Philstocks Financial is projecting that the Philippine Stock Exchange Index will reach 7,600 to 8,200 by the end of 2022 as corporate earnings are forecast to grow by 25 percent to 35 percent.
“We are cautiously optimistic about the market this year. A bullish outlook remains given the recovery story of our economy, especially of the business sector,” said Philstocks Research and Engagement Officer Claire Alviar.
She noted that, the Philippines has already achieved a 70 percent vaccination rate of its target population and there is currently a downtrend in daily additional COVID-19 cases.
“With our vaccination campaign seen to progress further, together with the decline in our COVID-19 cases, the further reopening of our economy is seen to become more likely. This in turn can lead to a stronger consumer demand which could bring our companies’ bottom line up by 35 percent year-on-year,” said Alviar.
However, she cautioned that, “COVID-19 risks cannot be taken out of the table yet. This includes the possibility of new variants emerging and cases resurging. The risk of tightening restrictions also remains.”
Meanwhile, Alviar said businesses may also face the risk of an eventual weakening of consumption if inflation becomes persistently high, especially if global oil prices continue to rally.
“These risks, if they materialize, may slow down the growth of our companies’ earnings growth to 25 percent,” she said.
While corporate performance is seen to be the main fundamental variable that would drive the market this year, investors are also seen to take cues from other factors such as the outcome of the elections and who the new leaders will be.
“The policies and plans of our new leader will be crucial to the outlook of the investors. Till then, investors may take a cautious stance with some even going on a wait-and-see mode,” said Alviar.
Also seen to influence the local market is how fast the US Federal Reserve starts allowing interest rates to go up this year as a swift tightening could pose downside risks to the equities market.
Meanwhile, Philstocks Senior Supervisor for Research Japhet Tantiangco sees the government providing the economy strong fiscal support with its P5.02 trillion budget this year.
He noted though that, “The government’s expenditure this year is expected to give our economy a short run boost but may come at the expense of putting our country’s fiscal position at further risk.”
“With the global economy to further recover this year, we expect a pick up in the demand for our exports,” said Tantiangco adding that, the sustained recovery in local demand is seen to boost imports.
For 2022, Tantiangco said they project inflation to settle between 3.2 percent and 3.6 percent.
“With the reopening of the economy, we expect robust consumer spending to exert demand-pull pressure on commodity prices. Still, this will be partially offset by the increase in the production of goods and services amid the expected increase in the allowed business operating capacity in the country,” he explained.
On the supply side, Philstocks sees oil as one of the biggest risks.
“If the Organization of Petroleum Exporting Countries and its non-OPEC oil producing allies will continue to undersupply the rising global oil demand, and if the tensions between Russia and Ukraine continue or worse escalate, then we expect oil prices to remain elevated,” said Tantiangco.
Philstocks also sees the exchange rate settling around P52.00 to P52.50 against the US Dollar as the Peso “is expected to take heavy pressure from a further widening of our balance of trade in goods deficit as continuous recovery of the local economy is seen to require more capital inputs from offshore.”
“Meanwhile, the aggressive monetary policy tightening expected from the Federal Reserve is expected to entice funds to go into the US bond market which could mean capital outflows for the Philippines. This would also weaken our local currency,” said Tantiangco.