Investors remain cautious as market volatility persists

Global Markets 

Global Stocks edged lower as investors brace for a possible economic downturn.

• Heavy volatility is likely to continue as the possibility of an economic recession weighs on stocks. In a note to clients, UBS stated that it does not see a recession in 2022 or 2023. However, if the US does enter a recession, it will likely be a short one due to consumer strength and strong bank balance sheets.

• US government leaders and officials have been trying to reassure investors that an economic slowdown is not guaranteed. President Joe Biden does not see recession as inevitable while Federal Reserve Bank of St. Louis President James Bullard sees the economy as on track for more expansion this year

• Federal Reserve (Fed) Chairman Jerome Powell told US lawmakers that the Fed has the ability and the determination to bring down inflation. The goal of the Fed is to provide a “soft landing,” or when monetary policy tightens without severe economic consequences like a recession. Chairman Powell admits that accomplishing this goal will be difficult and will depend on some factors that are not under the Fed’s control.

Philippine Stocks

Philippine Stocks continued their downward trend as investors remain on the sidelines.

• The negative market sentiment was eroded further as the Philippine Peso weakens to Php 54 versus the US dollar. Net value turnover remains low, and foreigners continue to leave the Philippine market with net foreign outflow standing at USD 155 million for the month of June.

• Industry stakeholders expect the domestic tourism sector to reach pre-pandemic levels by 2024. John Paolo R. Rivera, associate director at the Asian Institute of Management, sees the target as reasonable but states that it is possible to hit pre-pandemic levels as early as 2023, assuming there are no disruptions like a surge in COVID-19 cases and new lockdowns occur.

• The return of tourism will provide a significant boost to gross domestic product (GDP) as the 2019 share of the local tourism industry to GDP was at 12.7%. Returning to this level will be a significant jump from 5.2% in 2021.

Philippine Bonds

Philippine Bond Yields saw a “bear flattening” of the curve, this is where short-term interest rates rise faster than long-term interest rates. Bonds with a maturity of seven years and below rose by an average of 0.06%.  

• The Bureau of Treasury (BTr) partially awarded a fresh 10-year bond with a coupon rate of 7.25%. This was 0.31% higher than 6.94% quoted for bonds with a similar tenor in the secondary market. The BTr awarded Php 34.9 billion, just below the planned Php 35 billion offered. Demand for the new bond was strong due to the lack of long tenor bonds in the secondary market.

• Incoming Bangko ng Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla stated that there would be two more rate hikes this year but possibly more if inflation remains elevated. The policy rate will continue to adjust until the BSP is comfortable that inflation will move back within the 2-4% target.

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/2022/06/21/stock-market-futures-open-to-close-news.html (2) https://blinks.bloomberg.com/news/stories/RDV8TF0799MO (3)https://www.cnbc.com/2022/06/22/powell-tells-congress-the-fed-is-strongly-committed-to-bringing-inflation-down.html (4) https://www.manilatimes.net/2022/06/22/business/corporate-news/psei-down-077-as-investors-sit-back/1848217 (5) https://www.bworldonline.com/top-stories/2022/06/22/456578/philippine-tourism-industry-seen-to-reach-pre-pandemic-levels-by-2024/ (6)https://www.bworldonline.com/top-stories/2022/06/21/456357/bsp-chief-says-25-bp-rate-increase-likely/ (7) https://www.bworldonline.com/banking-finance/2022/06/22/456506/btr-partially-awards-offer-of-fresh-10-year-bonds/

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.