Entering the new trading year 2025, stock market investors are faced with a lot of uncertainties as both risks and positive factors mingle to present a hazy picture in analysts’ crystal balls.
For Chinabank Capital Corporation Managing Director Juan Paolo Colet, “Next year [2025] presents a complicated picture. While we remain positive about the growth prospects of the Philippine economy and the earnings strength of many listed companies, we approach 2025 with caution as there is a lot of uncertainty.”
“Fundamental and technical analyses are giving contrasting opinions on where the market could be going,” said Philstocks Financial Research Manager Japhet Tantiangco.
He explained that, “From a fundamental standpoint, the market is deemed to be at attractive levels with a price to earnings ratio of 12.0 times (as of December 26), below the 2019 to 2023 average of 18.2 times and the regional average of 16.9 times.”
Abacus Securities Corporation noted how cheap the PSE Index is, both in absolute terms and relative to peers among other emerging markets and within the region.
“Philippine equities can hardly get cheaper,” the stock brokerage said, adding that “the huge gap between the PSEi’s earnings yield is the widest ever apart from the lows during Covid and sub-prime crises. That market is also in rare air with the current forward multiple of 10.4 times being a full 2.0 standard deviations below the long term mean,” it added.
Abacus also said that, post-MSCI rebalancing, the price-to-earnings ration may fall below 10 times, “putting the market at depressed levels not seen since the Estrada years and through the fiscal crisis of the mid-2000s.
“It was then that many stock participants left. Foreign houses closed one at a time...and brokers switched industries or professions. But, a decade later, it was proven that this period was the best time to buy,” with the PSE’s 10-year rolling return peaking in mid-2013 at more than 560 percent.
Another factor going for the market is the country’s tight labor market, which Tantiangco said implies that healthy household demand will still be there, supporting firms’ revenues.
“The prospects of manageable inflation and declining interest rates are also expected to give the corporate sector a boost with respect to their financial performance. Hence, from a fundamental standpoint, the market may rise next year,” he added.
However, Abacus Securities said there are risks and issues that hound the market, such as tepid institutional liquidity, retail money chasing crypto instead of stocks, hot money being frozen, headlines being negative, and earnings growth, though decent, is not enough to create a spark.
Colet identifies risks that include Trump 2.0 since “Just like his first term, we expect that Trump's social media posts will again move markets, so investors should be ready to manage that volatility. There is also a risk of fewer, slower, or no rate cuts altogether due to inflation.
“In addition, we are wary of the impact of potential natural disasters and geopolitical stress on our country's economy. Investors will likewise keep a close eye on the midterm elections as the outcome thereof could either ensure stability or create uncertainty.”
Tantiangco also pointed out that, from a technical standpoint, the local market is currently on a downtrend since peaking in early October. The 6,400 support level holds so far. However, the market is having a hard time getting past its 10-day exponential moving average (EMA).
“Most of all, a death cross (crossing of the 50-day EMA below the 200-day EMA) has already appeared. This implies that the market’s downtrend may continue in the medium to long run,” he said.
However, Luna Securities Founder and President Francis Patrick T. Diaz said that, “Despite concerns about both international and local factors – such as macroeconomics, geopolitical situations, and the new U.S. president – the numbers and valuations of PSEi present a positive outlook.”
He said the PSEi could trade within a range, with a low of 7,030 (up eight percent from 2024), a high of 8,080 (up 24 percent), and a potential peak of 9,399 (a 45 surge) under the most optimistic scenario.
“At the current level of 6,500, LUNA APSIS’s quantitative risk-reward management suggests that the market can still climb the wall of worries,” Diaz said, adding that “with further rate cuts and earnings improvement, the upside potential grows.”
For his part, Colet said that, “For 2025, we think the PSEi can reach the 7,600 level, but rather than buying the index, we believe quality stock selection as an investment strategy will provide better total returns.”
PSE President and CEO Ramon S. Monzon said earlier that the bourse is viewing 2025 with careful optimism from its previous optimistic outlook in light of the impact on the stock market of the results of the US elections and the recent six consecutive typhoons within one month.
With the pace of interest rate cuts slowing down, Monzon said the PSE is looking at P120 billion in capital raising activities by listed firms through the bourse, excluding potential extraordinary initial public offerings such as Mynt/GCash (P85 billion) and SM’s real estate investment trust ($1 billion).
Expected capital raising in 2025 will include six IPOs worth P20 billion (from P12 billion in 2024), five to six follow-on offerings, eight to 10 private placements, and three stock rights offerings.