The local stock barometer may climb to as high as 9,000 in the coming year, setting a new index record as robust earnings and macroeconomic growth fuel investor optimism, said the local stock brokerage arm of Bank of the Philippine Islands.
In an investors briefing, BPI Securities president Haj Narvaez said the companies constituting the Philippine Stock Exchange index (PSEi) may sustain a growth of 12 percent next year, matching this year’s likely full-year level.
Banks, property, and the resurgent consumer sector are the counters that BPI Securities expects to outperform in the coming year.
“We are currently trading at around 16 times forward earnings, near the market’s 10-year average. Amidst strong earnings and macro growth, the backdrop for 2020 appears more attractive than the present year and we think the PSEi can trade around 18 times, translating to an index target of 9,000 for 2020,” said Narvaez.
Narvaez also believes that if the US-China trade war would worsen, the Philippines may even look more attractive given the country’s minimal reliance on exports.
Potential rate interest rate cuts from both the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP) are also seen to support equities as an asset class and provide cushion against slower global growth.
“The country’s macroeconomic picture for 2020 looks promising. We believe that the uptick in government spending and continued rise in consumption will drive the country’s GDP (gross domestic product) growth, with PSEi earnings growth expected to replicate this year’s figure of around 12 percent. It is also worth noting that lower rates tend to be supportive of equities,” said Narvaez.
Despite the positive prospects for next year, Narvaez said that volatility may still be expected due to the US-China trade war. He advised investors to focus on stocks that offered growth and value.
In the same briefing, BPI lead economist Emilio Neri projected that Philippines GDP could grow at a faster pace of 6.3 percent next year from a likely full-year growth of 5.9 percent this year. The economist expects global growth to recover in the second half of next year.
In the first nine months of this year, the domestic economy grew by 5.8 percent, weighed down by the delayed passage of the national budget that in turn curbed government spending early in the year.
Apart from easing the reserve requirement ratio on banks, Neri sees further monetary accommodation in the form of a 25-basis point cut in the BSP’s overnight borrowing rate next year to 3.75 percent.
Inflation is seen to rise slightly to 3 percent next year from 2.5 percent this year but still in line with the BSP’s inflation target range of 2-4 percent.
On foreign exchange, Neri sees a “manageable” depreciation of the peso against the US dollar to P52.90 against the US dollar from a projected rate of P51.30:$1 by the end of this year.