The local stock market is seen to remain bearish for the rest of the year as investors remain cautious over the impact of high inflation and the threat of global recession on Philippine corporations.
In an online media briefing, COL Chief Technical Analyst Juanis Barredo said the market is on an extended downtrend and “oversold rebounds can offer only brief trade windows until down trend formations can be clearly overcome.”
Based on a COL survey of retail investors, a majority (73 percent) expects inflation to continue to rise until the end of the year and sees high inflation (43 percent) and global recession (42 percent) as the greatest risks for equities over the next six months.
COL Investment Management President Marvin Fausto said the survey also showed that investor sentiment has turned neutral for the second half of 2022 from being bullish in the first semester of the year.
However, despite weaker sentiment, he noted that a majority of investors remain heavily invested in the stock market (62 percent) and 71 percent actually expect to increase their stock exposure in the next three to six months.
This jives with COL Chief Equity Strategist April Lynn Tan’s assessment that “the worst could be over soon because inflation, interest rates, and dollar-to-peso rate most likely peaked.”
She said this is due to falling commodity prices, the growing likelihood of a recession in the US, and the raising of interest rates by global central banks which have blunted the strengthening of the US dollar.
Tan also noted that the Philippines has learned to live with Covid and is not likely to impose strict lockdowns as it did before.
However, she pointed out that there are also negative factors that will weigh down the market. High inflation and interest rates will slow down economic growth and this will affect corporate earnings—leading to weaker investor sentiment.
While the new administration has assembled an impressive economic team, Tan said the government has limited fiscal space due to its high debt to gross domestic product ratio and huge deficit.
Amid this scenario, she said bonds, real estate investment trusts are seen to perform better than stocks as long as investors stick to high quality issues.
For those who still prefer stocks, Tan said defensive stocks such as power, telcos and consumer staples are seen to outperform the market while investors should stake profit on commodity plays as global prices ease.
Investors are also advised to start peso cost averaging on other stocks, particularly large caps and firms that have strong balance sheets and those that pay good dividends.