Economic jitters to dampen investor appetite, says COL

The Philippines’s economic slowdown mainly due to higher consumer prices could hurt corporate profits in the remaining months of the second half, according to broker COL Financial Group Inc.

However, the worst might soon be over as commodity prices are already falling and the recession in the United States will push the US Federal Reserve to stop hiking interest rates soon, said April Lynn L. Tan, the company’s first vice president and chief equity strategist.

The Bangko Sentral ng Pilipinas has already raised its rates to keep up with the US Fed, which could mean that the peso would stop depreciating against the dollar.

“An economic slowdown is still not good, no matter how you look at it. This will hurt corporate earnings growth, and could be the reason why the market could stay depressed in the next six months,” Tan said during the company’s recent economic briefing.

She said many investors are staying on the sidelines due to a lot of uncertainties in the market. For instance, the forecast earnings per share growth of the benchmark Philippine Stock Exchange index (PSEi) is still at 11 percent.

That growth projection, she said, might not be achieved at all due to the slowdown of the Philippine economy.

“As far as the new government is concerned, although you do have highly qualified economic managers, the fiscal space is very limited (due to the high debt-to-GDP ratio at 60 percent). The government has less room to pump prime the economy and it would be vulnerable to a potential ratings downgrade and higher funding costs for everyone in the country,” she said.

Tan, however, said she is still optimistic about the country’s long-term prospects as the market has already priced in the potential earnings downgrades of the corporates that may continue through next year.

The underlying stocks, meanwhile, are at very cheap levels that companies themselves have launched their own buy-back program, which show confidence in their long-term outlook.

“Among different asset classes, we think bonds and REITs [real estate investment trusts] will perform best in the short term because of their steady interest income/dividends, which are more valuable in a falling interest rate environment,” she said.

Juanis G. Barredo, the broker’s chief technical analyst, said the current rally in the market may be temporary and could be just an offshoot of a bear market, as their technical readings still show a downtrend. A bear market occurs when a particular index falls 20 percent since the start of the year.

“One thing that is still very clear to me is that the downtrend of the market is still very much in place,” he said.

The main index is seen to move between 6,150 points to 6,450 points in the coming weeks, after which it can go as high as 6,800 for the year. Support price for the main index is at 6,130 to 6,050 through 5,800.

The PSEi gained 50.27 points on Tuesday to close at 6,362.30 points.