Philippine Stock Exchange, Bonifacio Global City, Taguig City, Dec 29, 2022. INQUIRER PHOTO / NINO JESUS ORBETA
Rising inflation in July has led Maybank Securities Inc. to push back its 12-month forecast of 8,200 for the Philippine Stock Exchange Index (PSEi) by a few months. Traders are now focusing on the Bangko Sentral ng Pilipinas’ policy stance.
Maybank’s forecast is 23.35 percent higher than Friday’s closing value of the benchmark index at 6,647.80.
In its latest market report, Maybank said valuations were currently attractive at only 11 times prospective earnings, meaning Philippine stocks were selling for a low price when compared with the money they could make for investors. This is typically attractive for investors, as they can buy cheap stocks and later pocket gains when the price increases.
The stock brokerage house also sees companies growing earnings by 9 percent per year in the next two years, signaling improving profitability.
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Although this outlook “still holds,” Maybank head of research Kervin Sisayan explained that the faster-than-expected July inflation reading could push back their PSEi target.
“It’s more of delaying the target because lower inflation might be delayed by a couple more months,” Sisayan told the Inquirer in an interview last week.
The Philippine Statistics Authority said inflation in July had accelerated to 4.4 percent, breaching the government’s 2- to 4-percent target range due to rising prices in housing, utilities, transport and food.
Maybank is placing its bets on the cut in rice import tariffs to help lift the bourse toward 8,200, as this policy will lower prices and inflation.
The price of rice contributed 1.9 percentage points to overall inflation last month. This represents 37.2 percent of the reading.
All eyes on Bangko Sentral
Apart from improving inflation, Maybank pointed out that interest rate cuts would also help drive market optimism.
However, Bangko Sentral Governor Eli Remolona Jr. said the Monetary Board was now “little less likely” to cut rates on Aug. 15, although he did not rule out the possibility of an off-cycle easing.
Maybank is positive that the local central bank will stay true to its word of a 50-basis-point rate cut this year.
Last week, recession fears in the United States rocked Asian markets, with the PSEi seeing its second-largest selloffs this year and dipping below 6,500.
By Friday, however, the index was able to regain its footing and rally past the 6,600 barrier as the Philippine economy improved. The PSEi gained by 0.64 percent versus the previous week.
This week, all eyes will be on the local central bank’s interest rate setting, according to Japhet Tantiangco, research manager at Philstocks Financial Inc.
“A policy rate cut is expected to sustain the local market’s upward momentum, while an unchanged policy rate might lead to a market decline,” Tantiangco said.
Easing anxiety over a possible recession may also lift market sentiment, he added. INQ