HSBC Private Bank: PSEi on track to hitting 8,600

After a turbulent 2018, the local stock barometer may recover to 8,600 by the end of this year on the back of improved corporate earnings and stronger appetite for emerging markets, according to a strategist from HSBC Private Bank.

Check Wan Fan, managing director and chief market strategist for Asia at HSBC Private Bank, said the Bangko Sentral ng Pilipinas (BSP) was nearing the end of its monetary tightening cycle as inflation would likely ease this year.

“We anticipate the economic growth to stay relatively resilient,” Fan said, forecasting a gross domestic product growth (GSP) rate of 6 percent for the Philippines this year in line with what the bank expected to be a mild global slowdown.

Weaker export performance amid a synchronized global slowdown scenario and a relatively cautious private investment growth would likely hold down Philippine domestic growth this year.  Nonetheless, Fan said this macrogrowth would support a corporate earnings growth of around 12 percent, an improvement from the single-digit expansion last year.

As such, the Philippine Stock Exchange index (PSEi) is seen to close at a better level than last year’s finish of 7,466.02.  The main index went down by 12.8 percent last year, its worst annual performance since 2009, mostly due to jitters on local inflation and the series of US interest rate increases.

This year, the bank expects the US Federal Reserve to hike interest rates only once, likely during the policy meeting in September, in turn removing pressures on Asian currencies.

Fund flows to emerging markets are seen to improve this year. The Philippines, for its part, has already seen the return of foreign funds since the start of the year.

HSBC Private Bank expects the local currency to stabilize at 54 against the US dollar this year.

Fan sees the Bangko Sentral ng Pilipinas still raising interest rates in the early part of 2019 to counter the effect of the upsurge in oil prices last year alongside the excise tax increase. Nonetheless, it expects inflation to ease to 3.8 percent this year, hitting the government’s 2-4 percent target.

But while HSBC Private Bank sees limited room for the BSP to cut its overnight borrowing rates, it expects the monetary authority to slash its reserve requirement ratio by 300 basis points this year, citing the need to ease domestic liquidity conditions.