Online stockbroker Colfinancial.com said investors might want to take profit on some of its their holdings in the wake of the market’s “deteriorated” fundamentals.
This is despite the Philippine Stock Exchange index closing the first quarter higher by 7 percent from last year. Foreign investors were net buyers worth P9.1 billion.
In the US, Colfinancial said, the S&P 500 added 10.2 percent during the same period as more investors now anticipate the economy to stage a soft landing or a no landing.
Colfinancial, however, noted domestic inflation is “proving to be stickier than expected” hitting 3.4 percent in February, exceeding consensus forecast of 3 percent.
“On a month-on-month basis, inflation hit 6.9 percent on an annualized basis. Inflation disappointed as food prices were up by 4.6 percent year- on -year (yoy). This as rice prices increased by 23.7 percent yoy. Rice prices are also expected to stay high in the first half due to the El Nino phenomenon,” it said.
“Rising oil prices also pushed up inflation. Due to geopolitical factors, the price of oil is up 16.1 percent for the year to date period. On a month-on-month basis, transport prices were up quite significantly by 1.3 percent,” it added.
March inflation also ticked up to 3.7 percent, though still within the central bank’s range expectation.
The stockbroker also said minimum wages could increase sharply later this year after the Senate in February approved a P100-increase in the daily minimum wage of workers in the private sector.
“Meanwhile, Congress is eying an even more aggressive wage hike of P150 to P350 a day to more appropriately address the significant decline in workers’ purchasing power due to high inflation. Assuming a P100-increase, minimum labor cost would jump by around 16 percent in the NCR (National Capital Region), and by as much as a 33 percent in provincial areas,” it said.
“High inflation would hurt consumers’ spending power. Moreover, it would lead to further delays in the BSP’s (Bangko Sentral ng Pilipinas) rate cuts which in turn would discourage businesses from pursuing expansion plans. As such, we could see a repeat of 2023’s economic performance which showed below average growth for both consumer and investment spending and GDP,” Colfinancial said.
“For example, despite the significant increase in non-farm payrolls during the past six months, prior months’ payroll data were consistently revised lower. Full- time job growth has also been anemic as most of the new jobs were temporary jobs. Credit card defaults and auto loan delinquencies have also been rising notwithstanding the fact that the unemployment rate remains below 4 percent,” it said.
Colfinancial also noted the risk that the US could still suffer a recession.
“Another concern we have is that the US Fed is now expected to cut rates by only three times this year, much less than the six rate cuts the market was anticipating earlier on, when stocks began to go up. Moreover, based on the latest FOMC (Federal Open Market Committee) dot plot, the median estimate for cuts in 2025 declined to 75 basis points from 100 basis points previously, suggesting Fed members’ preference to keep rates higher for longer,” it added.
Higher than expected US interest rates is not good for emerging market stocks as it might cause the dollar to strengthen, Colfinancial noted.
“We recognize that technical indicators remain strong and that the stock market could continue to go up because of positive sentiment. However, there is also a possibility that the stock market’s strong performance will not be sustained, especially if economic indica tors turn negative and corporate earnings disappoint because of a weaker than expected economic backdrop. As such, we continue to recommend the need to exercise caution,” it said.
“We are recommending a more defensive strategy – being overweight cash, and for stocks, we prefer those that belong to more defensive sectors such as power, utilities, telcos, and consumer staples. Moreover, manage risk by taking profits on stocks that have gone up and are no longer cheap in terms of valuation,” it also said.
