Investors may find safety in Philippine equities as trade tensions ravage most regional markets, analysts from Credit Suisse Group AG and Citigroup Inc said, citing the positive outlook for economic and earnings growth.
Forecasts for economic growth exceeding 6% over the next two years, positive year-to-date earnings revisions and room to ease borrowing costs can support the nation’s stocks in the second half of this year, even as the Philippine Stock Exchange Index pulls back from last month’s bull market territory, according to analysts.
A report on Tuesday may show inflation in July was the slowest pace in two years, while one on Thursday may show an acceleration in quarterly economic growth. The central bank is expected to cut borrowing costs by a quarter percentage point at its policy meeting on Thursday.
Crucial drivers for the equity market will be economic and earnings growth along with lower interest rates and slowing inflation, Credit Suisse Group AG analysts including Hazel Tanedo wrote in a note on Friday, setting a 12-month target of 9,200 for the benchmark index. That level implies a 17% gain from Monday’s close. “We expect the laggard growth stocks to eventually play catch up,” the note said.
Foreign investors have poured $494 million into Philippine equities this year through Friday, after pulling out more than $1 billion in 2018, the most in three years, according to data compiled by Bloomberg.
To be sure, China on Monday allowed the yuan to tumble to its weakest level in a decade against the US dollar in an escalation of the trade war. Tensions are likely to continue to roil financial markets and weigh on global economic growth, according to analysts. The Philippine Stock Exchange Index tumbled 3% on Monday, the most since Jan. 2016.
Financial firms including COL Financial Group Inc, Philstocks Financial Inc and First Metro Investment Corp also remain positive on Philippine stocks on expectations that rate cuts and government spending will boost earnings growth in the second half of this year.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno on July 26 pledged a proactive and preemptive monetary policy, saying inflation has been tamed.
“The Philippines is where we could see more meaningful room to ease given real rates are historically high, and thus, could have more potential impact on growth,” Citigroup Inc’s economists including Johanna Chua wrote in a note on Friday. The government also has the means to accelerate spending over the next three quarters, the economists said.