Philippine stocks enter a bull market


Tailwinds come from stronger corporate earnings, cooling inflation, and continued monetary stimulus
Chief Investment Office16 Jul 2019
Photo credit: AFP Photo


REST OF ASIA 

The bull run for Philippine stocks still has legs amid tailwinds of stronger corporate earnings, cooling inflation, and continued monetary stimulus.

The benchmark Philippine Stock Exchange Index (PSEi) entered the bull market on Monday (15 July) after climbing more than 22% from a November low. The gauge is now the best performer in Southeast Asia and one of the top gainers in Asia this year. The surge was also propelled by a stronger peso, which has been among the best-performing currencies in the region.

Foreign investors have returned to the market – which was among the worst performing last year, pouring more than USD400m into equity funds this year. That improvement was partly due to inflow of funds after investors finished adjusting allocation on the back of MSCI Inc’s expansion of China weighting in some of its benchmarks.

The nation’s market was roiled by the US-China trade war, escalating inflation and a weakening peso last year. Foreign investors pulled over USD1b out of the nation’s stocks in 2018 – their biggest withdrawal in three years, according to a news source.

Stronger corporate earnings combined with falling inflation and a less strict monetary condition as the central bank’s pushes with its expansionary policy will help propel the index to 8,500 in the near term, the strategist continued.

All but two of the PSEi’s 30 components have gained since the low in November with JG Summit Holdings Inc and First Gen Corporation surging more than 65%. About half of the gauge lagged the index’s 22% gain during the period including SM Investments Corporation and Jollibee Foods Corporation. – Bloomberg News.

South Korea’s Kospi Index added 0.22% to 2,087.06 at the open on Tuesday (16 July). It decreased 0.20% to 2,082.48 on Monday.

Shares in Sydney were lower on Tuesday with the S&P/ASX 200 Index losing 0.07% to 6,648.00 at the open. The index declined 0.65% to 6,652.99 the previous session.

The Taiwan Stock Exchange Weighted Index gained 0.48% to 10,876.43.

 

CHINA & HONG KONG

Slowing growth in China is intensifying the focus on the need for interest-rate cuts across Emerging Markets (EM) in the wake of last week’s (ended 12 July) dovish comments from Federal Reserve Chairman Jerome Powell.

China’s gross domestic product (GDP) rose 6.2% in the April-June period from a year earlier, the weakest pace since quarterly data began in 1992, underscoring the fallout from the trade war. Investors will now focus on central bank meetings in Indonesia, South Africa, and Ukraine, all of which are forecast to cut rates this week. There is an almost even chance that South Korea may ease too.

Expected swings in developing-nation currencies declined last week to the lowest level in almost two years and the average yield on local currency EM debt fell to new lows.

“The path of travel toward looser EM monetary policy is pretty clear and we are expecting the global wave of easing to continue,” said a London-based money manager, whose EM debt fund has outperformed 97% of peers this year. But “this is not a classic environment for EM currency appreciation as long as growth and trade remain sluggish”.

Idiosyncratic risks are also likely to remain front and centre this week, after Moody’s Investors Service lowered the outlook on Argentina’s credit score and Fitch Ratings cut Turkey’s debt deeper into junk territory, just as the US considers imposing sanctions on the country over its purchase of a Russian missile system. – Bloomberg News.

The Shanghai Composite Index added 0.40% to 2,942.19 on Monday (15 July) while the Hang Seng Index gained 0.29% to 28,554.88.


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