Factory contraction deepens as demand remains subdued

From AB Capital's The Opening Bell: Three Moves

Event

Philippine manufacturing PMI declined to 49.1 in October from 49.6 in September, marking a second consecutive contraction and a six-month low. New orders and employment weakened, while purchasing activity fell at its fastest pace in 11 months. The Philippines also lagged ASEAN's 53.1 average.

View

We think the weakness reflects subdued underlying demand and cautious capacity planning. Falling domestic and export orders, alongside reduced purchasing and staffing, suggest manufacturers remain reluctant to expand operations.

Catalyst

The rebound in business confidence to a near two-year high offers some upside if it translates into orders and hiring. However, BSP tightening to 5.5%, El Niño-related disruptions and prolonged delivery delays could constrain recovery. We would monitor new orders and employment for confirmation.

Action

In our view, the October PMI reinforces caution on domestic industrial cyclicals and construction suppliers, particularly amid weak public infrastructure spending. We would prioritize companies with visible order books, resilient margins and manageable financing needs, while awaiting sustained improvement in new orders before reassessing exposure.

Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.