Investor Forums 

OUTLOOK

Fixed Income

• For the second half of 2023, our strategy at Sun Life is to increase our bond exposure​. We will continue to buy and hold Philippine Peso for good long-term prospects and remain opportunistic while staying nimble on US Dollar rates.
• Lower inflation has led to a bullish outlook for local bonds, with the Bangko Sentral ng Pilipinas (BSP) pausing the rate hike cycle.​
• Our forecast for the Bond Fund is 5-9%. BSP might implement rate cuts by the 4th quarter of 2023 to early 2024. ​

Equities

• Sun Life’s Philippine Stock Exchange index (PSEi) forecast for full-year 2023 is at 7,009. A potential 7%- 8% upside from the current 6,500 levels. ​Sentiment may improve in the second half as inflation eases to BSP range, allowing for more accommodative policy rates. Liquidity constraints, FOREX concerns, and the lack of a strong catalyst may continue to weigh on asset.
• PSEi is currently undervalued. The current Price to Earnings level is at 12.5x, which is similar to the 2008 level. This could be a good entry point for long-term investors.
• Earnings expectations for the Philippines remains upbeat. Earnings Per Share (EPS) growth driven primarily by banks, consumer, gaming, and mall segments. The low base effects will begin to wear off as earnings normalize.
• The Philippines’ inflation has likely peaked this past January, boding well for the margins, consumer spending, and residential demand. PH policy rates are likely near peak levels as well.

Market Opportunity Ahead

Fixed Income

• The first half of 2023 has been favorable for the fixed income market. The deceleration in inflation allowed the BSP and Fed to downshift magnitude of hikes and eventually implement a rate hike pause​. Real yields are now positive​.
• 10-Year US Treasury was more volatile but rallied by ~70 basis points (bps), while 10-Year Philippine Government Securities rallied by ~150 bps.
• For the second half of 2023, the US market is positioning for the pivot in 2024. Factors affecting this move are inflation, which is​ decelerating but still above Central Bank’s target; the monetary policy, which is seen to pause its tightening but maintains a hawkish bend;​ and growth, which​ continues to be resilient, although cracks caused by the recession are starting to surface leading the Market to price out rate cuts to 2024​.

Equities

• EPS are already well above pre-pandemic levels. However, PSEi levels have yet to recover.
• There is no question that there is value in investing in the Philippine equities. Corporate earnings have been resilient despite inflationary pressures​. However, market conviction remains low, as evidenced by the tight trading range and lower-than-average volumes​.
• Global asset allocators are looking for better liquidity​, currency stability, and​ stronger catalysts​ which are yet to be seen. We need to factor these challenges more heavily to reflect a more holistic view of the market​.
• The pressure on the Peso should also ease with more stable monetary policy spreads​. Local currency (PHP) curve still has room to shift lower.​
• Foreign ownership in PSEi ​is at decade-lows​. Foreign inflows have upside relative to historical levels. Currency stability and stronger domestic catalysts are needed to attract flows.​
• China’s reopening is seen to benefit the gaming industry, travel/tourism, and property sectors; however, this may likely take some time to accelerate.

Risk to These Views

Fixed Income

• In the US, Inflation rises and Fed continues with rate hikes​
• Locally, a hawkish Fed policy could impact our forex, making the commodity-based sectors of the inflation basket prone to volatility.​

Equities

• Persistent inflation and geopolitical risks could result in higher commodity prices once again. A hard landing of the US economy (recession) could also trigger general risk off sentiment.​

_{Source: Sun Life Investment Management and Trust Company Mid-year Market Outlook}

Market Opportunity Ahead

• Asian investors are going back to bonds
• China reopening has a positive spillover effect to Asian and Europe markets
• We believe the US debt ceiling will be resolved soon
• FED to pause and maybe pivot in Q4 or 2024

What should be your behavior as an investor

On being risk-averse

• Volatility is normal. Don’t let it derail you.
• View market drawdowns not as doom and gloom but opportunity to ‘stress test’ your portfolio and eventually in time, that typically leads to much better performance. 
• Every major spike in volatility (3-months, 6-months, 12-months later) performance becomes better.
• The key is not timing the market but the time in the market. Look for opportunities to come back into the market when valuations are attractive, and volatilities are really high.
• Don’t always be scared when market goes down. Volatility is not always necessarily a scary thing.’ 
• Volatility breeds opportunity. 

