Investors may find long-term 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.
Philippine inflation rose at the slowest pace in two years in July, while a report on Thursday may show an acceleration in quarterly economic growth. The central bank is predicted to cut borrowing costs by a quarter percentage point at its Aug. 8 policy meeting. Governor Benjamin Diokno expects to cut interest rates by another 50 basis points this year, he said in an interview on Monday.
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 18% gain from today's close. "We expect the laggard growth stocks to eventually play catch up," the note said.
Foreign investors have poured $471 million into Philippine equities this year through Aug. 5, after pulling out more than $1 billion in 2018, the most in three years, according to data compiled by Bloomberg. Foreign investors sold net $23 million worth of shares on Monday, the biggest single-day outflow since June 28.
To be sure, the S&P 500 suffered its biggest rout of the year Monday after the U.S. called China a currency manipulator. Tensions are likely to continue to roil financial markets and weigh on global economic growth, according to analysts. The Philippine Stock Exchange Index lost 1.6% on Tuesday, adding to a 3% loss in the previous session.
China's devaluation of the yuan against the dollar could spark competitive pressures on currencies including the peso, blocking the benchmark stock index from reaching 8,500 later this year, said Jun Calaycay, head of research at Philstocks Financial Inc., who predicted the level in July.
Financial firms including COL Financial Group 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.
"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.