Online stockbroker Colfinancial.com expects consumption-related stocks to continue to face headwinds this year despite the projected recovery in private consumption and improving macroeconomic conditions.
Among the hurdles projected this year are a lackluster consumer confidence and uncertainties on the impact of El Niño.
“As such, we remain cautiously optimistic on the sector and prefer more defensive names that can see resilience in demand in spite of lingering inflationary risks,” it said.
Colfinancial said as the economy grows at a projected 5.7 percent this year, faster than the estimated 5.3 percent last year, household spending is seen to gain traction.
“Based on projections by Fitch, real household spending could accelerate to 6.3 percent this year (from to 5.5 percent in FY23E) amid sustained economic growth, slower inflation, and healthy employment. While household spending slowed down last year as consumers grappled with high prices of goods, we think that increases in the minimum wage, which rose by a median rate of ~8.0 percent in 2023, should also stimulate consumer spending,” it said.
As the mandated increase in the daily wage of minimum wage earners mostly took effect in the latter half of 2023, this should also have a positive spillover effect on consumption for 2024, Colfinancial added.
Colfinancial noted shorter-term trends suggest consumers have continued to prioritize essentials as they feel the impact of tighter budgets.
“Essential categories such as food, housing and water, health, and communication all still posted positive growth in the last three quarters but non-essentials were largely mixed. Consumer sentiment has generally turned more cautious, likely driven by the spike in rice prices again in December amid tight supply and elevated rice prices globally,” it said.
While full-year inflation is expected to drop to 3.7 percent from 6 percent last year, a brief uptick in the second quarter is expected as the active El Niño weather event could potentially push food prices up, Colfinancial added.
According to the Department of Science and Technology, El Nino could persist through the first two quarters of 2024 and peak in April.
