up) have regained allure for re-entry by investors as their real yields went over 2 standard deviations their 10-year averages. The continued fall in inflation and the BSP policy rate and RRR cuts in September support this renewed attractiveness. However, this may not vanish if money supply growth remains tepid and the cuts don’t improve bank liquidity significantly.

Equities Market

We think PSEi may climb past the 8,000 resistance before yearend if firms report good earnings for Q3 and the economy expands by around 6% also in Q3. We expect a slight outperformance of earnings in Q3 considering significant improvements in domestic demand anchored on huge employment gains in Q3 and a further slide in already low inflation (0.9% in September).