Improving investor sentiment continues to lift equity markets

Global and Philippine Market Update
Dec. 14 to Dec. 20, 2023

Global Markets

Global Stocks edged higher, buoyed by diminishing inflationary pressures and the resilience of the global economy.

• The Federal Reserve (Fed) revised its core inflation projection for 2024 downward to 2.4%, anticipating a further decline to 2.2% in 2025 and finally hitting its 2% target in 2026. In terms of economic growth, the Fed forecasts a gross domestic product (GDP) growth of 2.6% in 2023, followed by a slowdown to 1.4% in 2024. Moderating growth is aligned with the Fed’s objective, as achieving lower inflation often requires a measured approach to economic expansion.

• The European Central Bank (ECB) opted to keep rates unchanged for the second consecutive meeting, accompanied by a downward revision of its growth forecasts and the announcement of plans to reduce its balance sheet. This move was anticipated considering the decline in euro zone inflation. Notably, the ECB altered its language on inflation, shifting from “expected to remain too high for too long” to “decline gradually over the course of next year.” Projections indicate headline inflation averaging 5.4% in 2023, 2.7% in 2024, and 2.1% in 2025.

• China’s industrial output surged by 6.6% in November compared to the previous year, surpassing expectations of 5.6% in a Reuters poll and following a 4.6% increase in October. Economists approached the data cautiously, considering the low base effect due to stringent zero-Covid policy in the last quarter of 2022. Despite the positive figures, there are calls for Beijing to intensify stimulus measures to further stabilize the economy amid concerns of a deepening slowdown.

Philippine Stocks

Philippine Stocks rallied amid improving sentiment and year-end window dressing.

• The International Monetary Fund (IMF) acknowledges that the Philippines’ fiscal consolidation is progressing well. However, the government has room for further improvement through additional revenue mobilization and expenditures reforms to expand fiscal space. The government’s deficit is anticipated to decrease below 6.1% of gross domestic product (GDP) from 7.3% last year. Looking ahead to 2024, the IMF believes that the pace of fiscal consolidation efforts is “appropriate.” Additionally, government could explore additional measures to enhance revenues, such as broadening the value-added tax (VAT) and corporate income tax bases.

• Local shares rose on the back of an improved economic outlook, with investors anticipating year-end window dressing. Positive economic narratives, such as IMF’s favorable assessment of the Philippines’ fiscal consolidation. Investors took to strategically allocate funds and take advantage of opportunities, positioning themselves for next year.

Philippine Bonds

Philippine Bond yields continue to drop in line with the fall in US treasuries.

• The IMF recommends that central banks maintain higher interest rates for longer. The IMF adjusted its inflation forecast for the Philippines to 3.7% for next year, slightly above the 3.5% projection from October. This aligns with the BSP’s full-year projection for 2024. However, inflation risks persist, particularly regarding rice costs, influenced by potential typhoons impacting harvests and the El Niño weather phenomenon.

• The Bangko Sentral ng Pilipinas (BSP) is unlikely to initiate policy easing in the coming months and would only consider rate cuts if inflation settles at the midpoint of the 2-4% target range. The BSP maintained rates at 6.5% in its recent meeting. Governor Eli M. Remolona Jr. stated that if inflation remains on its trajectory and expectations are well-anchored, easing measures may be considered. Headline inflation slowed to 4.1% in November, bringing the 11-month average to 6.2%. For 2024, inflation is expected to approach the upper end of the 4% target band rather than the lower 2% band.

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/2023/12/14/european-central-bank-holds-rates-trims-growth-forecasts.html (2) https://www.cnbc.com/2023/12/13/fed-lowers-inflation-forecast-for-2024-seeing-core-pce-falling-to-2point4percent.html (3) https://www.cnbc.com/2023/12/15/china-data-industrial-output-at-highest-in-nearly-two-years.html (4) https://www.bworldonline.com/stock-market/2023/12/19/564619/local-shares-rise-on-positive-economic-outlook/ (5) https://www.bworldonline.com/top-stories/2023/12/19/564298/phl-fiscal-consolidation-efforts-on-track-imf/ (6) https://www.bworldonline.com/top-stories/2023/12/21/564906/rates-to-stay-higher-for-longer-bsp/ (7) https://www.bworldonline.com/top-stories/2023/12/18/564058/rates-to-stay-higher-for-longer-imf/

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.