Stock index seen hitting 8,800 in 2020

A growing economy, expanding earnings per share, well-anchored inflation and interest rates, and a relatively stable peso may support the Philippine Stock Exchange index’s (PSEi) climb to 8,800 this year, the chief strategist of leading lender BDO Unibank said.This PSEi outlook represents a potential increase of 984.74 points or 12.6 percent from last year’s finish of 7,815.26.

BDO chief strategist Jonathan Ravelas said this stock market outlook would be supported by a 10-percent likely average earnings growth and a projected 17.5x price to earnings (PE) ratio.

A PE ratio of 17.5x means investors are willing to pay 18.5 times the kind of money they can make from PSEi stocks.

On the other hand, Ravelas said the peso could trade within a range of 50 and 52 to a dollar this year from around 51 against the greenback in 2019.

“The peso could trade in tandem with foreign portfolio inflows into the local bond and stock market on one hand and a widening trade deficit on the other hand as spending accelerates in the coming year,” he said.

On key risks, Ravelas expects global headwinds remaining in the near term. He said higher tariffs on manufactured goods, uncertainty of the UK exit from the European Union and geopolitical tensions could result in slower global economic growth and volatility in financial markets this 2020. The decline of global economic output, in turn, is seen to cause central banks to continue cutting interest rates to stimulate their respective economies.

“The Philippines, on the other hand, is looking good. The economy is expected to accelerate from 6 percent in 2019 to 6.5 percent in 2020. The economy could benefit from an aggressive budget spending from government and further reduction in policy and reserve requirements from the central bank,” Ravelas said.

He noted that about P4.1 trillion budget for public spending in 2020 alongside an additional P400 billion that was not spent out of the 2019 budget. Last year, the delay in the legislation of the national budget tempered the country’s economic growth.In addition, he said resilient domestic consumer demand could benefit from lower inflation.

With falling fuel and food prices, BDO sees the average inflation this year remaining benign at 3 percent, well within the 2-4 percent target of the inflation-targeting Bangko Sentral ng Pilipinas (BSP), albeit a bit higher than last year’s average of around 2.5 percent.

Benign inflation is seen opening the window for the BSP to cut policy rate by 50 basis points to 3.5 percent this year, alongside a further 2-percentage point reduction in the reserve requirement on banks to 12 percent.

Ravelas said this dual stimulus should help the business sector amid a stable inflation environment.

“These twin moves from the BSP could result in a steeper yield curve with short-term rates falling further while the 10-year treasury note could move toward 5.5 percent,” Ravelas said. INQ