THE BENCHMARK Philippine Stock Exchange index (PSEi) may rise to 8,450 by the end of 2019 with corporate earnings expected to grow faster this year and as government ramps up spending in the second half, according to Philequity Management, Inc.

The stock gauge will further climb to 9,125 in 2020 when earnings are estimated to increase 11%, according to Miguel A. Agarao, vice-president at the Manila-based mutual fund company. He forecasts earnings growth to accelerate to 10.6% this year from six percent in 2018, when margins and consumer spending were squeezed by accelerating inflation.

The PSEi closed at 7,979.66 on Friday. Stocks in the index are valued at 16 times 12-month forward earnings compared with 16.92 times when the gauge closed at a 16-month high in July.

“Macroeconomic and corporate fundamentals ultimately drive the stock market’s direction,” Mr. Agarao said in a briefing to stock holders of the company. “However, an escalation of the trade war or prolonged conflict will lead to a deterioration in these fundamentals especially for companies exposed to tariffs.”

The PSEi climbed for a second week on Friday as China took a softer tone on possible trade talks with the United States.

A run to the 16-month high in July that sent the gauge into bull market territory fizzled as the trade war escalated, Philippine economic growth came in weaker than expected, and international investors adjusted their portfolios to reflect the higher weighting of China shares in the MSCI Index.

The US-China trade war is a major headwind and President Donald Trump could “murder” the 10-year Philippine bull market should he ratchet up tensions between the world’s two biggest economies, Mr. Agarao said.

The peso has weakened after appreciating in the first half, and its direction will depend on the movements of the US dollar and the yuan, which will be dependent on the trade outcome, he said.

“We are no longer expensive,” Mr. Agarao said, adding that at current levels, the Philippine stock market is trading at 10-year average valuations.

“If the trade war ends, there is upside to these targets. If Trump gets jilted some more, there is downside to these targets.” — Bloomberg