After calling for investors to lighten up holdings in the past months, online stockbroker Colfinancial.com is now saying investors should opt to buy on weakness.
It noted “compelling reasons” to pick up stocks after the recent drops.
“The main catalyst for the market’s poor performance recently was Trump’s overwhelming victory in the US presidential election and Republicans winning majority of Congress and Senate. Note that a unified government is expected to allow Trump to push through with his pro-growth agenda which would lead to an even higher budget deficit and debt. This was the main reason for the significant increase in US bond rates and the dollar’s strength recently which are bad for Philippine stocks,” Colfinancial said.
“Trump’s plans to impose tariffs of 60 percent on all imports from China and up to 20 percent on goods from other countries also hurt investor sentiment towards Asia which is heavily dependent on exports,” it added.
It also did not help that the Philippines reported a weaker- than-expected third quarter gross domestic product (GDP) growth of 5.2 percent, while companies recorded “poor third quarter earnings performance,” the online stockbroker said.
Colfinancial, however, said a Trump presidency in the US “might not be as bad as what the market is pricing in.”
“Note that during Trump’s first term as president, US inflation remained benign, averaging only 2.1 percent from 2017 to 2019. This was despite tax cuts and higher tariffs on imports from China,” it said.
“This allowed the 10-year bond rate to stay low at 1.4 percent to 3.3 percent versus 4.4 percent currently,” it added.
In 2017, the Philippine Stock Exchange index (PSEi) was up by 25 percent, Colfinancial said.
Colfinancial expects inflation in the country to stay under control as the price of rice, which was largely responsible for high inflation since the second half of 2023, should benefit from the lower tariff on imported rice, from 35 percent to 15 percent, and India’s lifting of its rice export ban in September.
Lower inflation should eventually lead to higher consumer spending and allow the Bangko Sentral ng Pilipinas to resume its easing cycle, it added.
Still, the online stockbroker said investors should be cautious since the fourth quarter GDP could stay weak.
“Poor weather conditions, which were partly responsible for the weaker-than-expected third quarter GDP growth, could also hurt fourth quarter growth as there have already been a total of six typhoons that entered Philippines since October,” Colfinancial said.
There is also no guarantee that Trump will deliver on all his campaign promises given their negative impact on the US economy, Colfinancial added.
“In fact, he may initially focus on cutting costs to create fiscal space for his planned tax cuts. Unfortunately, plans to cut costs would lead to weaker government spending which has been one of the major economic growth drivers the past two years,” it said.
If economic growth disappoints, US stocks could suffer from a steep correction given their expensive valuations currently, Colfinancial.com said, noting a possible negative response from Philippine stocks which have suffered historically from contagion.
