PH Market Outlook as of April 2016 from Security Bank


I’m happy to share with you Security Bank market outlook.

The Philippine Economy is still robust!

  • GDP remains on an uptrend
  • Inflation remains low (YTD ave of 1.1% vs. government’s 2% target)
  • Remittances continue to post growth despite the drop in oil and other commodity markets and despite the slower growth in developed markets.
  • BPO revenues still growing by double-digits and is poised to overtake Remittances by 2016 – 2017.
  • Favorable demographics.  A large working age population that will allow for a strong work force and middle class well into the latter half of the century.
  • Government Expenditure is increasing from election related spending  and realization of the need to catch-up on infra development
  • Corporate earnings came out decent, with 2/3rds of releases in line or better

Globally, markets have started to digest recent risk events and have discounted them

  • Global slowdown scare  led by China is receiving less focus as Central Bankers become more active in correcting and stimulating economies using policies that are both conventional and non-conventional
  • Commodities prices have stabalized led by Oil and Metals
  • US Federal Reserve Governor Janet Yellen has confirmed that interest rates may not rise as quickly as they originally forecast
  • Geo-political risks like terrorism and threats of war continue to have minimal impact to the overall Global economy

As a result, markets have reacted as follows:

  • UST yields remain low and investors have been taking on more risk
  • Oil prices reached 40++ at the high and is now consolidating at the mid 30s.
  • Philippine Government bonds are stronger. FXTN 20-17 yields lower by 35 bps and FXTN 10-60  by 20 bps.
  • PSEi reached a high of 7,376 for the month, for an 8.86% return for March.
  • ROPs and Indon prices rallied gaining 3.5  and 4.25 percentage points respectively, on the long end maturities
  • PHP appreciated to break 46.0 from 47.558 at the end of Feb.
  • Foreign outflows reversed to inflows putting net YTD foreign equity investments to +$76.2 million

Update on Elections

  • The win by just a popular mandate and not a majority vote will consequently have the risk of a difficult term of office for the new President.
  • However, this risk is downplayed by the fact that economic conditions are in place that will allow any of the candidates to continue to generate 4-5% of GDP growth
  • The next President has an easier job given the country’s solid economic foundation and achievements of the prior administrations, provided:

o    Government Spending is increased and implemented.

o    Corruption does not escalate and transparent government continues to be adopted and grow.

The following are risks to watch out for. They may have effects IF they were to occur.

  • Resurgence of China slowdown scares. Our base case is that there is no crash for the Chinese economy.
  • Breakdown of OPEC and NON-OPEC supply freeze agreements and oil prices again drop. Our base case remains that we have seen the lows and the market will consolidate and see a gradual recovery.
  • While Yellen has confirmed the gradual rise of rates, volatility of US economic reports will remain that could swing US Treasury yields.  Our base case is 1 rate hike by the last quarter, if at all.
  • Geo-political tensions become more pronounced à at the moment they are being ignored
  • OFW remittances see a marked slowdown in growth and affects consumption. Our view is as long as there is growth; this should be non-event, especially as BPO revenues continue to grow by double digits.

Bottom line

  • We continue to be positive on the Equity and Bond UITFs as long as investors will be staying long-term
  • Conservative investors may be comfortable with the SB Peso Money Market Fund which has managed to return 1.59% over the past year

Security bank

Very positive outlook for all investors! Stay invested guys!

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