Ghost Month in Full Effect
Ghost Month in Full Effect: There is uncertainty, then there are Cash Funds
We are now a week into “Ghost Month” this year which started last August 16 and will end on September 15. Seasonally, markets are relatively weak at this time of the year as liquidity usually dries up as the summer season of western countries is at its tail end. True to form, this year was no different as risk assets displayed risk-off sentiments across the board. From the period of August 16 to August 23, the PSEi gapped 3.6% lower breaking the
Fixed Income Assets were not spared as well with the US10 year note reaching the highest level since 2007 at 4.36%. Pain was felt on global bonds with inflation and further rate hike fears continuing to haunt the markets. Add to that, growth concerns locally are starting to be of concern after the Philippine GDP grew much less than expected at 4.3% vs 6.0% market expectations. With a bevy of headwinds, easy to say uncertainty is evident in the short-term or even the medium-term.
Cash Funds (Money Market Fund and Cash Management Fund)
Lost in all the market noise are cash funds like Money Market Funds and Cash Management Funds. Though they are considered conservative investments, they still provided stability, especially this year where volatility remains prevalent. SB Peso Money Market Fund and SB Peso Cash Management Fund generated returns of 2.74% and 3.21% YTD September 7, 2023.
The new BSP Governor Remolona recently made Dovish comments that he is confident that the BSP can pivot in the 1st half of 2024. It may seem like a long time from now, but reality is, Market may start pricing in this eventuality by the 4th quarter of this year. The Money Market Fund has roughly 30% of 1–2-year GS holdings. This area of the curve has been the biggest underperformer in 2023 as short-dated Bonds are very susceptible to rate hike fears. In contrast, in the possibility of a Pivot, the shorter dates will also benefit the most which will help the MMF generate better returns as we enter the 4th quarter of this year up to 2024. Add to the fact that BSP Bills remain elevated trading at 6.66%-6.70% which is the biggest kicker for both cash funds.