BPI Securities, the stock brokerage arm of the Bank of the Philippine Islands (BPI), is confident that the current rally in the local bourse will be sustained all the way up to the 7,500 level.

While some investors worry about a short-term pullback following the sharp rally in many stock indices since October 2023, BPI Securities said in a statement that it is still optimistic that there will be strong support for the Philippine Stock Exchange Index (PSEi). 

“There is a possibility for a slight correction or some sideways movement in the near term; it has been a remarkable rally since October,” said BPI Securities President Haj Narvaez. 

He noted though that, “I still believe the arrow is pointing up until year-end—earnings will grow around 10 percent this year and rate cuts are likely coming. Combined, this is a recipe for P/E (price-to-earnings ratio) multiple expansion.”

For Narvaez, the main challenge in the first half of 2024 is low liquidity. “We’ve seen turnover fall to about P4 billion per day. Back in 2021, we were doing about P8 billion,” he said.

“The low turnover is in line with expectations and a function of high rates offered by less risky assets. We only see it (liquidity) improving meaningfully in the back end of the year or six to nine months after rate cuts occur,” he explained.  

Given the spectre of improving liquidity and increased foreign investor interest, he advised investors to focus on large-cap stocks, such as property-focused conglomerates, a major sector in the index. 

“The country will start to see more pronounced improvement in liquidity especially in the second half, or closer to the fourth quarter of this year. And when you have improvement of liquidity, that will probably be accompanied as well by more foreign interest. Typically, foreign funds tend to focus on the large-cap stocks,” Narvaez said.