On being over-confident

• The more information people know, the higher the confidence they have but they are not always accurate.
• Understanding this behavior is very important because it could lead people to be overconfident in their ability and decision to time the market.
• It’s very important for investors to try NOT to time the market because it may mean missing the best days and could hurt their portfolio over time.

Right Biases for Investing

• Every time market goes up, people tend to buy and every time market goes down, people tend to sell. This is an example of “herding” that happens both in retail and professional investment. 
• Do not be discouraged by the market’s “next highs” because at the end of the day, all new highs tend to be grouped together in the market as a whole.  However, what you need to avoid is to go in blind or investing in speculation.  Make sure what you are investing continues to have fundamentals, earnings, etc.

What You Should Do

• Build the right portfolio
• Re-assess risk profile/Re-allocate
• Invest via cost averaging
• Focus on growth and value
• Have an investment/savings plan
• Time in the market is more important over timing the market

_{Source: Jimmy Weng, Head of Equities, Asia - JP Morgan Asset Management}

Market Opportunity Ahead

• Financial crisis is already a norm. It happens every once in a while. The government always steps in to prevent this and provide solution. Remain disciplined and invested.
• NASDAQ rally: Investors are positioning early for next year’s uptrend, as an effect of pausing and cutting rates
• Global/Asia: China re-opening is key 
• Direct impact to PH: Expect that Chinese tourism will increase 
• Direct Impact globally: Expect that there will also be influx of imports from other countries driving global GDP
• On Taiwan and China: The real conflict lies more between U.S. and China. There’s a risk of having miscalculation between these two countries which may be low probability for now, but can be considered as high impact event when it arises. Great powers will not look for conflict.

What It Means for Your Investments/Savings

• Philippines’ moderating inflation will lead to less aggressive BSP rate hikes. 
• PSEi valuation is already close to GFC-low. Foreign ownership is at decade lows.
• The catalysts for foreign inflows in PH: F/X stabilization, liquidity, low inflation, and new IPOs.
• Very few PH banks have exposure on US Banks. We are overweight on banking sector as with higher interest rates, they can lend high and borrow low.

What You Should Do

• Build the right portfolio
• Re-assess risk profile/Re-allocate
• Invest via cost averaging
• Focus on growth and value
• Have an investment/savings plan
• Time in the market is more important over timing the market

_{Source: Jimmy Weng, Head of Equities, Asia - Sun Life Assurance Company of Canada}

• China's reopening has a huge positive impact on global markets and expresses a more business friendly tone
  
• The pandemic-induced supply chain shortages appear to be improving
  
• The market is poised to improve, provided there are no energy price spikes, Ukraine-Russia conflict does not escalate, and oil supply chains remain strong
  
• The bigger part of the rate hikes appear to be behind rather than ahead of us
• Liquid assets (i.e., cash and cash equivalents, money market funds, T-bills, time deposits, among others) have a return for the first time in a decade
   

How These Affect Your Investments/Savings

• For Bonds. Given the stabilization in interest rates, we see better opportunities for bond funds
• For Equities. Global equities will stabilize once the Fed stops raising rates. Tech is already rebounding as tech stock investors anticipate lower rates moving forward. Volatility will remain
• On the Banking Turmoil. The extraordinary interventions of central banks restored confidence and averted a global financial/ banking crisis. Local banks and financial institutions here are sound and stable, with no problems that the US regional banks or Credit Suisse faced

What You Should Do

• Consider cash and cash alternatives. SLAMCI's money market funds, including Peso Starter Fund and Dollar Starter Fund, can potentially do better than savings accounts
  
• Consider SLAMCI's Peso Bond Fund outlook. Bond Funds will benefit from inflation and rates going down, which will lead to potential price appreciation
• Expect volatility in equities. Our Sun Life PSEi 2023 target is 7,850 but this comes with risk

_{Source: Andrew Gan, Managing Director - Beacon Holdings Inc.}