Philippine stocks seen getting a lift if trade war worsens
MANILA, Philippines — The Philippine equity market could be a bright spot for investors should trade friction between the US and China further escalate, according to a global bank, which nevertheless remained “neutral” on the nation’s stocks on expectations margins would stay “under pressure.”
“US-China trade tensions are currently one of the bigger risks to global growth. We believe ASEAN equities should be relatively insulated from this because most of the revenues for listed companies are generated domestically,” HSBC Global Research said in its “ASEAN Equities Outlook” report.
“In the event of a further escalation in risks associated with trade, investors could rotate into the more domestic markets... In ASEAN, these are Indonesia and the Philippines,” it added.
The benchmark Philippine Stock Exchange index, among Asia’s worst last year, has rallied by 7.25 percent so far in 2019 since it ended a turbulent 2018, which saw foreign fund withdrawals as investors wrestled with worries about red-hot inflation at home and escalating trade war between the US and China.
On Monday, the local bourse managed to pare losses by closing bell, ending the trading session down 39.66 points, or 0.49 percent, to 8,007.46.
Within Southeast Asia, HSBC said it stayed “neutral” on Philippine stocks, citing declining margins and return on equity as well as “sticky” inflation and high interest rates.
But the global bank said any sign of inflation abating could act as “a positive catalyst,” adding that it forecasts consumer-price growth to average 3.8 percent in 2019 from 5.2 percent in 2018.
It also expects the Philippine economy to “lose a little steam” due to “bubbly price pressures,” although state spending on infrastructure could still fuel growth to 6 percent this year.
“Margins are likely to remain under pressure as infrastructure improves and market access becomes easier, leading to more competition,” the global bank said.
“We believe that the consensus earnings outlook for 2019 is too optimistic at 12.4 percent, given the downside risks to the economy from tighter domestic liquidity and higher interest rates, with government infrastructure demanding more liquidity from the system,” it added.
“These factors could risk crowding out private investment.”
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