High inflation, weak demand to crimp corporate profits

Corporate Philippines is seen to grow profits at a slower pace than earlier expected in 2022 as the prolonged environment of high consumer prices curbs household spending, thereby limiting the upside of stock market values.

In its mid-year research note issued on Monday, online stock brokerage Philstocks.ph tempered its yearend outlook for the main-share Philippine Stock Exchange Index (PSEi) to a range of 7,080 to 7,365 from an earlier projection of 7,600 to 8,200.

Philstocks also downgraded its average PSEi corporate earnings growth projection to 25 -30 percent from the earlier forecast range of 25-35 percent. It noted that soaring inflation that was dampening household consumption would pose downside risks to local corporate revenues and profits.

“Consumers and businesses may also start to feel the pinch of the rising interest rates which, in turn, could somehow weigh on demand,” analyst Japhet Louis Tantiangco said.

If the domestic economy could grow at the higher end of Philstocks’ 6.8 to 7.2 percent growth range this year, the brokerage house said corporate earnings growth would average 30 percent. But if growth would be at the low end of the range, it said full-year corporate earnings growth would settle at 25 percent.

But while corporate performance was still seen as the main fundamental driver of the market this year, investors may take cues from other significant factors, Tantiangco said, citing central bank policy in the United States and the Philippines.

The analyst said a continuation of the US Federal Reserve’s aggressive monetary tightening could trigger foreign fund outflows and a further depreciation of the Philippine peso, both of which would be negative for the local bourse.

Further interest rate hikes by the Bangko Sentral ng Pilipinas (BSP) are also seen to bite on the domestic economy, in turn dampening investor sentiment.

Meanwhile, the analyst noted that the local stock market had been trying to sustain its recovery momentum after the freefall seen from its peak in February to its June low.

“Currently, the PSEi is testing its support at the 6,600 level. If the market fails to hold its position at the said level, then 6,600 will already serve as its resistance while its next key support is seen at 6,400,” Tantiangco said. From the perspective of moving averages, the analyst said the PSEi was still trading with a “downward” bias. INQ