Market Observer

Global stocks edged higher, extends a strong rally

Philippine stocks improved on bicameral approval of CREATE bill.

FWD Investment Team

Relaxing the country's quarantine measures would help the economy recover

Global stocks climbed, extending a strong rally on February 12 in the wake of last week’s buying frenzy of GameStop and other equities. Stocks also edged higher after a stronger-than-expected private sector hiring in January and accelerating growth in the US services sector.

Thanks to positive news about the COVID-19 vaccine, investors also cheered on clinical data that shows the Oxford-AstraZeneca COVID-19 vaccine can reduce virus transmission and is highly protective after a single dose.

In Europe, the outperformer was Milan, which jumped 2.1% after Italian President Sergio Mattarella directed former European Central Bank chief Mario Draghi to form a new government and lift the country out of the devastation of the pandemic. MSCI ACWI returned 3.17% year-to-date.

Philippine Stocks improved on bicameral approval of Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill.

The bill is expected to boost the economy’s recovery with the outright reduction of corporate income tax from 30% to 25%. As stated in the bill, sale and importation of COVID-19 drugs, vaccines, and PPEs will be VAT free until December 2023.

The Philippine market also cheered on the announcement of Socioeconomic Planning Secretary Karl Kendrick Chua regarding the possibility of further relaxing the country’s quarantine measure. This would allow more consumer and business activities and would then help the economy recover.

PSEi, however, may remain on downward trend until we see it break 7,000 levels.

Philippine Bond yields mixed on GDP report and led the market to trim their positions. Two important news that influenced the movements in the bonds market: FOMC (Federal Open Market Committee) where US Fed Chair Jerome Powell reiterated that there will be enough guidance before any actual tapering happens. Profit takers moved from risky assets to bonds, but this was met by Philippine GDP print released.

 

Investors are taking cues from the above auction on whether it’s good to position long-term and they are also looking at the biggest risk to bonds over the long term, which is inflation. January inflation quicken at 4.2%, above BSP expectation of 3.3% to 4.1%. BSP Governor Diokno says uptrend in inflation seen temporary and says no need monetary policy yet.

 

 

Sources: (1) Inquirer, 02/05/2021: https://business.inquirer.net/317023/global-stocks-mostly-rise-with-us-indices-at-records; (2) Inquirer, 02/04/2021: https://business.inquirer.net/316965/global-stocks-steady-on-solid-us-data-positive-vaccine-news; (3) Business World, 02/02/2021: https://www.bworldonline.com/psei-improves-on-bicam-approval-of-create-bill/; (4) Bloomberg, 1/29/2021: https://blinks.bloomberg.com/news/stories/QNOBFZDWX2PS; (5) Business World, 2/1/2021: https://www.bworldonline.com/yields-on-government-debt-end-mixed-on-gdp-report/; (6) Manila Times, 1/29/2021: https://www.manilatimes.net/2021/01/29/business/business-top/selling-pressure-wall-street-drop-drags-psei/834386/; (7) Manila Times, 1/28/2021: https://www.manilatimes.net/2021/01/28/business/business-top/shares-fall-on-covid-fears-economic-data/833875/; (8) BusinessWorld, 1/27/2021: https://www.bworldonline.com/stocks-drop-further-ahead-of-gdp-data-release/; (9) Abs-cbn, 2/5/2021: https://news.abs-cbn.com/business/02/05/21/philippine-inflation-quickens-to-42-percent-in-january;

 

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