The Philippine Stock Exchange Index is climbing for a third straight session, pushing its gain this year to about 4 percent, the second best-performer among the global equities indices tracked by Bloomberg. The PSEi climbed 1.1 percent to 7,761.11 Friday, as inflation, a major scourge that sank the market into bear territory in 2018, cools down. The government said today December inflation slowed to 5.1 percent, the weakest since May.
“The significant slowdown in inflation confirms the outlook that the central bank will not raise interest rates in the first half and strengthens expectations of a cut in reserve requirement,” said Rachelle Cruz, analyst at AP Securities Inc. “Considering that the macro concerns that plagued 2018 have moderated, market sentiments should improve from here on.”
The Philippine Stock Exchange Index sank 13 percent in 2018, its worst year since 2008, as escalating inflation at home and a brewing trade war between the U.S. and China fueled $1.08 billion in foreign fund withdrawals, almost wiping out the $1.1 billion of inflows in 2017. More than $31 billion in market value was erased in last year’s slump that also doused the appetite for initial share sales.
Better than expected fourth-quarter GDP growth and double-digit growth in corporate earnings could propel the Philippine Stock Exchange Index to retest 8,000 in the first half barring any worsening in the global environment, particularly regarding the U.S.-China trade tensions and a rebound in oil prices, Cruz said. The 8,000 level could be hit “sooner than later if the index convincingly breaks” its resistance at 7,800, according to Jonathan Ravelas, the chief market strategist at BDO Unibank Inc.
Cooling inflation combined with the spillover effect of campaign spending for the May elections on household spending should extend the rebound for consumers stocks, Cruz said. She favors Puregold Price Club Inc., Wilcon Depot Inc., Universal Robina Corp., and Robinsons Retail Inc.
The Philippine Stock Exchange Index is trading at 16.3 times 12-month estimated earnings, compared with its 17.6 times five-year average. The multiple hit a peak of 19.85 times in January 2018 before investors started dumping Philippine equities. Overseas investors bought net $19.4 million Philippine shares today, the second straight day of inflows and the biggest inflow in almost four weeks.
“Given the prospects of falling inflation, still favorable P/E valuations one can still go on accumulation mode,” Ravelas said. “But one must be nimble to adjust to adverse external factors particularly if there is a massive selloff in Wall Street to which there’s very little this market can do.”
The iShares MSCI Philippines ETF (EPHE) was trading at $34.05 per share on Friday afternoon, up $1.30 (+3.97%). Year-to-date, EPHE has declined -12.29%, versus a -5.10% rise in the benchmark S&P 500 index during the same period.
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