Investment bank First Metro Investments Corp. (FMIC) expects the return of a bull market starting this quarter of as the economy opens further.
FMIC in its monthly research, The Market Call, said the shift of most of Luzon to general community quarantine raised optimism among investors.
It said the unexpected gain in employment in the United States in May “provided the needed thrust to hurtle the PSEi (Philippine Stock Exchange index) above 6,000 in the first week of June.”
“The expansion in Philippine economic activity and the US economy’s continued improvement have significantly improved investor sentiment and will likely bring the PSEi back to bull territory by the third quarter,” FMIC said.
“The risk, albeit not huge, would be a strong second wave in COVID-19 (new coronavirus disease 2019) infections and deaths,” FMIC added.
FMIC said the market moved sideways in June with an upward bias “as the Luzon-wide lockdown officially ended on May 31, leading the country to transition to a less stringent community quarantine conditions.”
“Relying on this news, PSEi pushed past 5,800 by month end as investors anticipated the reopening of Metro Manila alongside a scramble to align with the latest rebalancing of the MSCI indices,” it said.
“Economic recovery remains nascent due to high daily COVID-19 cases. The National Economic Development Authority (NEDA) estimated that the Philippines economy lost P1.1 trillion in the agriculture, industry, and services sectors during the first 45 days of the enhanced community quarantine (ECQ),” it added.
Investors are also holding out hope that a vaccine will be developed, but consumers and businesses will still take time to go back to life pre- COVID-19, FMIC said.
The 10-year bond yields, meanwhile, are expected to move sideways at current low levels in June and July amid “little pressures for movement either way,” FMIC said.
“The unexpectedly strong job numbers in the US in May had caused a spike in bond yields but this has gone back to levels seen before that event despite the record 17.3 percent jump in US retail sales in the same month. Thus, with foreign interest rates sticking to very low levels and domestic inflation in check, range trading would likely ensue” it said.
Government IOUs meanwhile have a “slightly better outlook,” FMIC said after the Japan Rating Agency’s upgraded the Philippine foreign currency-denominated bonds to A-.
