Markets rally as banks get support from regulators

Global and Philippine Market Update
March 16 to March 22, 2023

Global Markets

Global Stocks rallied as regulators provided support to the banking sector.

• The collapse of Credit Suisse caused significant damage to Switzerland’s reputation as a hub of stable and reliable banking. Swiss authorities helped to negotiate an agreement wherein UBS buys Credit Suisse for USD3.2 billion. The deal merges two of Switzerland’s biggest and best-known banks into one financial giant. The Swiss authorities deemed the merger necessary to prevent further contagion risks. Credit Suisse is among 30 financial institutions known as globally systematic important banks and its downfall would have had significant consequences.

• Treasury Secretary Janet Yellen affirmed the government’s commitment to ensure the safety of bank deposits and expressed readiness to take additional measures if needed. She pointed out that authorities have already implemented measures to prevent contagion risks but acknowledged that smaller financial institutions could still face bank runs which may require further intervention. She also noted that the intervention was not focused on helping individual banks but was necessary to protect the whole US banking system.

• The Federal Reserve (Fed) launched a new emergency lending program called “Bank Term Funding Program.” This facility allows banks to take one-year loans under favorable terms in exchange for high-quality collateral. Financial institutions took advantage of the facility and borrowed billions in short-term loans as the industry copes with a crisis of confidence and liquidity.

Philippine Stocks

Philippine Stocks gained on improving market sentiment.

• The Philippine Stock Exchange index (PSEi) climbed back above the 6,500-level as concerns over the global banking sector begins to ease. Confidence in the overall market has improved as global financial regulators provide support to at risk financial institutions.
• The Philippine can withstand any possible shocks from the recent failure of two midsized banks in the United States according to the BSP. Philippine banks have a different asset base than the US banks, which prevents them from being significantly affected. Local banks hold loans that are less susceptible to changes in fair value and lower market risk exposures compared with US lenders. BSP Governor Felipe M. Medalla also stated that developments surrounding Credit Suisse are not a major concern and will likely not significantly impact the global economy.

Philippine Bonds

Philippine Bond Yields moved higher in anticipation of further rate hikes.

• The Bureau of Treasury (BTr) fully awarded a reissued 20-year treasury bond with a remaining life of 19 years and eight months at an average rate of 6.631%. This was 0.08% higher than secondary market levels for the same bond series at the time of auction. The rate was slightly higher as analysts forecast the Bangko Sentral ng Pilipinas (BSP) to continue hiking rates.

• Inflation remains a major concern which may threaten the Philippines’ growth outlook this year and 2024 according to National Economic Development Authority (NEDA) Secretary Arsenio M. Balisacan. He believes that the economy risks a slowdown if the BSP is forced to tighten monetary policy because of the upward pressure in prices. The government has responded by creating an Inter-agency committee on Inflation and Market Outlook to address the issue.

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/2023/03/21/ubs-credit-suisse-deal-puts-switzerlands-reputation-on-the-line.html (2) https://www.cnbc.com/2023/03/21/treasury-secretary-yellen-says-the-government-could-backstop-more-deposits-if-necessary.html (3) https://www.cnbc.com/2023/03/16/banks-take-advantage-of-fed-crisis-lending-programs-.html (4) https://edition.cnn.com/2023/03/19/economy/central-banks-fed-dollar-liquidity/index.html (5) https://www.bworldonline.com/stock-market/2023/03/21/511922/shares-rise-on-expectations-of-smaller-rate-hikes/ (6) https://www.bworldonline.com/top-stories/2023/03/21/511715/phl-banks-prepared-to-withstand-shocks-bsp/ (7) https://www.bworldonline.com/banking-finance/2023/03/22/511964/btr-fully-awards-t-bonds-at-slightly-higher-rates/ (8) https://www.bworldonline.com/top-stories/2023/03/23/512286/high-inflation-to-dampen-growth-outlook-neda/

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.