Our rates outlook report for February focuses on three things that may influence your decisions if you are a peso investor.

The first one is this tug-of-war between the fear of the Fed and the fear of missing out, or FOMO. The US Fed has embarked on one of its most aggressive tightening cycles. Despite this, investors are undeterred for fear of missing out on the recovery.

The second one is the sticky inflation in the Philippines, which compelled the BSP to be more aggressive than the US in hiking rates. Keeping inflation under control with rate hikes is going to be a continuing theme this year.

Our recommendations for short-term asset swaps comprise the third part of our report, which is for those who want to continue anticipating higher rates as both the Fed and BSP consider more rate hikes this year.

You may download our report titled “Buckle Up, It’s Getting Bumpy” for more details about our analysis and trade ideas here.

If you wish to act on these ideas, please reach out to your relationship manager

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) fell by 1.37% week-on-week to close at 6,685.90 (-93.12 points), continuing its descent for a fourth straight week. The local bourse started the shortened trading week in the red as investors remained cautious about the BSP and the Fed’s hawkish comments, with inflation expected to remain higher for longer.

The market rebounded on Tuesday on bargain hunting as well as the strong full-year 2022 corporate earnings results. However, the benchmark index dropped for the rest of the trading week following the risk-off sentiment in US and Asian peers as investors digested the minutes of the US Fed meeting.

Top index performers were SM Investments Corporation (SM) (+2.9%), Converge (CNVRG) (+2.4%), and Union Bank of the Philippines (UBP) (+0.6%) while index laggards were Globe Telecom (GLO) (-5.9%), DMCI Holdings Inc. (DMC) (-5.5%), and GT Capital (GTCAP) (-5.1%). The index breadth was negative with three gainers versus 27 losers. The average daily turnover value was PHP 3.8 billion. Foreigners were net sellers by PHP 1.6 billion.

WHAT TO EXPECT THIS WEEK

We expect the market to post moderate gains given:

(i) the PSEi remaining close to oversold conditions with technical indicator Relative Strength Index at 39.89;

(ii) more corporate earnings releases; and

(iii) the anticipated oil price rollback by as much as PHP 1.30 to PHP 1.60/liter for diesel, PHP 0.80 to PHP 1.00/liter for gasoline, and PHP 1.50 to PHP 1.80/liter for kerosene.

However, gains may be capped as investors may price in the possibility of more aggressive rate hikes from the Fed. Trading activity is expected to pick up as a result of the February MSCI semi-annual rebalancing changes effective at the close of February 28, 2023, when Globe Telecom, Inc. (GLO) and ACEN Corp. (ACEN) will be removed.

STOCK CALLS FOR THE WEEK

Robinsons Retail Holdings, Inc. (RRHI) — BUY ON BREAKOUT

We believe that a break above PHP 60.00 may indicate a more sustainable upside. Since the beginning of the year, key developments include: (i) RRHI’s acquisition of a 4.4% equity interest stake in Bank of the Philippine Islands (BPI) under a Share Purchase Agreement dated January 5, 2023 (ii) reported 2022 attributable net income at PHP 5.74 billion (+26.7% year-on-year); excluding non-core items, core earnings surged 39.1% y-o-y to PHP 5.29 billion.

Moving forward, the management shared a more aggressive expansion outlook at 180 to 200 net store additions and PHP 5-7 billion capital expenditure this year (2022: PHP 4.7 billion). Accumulating once RRHI breaks above PHP 60.00 is advisable. Set stop limit orders below PHP 57.00. Take profit at around PHP 67.00-PHP 68.00, PHP 70 for long-term investors.

Alliance Global Group, Inc. (AGI) — BUY ON BREAKOUT

Year-to-date, AGI’s share price has rallied by as much as 10% to as high as PHP 13.10 but has failed to break above its 2022 high of PHP 13.30. For the rally to be sustained, AGI’s share price must break above PHP 13.30. and stay above PHP 12.00 to avoid forming a lower low. As for valuation, AGI is currently trading at 6.10x Forward 12 months (F12) price-to-earnings per share ratio (P/E) and 0.51x F12 price-to-book value per share ratio (P/B), which is undemanding compared to local peer averages of 12.47x and 0.95x, respectively. Accumulating once AGI breaks above PHP 13.30 is advisable. Set cut loss below PHP 12.40. Take profits at around PHP 15.15 to PHP 16.00.

