Stockbroker Philstocks Financial Inc. said lingering risks in the economy may pull the Philippine Stock Exchange index (PSEi) to between 6,877 and 7,532 by yearend, lower than its first half of the year target of 7,350 to 8,050.
“Considering corporate fundamentals, the market may reach 7,204 at a 10 percent earnings growth. However, the lingering economic risks could cast a shadow on earnings, possibly limiting earnings growth to 5 percent,” the stockbroker said in a note.
“This may allow the market to reach only 6,877, our worst-case scenario. If corporate earnings strongly perform with a growth rate of 15 percent, the market could reach 7,532,” it added.
Philstocks noted a “bearish sentiment” dominating the market since the release of the dismal second quarter gross domestic product data.
“Moving forward, we are seeing challenges mainly driven by external factors that could negatively impact investors’ sentiment,” it said.
“The susceptibility of the Philippines to global shocks, particularly in relation to oil and food prices, underscores the potential for inflationary pressures. Then there is the Federal Reserve which up to this writing is still maintaining a hawkish stance with the possibility of even raising rates further,” it added.
Philstocks also noted the impact of the weakened demand globally with foreign investors continuously leaving the local bourse, putting downward pressure on the market.
“On a positive note, we still project that companies’ earnings will grow by 5-15 percent, despite the economic challenges. This presents an opportunity for investors to buy stocks at bargain levels, potentially boosting the market. Moreover, the possibility of a Santa Claus rally in the last month of the year could provide further support to the bourse,” it said.
For the second half of the year, listed companies may find it difficult to match the 18.9 percent earnings growth as economic headwinds pose challenges, Philstocks said.
It expects revenues to take a hit from the consumption growth slowdown, as revenge spending wanes while borrowing rates remain high.
“On top of these is our country’s inflation which may continue to remain elevated due to non-core factors. On a positive note, consumption slowdown could be tempered by the strong household spending we expect on the Christmas season,” Philstocks said.
“Meanwhile, net profit margins may also take a hit as input inflation may cause production costs to take more out of our firms’ revenues, especially those in the consumer front,” it added.
At the same time, Philstocks said, firms may also deal with high finance expenses due to the Bangko Sentral ng Pilipinas’ monetary tightening.
