Equity markets rebound as valuations turn attractive

Global Markets 

Global Stocks moved higher as investors began to take notice of attractive valuations.

• US consumer confidence decreased to 98.7 in June from a 103.2 reading in May. The drop reflects the negative outlook of Americans toward the economy, labor market and income. However, consumers’ purchasing plans have held up despite the negative sentiment. The survey showed that respondents who intended to purchase a vehicle or major appliance increased from the previous month.

• European equities are looking to have a better second half, according to Esty Dwek, chief investment officer at Flowbank SA. A continuous rally is unlikely given the current challenges faced by Europe but attractive valuations, easing of global tightening expectations and a good earnings season could push stocks higher. In contrast, Maarten-Jan Bakkum, a strategist at NN Investment Partners, sees more downside risk than upside potential for equities in the coming months. He does not see equity valuations as attractive especially when compared to bond yields.

• Recession is not inevitable, but the global economy is decelerating. The US housing market is slowing, which is a definite sign of slower growth. However, this does not mean that it would lead to a six-month-long contraction of the whole economy, which is the definition of a recession. The job market is strong and corporate earnings forecast remain upbeat. This is the opposite of the kind of news seen in a recession.

Philippine Stocks

Philippine Stocks rebounded after hitting a new year to date low. The local market is looking to gather momentum as a new administration takes office.

• Bargain hunters returned to the local market as the index hit a low of 6,065.23 on June 23. The market gained some momentum after hitting low but expect volatility to continue as inflation and recession fears remain. Investors will now look toward the economic plans of the incoming administration for a catalyst that can push prices higher.

• Moody’s Investors Service and S&P Global Ratings believe that the country’s debt levels remain manageable. The country will likely keep its investment grade rating during the new administration. Keeping this rating will help keep funding costs low and can potentially lead to more capital expenditures that can boost growth.

Philippine Bonds

Philippine Bond Yields ended with mixed results. The belly of the curve, bonds with a maturity between 2 years and 7 years, fell by 0.10% while the rest of the curve moved higher.  

• The Bureau of Treasury (BTr) rejected a reissued 7-year security with a remaining life of six years and 10 months. Had the offer been fully awarded, the average rate would have reached 6.95%. This would have been 0.52% higher than the 6.43% it fetched when it was offered last May 17. The rejection has finally given pause to the rise in rates and may be the first sign that yields have finally peaked.

• Inflation for June is projected to settle between 5.7% and 6.5%, according to outgoing Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno. Higher oil prices, food costs and the depreciating peso will likely be the driver of inflationary pressures.

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.bloomberg.com/news/articles/2022-06-28/us-consumer-confidence-drops-to-lowest-since-february-2021 (2) https://blinks.bloomberg.com/news/stories/RE71JGT1UM0W (3) https://time.com/6191919/recession-risk-lower-us-asia/ (4) https://www.bworldonline.com/stock-market/2022/06/28/458016/local-stocks-climb-as-bargain-hunting-continues/ (5) https://business.inquirer.net/351701/recession-woes-return-clipping-pseis-upward-momentum (6) https://www.bworldonline.com/banking-finance/2022/06/29/458020/treasury-bureau-rejects-all-bids-for-7-year-bonds/ (7) https://blinks.bloomberg.com/news/stories/RE9YVVT0G1KW

Disclaimer: The purpose of this article is to inform and should not be taken as an advice or offer to purchase securities. Seek professional advice before making a decision based on this presentation. Information given does not represent the views of FWD and its agents and employees.

The information here is compiled from various credible sources and is a summary of a particular period only. Though we strive to provide accurate and complete information, we cannot guarantee that this article will be error-free.