Cemex Holdings Philippines, Inc. (CHP) — SELL ON BREAKDOWN

Cemex Holdings Philippines, Inc. (CHP) ended the full year 2022 with a net loss of PHP 1.0 billion (from full year 2021’s net income of PHP 726 million). It was below consensus estimates, mainly driven by lower EBITDA and foreign exchange losses. CHP’s full-year 2022 net sales of PHP 20.6 billion were down 2% y-o-y amid subdued cement demand due to weak private construction activities. CHP’s domestic cement volume fell by 10% y-o-y, while domestic cement prices went up by 9% y-o-y, due to price increases implemented to offset input cost inflation.

For 2023, CHP is guiding for a flat to low-single-digit percentage decrease in its domestic cement sales volume. CHP added that it still expects challenging market conditions and high inflation through the first half of 2023 but expects to see the benefits of cost-reduction efforts as the year progresses. As for its tender offer, CHP disclosed last January 25, 2023, that its parent company, Cemex Asian South East Corp., will conduct a voluntary tender offer for up to 1.61 billion outstanding common shares at a price of PHP 1.30 per share from February 16, 2023, to March 16, 2023.

If the tender offer is fully subscribed, CHP’s free float will be reduced from 21.96% to 10%. Though this is still within the current minimum free float level for listed companies, this is considered to be relatively illiquid, which means technical patterns or rallies formed may be unsustainable given the lack of volume. Set stop limit orders below PHP 1.15. The next support levels are PHP 1.00/PHP 0.90.

PSEi TECHNICAL ANALYSIS

Resistance: 6,800 / 7,150

Support: 6,600

The PSEi closed below the 6,700 level, forming a lower low. The market also failed to stay above its 100-day moving average price (MA) and the technical indicator MACD suggests the bears have taken control. The PSEi must stay above 6,600 or else the market will likely retest 6,400/6,200.

TRADING PLAN

Gradually accumulate if the PSEi trades back above 6,800 this week. Set stop limit orders below 6,600.

KEY DATA RELEASES

Monday, February 27, 2023
– Corporate Earnings: Manila Electric Co. (MER)

Tuesday, February 28, 2023
– PH Budget Balance for December 2022 (November 2022: -123.9 billion);
– Bank Lending year-on-year for January 2023 (December 2022: 13.1%);
– Corporate Earnings: SM Investments Corp. (SM);
– Corporate Earnings: Semirara Mining and Power Corp. (SCC)

Wednesday, March 1, 2023
– PH S&P Global Manufacturing PMI for February 2023 (January 2023: 53.5);
– US S&P Global Manufacturing PMI for February 2023

Thursday, March 2, 2023
– US Initial Jobless Claims as of February 24, 2023

Friday, March 3, 2023
– BDO Unibank, Inc. (BDO) on Friday, March 3, 2023.

Metropolitan Bank & Trust Co. (Metrobank) continued to deliver strong results as it ends 2022 with a 48% year-on-year increase in net income to PHP 32.8 billion on the back of better corporate and consumer lending businesses, healthy fee income, subdued operating expense growth and lower provisions on stable asset quality.

For the October to December period alone, the Bank’s earnings rose to PHP 9.3 billion, a 55% increase from a year ago. With the Bank’s strong capital base and higher profitability, the Board of Directors approved a total cash dividend of PHP 3.00 per share for the year.

The regular dividend of PHP 1.60 per share will be paid out on a semi-annual basis at PHP 0.80 per share. On top of this, a special cash dividend of PHP 1.40 per share was also declared.

“Backed by the strategies we initiated during the pandemic, our solid performance, and the recognitions we received in 2022 reflect our efforts to support our clients’ growing needs as the economy reopens. With our strong balance sheet and highly capable team of Metrobankers, we stand ready to continue to be the trusted partner of all our stakeholders for the long term,” said Metrobank President Fabian S. Dee.

