The benchmark of Philippine Stock Exchange index (PSEi) may end the year within the 6,500-7,000 range on the back of investor optimism over an economic rebound in 2021, investment banking firm First Metro Investment Corp. (FMIC) said.
In a virtual media briefing on Wednesday, FMIC Research Head Cristina S. Ulang said the market may see an uptrend starting end-August, coming from expansionary fiscal policy drivers and accommodative monetary policy from the central bank.
“We see a recovery happening next year, and therefore earnings will follow from the contraction of 30% this year to a recovery of 23% next year. That’s going to put us back on track to the five-year P/E (price-to-earnings) range of 18-19x, where the PSEi will be hovering between 6,500 to 7,000,” she said.
She noted the market has likely bottomed out as investors are “very forward-looking,” with eyes set on developments regarding the coronavirus vaccine, the P160-billion fiscal stimulus, and the passage of the P4.5-trillion budget for 2021.
“We saw the PSEi very resilient and moving higher… Hopefully we’re able to see mobility in a greater way at the end of August,” Ms. Ulang said. Other positive events coming from the central bank, which FMIC expects will implement another rate cut within the year, are expected to “somehow offset the negative sentiment coming from the (coronavirus) infection rate.”
“That I think is the focus now, being the stimulus now will impact next year’s results. And the P4.5-trillion budget next year is very exciting, along with the government commitment to the global recovery in 2021,” Ms. Ulang added.
The coronavirus pandemic has brought the PSEi down to a historic low of 4,623.42 in mid-March after opening the year at the 7,700 level.
Despite the events that put the world to a halt, FMIC said the pandemic’s silver lining is it has opened a rare buying opportunity that has not been seen in the last 10 years.
In the debt capital market, FMIC Investment Banking Head Daniel D. Camacho said three central themes may be observed for the second half: continued low interest rates, benign inflation, and sustained interest in offshore issuances.
He said monetary policy is expected to be front and center of the economic response, with the reserve requirement potentially reduced by 100 basis points-200 basis points, or from 12% to 10%, before the year ends.
In the equity capital market, Mr. Camacho said investors could expect the gradual easing of the lockdown, further fiscal policy to support businesses, and issuances that were pushed back, such as initial public offerings and real estate investment trust offerings.
He noted, however, that the reinstatement of stricture quarantine measures from Aug. 4 to Aug. 18 may see the PSEi range within 5,700-5,900, “as investors adopt a risk off position due to concerns over near-term economic challenges.”
The PSEi ended Wednesday’s trading at 5,995.00, up 41.06 points or 0.69% from a day ago.
By Denise A. Valdez, Senior Reporter|BusinessWorld
Source: Peso Economics
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