Equity markets hold steady awaiting new catalysts

Global and Philippine Market Update
Feb. 8 to Feb. 14, 2024

Global Markets

Global Stocks were steady amid inflation concerns. 

• US inflation exceeded expectations in January, reaching 3.1% on an annual basis, surpassing the 2.9% forecasted by economists. The increase was mainly driven by shelter prices, which makes up one-third of the inflation weighting, rising by 6%. While inflation is generally moving in the right direction, a lower print doesn’t indicate falling prices but rather a slower pace of increase. Consumers will still feel the impact of higher prices.

• Elevated shelter costs pose a potential challenge for the Federal Reserve (Fed) as they navigate the ` for monetary policy in 2024. Despite Fed officials anticipating inflation to ease back to 2%, primarily driven by a deceleration in shelter prices throughout the year, the disappointing inflation figures provide the Fed with additional justification to defer any rate cuts and wait for more concrete data.

• China’s economy is encountering challenges with the crumbling property sector, spreading deflation pressures and a declining stock market. The influx of downbeat data has prompted skepticism, leading Allianz to revise its optimistic outlook for China. The forecast now predicts the Chinese economy to grow at an average of 3.9% between 2025 and 2029, down from the pre-Covid-19 pandemic estimate of 5%. However, the Institute of International Finance still believes that Beijing has the capacity to push the Chinese economy to 5% growth if the necessary demand-side stimulus is provided.

Philippine Stocks

Philippine Stocks edged higher as foreign investments lifted market sentiment.

• Local stocks continued their upward trend after the central bank reported a surge in foreign direct investments (FDI) in November, reaching their highest level in almost two years to USD 1.048 billion. Although the surge was led by investments in debt instruments, it still contributed to positive sentiment in the overall market.

• The increasing population of tech-savvy families in the middle and upper-middle-income brackets is driving consumption of leisure items, as indicated by BMI, a unit of Fitch. Spending on electronics and major renovations is projected to grow by 7.5% in 2024, reaching Php 270.4 billion. In a previous report, BMI anticipates consumer spending to increase by 6.3% this year, amounting to Php 12.8 trillion, supported by easing inflation. This is in line with BMI’s expectations of gross domestic product (GDP) growth of 6.2% for the year as consumption is a major driver of the Philippine economy.

• Department of Finance (DOF) Secretary Ralph G. Recto mentioned that the Development Budget Coordination Committee (DBCC) might need to revise its growth and fiscal targets to be “more realistic.” The entire medium-term fiscal framework is currently under review considering global developments. However, Mr. Recto is not contemplating slower spending, as long as deficit and debt-to-GDP ratios are decreasing, which he considers crucial. 

Philippine Bonds

Philippine Bond yields remained elevated as interest rates are likely to stay higher for longer.

• The government successfully raised an initial Php 212.719 billion from its auction of the latest Retail Treasury Bond (RTB) exceeding the PHP 30 billion offered by more than nine times. The bond secured a coupon rate of 6.35%, reflecting a 12.5 basis point increase from the 6.125% offered for a similar bond in February 2023. The final amount raised is anticipated to reach Php 400 billion by the end of the offer period due to robust investor demand.

• The Jalaur River Multipurpose Project (JRMP) in Iloilo province is poised to become the first large-scale water reservoir in the Philippines outside of Luzon. Expected to be completed by mid-2025, it is anticipated to contribute to bringing the country closer to rice self-sufficiency. The country’s rice self-sufficiency level dipped to 77% in 2022, down from 81.5% in 2021 and 85% in 2020. The Department of Agriculture through the Masagana program, aims to achieve a target of 97% self sufficiency in rice by 2028. This project is expected to offer a long-term solution to inflation caused by surging rice prices. This development aims to make the Philippine less susceptible to the impact of global rice prices.

FWD Guidance: Uncertainty leads to downside risks, but diversification and a long-term investment horizon still provide the best chance for financial success.

Sources: (1) https://www.cnbc.com/2024/02/13/cpi-inflation-january-2024-consumer-prices-rose-0point3percent-in-january-more-than-expected-as-the-annual-rate-moved-to-3point1percent.html (2) https://www.cnbc.com/2024/02/09/el-erian-krugman-and-other-top-economists-voice-china-opinions.html (3) https://business.inquirer.net/445487/filipinos-spending-more-on-gadgets-luxury (4) https://www.bworldonline.com/stock-market/2024/02/13/575390/psei-recovers-as-fdis-surge-to-highest-in-2-years/ (5) https://www.bworldonline.com/top-stories/2024/02/12/574981/growth-fiscal-goals-need-to-be-more-realistic-says-dof-chief/ (6) https://business.inquirer.net/445569/iloilo-reservoir-to-boost-rice-output (7) https://www.bworldonline.com/top-stories/2024/02/14/575519/govt-raises-p213b-from-retail-bonds/