The Bank’s net interest income jumped by 14% fueled by higher loan demand and better net interest margin of 3.6%. Gross loans expanded by 14% year-on-year, supported by a 15% growth in corporate and commercial loans as businesses started to build their inventories and resumed their investment spending.

Likewise, net credit card loans increased by 29%, leading the recovery in consumer lending. Total deposits grew by 15% from the previous year to PHP 2.2 trillion with low-cost current and savings accounts (CASA) stable at PHP 1.5 trillion.

Meanwhile, the Bank’s modest growth in non-interest income was supported by an 11% increase to PHP 23.5 billion in fees and other income. Operating expense growth was controlled at just 3% to PHP 61.0 billion, bringing down the cost-to-income ratio to 54% from 59% in 2021. This helped drive the 24% rise in pre-provision operating profit to PHP 52.0 billion in 2022.

The Bank’s non-performing loans (NPLs) ratio eased to 1.9% from 2.2% in 2021 and better than the industry’s 3.3%. Moreover, its NPL cover remained substantial at 172.4%, reflecting strong ability to cover any potential risks to portfolio health.

Metrobank ends 2022 with total consolidated assets of PHP 2.8 trillion, maintaining its status as the country’s second largest private universal bank. Total equity stood at PHP 318.5 billion. The Bank’s capital ratios remain to be one of the highest in the industry, with capital adequacy ratio at 17.7% and Common Equity Tier 1 (CET1) ratio at 16.8%, all well-above the minimum regulatory requirements.

The Bank brought home major accolades from top financial publications in 2022. Metrobank was named as the country’s Bank of the Year by The Banker; received back-to-back awards from the Asian Banker as the Strongest Bank in the Philippines; recognized as the Best Bank in the country by Euromoney; and was awarded Best Corporate Bank and Best Domestic Private Bank by Asiamoney.

WHAT HAPPENED LAST WEEK

Investors and dealers of peso government securities (GS) stayed cautious and sidelined amid a flurry of risk events, data releases in the local and global markets, as well as the ongoing Retail Treasury Bond (RTB).

Short-dated bonds remained to be the preferred reinvestment option for those with RTB 3-10 maturities but most investors still opted to sell back their existing bonds to switch to the new RTB 5-17.

On Wednesday, the Bureau of the Treasury (BTr) closed the public and exchange offer for RTB 5-17, two days earlier than originally scheduled. The BTr was able to raise a total of PHP 283.71 billion, of which PHP 252.04 billion was new money, while PHP 31.67 billion was from the bond exchange.

During last Thursday’s BSP Monetary Board (MB) meeting, the BSP raised policy rates by 50 basis points (bps), as some market participants had anticipated. This was after the release of the January local inflation data, which indicated that consumer prices rose 8.7% year-on-year, versus a 7.6% consensus estimate.

The BSP also revised its inflation outlook from 4.50% to 6.10% full-year average in 2023. Given th

Amid forecasts of a global recession in 2023 by some analysts, the Philippines is still poised to see economic growth, according to Marc Bautista, Head of Metrobank Research.

In his presentation at the recently concluded economic briefing organized by Metrobank, Marc Bautista, Head of Metrobank Research, downplayed some analysts’ forecasts that the global economy is in an economic recession. Instead, he described it as a global slowdown.

He said global commodity prices, while elevated throughout 2023, will be on a descending trend. This is because the global slowdown will put less pressure on commodity prices, which means the Philippines can import more products to fuel domestic consumption.

“The Philippines imports a lot because we’re a growing economy. We import our way out of our needs. We have infrastructure spending by the government, revenge travel, and increased consumer spending,” he said.

“Good economic growth”

In terms of real gross domestic product (GDP) growth for the year, Bautista set Metrobank’s forecast to between 6 and 7 percent.

“Our call is that there will be good economic growth and in

The numbers are in, and the Philippines posted 7.6% real gross domestic product (GDP) growth in 2022 which went beyond market expectations and government targets.

