Holding up: Philippines puts the brakes on inflation

After nine consecutive months of price inflation October’s numbers held steady at 6.7%, fuelling speculation it may have peaked.

Holding up: Philippines puts the brakes on inflation

While the Philippines’ inflation remains the highest in the region, new numbers indicate the recent surge may be at an end. After nine months of inflation trending up, October’s numbers remained at 6.7% (month-on-month). But ongoing uncertainty about whether inflation can be contained has kept local currency bond investors on the sidelines.

According to First Metro Investment Corporation (First Metro) and the University of Asia and the Pacific’s Capital Markets Research analysts’ latest monthly report, the nation’s economy remains healthy with GDP growth forecast to be higher than the 6.1% recorded in the third quarter of 2018.

Although speculation about whether domestic inflation has peaked is a key focus for consumers and financial markets, the study – The Market Call – highlights other positive trading news. Local exports recorded their third consecutive month of growth in August. Accounting for just over half of the nation’s exports (56%), electronic products are proving to be a significant growth area, expanding by 5.2% year-on-year to $3.3 billion.

The authors predict export growth will stay in positive territory, supported by strong expansion in the US and Europe markets but this may be tempered by slowing manufacturing, and commodity prices rising at a faster pace.

September’s super typhoon Mangkhut proved more disastrous than anticipated. As a result, the fallout from its aftermath had a negative impact on both inflation and bond yields. Even though local bond investors have priced in future rate hikes, First Metro predicts the key factors affecting future bond yields still relate to inflationary trends and market liquidity.

US dollar-denominated Philippine government bond (ROPs) yields dropped slightly while similar US Treasuries generally moved higher in line with the Federal Reserve’s policy rate hike in Sep­tember. In the same month, the market weakened with trading in corporate bonds on the secondary market sliding 39.3% month-on-month to P1.7 billion, an overall fall of 57.1% below last year’s level.

Total Corporate Trade Volume (in million Pesos)

Source: Philippine Dealing Systems

Although October’s inflation figure may be a sign that the nation’s efforts to rein it in could be working, First Metro’s report confirmed the Philippine Stock Exchange index moved into bear market territory plunging 7.4% in September making it Asia’s worst performing index for 2018 with year-to-date losses of 16.6%. This resulted in faster fund outflows as anxious foreign fund managers went on a selling spree causing net selling to hit P11.5 billion ($216.2 million) in September up from P4.8 billion in August 2018.

PSEi and DJIA

Sources: WSJ, Bloomberg

To gain further insights from this report, courtesy of First Metro Investment Corporation please click here

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