Unicapital Securities Inc. (USI) has lowered its benchmark target for the Philippine Stock Exchange index (PSEi) to 6,650 from its earlier forecast of 6,800 at the start of the year, citing market headwinds led by geopolitical risks, local political noise, and the impact of the El Niño phenomenon.

During the brokerage’s mid-year outlook briefing for clients, USI Research Head Wendy Estacio-Cruz said the revised forecast is based on a price-to-earnings ratio rerating from 9.5x to 10.5x and corporate earnings growth of around seven percent.

“Even at that level, the PSEi would still trade almost two standard deviations lower than its historical average,” she said, noting that compared to regional bourses, the PSE is among the cheapest at a 40 percent discount to its historical average, behind only Indonesia and Korea.

However, Cruz noted that the 40 percent discount appears excessive, as most of the headwinds facing the local stock market have already been priced in.

She also pointed out that geopolitical risks—along with their impact on oil prices and, consequently, inflation—remain beyond the Philippine government’s control. Similarly, the El Niño phenomenon is expected to exert upward pressure on inflation, keeping it elevated for the rest of the year.

Meanwhile, Cruz noted that domestic political uncertainty, low infrastructure spending, and fiscal budget constraints continue to keep the country’s economic growth subdued.

She explained that political uncertainty and its accompanying noise pose a near-term overhang for the Philippines, dampening infrastructure spending that is not expected to normalize and improve until 2027 or 2028.

“The main reason for this is that a lot of budget monitoring is still in place. There is continued monitoring of projects, as well as the execution and disbursement of funds to execute them, which has resulted in slower GDP growth,” she explained.

Slower economic growth is expected to weigh on corporate earnings, alongside wage hikes and elevated fuel prices driven by geopolitical conflicts. As a net oil importer, the Philippines remains sensitive to sustained oil price shocks, and Unicapital expects oil prices to trend higher over the next couple of months given the lack of de-escalation in the Middle East.

However, Cruz anticipated eventual relief on the horizon: “Since we’re expecting a de-escalation of tensions over the next six to 12 months, we think oil prices will somehow normalize as well. That should help bring the inflation rate back down toward the four percent level.”