Heightened geopolitical risk dampens market sentiment

Global and Philippine Market Update
April 10 to April 17, 2024

Global Markets

Global Stocks retreated as Iran launched drone and missile strikes against Israel.

• Iran’s unprecedented strike on Israel has injected a fresh wave of volatility among investors, already rattled by persistent inflation and the looming prospect of heightened interest rates. The conflict has raised concerns about the potential for oil prices to surge to USD 100 a barrel if tensions escalate further. However, if Israel refrains from escalating the situation, it could present an opportunity to purchase risk assets at reduced prices. US President Joe Biden told Israeli Prime Minister Benjamin Netanyahu that the US would not support an Israeli counterattack against Iran.

• US inflation has followed a challenging path this year. Despite moderating from the peaks seen in 2022, inflationary pressures persist, surprising investors, consumers, and policymakers alike. This unexpected persistence has prompted a significant shift in market sentiment. While Federal Reserve (Fed) officials acknowledge the concerning data, they have not sounded alarm bells, maintaining their expectation for rate cuts later in the year. However, it may require more time for inflation to retreat to the Fed’s target of 2%.

• The International Monetary Fund (IMF) upgraded its 2024 global growth forecast to 3.2%, highlighting the economy's resilience against inflation and policy shifts. Advanced economies are driving the growth, with the US and Euro-zone leading. Despite challenges, such as China's slowdown, the outlook remains positive. Inflation is expected to decrease, signaling economic stability. Overall, while global growth is lower than historical averages, the IMF's forecast indicates a promising trajectory.

Philippine Stocks

Philippine Stocks fell amid negative sentiment from rising Middle East tensions.

• Overseas Filipino Workers (OFW) cash inflows and global economic conditions can lift the Philippine Stocks Exchange index (PSEi). Despite recent declines due to inflation and global tensions, there is potential for a rebound once geopolitical risks recede. Bargain hunting opportunities exist due to the market's weakness with traders eagerly awaiting new economic data for insights.

• The IMF has revised its growth forecast for the Philippines upward to 6.2% from the previous 6%, attributing this adjustment to stronger-than-expected growth in the last quarter of 2023. The Philippines is anticipated to achieve the second fastest growth rate for emerging and developing Asia, trailing only India at 6.8%. Ragnar Gudmundsson, the IMF representative to the Philippines, highlighted structural reforms, increased foreign direct investments, and the digital economy as factors poised to unlock the country's growth potential over the medium term.

Philippine Bonds

Philippine Bond yields moved higher as investors asked for larger risk premiums.

• The Bureau of Treasury (BTr) fully rejected a reissued treasury bond with a remaining term of 14 years and nine months. The average rate would have reached 6.987% had it been awarded. The high bids were in response to rising geopolitical risks, after Iran launched drone and missile attacks towards Israel.

• The IMF has adjusted its inflation forecast for the Philippines to average 3.6% this year, down from their previous projection of 3.7% in January. Although inflation is anticipated to gradually approach 3% in the second half of the year, risks persist, particularly stemming from surging food and oil prices. March witnessed inflation climbing to 3.7% due to elevated costs in food and transportation. Consequently, the BSP has adopted a more cautious stance. BSP Governor Eli Remolona Jr. indicated that if inflation continues to escalate, the possibility of rate cuts this year may diminish.

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/2024/04/16/imf-upgrades-global-growth-forecast-as-economy-proves-surprisingly-resilient-despite-downside-risks.html (2) https://www.cnbc.com/2024/04/13/surging-inflation-fears-sent-markets-tumbling-and-fed-officials-scrambling.html (3) https://www.bloomberg.com/news/articles/2024-04-14/markets-weigh-up-risk-of-retaliation-cycle-as-iran-hits-israel (4) https://business.inquirer.net/454651/ofw-cash-inflows-might-lift-psei (5) https://www.bworldonline.com/top-stories/2024/04/17/588624/imf-hikes-growth-forecast-for-phl/ (6) https://www.pna.gov.ph/articles/1222730

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.