Philippine equity markets are poised to trek higher in 2019 as the economy expands and inflation eases, but a sustainable rally will remain elusive unless investors see convincing signs of a strong corporate earnings growth.
In a press briefing on Monday, Sun Life Financial Philippines chief investment officer Michael Enriquez said key themes that weighed on Philippine stocks for most of 2018 had been resolved.
Government intervention has helped stabilize the price of rice, a food staple. Together with successive interest rate hikes by the Bangko Sentral ng Pilipinas (BSP) and easing of oil prices, Enriquez said the “gloomy outlook” of two months ago had cleared.
“There are signs at the moment that are indicating we may be off to a good start in 2019,” Enriquez said on Monday.
Enriquez said the PSEi could rise to at least 7,900 next year.
He said further gains would depend on corporate earnings, which continue to see downgrades by analysts.
“What will convince this market to really breach that 8,000 level again is to see higher earnings growth in 2019,” Enriquez said.
He said the profit growth forecast for next year stood at 11 percent, slower than earlier expectations.
Nevertheless, Sun Life sees a rosier outlook in the macroeconomic picture.
Based on its forecast, gross domestic product growth in 2018 would hit 6.4 percent. The election cycle will bolster this to 6.6 percent in 2019, and by 2020, once big-ticket infrastructure projects ramp up, growth is expected to hit 7 percent.
Moreover, Sun Life’s inflation outlook points to signs of further easing.
From a growth rate of 5 percent in 2018, inflation is expected to slow to 4.1 percent in 2018 and 3 percent in 2019.
Enriquez said there was room for the BSP to further raise interest rates next year. So far, the action on rates has helped stabilize the Philippine peso, which is expected to end the year at P53 against the dollar.
The Philippine peso is expected to hit P52.3 in 2019 and P51.5 by 2020.
Risks include uncertainties over the US-China trade war and the country’s growing current account deficit, which is expected to widen as the Philippines accelerates the importation of goods for its “Build, Build, Build” infrastructure initiative.