Of course, this is a welcome surprise, bringing in some hint of optimism despite gloomy projections of what’s to come in 2023.

Zooming in, which industries grew and contributed to this better-than-expected growth?

Top industries

In terms of share, wholesale and retail trade and repair of motor vehicles and motorcycles continued to hold the largest share (18.1%) of the pie, followed by manufacturing (17.2%), financial and insurance activities (10.1%), and agriculture, forestry, and fisheries sectors (9.6%) comprising more than half of the country’s total domestic output at current prices.

Wholesale trade and retail businesses, along with repair of motor vehicles and motorcycles, contributed much of the gross value added (GVA) and share to GDP.

Wholesale and retail trade (including repair of motor vehicles and motorcycles) expanded by 13.8% in 2022 as the economy’s reopening triggered revenge spending that translated to growth in retail trade (comprising 80% of the whole sector), which grew by 14.6% vs last year.

Moreover, the country’s reopening also brought back and boosted factory operations benefiting the manufacturing sector, which grew by 10.9% in 2022 driven by growth in the manufacture of food products (13.6%), chemical products (19%), and computer, electronics, and optical products (2.7%). Exports of electronic products, which is the country’s top export commodity, also posted gains in 2022 and grew by 27%.

The growth rates of wholesale and retail trade as well as manufacturing reflect the effects of a wider economic reopening in the country.

Meanwhile, despite high input prices, weather disturbances, and diseases that confronted the agriculture, fisheries, and forestry (AFF) sector, the industry still managed to expand by 7.6% at current prices (and with 0.5% real growth).

Palay, which as the largest share to AFF, grew by 3.1%, while the rest of the top contributors to the sector posted higher growth. However, GVA of Bananas (which is among the country’s top agricultural export commodities) contracted by nearly a quarter.

The agriculture, fisheries, and forestry (AFF) sector remains resilient despite high input costs.

Industry prospects

Demand is expected to soften in 2023 as high prices and high interest rates reduce consumers’ purchasing power. Consumer and business sentiment for the next 12 months turned less optimistic based on BSP’s Consumer and Business Expectations surveys in the fourth quarter of 2022, which may indicate more wary spending in the succeeding months. This may pose challenges to the wholesale and retail, real estate, and accommodation and other food service industries that rely heavily on consumption.

Meanwhile, China’s comeback may offer gains to the country’s exports as it continues to be the Philippines’ major export partner, which may translate to a still robust performance for the manufacturing sector.

The agriculture sector may continue to confront challenges from high input costs and weather disturbances, which then calls for interventions to support local production. The construction industry may benefit from the government’s continued infrastructure projects, while the upcoming commercial operations of LNG terminals may boost output for the electricity, steam, water, and waste management sector.

But despite the headwinds on the horizon, opportunities still abound. While projections on the country’s and global economic growth may seem unexceptional, who knows? Hopefully, we’re in for another surprise.

INA CALABIO is a Research & Business Analytics Officer at Metrobank in charge of the bank’s research on industries. She loves OPM and you’ll occasionally find her at the front row at the gigs of her favorite bands.

The US dollar is expected to remain steady against other global currency peers, which can lead to more purchases of the US dollar for the first quarter of 2023.

But the overall direction for the year is for the US dollar to depreciate as global central banks continue to pursue their own paths to monetary policy normalization and as the US runs the risk of a possible recession.

Six consecutive months of declining US inflation and inconsistent statements from the Federal Reserve Chair Jerome Powell were enough to bring about a bearish US dollar story in January.

The Dollar Currency Index (DXY), which measures the strength of the dollar against a basket of major currency peers, fell by 1.36%, as markets started to price in an end to monetary policy tightening and possible interest rate cut by the 2nd half of 2023.

However, with a resilient US labor market and inflation just meeting expectations, our foreign exchange traders still expect high US rates and bouts of US dollar strength to persist.

