The Market Call | October 2020

Macroeconomy

Q3-2020 GDP will decline but in single-digits. We expect the industrial sector to lead the nascent recovery in the following months as the government continues to relax quarantine restrictions. The construction sector, powered by infrastructure spending and private residential demand, should lead the upswing, while manufacturing should improve albeit at a slower pace. Inflation will remain steady for the next few months and will settle at an average of 2.4% in 2020, but will fall below 2.0% in Q1-2021. Slower money growth, moving down from its 15% year-on-year (y-o-y) growth, should also provide support.

Fixed-Income Market

With the successful NG borrowing which boosted its cash position by P1.6-T by August, benchmark yields showed a mild downward bias for 10-year bond yields. Softer inflation and relatively flat U.S. treasury bond yields will add to this trend for PH debt papers. Besides, we expect the Bangko Sentral ng Pilipinas (BSP) to cut policy rates by another 25 bps before the year ends.

Equities Market

The appearance of more “green shoots” in the economy can push PSEi to higher territory in Q4, but this potential hinges on improved earnings, better-than-expected GDP growth in Q3 and less global political and COVID-19 uncertainties. PSEi outperformed most markets in September despite continued net foreign selling. Meanwhile, global equity benchmarks suffered a dismal month.