NOTES FROM THE FUND MANAGER – August 2, 2022
Fixed Income update
Federal Reserve officials raised interest rates by 75 basis points for the second straight month and Chair Jerome Powell said a similar move was possible again, rejecting speculation that the US economy is in recession. Policy makers have raised lifted the target for Federal Funds Rate on July 27 to a range of 2.25% to 2.50%. Week-on-week, the 10-year US Treasury yield fell about 22 basis points to 2.54% on August 1.
The Philippine January-June budget deficit hit Php 674.2 billion as spending for road and transport infrastructure projects, military modernization efforts, and social welfare programs exceeded the National Government’s double-digit revenue growth. However, the budget deficit for the period was 5.84% lower than the Php 716.1 billion deficit recorded from the year. Week-on-week, yields on government securities ended mixed. The yield on the 1-year rose by about 12 basis points to close at 3.37%. Meanwhile, the yields on the 3- to 10-year averaged a 29-basis point decline, with the 10-year yield falling the most at 58 basis points to close at 6.20% on August 1. For this week, yields would likely remain mixed following BSP Gov. Medalla earlier announced that monetary policy tightening will likely continue to control inflation. For the fund’s strategy, we have been reinvesting maturities into 1-year T-Bills that have gone up in yields. We will continue to do so to take advantage of the higher yields.
USDPHP fell by about 73 centavos to close at 55.365 (8.58% YTD) on August 1.
The Philippine Stock Exchange (PSEi) closed at 6,362.30 (’22 est. PE of 15.53x) on August 2, up by 2.24% week-on-week (-10.67% YTD) following the rally in US markets after the Fed hiked interest rates in-line with expectations. Week-on-week, WLCON (+14.89%) was the best performer as 2Q22 earnings exceeded expectations, while MER (-9.04%) was the worst performer after JGS reduced its stake at a discounted price. The average daily turnover for the week stood at Php3.5Bn, while net foreign buying amounted to USD17Mn. For this week, the index could trade between 6,200 and 6,400 levels. For the Fund’s strategy, we look to maintain current levels of exposure in the equities market amidst lack of visible catalysts in the near-term but remain cognizant of how some stocks are trading at attractive valuations already.