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) declined by 1.42% week-on-week to end at 6,779.02 (-97.77 points), its lowest level in more than a month. Investors turned cautious amid the following situations: (i) escalating geopolitical risk as the Philippines filed a diplomatic protest against China on its use of a military grade laser toward a domestic vessel in the West Philippine Sea; (ii) the Bangko ng Sentral ng Pilipinas’ (BSP) announcement of a 50-basis-point rate hike and the possibility of 25 or 50 bps for the next meeting on March 23, 2023; (iii) the BSP’s adjusted inflation forecast this year to 6.1% from 4.5%, and the forecast for 2024 from to 3.1% from 2.8%; (iv) weaker US and peer region markets after the US Producer Price Index (PPI) exceeded estimates; and lastly, (v) the possibility of a 50-bp rate hike based on comments from US Fed officials Loretta Mester and James Bullard.

OFW remittances data for December 2022 supported the market last week. The actual increase was 5.8% year-on-year, exceeding estimates of 3.8%.

Top index performers were Aboitiz Power Corp. (AP) (+2.0%), Globe Telecom (GLO) (+1.2%), and LT Group Inc. (LTG) (+1.0%). Index laggards were Converge (CNVRG) (-4.7%), Ayala Corp. (AC) (-7.6%), and Aboitiz Equity Ventures Inc. (AEV) (-4.2%). The index breadth was negative with eight gainers versus 21 losers. The average daily turnover value was PHP 5.3 billion. Foreigners were net sellers by PHP 1.2 billion.

WHAT TO EXPECT THIS WEEK

We expect the market to trade sideways with a slight downward bias as investors wait for market catalysts and PSEi earnings results.

Local fuel prices are expected to increase by about PHP 0.70 to PHP 1.0 per liter of diesel, PHP 0.60 to PHP 0.90 per liter of gasoline, and PHP 2.20 to PHP 2.50 per liter of kerosene. On the international front, the US will have a shortened trading week as markets remain closed on the Monday session for the Presidents’ day today.

We also expect the market to take its cue from the slew of major international data releases next week, including the US S&P global manufacturing Purchasing Mangers’ Index (PMI), existing home sales, initial jobless claims, and Personal Consumption Expenditure quarter-on-quarter.

STOCK CALLS FOR THE WEEK

Century Pacific Food, Inc. (CNPF) — BUY

We like CNPF because of the following: (i) its diversified product portfolio that is well positioned to capture changing consumer preferences and weather macroeconomic headwinds; (ii) its pricing power that can partially cushion cost pressures; (iii) its Original Equipment Manufacturing export business that mitigates weak local currency impact; and (iv) robust operating cash flows and strong balance sheet.

Accumulating after CNPF breaks above PHP 25.00 is advisable. Set stop limit orders below PHP 23.75 and take profit at PHP 27.50/PHP 28.00, or PHP 29.00 for long-term investors.

Raslag Corp. (ASLAG) — BUY ON BREAKOUT

We believe that a break above PHP 1.82 will result in the stock retesting PHP 2.00. Looking at fundamentals, to date, ASLAG has three operating solar power plants with a total installed capacity of 41 megawatts (MW), namely, 10 MW RASLAG-1, 13 MW RASLAG-2, and 18 MW RASLAG-3, giving RASLAG cash flow visibility in the next 13 years.

The electricity generated by RASLAG-1 and RASLAG-2 are supplied to the National Transmission Corp. (TransCo), contributing an average of PHP 100 million annually. Moreover, RASLAG-3 was commissioned in July 2022 and is selling electricity to the wholesale electricity spot market (WESM), thus, taking advantage of the elevated spot market prices.

RASLAG-3 is expected to contribute PHP 71.6 million /PHP 142. 9 million in FY22/ FY23 at an average WESM Settlement Price of PHP 5.30/kWh. Other solar power plants of ASLAG are in various stages of development, including the 35 MW RASLAG-4, 60 MW RASLAG-5, and RASLAG-6.

As a pure-play solar power company, ASLAG’s location in Central Luzon receives high irradiation level, hence, a strategic and ideal site for solar power plant developments. Accumulating once ASLAG breaks above PHP 1.82 is advisable. Set stop limit orders below PHP 1.74.

