Despite the reopening of the Philippine economy and the resulting recovery of businesses, the year 2022 has not been kind to the local stock market.
Earlier gains made on the back of the country’s improving Covid-19 situation as well as the traditional post-election rally eventually dissipated after rising inflation and higher interest rates took their toll on share prices in the later part of the year.
On the last trading day of 2022, the Philippine Stock Exchange, Inc. (PSE) index at 6,566.39 points, down by 7.81 percent from 7,122.63 at the close of 2021 when the economy had suffered from lockdowns due to Covid-19.
“Mining and Financials were the only sectors that ended in the green territory, up by 12.57 percent and 2.98 percent, respectively. On the other hand, the Services sector had the biggest loss this year, dropping 17.73 percent,” said Philstocks Financial Assistant Research Manager Claire Alviar.
Philstocks Research Manager Japhet Tantiangco noted that, “2022 has been a rough year for the local equities market. While concerns over the COVID-19 pandemic and its impact on the local economy may have already dissipated, the market transitioned to a new set of macroeconomic problems that dampened sentiment.”
“The year started with hope. Despite the spread back then of the contagious COVID-19 Omicron variant, investors were optimistic that the said variant was not that detrimental; that hospitalization rates will remain under control; and that eventually, the COVID-19 situation will improve leading to eased restrictions,” he added.
These hopes fueled the rally earlier in 2022 which brought the market to its intra-year high of 7,552.20 last February 9.
However, while the Philippines’ Covid-19 situation improved, fresh external headwinds developed, putting a stop to the local equities market’s recovery and, eventually, weighing it down.
“First was the Russia - Ukraine war which caused a spike in oil and other commodity prices. This, coupled with China’s lockdowns to curb its Covid-19 situation, led to global supply chain disruptions,” said Tantiangco.
He added that, “Finally, because of the US’ rising inflation, the Federal Reserve started its monetary tightening cycle and has so far raised their policy rates by 425 basis points this 2022.”
This led central banks worldwide, including the Bangko Sentral ng Pilipinas to match the Fed’s aggressive rate hikes, marking the cost of money for individuals and corporations more expensive.
These had a domino effect in the Philippines. “With the Fed’s tightening together with the Philippines’ Balance of Payment deficit, the Philippine Peso sank to a low of P59.00 per dollar last October 3, 2022,” said Tantiangco.
Meanwhile, the rise in oil and other commodity prices, the depreciation of the local currency, challenges to the country’s agricultural sector, and recovering aggregate demand, fueled Philippine inflation which rose to a high of 8.0 percent last November 2022.
With inflation running and the Peso depreciating, the Bangko Sentral ng Pilipinas has also started with its monetary tightening and has so far raised policy rates by a total of 350 basis points this year.
“This confluence of headwinds led to a downward bias for local market in 2022. After peaking on February 9, the PSEi declined, eventually hitting a trough at 5,699.30 last October 3,” Tantiangco explained.
He recounted that, “The local market managed to stage a rally in the last quarter of the year which peaked at 6,814.14 on December 1. This is attributed to the digestion of the local economy’s strong 7.6 percent year-on-year growth in the third quarter as well as the robust corporate performance in the same quarter with the index’s profit growth at 43.93 percent year-on-year.”
However, despite the last quarter rally, the PSEi still ended the year in the negative territory while trading volume throughout 2022 was anemic with net value turnover averaging P5.92 billion per day, compared to P7.38 billion a day in 2021.
“Cautiousness prevailed in the market as investors waited for the results of the 2022 national elections while dealing with the aforementioned headwinds,” said Tantiangco.
The Philippine Stock Exchange said (gross) daily average value turnover for the year was at P7.30 billion, down by 18.9 percent from 2021’s P9.00 billion average.
While many local investors stayed on the sidelines, hot foreign money were heading for the exit with the PSE reporting P67.95 billion worth of net foreign selling in 2022 versus the P2.75 billion net foreign selling in 2021.
For 2022, the bourse reported that the total capital raised from primary and secondary shares amounted to P110.29 billion, a 53.0 percent drop from the P234.48 billion raised in the previous year.
“We still consider 2022 a banner year in terms of the number of IPOs, and we look forward to continuing the listing momentum in 2023. We see the equities market becoming a more attractive option for capital raising given the rise in interest rates and as valuations gradually recover,” said PSE President and CEO Ramon S. Monzon.
Despite the lower capital raised figure, the PSE had nine initial public offerings in 2022, the most number of IPOs in a single year since 2007 or years ago.
Other capital raising activities conducted this year included one listing by way of introduction, five stock rights offerings and 12 private placements in 2022.
The PSE also saw the listing of three new real estate investment trusts (REITs) this year, with two being energy-themed REITs.
“The local REIT market is still teeming with potential opportunities and we expect our REIT roster to expand and potentially diversify to include other themes beyond what we have listed so far,” said Monzon.
Meanwhile, the local bourse’s market capitalization registered an 8.4 percent decrease to P16.56 trillion in 2022 from P18.08 trillion recorded in the previous year.
“We are optimistic that the stock market can bounce back next year as the global economy continues to open up and corporate earnings return to pre-pandemic growth levels,” said Monzon.
He noted that, “While risks from geopolitical tensions, higher inflation and increasing interest rates remain, the Philippines has shown its resiliency through better-than-expected GDP growth during the previous quarter, which we hope will carry over for the 4th quarter and in 2023.”