Financial Blog

During the campaign, Trump communicated his policies mainly of expansion, trade tightening, and business re-shoring back home. He announced cutting corporate income taxes from 21% to 15% and eliminating personal income taxes like overtime pay on civil servants, veterans, police, and military, as well as on Social Security benefits.

He also announced his intention to impose a tariff of 60% on imports from China and 10-20% from rest of the world while providing incentives for American businesses with manufacturing and operations abroad to re-settle back home.

Finally, he intends to curb the influx of illegal immigrants and enable jobs back to real Americans. All these to Make America Great Again (MAGA).

How will Trump’s win affect the US market?

Such policies are aimed to reshape the American economy and enhance corporate profits and compensation income. However, such economic agenda will lead to inflation from higher prices and add to the country’s deficit. This will keep interest rates high, slower the pace of FED policy cuts, and increase their debt stock.

How will Trump’s win affect our markets?

There will be a preference for the USD and US Equities at the expense of Emerging Markets, as well as influence an increase in US bond yields given the inflationary effects and added supply.

True enough, this trend started even before the election date as the Trump win factor was largely being priced in prior to this. Philippine equities could not sustain their rally streak during the 3 months till September, unable to strongly break the 7500 resistance and have since weakened to 7100 levels. Meanwhile, local bond yields have risen, though a lot less than US Treasuries, with the Peso 10 yr GS attempting to reach nearly 6% from its recent low of 5.5%.

Moreover, the PHP depreciated vs. the USD, with the latter trading higher and peaking around mid-58 levels. As this was priced in, the confirmed win of Trump cemented the trend, but a reversal was being awaited as “a sell after the fact.”

Central banks brace for impact

After the major election event became certain and is now behind us, all eyes focused on the next possible central bank actions. The FED during its FOMC meeting on Nov 7, reduced rates by 25 bps and made a statement that policy action “does not guess, does not speculate, and does not assume”, and that eventually any new policy effects by the next administration would be included when clearer.

Meanwhile, the BSP will be considering a forward scenario of higher USD rates plus the added monkey wrench effect of the unexpected GDP print of 5.2% for the Philippines vs. analysts’ forecast of 5.7%.

Can the Philippine economy weather the storm?

This low GDP 3Q performance for the country, which was due to low export growth and the impact of severe weather on the agricultural sector, puts added pressure on the stock market’s recovery, after the increased preference for US equities in the short term that will be a result of the Reds winning. 

However, consumption spending is picking up as a seasonal cycle for Christmas and this was evident already in the 3Q GDP print.

Likewise, pre-election spending for next year’s May local elections, storm-damage re-building, and the long pipeline of infrastructure developments will also look to support GDP growth from 4Q onwards.

Our outlook on SB Funds’ performance

Hence, our market’s relative cheapness vs. the rest of ASEAN should resurrect attention and draw in buyers at current levels. We continue to hold our conviction of a 7300-7500 target for the PSEI by year-end, sustaining the positive performance of our Funds.

Peso bond yields, meanwhile, should begin to reflect the need of the BSP to remain on a rate cutting path and support economic growth. Inflation remains manageable and the recent 250 bp RRR cut (with 200 bp more to come in 2025) provided the additional factor to the PHP bond market’s outperformance of US bonds. 

With the FED already cutting 25 bps, this further affirms the continued lower rate trend for the US. As a result, we also continue to have the conviction of bond yields coming down till next year, generating good returns for our Bond Funds.