First Metro raises PSEi target to 6,700 on easing global risks

MANILA, Philippines – First Metro Securities and DBS Bank raised their year-end PSEi target to 6,700 from 6,500 as easing geopolitical tensions improved market sentiment.

In a joint report, the brokerages raised their target on expectations of modest earnings growth and a partial valuation recovery as US-Iran tensions de-escalate.

READ: Iran-US talks to continue through the night

The firms said the Washington-Tehran memorandum to halt hostilities and reopen the Strait of Hormuz shifted market sentiment from crisis management to a gradual repricing of macroeconomic risks.

While execution risks remain, they said the agreement offers a more constructive backdrop than investors had priced in just weeks earlier.

“We raise our base-case year-end PSEi target to 6,700 from 6,500,” the report said, noting that the forecast does not assume a full normalization of economic conditions but rather an early-stage recovery as pressures from elevated oil prices, inflation and foreign exchange volatility begin to ease.

The revised target factors in projected EPS growth of 3 percent in 2026 and 5 percent in 2027.

First Metro also lowered its equity risk premium assumption to 550 basis points from 600 basis points, reflecting reduced odds of renewed geopolitical escalation, although the measure remains above historical levels due to lingering uncertainties.

The firms stressed that the revised outlook is based on a more balanced risk-reward profile rather than expectations of a sharp earnings rebound.

“We are not upgrading the market because the macro backdrop has fully improved; it is being upgraded because the tail risk is being removed,” the report said.

Oil tailwind for stocks

According to the report, the Philippines stands to benefit from easing energy prices because of its sensitivity to imported oil. 

Lower fuel costs could curb inflation, steady the peso, reduce policy uncertainty, and lift corporate margins, allowing investors to look beyond weak second- and possibly third-quarter data.

Rather than buy indiscriminately, First Metro and DBS urged investors to favor companies with strong balance sheets, resilient demand, healthy cash flows, and pricing power.

READ: Oil prices may drop to prewar levels in 6-12 months with US-Iran deal

gradually rebuild exposure to Philippine equities instead of buying indiscriminately, favoring companies with strong balance sheets, resilient demand, healthy cash flows and pricing power.

Their top picks include Bank of the Philippine Islands, BDO Unibank, Century Pacific Food, International Container Terminal Services, Manila Electric Co., Puregold Price Club, PLDT, RL Commercial REIT, SM Investments and SM Prime Holdings.

Still, the report cautioned that risks remain. The market recovery hinges on finalizing the peace framework, normalizing traffic through the Strait of Hormuz, and macroeconomic data confirming easing inflation, stable foreign exchange markets, and improving consumer confidence. /pai INQ