Online stockbroker Philstocks Financial Inc. expects listed firms’ consolidated profits to grow as much as 30 percent for the year, down from an earlier forecast of as high as 35 percent.
The stockbroker cited the impact of the country’s elevated inflation.
The stockbroker revised its yearend projection on the Philippine Stock Exchange index (PSEi) downward to 7,080 to 7,365 from an earlier 7,600 to 8,200 range.
“In the first half of 2022, our PSEi corporate earnings grew by 30 percent. Moving forward, this growth momentum could be sustained for the remainder of the year backed by the strong aggregate demand expected in the second half as the economy continues to recover from the pandemic. However, our soaring inflation which is seen to dampen household consumption poses downside risks to our corporate revenues and consequently profits,” Philstocks said.
Philstocks said consumers and businesses may also start to feel the pinch of rising interest rates which could soon weigh on demand.
“Assuming economic growth reaches the upper end of our forecast, and inflation settles at the lower end of our expectations, we project corporate earnings growth at 30 percent. Meanwhile, if economic expansion settles at the lower end of our forecast, while inflation reaches the upper end of our projections, corporate earnings growth is seen at 25 percent,” said Japhet Tantiangco, Philstocks analyst.
Tantiangco said moving forward, investors are expected to take cues from the monetary policy outlooks of the Federal Reserve and the Bangko Sentral ng Pilipinas (BSP).
“A continuation of the Fed’s aggressively hawkish policy steps is seen as a downside risk since it may cause foreign fund outflows and a further depreciation of the peso, both of which are negative for the local bourse. Meanwhile, a further tightening of the BSP is expected to weigh on the economy’s outlook. This in turn may also dampen sentiment,” Tantiangco said.
The BSP is expected to raise rates by another 50 to 75 basis points in its three remaining meetings this year, Philstocks said, bringing the overnight reverse repurchase rate to 4.25 to 4.5 percent by the end of the year.
“Initially, we project the BSP to raise policy rates by 50 basis points to rein in inflation and to temper inflation expectations. However, if the Federal Reserve continues with its aggressive tightening, then this is expected to pose depreciation risks to the local currency and consequently upside risks to inflation,” it added.
Philstocks said it expects the general price level of food items to rise further amid the shortages in certain agricultural commodities and shocks caused by weather disturbances for the rest of the year.
“Adding to the inflationary pressure is the possible further weakening of the local currency. We see depreciation risks for the peso stemming from the expected further widening of our balance of payments deficit and the continuous monetary tightening of the Federal Reserve,” it said.
“For oil prices, while already seen to be past its peak, (these are) still expected to remain elevated for the remainder of the year. The ongoing Russia-Ukraine war and a possible tempered supply by OPEC+ is seen to pose upside risks for oil prices,” it added.
