THE MAIN INDEX may end above the 7,000 level this year as foreign fund inflows continue to rise, according to the chief investment officer of the Philippines’ largest bank in asset terms.
BDO Unibank, Inc. Senior Vice-President and Chief Investment Officer of its Trust and Investments Group Frederico Rafael D. Ocampo told reporters last week that the Philippine Stock Exchange index (PSEi) may end at the 6,800 to 7,600 level this year.
“The Philippine stock market will finally wake up this year after falling asleep for five years. Year to date, we’re up by 8% in the first quarter this year as foreign funds have started to come in the Philippines. They were leaving in the past five years,” Mr. Ocampo said.
“Our base case is 7,200. Our bull case is 7,650 because we’re assuming 9% EPS (earnings per share) growth and at the bull case, we will be 14 times P/E (price-to-earnings) ratio. At our base case, we will be trading at around 12-13 times. So even at 7,200, which is 5% from where we’re at now, 12-13% total returns is not bad compared to the negative numbers we saw the last six years,” he said.
Mr. Ocampo said their bull case scenario assumes more than three rate cuts from the Bangko Sentral ng Pilipinas (BSP), which he noted “seems more unlikely” to happen amid lingering inflation risks.
“But if the foreign funds continue to come in, … that’s enough to lift the whole market,” he added.
On Monday, the bellwether PSEi retreated by 0.06% or 4.39 points from the prior session to end at 6,741.07.
Year to date, the benchmark index is up by 4.51% from its 6,450.04 finish on Dec. 29, 2023.
The BSP on Monday kept its policy rate unchanged at a near 17-year high of 6.5% for a fourth straight meeting, as expected by 16 analysts in a BusinessWorld poll. Rates on the central bank’s overnight deposit and lending facilities were likewise kept at 6% and 7%, respectively.
BSP Governor Eli M. Remolona, Jr. said at a briefing after the meeting that they could begin their policy easing cycle later than initially expected as they have become “more hawkish than before” due to persistent upside risks to inflation stemming from higher food and transport costs.
Mr. Remolona earlier said they could start considering rate cuts by the second half.
The central bank hiked borrowing costs by 450 basis points from May 2022 to October 2023 to help bring down elevated inflation.
Headline inflation accelerated to 3.7% year on year in March from 3.4% in February. This was slower than the 7.6% clip in the same month last year.
Still, this was within the BSP’s 3.4-4.2% forecast for the month and was slightly below the 3.8% median in a BusinessWorld poll. This also marked the fourth straight month that inflation was within the central bank’s 2-4% target.
For the first quarter, headline inflation averaged 3.3%.
Mr. Ocampo said aside from expectations of slower inflation, which will give the BSP confidence to begin cutting benchmark rates, increased foreign direct investments (FDIs) could also boost market sentiment.
“Foreign direct investments have always been the missing piece in the puzzle. That’s our waterloo. We’re stuck at the $5-10 billion per year compared to Vietnam and Indonesia, who are at $52-78 billion a year,” he said.
“Now, we’re seeing a lot of long-term project financing in renewable energy and food. These are our weaknesses as a country: food and energy security,” Mr. Ocampo added.
Net FDI inflows declined by 6.6% to $8.9 billion last year from $9.5 billion in 2022, latest BSP data showed. — AMCS