Strong PH economy, stock market forecast for this year

Despite a new wave of COVID-19 cases driven by the more contagious Omicron variant, investment house First Metro Investment Corp. (FMIC) expects the Philippine economy to expand at a faster pace of 6-7 percent this year, boosting prospects for corporate earnings and the stock market.

FMIC expects the main-share Philippine Stock Exchange index (PSEi) to hit 7,900 to 8,100 in 2022, fueled by positive investor sentiment and attractive valuation. Corporate earnings are seen to increase by 35 percent from 28 percent last year.

“Notwithstanding the ongoing pandemic, and Omicron sparking the third wave of infections, we are still optimistic that Philippine growth will further accelerate and get back on its trajectory of 6-7 percent in 2022,” FMIC president Jose Patricio Dumlao said on Tuesday.

FMIC expects the country’s growth to be driven by sustained domestic demand, easing inflation, election expenditures and accelerated government spending on infrastructure projects.

“Business and consumer confidence are also cautiously positive given wider availability of vaccines and relaxation of lockdowns, quarantine measures and mobility restrictions. Our external position remained robust, supported by manageable external debt, steady US dollar inflows from remittances and BPOs (business process outsourcing), and high gross international reserves,” said Dumlao.

Faster GDP growth

In a briefing, University of Asia and the Pacific economist Victor Abola said if the gross domestic product (GDP) would grow faster than 6 percent, the country’s debt to GDP ratio should ease from the projected 65 to 67 percent this 2022.

“Although the government will be borrowing, since the economy is rising faster, there’s no need to worry about it for now,” Abola said.

As the country still enjoyed a relatively better external sector or record of transactions with the rest of the world relative to peers—thanks to foreign exchange earnings from BPOs and overseas Filipino remittances—Abola sees a low probability of the Philippine sovereign getting credit downgrades this year.

While the forthcoming presidential elections remained as a risk—which Abola said would be even greater than any risk from the Omicron surge—the economist said it wouldn’t matter who would be president for as long as the electoral process would be credible.

Credibility is key

“We do have momentum. We have the basis for growing faster. It could be a little bit faster with one kind of candidate or another, depending on your persuasion,” he said, adding however, that at the end of the day, it’s the credibility of the elections that would be at stake.

Inflation is anticipated to decelerate faster to 3.5-3.7 percent, returning to targeted levels, this year, giving the Bangko Sentral ng Pilipinas room to keep policy rates unchanged.

Cristina Ulang, FMIC vice president and head of research, said stock market investors would likely be willing to pay 16.9 times projected earnings this year and 13.9 times earnings next year.

Investors were urged to focus on stocks that could withstand inflation and the rising cost of raw materials and interest rates, those that would benefit in an election year, those with very strong balance sheet and have the ability to declare superior dividends. INQ