East West Banking Corp. (EW) — BUY ON BREAKOUT

Currently, EW is consolidating between PHP 7.20 and its recent high of PHP 7.70. We believe that a break above PHP 7.70 would propel EW back to PHP 8.50 and PHP 9.00. As for company guidance ahead of the 2022 earnings results, EW expects its net income for 2022 to reach PHP 4.5 billion. EW added that while income levels are expected to be flattish, the bottomline is on the uptrend as the bank started to recover lost loan volumes and rebuilt its fixed income portfolios. Accumulating once EW breaks above PHP 7.70 is advisable. Set stop limit orders below PHP 7.30 and take profits at around PHP 8.50/PHP 9.00.

PSEi TECHNICAL ANALYSIS

Resistance: 6,800 / 7,150

Support: 6,600

The PSEi has ended in the red week-on-week for the third straight week and closed below its support level of 6,800. The technical indicator MACD confirms the bearish momentum. We think that PSEi must stay above 6,740 to avoid a lower low. Thereafter, the PSEi has to break above 7,150 to create a higher high to sustain the ongoing short-term uptrend.

TRADING PLAN

Gradually accumulate once the PSEi trades back above 6,800 this week. Set stop limit orders below 6,600.

KEY DATA RELEASES

Monday, February 20, 2023
– Overall Balance of Payments Position for January 2023

Tuesday, February 21, 2023
– US S&P Global preliminary manufacturing PMI for February 2023 (consensus estimate: 47.0; actual for January 2023: 46.9)
– US Existing Home Sales for January 2023 (consensus estimate: 4.11 million; actual for November 2022: 4.02 million)
– Corporate Earnings: Ayala Land Inc. (ALI)

Thursday, February 24, 2023
– US GDP annualized quarter-on-quarter for 4Q 2022 (consensus estimate: 2.9%; actual for 3Q 2022: 2.9%)
– US Initial Jobless Claims as of February 18, 2023 (prior: 194k)
– US Core Personal Consumption Expenditures (PCE) quarter-on-quarter for 4Q 2022 (3Q 2022: 3.9%)

Friday, February 25, 2023
– Corporate Earnings: WLCON

CreditSights, an award-winning global credit research provider, has identified key sectors that high-net-worth individuals may look into and what to avoid when recalibrating their bond portfolios.

In a recent webinar organized by Metrobank for clients, Sandra Chow, CFA, Co-Head of Asia Pacific Research at CreditSights, said certain sectors covering US and Asian sovereign bonds may likely outperform.

She said a list of preferred sectors from CreditSights’ US strategy team included large banks, financial services, basic industry, and telecoms for US investment-grade credits. As for US high-yield credits, they have identified energy, healthcare, leisure, telecoms, and transportation.

“Of course, even within these recommendations there is a lot of nuance and differences between certain credits, so for individual company recommendations we would need to have a more detailed discussion,” she said.

“Bumpy landing”

“Our base case assumption is a ‘bumpy landing’ for the US investment grade and high yield markets,” she said. “Under this scenario, we expect the US IG index to tighten t

WHAT HAPPENED LAST WEEK

Last week, the local bond market faced a flurry of risk events: a higher-than-expected consumer price index (CPI) print, a retail bond offering, and surging US yields.

Philippine CPI in January rose 8.7%, topping the 8.1% rate in December 2022. This is also the highest in 14 years amid surging food prices. This led to a sell-off as bond investors trimmed their risk positions, with medium-term bonds trading higher by as much as 20 basis points (bps) after the data release.

On the same day, the Bureau of the Treasury (BTr) also set the pricing of the 5.5-year Retail Treasury Bond (RTB). The BTr awarded the new RTB with a 6.125% coupon, which was at the high end of market expectations as investors were wary of the high inflation print.

Later in the week, some selling was again seen in 7- to 20-year bonds after yields of US Treasuries kept ascending. To end the week, yields of benchmark bonds ended higher by as much as 30 bps, with yields of longer-term bonds moving relatively higher than short-dated bonds.

Market Levels (week-on-week)