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Domestic demand will again widely offset weak external demand, as the government’s infrastructure works (+95.9% in April) and PPP project hum, while the manufacturing sector’s growth pace in April (+31.1%, fastest in eight years) and employment gains should boost consumer spending. Inflation, which reached 4.6% in May from 4.5% in April, appears to be peaking. But exports continued its negative streak. The rout of the peso by June will likely reverse after the BSP raised its policy rates by 25 bps to 3.5% on June 20. That may have a sobering effect on the bond and equities markets which had been skidding by June.



Led by 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, second best in East Asia. Manufacturing sector again outperformed the Services Sector handily. Higher inflation at 4.5% in April constrained consumer spending as crude oil prices pierced the $70/barrel resistance.



Even as the Philippine economy revs up to race faster, bond yields appear to have galloped uncontrollaby as earnings yields (E/P) to 10-year bond yield spreads suggest and US Treasuries have tracked a downward trend since its peak in mid-February. The PH economy appears to have had roaring 2018 start as capital goods imports rose by 16.9%, while National Government spending (exclusive of interest payments) to boost Infrastructure expenditures climbed by 25.2% in January, and Manufacturing output surged by 24.8%, the fastest in seven years.





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Earnings Season

Earnings Season

July 13, 2018


We expect the PSEi to hover around 7,200-7,400 amid lack of leads and ahead of the earnings season which will start next week with the release of Q2 earnings of IMI on July 27 and BDO & MER on July 30.

The Cost of Federalism

The Cost of Federalism

July 13, 2018


Global geopolitical and local political noise put investors on the defensive and will keep the yield curve elevated in the near-term. Ongoing discussions about a shift to federalism is getting more traction, but economists and analysts are warning about the ill-effects of the shift to the economy. Fiscal deficit to GDP ratio is estimated to reach 6% or more after another Php44-72bn needed for the shift, according to Socioeconomic Planning Secretary Ernesto Pernia, and might risk hyperinflation or a downgrade of the Philippines’ credit rating if done hastily. Overseas, the trade battle between the U.S. and China worsened after the Trump administration threatened to impose 10% tariffs on $200bn of Chinese products ranging from clothing to furniture. The latest tariff threat came just days after the U.S. levied tariffs on $34bn of Chinese-made machinery and electronics on July 6, on top of scheduled tariffs on $16bn of Chinese electronics and other components. Coupled with overshooting inflation and a behind-the-curve Bangko Sentral (BSP) policy rate, there are too many unknown variables in play that could sideline bond market investors. The highlights of the monetary board meeting last June 21 will be released on Thursday and will shed more light on the BSP’s stance.

Hovering around the bear line

Hovering around the Bear Line

July 6, 2018


We expect the PSEi to continue trading around 7,200 as investors remain on the sidelines amidst the lack of catalysts and ahead of the first half earnings which starts by end of the month. Key economic data to monitor are Overseas Filipino Workers remittances and Balance of Payments to be released next week.







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