Global rating agencies may be giving the Philippines a vote of confidence, but local markets are painting a far more guarded picture.
Following recent investment-grade affirmations from Moody’s Ratings and Rating and Investment Information, Inc. (R&I), market commentary from Manulife Investments Philippines leadership reveals how traders are positioning across local bonds and equities as the Bangko Sentral ng Pilipinas (BSP) balances persistent inflation risks against slowing economic growth.
BSP Governor Eli M. Remolona, Jr. welcomed the rating affirmations, pointing to resilient banks, stable reserves, and strong economic fundamentals. Yet, with inflation projected to return to target only gradually by 2028, Remolona maintains that monetary authorities stand ready to act if price pressures flare up again.
Prolonged high rates keep yields elevated, stocks rangebound
IMAGE CREDITL: BSP
Local financial markets are settling into a prolonged high-interest-rate regime.
Despite stable credit ratings, local yield curves continue to steepen, and equities remain stuck in a sideways trend.
Local financial markets are settling into a prolonged high-interest-rate regime.
Observing current market mechanics, Jean Olivia De Castro, Head of Fixed Income at Manulife Investments Philippines, pointed out that bond yields reflect a market adjusting to central bank caution rather than anticipating rate cuts.
“The curve is steepening, with trading still concentrated in the short end which is anchored by the risk of another BSP tightening. On the other hand, the long end is being marked higher—with investors demanding more term premium for inflation/FX uncertainty,” De Castro explained.
“In my viewpoint this signals that yields are likely near their peak versus early in the hiking phase. However, it’s important to note that the market is not pricing a pivot or an easing cycle, just a pause from the BSP,” she further stated.
Equity markets mirror this cautious stance.
Elle Jamil, Head of Equities at Manulife Investments Philippines, noted that stock performance has stalled under persistent macroeconomic pressures.
“The market has been largely rangebound in the past 6 months as risks of stagflation remain present. Corporates with predictable, recurring cashflows and large dividend payouts have been a source of refuge for funds, but for those that have a higher risk appetite and longer time horizon, beaten-down consumer companies offer a lot of value,” he said.
Market optimism collides with persistent inflation headwinds
Jean Olivia De Castro, Head of Fixed Income at Manulife Investments Philippines
A distinct disconnect has emerged between immediate short-term yield movements and official central bank guidance. De Castro noted that short-term paper has found buyers due to softer recent data, though she warned against over-optimism.
“The front end is looking through the BSP’s long glide path and focusing on near term catalysts that is evident like softer recent inflation prints, weaker growth momentum, and the possibility that policy only needs a measured amount of additional tightening,” De Castro said.
She cautioned, however, that “this view can hold as long as inflation keeps surprising lower and FX/oil shocks stay contained… it is fragile: with upside risks of higher oil prices, El Niño and second round inflation effects still present.”
Defensive assets and strong consumer brands gain edge
In an environment marked by elevated borrowing costs and cautious consumer sentiment, the analysts highlighted specific asset classes and corporate models that offer relative safety:
- Short-term fixed income: High yields continue to anchor short-dated paper. “For bond investors, that means short-term bonds can stay supported by high yields, while long-term bonds may remain choppy until inflation risks clearly ease,” De Castro noted.
- Dividend plays and value stocks: Jamil pointed out that “corporates with predictable, recurring cashflows and large dividend payouts have been a source of refuge for funds, but for those that have a higher risk appetite and longer time horizon, beaten-down consumer companies offer a lot of value.”
- Upstream commodities: Precious and base metal exporters have posted solid gains amid commodity price rallies and peso movements against the dollar.
- Dominant franchises and essential utilities: “Staples and discretionary consumer spending will be most exposed, but companies with strong brand equity, value proposition, dominant market share, and, hence, pricing power may continue to see resilient volumes despite a shrinking consumer basket,” Jamil stated, adding that utilities with pass-through mechanisms also offer strong defensive qualities.
Leveraged sectors face pressure as reinvestment risks loom
Extended high interest rates carry clear operational risks across both asset classes, according to the asset managers.
From a fixed income standpoint, De Castro explained that holding short-term bonds carries reinvestment risk if yields drop later on, while longer-term holdings remain vulnerable to inflation volatility.
De Castro advocates for a balanced approach: “A prudent strategy is to maintain a diversified maturity profile, spreading investments across tenors and extending into longer-dated bonds only when the additional yield sufficiently compensates for the higher inflation and duration risk.”
On equity exposure, Jamil flagged rising vulnerabilities in debt-heavy corporate segments and real estate.
“Property may remain on the sideline against a higher-for-longer backdrop with pre-sales still tepid in the residential sector,” Jamil warned. “Industries that tend to be highly-levered like airlines, telcos, and some infrastructure may continue to feel pressure. Banks tend to thrive in this environment as it keeps yields elevated, but it is already taking a toll on corporate and middle market loan demand.”
Catalysts needed for broader market recovery
Elle Jamil, Head of Equities at Manulife Investments Philippines
Looking ahead, Jamil emphasized that a sustained equity turnaround will require more than just stabilization in monthly inflation data.
Reflecting on past market cycles, she noted that while sentiment can improve as month-on-month inflation metrics cool, broader expansion requires macroeconomic fundamental strength.
“It was enough to see sustained sequential improvement in month-on-month inflation figures to stoke renewed confidence in the cyclical and interest rate-sensitive sectors, but for a rally to have stronger legs we need to see GDP growth recover,” Jamil stated.
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Disclaimer: The views, market observations, and opinions expressed in this article belong solely to the featured commentary from Manulife Investments Philippines executives and do not necessarily reflect the official editorial stance or views of FintechNewsPH.
