PHILSTOCKS Financial, Inc. projects the local market to end the year at the 7,500 to 7,700 level, significantly lowering its target to take into account inflationary pressures and its effects on consumer spending, alongside other economic factors.
The brokerage firm predicted in January that the Philippine Stock Exchange index (PSEi) will go as high as 10,700 to 11,000, with a downside target at 7,900 to 8,200. At that time, the main index was trading at the 8,700 level, before eventually reaching a record high of 9,078 by the end of January.
Philstocks’ revised target indicates a 10-12% year-on-year drop from the PSEi’s close of 8,558.42 on the last trading day of 2017.
Philstocks Head of Research Justino R. Calaycay, Jr. said the downward revision is due to a combination of factors, namely higher inflation, rising interest rates, the continued depreciation of the peso, a decline in consumer spending, slower growth in the corporate earnings of the PSEi-member firms, country’s budget deficit, and policy uncertainty.
He noted economic managers would need to further rein in inflation which has so far accelerated by 4.1% in the first five months of the year, reaching 4.6% in May — the highest in at least five years. The increase was primarily attributed to the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Law at the start of the year.
“Even at the start of the year, they didn’t believe that TRAIN is causing inflation. For them, you want to use that interest rate tool to control inflation. Their recognition of the impact of TRAIN was really late… Now they have to do some catching up,” Mr. Calaycay said in a media briefing in Ortigas Center on Monday.
He noted another rate hike is expected before the yearend to combat inflation.
Earnings of PSEi-listed firms were also hampered due to inflationary pressures which in turn caused a decline in consumer spending, according to Philstocks. From an initial assumption of a 20% growth in earnings for full year 2018, the company said earnings of the 30 PSEi-member firms is now predicted to improve by between 10-15%.
“We assumed that it would grow more than 20%, pero yung first quarter di pa umabot ng 10%. Kailangan pumick-up yun, kailangan ma-rein in ang inflation, and ma-maintain ang growth rate ng GDP. More or less para ma-maintain ang upside sa market (but in the first quarter, it didn’t reach 10%. It needs to pick up, inflation must be reined in, and the GDP growth rate must be maintained, more or less to maintain the market’s upside),” Mr. Calaycay said.
Mr. Calaycay said companies are expected to get a boost from the government’s Build, Build, Build program, but majority of projects have yet to be realized.
The PSEi is seen to hit a bottom of 6,800 in August, coinciding with the so-called ghost month.
Mr. Calaycay said it would take around a year and a half before the market makes a convincing recovery, with easing inflation, the recovery of the peso, consistency in policies, and the pick-up in corporate earnings to serve as positive catalysts for investors. — Arra B. Francia