By James A. Loyola
Despite hopes for a Christmas rally, BPI Securities Corporation does not see the local stock market moving much further for the rest of the month after having recovered from a beating brought about by a spike in inflation and capital flight.
During the brokerage firm’s year-end briefing BPI Securities President Hermenegildo Narvaez said the Philippine Stock Exchange index (PSEi) is seen to end the year at 7,650 although more growth is seen in 2019. Based on the individual growth estimates for stocks comprising the PSEi, Narvaez expects the market barometer to grow about 10 percent to 8,300 next year.
“Our expectation is the market will probably grow in line with earnings growth, so this will suggest that we’re looking at a 9 to 10 percent growth over the next year,” Narvaez said.
He added that, growth will be boosted by higher consumer spending next year as inflation rate is seen to continue to ease while the elections in May is also seen to release more cash and increase consumption.
Bank of the Philippine Islands (BPI) Lead Economist Emilio Neri, Jr. said that next year will see a more tamed inflation at an average at 3.6 percent, “so the concern on inflation is practically over.”
Neri also said the cost of borrowing will significantly decline by next year after the central bank instituted a number of interest rate hikes this year.
“What will drive the interest rate to go down — inflation is down, government will continue to borrow but the increase will be much lower, and continued reduction in reserve requirement,” he said.
Also seen to boost local stocks is the expected growth of the Philippine economy as well as improving valuations for these companies.
For next year, Narvaez said earnings growth “will drive the appreciation of the market.” The rosy outlook is anchored on the robust economic growth averaging 7 percent in the next two years driven by consumption and investment.
However, Narvaez also warns of risks posted by a feared weakness of the Philippine Peso as well as the impact of the US-China trade war on global stocks. He noted that, the Philippines has been suffering from “collateral damage” from the brewing trade war.