COL Financial, the leading online stock broker in the Philippines, is bullish about the prospects of the local equities market and sees the Philippine Stock Exchange rising to 7,500 to 8,250 once it sets a strong base after a much-needed correction.

“PSEi punched over its downtrend line, 200-day EMA and showed a Golden Cross. This presents bullish stride,” said COL Chief Technical Analyst Juanis Barredo.

A golden cross is a technical chart pattern indicating the potential for a major rally. The golden cross appears on a chart when a stock's short-term moving average crosses above its long-term moving average.

He noted though that the PSEi was recently overbought when it reached price channel highs (7,100-7,200) and “this could drive some interim need to pullback to range lows or support. We see this first at 6,850-6,650 then 6,400-6,200.”

The PSEi could already be undergoing this much needed correction as it has marked substantial drops in recent days. Barredo also noted that the stock market is seasonally weak in February and March.

COL Research Head and Chief Equity Strategist April Lynn Tan said “There are compelling reasons why Philippine stocks should continue to go up this year.”

She noted that, “Inflation is on the way down and is expected to push the US Federal Reserve and the Bangko Sentral ng Pilipinas to cut rates—leading to lower bond rates and a weaker dollar.” Also seen to give stocks a boost is the expectation that the US will be able to avoid a “hard landing.”

Meanwhile, Tan said the Philippines is seen to benefit from fund flows into emerging markets due to a weak dollar, relatively stronger fundamentals, underperformance or cheaper valuations, underinvestment by foreign investors, and China’s reopening with expectations of more stimulus.”

Tan also observed that the emerging markets and the Philippines have been underperforming US equities in the last 10 years and that Philippine stocks continue to trade at cheap valuations as foreign investors are underweight in local equities.

However, there are risks to the rosy prospect for the PSEi posed by if the Fed does not cut rates or if the bear market in the US continues.

Another risk is if the Philippine economic growth disappoints as inflation stays elevated, hurting consumer spending growth; higher rates hurt investment spending growth; and the government’s limited fiscal space.

COL Investment Management President Marvin Fausto stressed that “This is the time to put your money to work. Bonds and stocks are both good investments at this juncture.”

He also noted that their survey shows that local investors are now more optimistic with the PSEi at 54 percent compared to just 33 percent in June 2022. A majority of 61 percent also intends to increase their stock portfolios.

However, investors are still cautious as 52 percent still expects the market to correct while 48 percent expects the market to perform well.