Philstocks Financial has downgraded its year-end projection for the Philippine Stock Exchange index to 7,080 to 7,365 from the previous 7,600-8,200 as it expects corporate earnings growth to be lower due to slower economic growth, rising inflation, higher interest rates, and a weaker peso.

“For 2022, we downwardly revised our corporate earnings growth projection from 25-35 percent to 25- 30 percent with the upside being dashed by the country’s elevated inflation,” said Philstocks Research Manager Japhet Tantiangco.

He noted that, while the 30 percent corporate earnings growth in the first half could be sustained as the economy continues to recover, “our soaring inflation which is seen to dampen household consumption poses downside risks to our corporate revenues and consequently profits.”

Tantiangco added that, “Consumers and businesses may also start to feel the pinch of the rising interest rates which in turn could somehow weigh on demand.” Aside from corporate earnings, he noted that investors are expected to take cues from the monetary policy outlooks of the Federal Reserve and the Bangko Sentral ng Pilipinas.

“A continuation of the Fed’s aggressively hawkish policy steps is seen as a downside risk since it may cause foreign fund outflows and a further depreciation of the Philippine Peso, both of which are negative for the local bourse,” Tangtiangco said.

He added that, “a further tightening by the BSP is expected to weigh on the economy’s outlook. This in turn may also dampen sentiment.”

Philstocks is keeping its forecast for gross domestic product at 6.8 percent to 7.2 percent but notes that growth our growth may slow down in the second half amid high prices of goods and services, and external headwinds.

Tantiangco said they have revised their inflation projection for 2022 from 3.2-3.6 percent to 5.3-5.7 percent after taking into account the surge in oil and food prices.

“We expect the general price level of food items to rise further amid the shortages in certain agricultural commodities and shocks caused by weather disturbances. Adding to the inflationary pressure is the possible further weakening of the local currency,” he explained.

“We expect the Peso to depreciate further to a range of P56.88 to P57.03 on the last day of the year amid an expected wider balance of payments (BOP) deficit and a further monetary tightening of the Federal Reserve,” said Philstocks Assistant Research and Online Engagement Manager Claire Alviar.

She added that, “We see the peso hitting P56.88, the upper-end of our forecast, if we post a BOP surplus in December. Historically, we are recording a BOP surplus in the last month of the year. However, if we remain at the deficit in December, we expect the peso to depreciate further to P57.03.”

“Slower export growth compared to the import growth which leads to a wider trade deficit weakens the Philippine peso. We expect this trend to continue throughout the year as the global economy's growth is expected to be slower than the Philippines' due to the impact of the Russia-Ukraine war and Covid-19 restrictions in other countries,” said Alviar.

She also noted that, “We see that the overseas Filipinos' remittances may not significantly boost the value of the peso since some countries are also facing challenges that could weaken their economies.”