Prolonged pandemic to slow PH recovery

The Philippine economy will grapple with more headwinds from the prolonged coronavirus pandemic as herd immunity may only be reached by 2024, likely becoming the third to the last territory in Asia-Pacific to finish the urgent race.

This is according to investment experts from HSBC Private Banking, who said pandemic constraints also tempered their view on local equities even as valuations have gone down to reasonable levels.

HSBC expects the main-share Philippine Stock Exchange index (PSEi) to trade sideways from hereon toward 6,820 at year-end. As of HSBC’s midyear investment outlook briefing on Tuesday, the PSEi finished at 6,870.41, down by 269.3 points, or 3.8 percent so far this year.

“We maintain a neutral position on Philippine equities to reflect the market’s projected 47-percent earnings recovery from low base while the market is underowned by foreign investors,” said Fan Cheuk Wan, chief investment officer for Asia at HSBC Private Banking and Wealth Management.

HSBC also sees the current US dollar strength moderating in the coming months when market expectations of inflation and higher bond yields ease. It is forecasting the peso to trade at 46 against the US dollar by year-end.

Greater government spending, better containment of the virus and wider vaccine rollout are seen to allow the country to grow its gross domestic product (GDP) this year to 6.3 percent and 6.5 percent next year, coming from a 9.5-percent contraction last year. Last year was the first time for the country to succumb to an economic recession since 1998, when it grappled with the Asian currency turmoil.

“Vaccination programs will hold the key to our projected recovery for full year mainly because of consumption,” Fan said.

Based on the current pace of vaccine rollout across the region, the Philippines will be among the last three to attain herd immunity, or vaccinate at least 75 percent of its population against COVID-19. Vietnam and Bangladesh are seen to finish by 2025.

On the other hand, Singapore is projected to attain herd immunity this year, while Malaysia and Thailand are seen to achieve this by next year, and Indonesia by 2023.

But with the improving vaccine supply, we may see the scope to further improve the outlook,” Fan said. “Over the past month, we have seen daily pace [in the Philippines] picking up.”

HSBC also sees the recent normalization of inflation on falling food prices easing concerns on policy tightening.

“The current historically low nominal and real interest rates should be accommodative enough to support the economic recovery,” noted Fan.

HSBC expects the Bangko Sentral ng Pilipinas (BSP) to keep its policy rate on hold at 2 percent until the first rate hike in the first quarter of 2022. Next year, it expects the BSP to raise rates by a total of 75 basis points.

Despite latest market volatility triggered by inflation and US Federal Reserve’s tapering concerns, HSBC expects that an extending cyclical recovery, improving earnings and a “low but volatile” rate environment will support continued outperformance of the risk assets and cyclical sectors. INQ