Singapore
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 per cent 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 today 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 Aug 8 policy meeting.
Crucial drivers for the equity market will be economic and earnings growth along with lower interest rates and slowing inflation, Credit Suisse Group 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 per cent gain from Monday's close. "We expect the laggard growth stocks to eventually play catch-up," the note said.
Foreign investors have poured US$471 million into Philippine equities this year through Aug 5, after pulling out more than US$1 billion in 2018, the most in three years, according to data compiled by Bloomberg.
Foreign investors net sold US$23 million worth of shares on Monday, the biggest single-day outflow since June 28. To be sure, the US on Monday designated China as a currency manipulator, sending American stock futures tumbling, after the yuan was allowed to sink to its weakest level against the greenback in a decade.
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 per cent yesterday, the most since January 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 pre-emptive 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. BLOOMBERG
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