Weekly Equities Summary and Outlook : October 8 – October 12, 2018

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Equities Outlook

Outlook. The PSEi may hover between 6,800-7,000 as rising domestic inflation and interest rates and global uncertainty about trade, rising US interest rates and escalating tension between US and Saudi Arabia over the fate of Saudi journalist Jamal Khashoggi that could potentially lead to speculative spike in oil prices continue to dampen sentiment. China’s central bank governor Yi Gang has admitted that the trade war poses significant downside risks, after Pres. Trump hinted of another round of tariffs on China. At its worst, the International Monetary Fund's (IMF) said that the trade war could shave 1.6 percentage points off China’s growth in the next two years. On the domestic front, government’s move to suspend the second tranche of fuel excise taxes to anchor inflation expectation may provide temporary relief to the market. Key economic indicators to be released this week are the OFW remittances for August (Oct. 15) and balance of payment for September (Oct. 19).

Market Review. The PSEi dropped 78.3 points yesterday (-1.1% from Friday’s closing) to end at 6,926.5, with forward P/E of 15x . Last week, the PSEi tracked Asian markets’ slumped, dropping for the sixth straight week (-73.4 points or -1% week-on-week, w/w) to close on Friday at 7,004.8 following bruising trading sessions in the US which saw the Dow Jones shedding more than 1,100 points as investors feared that the decade long bull run may be running out of steam. The market was down 18.2% YTD and 22.7% from its peak on January 29 at 9,058, battered by 32 consecutive sessions of net outflows which YTD totaled P90.4bn.

• Among the Asian markets that we follow, China (-21.2%), the Philippines (-18.2%) and Hong Kong (-13.8%) were the most beaten up YTD, while India (+2%) was the only gainer.
• PHP gained 0.2% last week to close on Friday at P54.13/$. YTD, it fell by 7.8%, the third weakest in Asia next only to Indian rupee (-13.2%) and Indonesian rupiah (-10.8%).
• Last week, foreign investors flocked to GLO, URC, LTG, MPI and MER totaling P454.2mn, and sold SMPH, SM, SECB, BDO and AC for an aggregate amount of P1.7bn. YTD, 44% of the total net foreign market outflows of P90.4bn came from SM, BDO, AC, BPI and ALI.

Economic News

Pres. Duterte is set to temporarily suspend the second round of excise taxes on fuel which is set to take effect in January 2019 to temper accelerating inflation which in September reached a nine-year high of 6.7% year-on-year (y/y) as well as to stem rising inflation expectation. Under the TRAIN law, excise taxes on fuel products is to be gradually increased from 2018-2020, with the first hike implemented in January 2018 (diesel tax of P2.50/liter) and the second tranche to take effect on Jan. 1 next year (diesel tax to rise to P4.50/liter). The scheduled increase in fuel excise taxes may be suspended if the average Dubai crude oil prices based on Mean of Platts Singapore (MOPS) for October to December 2018 reaches or exceeds $80/barrel. The temporary suspension of fuel excise taxes is expected to lead to annual forgone revenues of P40bn, which the Department of Finance (DOF) said could be partially offset by higher import taxes from oil (due to higher global prices).

Philippines’ foreign tourist arrivals in August were flat (+0.6% y/y), bringing the January-August tally higher by 8.5% y/y to 4.9mn. Growth in 2018 was driven mostly by the 35.7% y/y jump in Chinese tourists to 870,177. Nonetheless, South Korean remained the top source market (1.1mn or +0.9% NYTD), followed by China, the US (715,060 or +14.7%), Japan (715,060) and Australia (431,779). This year, the government aims to hit 7.4mn foreign tourist from 2017’s 6.6mn.

Corporate News

Ayala Land, Inc. (ALI) said that it is looking to further expand in Southeast Asian countries and second-tier Chinese cities within the next three years. ALI is currently in discussions over potential overseas acquisitions after making its first investment in Malaysia in 2015 through a majority stake in property company MCT Bhd. ALI closed on Friday at P39.20/share, down 12.1% YTD.

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