BPI Securities Corp. has downgraded its year-end target for the benchmark Philippine Stock Exchange index (PSEi) by 300 points or four percent to 7,300 due to the impact of United States (US) President Donald Trump’s unstable tariff policy on global markets, although the brokerage is more optimistic of prospects in 2026.

“The PSEi closed at 6,341 as of end-May, a nine-percent recovery from its low last April 7 but is still down three percent year-to-date. Global economic uncertainties arising from US tariff measures continue to weigh on investor confidence,” BPI Securities said.

The tariff issue continues to affect the PSEi even though private domestic consumption, rather than exports, has been the traditional growth driver of the Philippine economy.

In the first quarter of 2025, consumption accounted for 78 percent of nominal gross domestic product (GDP) while exports were at 17 percent.

“The ultimate export exposure to the US is relatively limited at about three percent of Philippine GDP. This helps against the impact of rising US trade protectionism, in our view,” the brokerage said.

It added that, “The local market also faced an uphill climb following weaker-than-expected first-quarter 2025 GDP results and a lackluster corporate earnings season.”

Because of this, the brokerage said, “We see the PSEi settling at 7,300 (from 7,600) by end-2025, implying about 15-percent upside and a forward price-to-earnings ratio of 11.6 times—below the 10-year average of 17 times and still near Covid-levels.”

“Factors supportive of a market valuation re-rating are resilient corporate earnings, waning domestic inflation, and further rate cuts,” it added.

Estimated core earnings growth of the PSEi in the first quarter of 2025 is at 6.5 percent year-on-year. There were pockets of weakness, however, from specific sectors such as consumer, conglomerates, and telecommunications.

“Following earnings estimates revisions, we forecast core earnings growth of the PSEi to trend at 7.9 percent (from 10 percent) this year.

“We are more upbeat towards 2026, especially for cyclical sectors (i.e., consumer, property, and conglomerates), amid a benign inflation outlook and looser monetary policy environment,” BPI Securities said.

It noted that, subdued inflation expectations amid lower global rice and crude oil prices should provide relief to consumers while, with the recent weakness of the US dollar, the Bangko Sentral ng Pilipinas’ (BSP) policy easing cycle is seen to continue, amid expectations of three rate cuts this year.

“The accommodative monetary set-up is good news for the market as lower borrowing costs prompt higher consumer and business spending, and is also a major tailwind to corporate valuations,” BPI Securities said.

The brokerage said that potential headwinds include knock-on effects of supply shocks due to trade war escalation and risk of lesser US Fed rate cuts and its impact to the BSP’s rate-cutting cycle.

It is also concerned about potential US measures on reshoring jobs and stricter immigration enforcement that could impact overseas Filipino workers’ (OFWs) remittances and business process outsourcing (BPO) revenues.