Market Observer

Major stock markets swing between gains and losses in the first week of March

Riding on optimism about the vaccine rollout and fears, as well, of rising bond yields.

FWD Investment Team

Philippine Stocks rose as much as 1.2% on Monday, March 1, when the first vaccine from China arrived. It was led by tourism-related sectors as the government eased travel protocols.

Global Stocks lifted on optimism about the fight against Covid-19 as vaccines started rolling out in majority of countries around the world. Added to this optimism is US President Joe Biden promising all US adults will be vaccinated by May 2021. The promise, together with fiscal stimulus in progress in the Senate, boosted the market.

However, stocks are struggling to maintain momentum as yields continue to rise. Despite this, price action remains constructive as rotation into more cyclical shares are seen to be the prevailing theme. MSCI -1.86% week-on-week, +2.56% year-to-date.

Philippine Stocks rose as much as 1.2% on Monday, March 1, when the first vaccine from China arrived. It was led by tourism-related sectors as the government eased travel protocols. Optimism rose even though the rollout has just started as investors are pricing in fewer movement restrictions as more Filipinos get inoculated.

The Philippines, which was placed under one of the world’s severest and longest lockdowns a year ago, is among the last in the region to begin inoculations. The banking sector is expected to benefit from the gradual recovery of the economy from COVID-19. In addition, with the availability of the vaccines, the government could further ease restrictions, boosting consumer and business confidence and ultimately allowing more businesses to operate at higher capacities. PSEi +1.78% week-on-week, -2.76% year-to-date.

Philippine Bond yields continue to climb, but it isn’t a concern provided it is a steady progression and does not interfere with the recovery. Concerns about rising inflation is a primary factor for the yield movement and will be a key indicator to watch.

Bond traders have recently benefited from the sharp uptick in yields over the past few weeks and have started adding risk. On the parts of the curve, short-to-belly yields have dropped and it looks like the market continues to acknowledge the low for longer stance of the BSP in terms of rates alongside the threat of inflation’s upward trend and hence demand for 5 years or shorter-tenor bonds is still strong.

Bond markets are still nervous as inflation for February is being expected to be at 4.7% according to market consensus. Bond traders remain on the sideline until the CPI is released on Friday, 5 March 2021.

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