Stocks end 2019 higher on local buying support

After grappling with US-China trade war tension, domestic economic woes caused by the delay in the national budget and most recently, concerns on Metro Manila’s water concession contracts, the local stock barometer ended 2019 with modest gains.

Supported mostly by local investors who made up for muted foreign investor interest alongside an accommodative monetary policy of the Bangko Sentral ng Pilipinas (BSP), the Philippine Stock Exchange index (PSEi) gained 349.24 points or 4.7 percent to finish the year at 7,815.26.

This marked a modest improvement from 2018, during which the local inflation scare dragged down the index by 12.8 percent to close at 7,466.02, the worst decline seen in eight years.

During the last trading day on Friday, however, trading was listless. The PSEi shed 27.02 points or 0.35 percent, reversing gains for most of the day.

Manuel Lisbona, president of PNB Securities, said 2019 could be considered a “year of consolidation,” with foreign activity posting a peak buy value of P38 billion worth of equities, and the same investors flocking to the exit at yearend, resulting in a net foreign selling of P14.5 billion. Lisbona noted that Manila Water was very actively traded as investors took and sold positions based on their expectations for the highly anticipated announcement on Jan. 6 on the fate of their concessions.

“For now, the immediate (PSEi) support of 7,700 and resistance level of 8,000 still holds as the range for the coming sessions,” Lisbona said.

For 2019, the PSEi hit a low of 7,475.16 on May 16 when a group of US-listed exchange-traded funds dumped stocks in regional markets. It reached a high of 8,365.29 on July 15, drawing strength from upbeat US stock markets and dovish outlook from both the US Federal Reserve and the BSP.

ING Philippines economist Nicholas Mapa said: “2019 has turned out to be a tale of two halves,” citing a number of market-moving events that shook market sentiment from time to time.

After the passage of the rice tariffication law, which removed quotas on rice imports and thus helped replenish the stock of local rice and stabilize the inflation, Mapa noted that the inflation scare in 2018 was reversed this year. However, he noted that the nearly five-month delay in the passage of the 2019 budget impacted on government spending, domestic economic growth and caused the tightening of liquidity conditions early in the year.

“With both houses handing the 2020 budget (and the extension of the 2019 budget) over to the President for signature, we believe that the ill-effects of the 2019 budget conundrum will not be felt next year. Thus, fiscal spending as opposed to the 2019 underspending, will be in effect while liquidity conditions will also likely improve to some extent as funds will not be trapped with the BSP,” Mapa said.

Mapa also noted that the new BSP governor, Benjamin Diokno, had worked quickly to reverse the aggressive 2018 rate hike cycle, firing off a round of easing in 2019 in order to provide monetary stimulus to a slowing economy. The BSP slashed the reserve requirement ratio on banks by a total of 400 basis points and the overnight borrowing rate by a sum of 75 basis points this 2019.

On the US-China trade talks, Mapa said that hard-and-fast workings in the trade deal might be left out as both countries bide their time until the US elections.

“In 2020, we will likely see a reprise of the 2019 episode with bouts of risk-off tone whenever we approach an impasse on trade talks or the like. But given the strong showing of the Philippines in the second half of 2019, it looks like we are better equipped to weather the impending global headwinds than out neighbors,” Mapa said.

Most recently, the government’s call to review existing agreements with water utility companies had dragged down companies with interest in Maynilad Water Services and Manila Water Co. Three of these are PSEi component companies: Metro Pacific, DMCI Holdings and Ayala Corp.

“The government has moved to quickly allay fears of a large scale exodus, indicating that they are currently no plans to replace the existing utility companies and they are simply conducting a periodic review,” Mapa said, adding that the issue would continue to unfold in 2020.

Overall, Mapa said the 2019 disruptions were mostly due to domestic handicaps, which had been addressed ever since. “With the double weighdown from the budget conundrum and with BSP dialling back its 2018 rate hike, we expect good things from the Philippines in 2020, global slowdown withstanding,” Mapa said.