Global and local markets retreat but economic fundamentals remain reasonably strong

Global Markets

Global Stocks trend lower as investors flee risk assets but a mostly robust first-quarter corporate earnings report provides some support.

• The US economy is generally strong with jobs and capital readily available. The economic environment is reasonably attractive for long-term investors with most economists not forecasting a recession. However, stock valuations are not cheap and market sentiment remains negative.
  
  
• 87% of companies in the S&P 500 have reported first quarter results with 79% beating analysts’ estimates. This is above the five-year average of 77%.
  
  
• US Federal Reserve (Fed) Governor Christopher Waller pledged to follow through with interest rate hikes to fight inflation. The Fed will not make the same mistakes on inflation that it did in the 1970s, which wilted every time unemployment went up. He believes that the economy and labor market are strong enough to withstand the upcoming rate hikes.

Philippine Stocks

Philippine Stocks fall as uncertainty prevails over the local market.

• JP Morgan moved the Philippines to the bottom of its Southeast Asian investment list due to concerns over high inflation and high public debt, which may drag growth and corporate profits. They advised investors to lower exposure in the Philippines and recommend selling stocks into a possible post-election rally.
  
  
• The incoming administration faces multiple challenges in growing the economy as the country moves beyond the pandemic. The country faces high commodity prices, global monetary tightening, and low government spending in the quarters after the election due to transition pains. The new administration needs to communicate its plans to grow the economy to allay investors’ concerns.
  
  
• The economic fundamentals of the country remain strong, according to Dr. Bernardo Villegas of UA&P. He expects the economy to grow by 6% to 7% even during the transition to a new president. The new administration is expected to continue the “Build, Build, Build” program of the Duterte administration, which was a key driver of growth. This infrastructure program boosts development in the countryside, decongests Metro Manila and provides additional jobs.

Philippine Bonds

Philippine Bond Yields climbed an average of 0.17% across the curve. 

• Inflation is expected to average above 5% over the next three months, according to Japanese investment bank Nomura. Supply side constraints will likely drive inflation, particularly energy-related products.

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/2022/05/11/dont-panic-strategists-give-reasons-to-stay-invested-despite-market-turmoil.html (2) https://www.cnbc.com/2022/05/10/feds-waller-promises-to-tackle-inflation-says-mistakes-of-the-70s-wont-be-repeated.html (3) https://business.inquirer.net/347572/j-p-morgan-drops-ph-to-bottom-of-asean-investment-preference-list-after-may-9-polls?(4)https://www.philstar.com/business/2022/05/11/2180149/inflation-may-stay-above-5-next-three-months (5) https://insight.factset.com/sp-500-earnings-season-update-may-6-2022 (6)https://mb.com.ph/2022/05/10/transitioning-to-the-next-administration-2/

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.

The information here is compiled from various credible sources and is a summary of a particular period only. Though we strive to provide accurate and complete information, we cannot guarantee that this article will be error-free.