Stocks face deeper pullback as inflation woes persist

Stock investors are facing the prospect of a deeper market pullback amid rising inflationary risks, with the Philippine benchmark index having closed last week below the 6,000 support zone—its lowest finish in over a year.

The Philippine Stock Exchange infex (PSEi) fell nearly 3 percent last week to 5,961.99, exacerbated by net foreign sales of P2 billion, bringing the tally so far this year to over P54 billion, data from the stock exchange showed. Stocks slumped after the Bangko Sentral ng Pilipinas announced an off-cycle 25 basis-point interest rate hike.

Several analysts said another policy rate increase was also in the cards during the next Monetary Board meeting on Nov. 16 as inflationary pressures mount toward the Christmas holidays, while the Isreal-Hamas war could further drive up commodity prices.

“Valuations were at a 13-year low but the impact of rising rates and slowing growth points to much lower valuations,” Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., told the Inquirer.

“For a while, the PSEi has been trading at 6,1oo to 6,150 but it could no longer be supported. So, this is murder at 6,000,” he added.

Ravelas favored a 50-basis point hike for the next policy meeting as a “preemptive and calibrated response” to inflation, which he expects will remain above the government’s 2-4 percent target range in 2024 (5.6 percent) and 2025 (4.5 percent).

Another headache for businesses would come in the form of higher corporate borrowing costs, causing demand for loans to slow while weighing on earnings and overall stock valuations, said Michael Ricafort, chief economist at the Rizal Commercial Banking Corp.

“Slower demand for loans would also mean reduced investments and other business economic activities,” he said.

Bank of the Philippine Islands said an inflation print above 6.1 percent or the further weakening of the Philippine peso might trigger another interest rate increase in November.

“Despite the off-cycle hike, we can’t rule out another rate hike in the next policy meeting on November 16,” BPI said.

The lender also pointed out the Philippine economy has “shown signs of strength and resilience despite the increase in interest rates”. “It should be noted that government underspending was the main reason why the economy slowed down in the second quarter,” BPI said.