Investment bank First Metro Investment Corp. (FMIC) sees the economy picking up its growth by 6 percent this year.
FMIC said this is enough to push the Philippine Stock Exchange (PSE) to hit as high as 7,500 as corporate earnings are projected to grow by 11 percent this year.
Christina Ulang, FMIC head of research, said this would give the PSE index a 12.6x -13.6x price to earnings ratio.
The PSEi closed 2023 at 6,450.04.
“In the face of domestic and global challenges, the Philippine economy achieved a commendable 5.5 percent GDP growth in the first nine months of 2023, driven by strong domestic demand. This year, we continue to anticipate external headwinds – global growth outlook remains subdued,” said Jose Patricio Dumlao, First Metro president.
“While headline inflation has softened in many countries driven by the decline in food and energy prices, core inflation remains a concern. External uncertainties such as the movements of the Fed and a potential sharper slowdown in China could drag on growth. Amidst all this, the country’s economy, with its strong macroeconomic fundamentals, is expected to expand by 6 percent,” Dumlao added.
Victor Abola, University of Asia and the Pacific economist, said the growth will be fueled by robust private consumption, increased government infrastructure spending, a strong labor market, and the recovery of domestic tourism.
“The country’s external sector remains stable, with manageable external debt, decreasing debt-to-GDP ratio and substantial gross international reserves (exceeding $100 billion, equivalent to seven and a half months’ worth of imports,” he said.
Inflation, which saw a 14-year high in 2023, is expected to ease to 3.8 percent this year, aligned with the Bangko Sentral ng Pilipinas’ (BSP) target range of 2 to 4, he noted.
“This will bring the much-needed respite for household income,” Abola added.
The peso is expected to trade between 56 and 58 to the dollar as it remains remain under pressure due to persistent uncertainties on when and by how much the Fed will cut policy rates.
FMIC said interest rates are anticipated to decline underpinned by a decrease in inflationary pressure.
Daniel Camacho, FMIC head of investment banking, said the expected policy pivot by monetary officials, along with a slowdown in inflation, is poised to entice debt issuers back into the market, capitalizing on reduced borrowing costs.
The pivot, however, may only materialize by the second half of the year – a reduction of between 75 and 125 basis points across the curve.
“We see a softening of rates as inflationary pressure decreases. We do not foresee a cut in BSP rates in the first half but possibly one or two in the second half of the year which will further push rates downwards,” he said.
Camacho said high rates last year tempered issuers’ fund raising through the fixed-income market, deferring or downsizing issuances or tapping bank loans instead.
Camacho noted issuances last year dropped to P106 billion last year compared to P327 billion in 2022.
Ulang added the potential easing of bond yields should boost the attractiveness of the stock market, encouraging issuers to consider equity issuances as a valuable alternative for capital raising.
