Local stock brokerage firm Philstocks Financial has revised downwards its year-end projection for the Philippine Stock Exchange index (PSEi) due to lower economic growth while corporate earnings growth may also be slower in the second semester.
“We revise our PSEi year-end projection from the initial range of 7,350-8,050 to 6,877-7,532. Considering corporate fundamentals, the market may reach 7,204 at a 10 percent earnings growth,” said Philstocks Financial Assistant Research Manager Claire Alviar.
She noted though that, “the lingering economic risks could cast a shadow on earnings, possibly limiting earnings growth to 5 percent. This may allow the market to reach only 6,877, our worst-case scenario. If corporate earnings strongly perform with a growth rate of 15 percent, the market could reach 7,532.”
Philstocks Research and Engagement Officer Mikhail Plopenio said that, “while we maintain confidence in the growth potential of corporate earnings, we also acknowledge the need to adjust our year-end level targets to reflect the lingering bearish sentiment amid evolving market conditions and potential risks.”
“Bearish sentiment is seen to have dominated the market ever since the release of the dismal second quarter GDP data. Moving forward, we are seeing challenges mainly driven by external factors that could negatively impact investors’ sentiment,” he added.
Plopenio said that “the susceptibility of the Philippines to global shocks, particularly in relation to oil and food prices, underscores the potential for inflationary pressures."
“Then there is the Federal Reserve which up to this writing is still maintaining a hawkish stance with the possibility of even raising rates further. In addition, there's weakened demand globally and foreign investors are continuing to leave the local bourse, which could put downward pressure on the market,” he added.
On a positive note, Philstocks still projects that companies' earnings will grow by five percent to 15 percent despite the economic challenges.
“This presents an opportunity for investors to buy stocks at bargain levels, potentially boosting the market. Moreover, the possibility of a Santa Claus rally in the last month of the year could provide further support to the bourse,” it noted.
Philstocks Research Manager Japhet Tantiangco said that, “for the full year 2023, we downwardly revise our GDP growth forecast from 5.6 - 6.0 percent to 5.1 percent - 5.5 percent. This was done following the significant slowdown of our growth in the second quarter of the year.”
“Also taking into consideration are the lingering headwinds that are expected to challenge our economic outlook for the remainder of 2023,” he noted.
In the second half, household consumption is still expected to grow on the back of the tight labor market. However, growth is expected to slow down further as inflation continues to weigh on purchasing power while to some extent, high interest rates temper consumers’ spending capacity.
Investment spending may post tepid growth in the second half as high interest rates and tempered economic confidence weigh on firms’ capital expenditures.
With regards to the Philippines’ global trade performance, both exports and imports may post slow growth.
Exports get confronted with problems in the global market, primarily economic challenges in top export recipients the US and China.
Meanwhile, the slowdown in the demand for offshore capital goods may weigh on imports. In exchange, growing dependence on foreign agricultural commodities is expected to fuel the growth for imports.
On a positive note, government expenditures may bounce back as agencies devise catch up spending plans in the second half of the year.
Meanwhile, Tantiangco said they also downwardly revised their inflation forecast from 6.1 percent - 6.5 percent to 5.8 percent - 6.2 percent following the faster than expected deceleration of inflation in the first seven months of the year.
“Moving forward, we still see upside risks to our inflation stemming from non-core factors namely food and oil,” he said noting that, “fuel prices also pose upside risks amid the tight supply and strong demand in the global oil market.”