Investor caution greets new year

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PSE BGC trader

By Arra B. Francia

VOLATILITY that rocked the bourse in 2018 will likely persist this year, as the trade war between the world’s two biggest economies and fears of a recession in the United States continue to make investors skittish.

The Philippine Stock Exchange index (PSEi) was battered by headwinds in 2018 — from inflation that accelerated to a nine-year high of 6.7% in September and October to the trade spat between the US and China affecting billions of dollars’ worth of goods from both sides.

“We attribute the year-to-date underperformance of Philippine equities to a combination of rising global yields, desynchronized global growth and accelerating domestic inflation,” according to a Philippine Equity Strategy report of BDO Nomura Securities, Inc.

Elevated inflation dampens consumer spending, which has otherwise been a key strength of the overall economy.

The benchmark Philippine Stock Exchange index (PSEi) fell 12.76% year-on-year to 7,466.02, leading to an 8.17% annual drop in total market capitalization to P16.15 trillion.

Citing forecasts of major investment houses, PSE President Ramon S. Monzon has said the main index could end 2019 at 7,600-8,400. “We got the outlook of three big investment houses, BDO (Nomura Securities, Inc.), Wealth (Securities, Inc.), Metrobank (Metropolitan Bank & Trust Co.) They were forecasting the PSEi to be anywhere from 7,600 up to 8,400. I hope magdilang anghel sila (their projections will come true),” Mr. Monzon told reporters in Taguig City on Dec. 18.

Asked on his expectation for the year ahead, PNB Securities, Inc. President Manuel Antonio G. Lisbona said expects 2019 to be just “slightly better” than 2018.

“2018 marked the end of low interest rates. Our biggest challenges for 2019 will be the effect of rising rates (especially if the increases are higher than expected), the effects of the trade war between the US and China — which doesn’t look like it will be resolved soon and is actually escalating given the US’ call to stop using Huawei and ZTE equipment,” Mr. Lisbona said in a mobile phone message.

Unicapital Securities, Inc. Technical Analyst Cristopher Adrian T. San Pedro said separately that he expects the PSEi to mirror developments of global markets, which had swayed with volatility in 2018.

“Moving forward we are going to experience more volatility than last year as we continue to monitor developments in foreign markets, particularly in the US because of the threat of an impending bear market due to recession shocks in the medium term,” Mr. San Pedro said in an e-mailed reply to questions.

Mr. San Pedro said the PSEi may rally in the short term due to a seasonal increase in stock prices in January.

Expectations of slower inflation may also lift the stock market this year. The Bangko Sentral ng Pilipinas (BSP) projects inflation to have decelerated within the 5.2-6% range in December, which if realized would be the slowest since May 2018’s 4.6% or July’s 5.7%. The Philippine Statistics Authority will report December inflation data on Jan. 4.

“Beyond a possible moderation in the BSP’s monetary policy stance… slower inflation should reduce margin pressure on inflation-sensitive stocks. We see inflation as less of a risk for equity investors versus this time last year, and we turn more positive on consumer stocks,” BDO Nomura said in its report.

The May 13 mid-term elections are expected to boost spending this semester, providing an added lift to overall first-half economic growth.

Still, the results of the congressional and local elections may cause some political shocks, according to Unicapital’s Mr. San Pedro.

Despite the expected volatility, PNB Securities’ Mr. Lisbona said long-term investors will have an opportunity to further increase their portfolios.

“In terms of support, we are looking at 7,000 as primary support but we don’t discount the market going to 6,600 if [interest] rate increases accelerate unexpectedly,” Mr. Lisbona added, while declining to give a 2019 year-end forecast.