First Metro Investment Releases August Philippines 'Market Call'

Aug 20, 2012 09:00 JST

Source: First Metro Investment Corporation

MANILA, Aug 20, 2012 - (ACN Newswire) - First Metro Investment Corp (FMIC) and University of Asia and the Pacific (UA&P) have published the August issue of "The Market Call, Capital Markets Research". The report, which covers the Philippines' Macroeconomy, Fixed Income Securities, Equity Markets and Economic Indicators, includes the following highlights:

"Macro-Economy: Q2 GDP Growth to Top Q1's 6.4% on Q1's 6.4% gain, which is second only to China -

Solid expansion of Meralco electricity sales, pulled up by the industrial sector, strong jobs creation, double-digit exports, underpinned by lower inflation rate of 2.8% in Q2 confirm the GDP growth in Q2 to even improve on Q1's 6.4% gain, which is second only to China.

Standard & Poor's upgrade of the country's credit rating to BB+ (or one step short of investment grade) confirms our view that the Philippines will successfully fly over the dark clouds spawned by the Eurozone crisis and global economic slowdown.

The policy rate cut of 25 basis points (bps) on July 26, and wide scope for accelerated government spending (especially on infrastructures) in H2 in view of its low cumulative deficit in H1 lend credence to our view that full-year growth will be in the 6-7% range.

...By lowering the key interest rates, an upsurge of money supply can be expected to backstop faster economic growth while keeping inflation near the low end of the
3-5% target.

"Fixed Income Securities: S&P Upgrade + Positive Data = Lower Yields -

With the BSP cutting policy rates by 25 bps on July 26, the government yield curve flattened and shifted downward. H1 inflation was measured at 3%, and the lack of inflationary pressures gave the BSP room to make a series of policy rate cuts. Earlier in the month, the BSP cut SDA rates by 3.125 bps and tightened the
restriction on banks in order to prevent foreign funds from using SDAs for arbitrage gains.

In addition, S&P upgraded the country's credit rating to BB+ amidst multiple downgrades in Europe by Moody's. A big surprise was the negative outlook placed on Germany. Moreover, improved appetite was seen in both primary and secondary markets, pushing yields lower.

...Turnover was 143.6% higher than year-ago levels in June as the market continues with high liquidity and favorable inflation.

"Equity Markets: Rate Cut Spurs Last Minute Rally -

The Philippine stocks were on a rollercoaster ride in July. Recall that the market turned bullish in late June and continued until early July. However, with Eurozone's lingering debt crisis and weaker economic data, the market took away those gains mid-month. Nevertheless, close to the month end, as the European Central Bank (ECB) made encouraging remarks, investors started to place bets again on monetary stimulus.

Moving forward in August, we see continued oscillation between optimism and pessimism in the Philippine equities market. On one hand, reasons to be optimistic are 2nd quarter corporate earnings coming in as expected or better than expected (so far), and Gross Domestic Product (GDP) for the 2nd quarter to surprise higher (better electricity sales, see Macroeconomy). On the other hand, we see pessimism to return on Eurozone woes dominating investors' psyche and poor seasonality in August.

...Confidence recovered amid robust domestic economic fundamentals and better-than-expected Q2 corporate earnings results of some leading companies.

To download the full 24-page August 'Market Call', and all recent reports, please visit http://firstmetro.com.ph/publications_marketcalls.asp.

Contact:

Anna Marie Tuprio
Corporate Planning & Affairs Department 
Tel: +63-2-858-7951                   
E-mail: marie.tuprio@firstmetro.com.ph

Source: First Metro Investment Corporation
Sectors: Daily Finance

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