Stock index seen to recover to 7,500 by end of 2018

MANILA, Philippines — The benchmark Philippine Stock Exchange index (PSEi) is expected to recover to 7,500 level by the end of the year on expectations of the continued recovery of the peso and government efforts to tame inflation, an official of BPI Asset Management and Trust Corp. said.

“With the recent strength of the peso, the index can end the year somewhere between 7,500 and higher,” said Carlos Jalandoni, vice president and head of research of BPI Asset Management and Trust corp during a roundtable with reporters.

“If inflation drops, that’s going to be even better because that’s going to strengthen the peso. If the Monetary Board makes another 25 basis points hike, that will also strengthen the peso and that will also be favorable to the stock market,” he added, noting inflation growth may have already peaked.

The bellwether index for the local bourse has been trading at around the 6,900 level due to economic headwinds overseas that have forced investors to flee from emerging markets.

Jalandoni said falling crude oil prices would also remove some of the pressure on the peso — as current account deficit would not be as wide — boosting investor sentiment.

He expects the peso to settle at 53 to a dollar by the end of the year as oil prices fall and the seasonal strength of OFW remittances during the holiday season.

Jalandoni expressed confidence that inflationary pressures would be alleviated by the middle of next year as government interventions to curb the growth in consumer prices take effect.

These include the suspension of the next increase of fuel excise tax and the movement of the rice tariffication bill in Congress.

“I have no doubt the government is doing everything it can to manage inflation. The issue is how quickly it will materialize. Because what they are trying to do is not easy,” he said.

He noted, however, that from the banking sector’s end, loan growth is already slowing, indicating slower consumption.

“Banks are now slowing loans growth. Money supply is not growing as fast so the chances of inflation falling is high,” he said. “We think inflation will really start to slow down by the second half of next year.”

Continued progress on the management of inflation and the holding of a peaceful mid-term election next year may boost investor sentiment, driving the stock market to rally to the 9,000 level.

“It’s foreseeable, but a lot of things have to happen to see that. We need our inflation rate to be resolved, we need to have peaceful elections among others,” he said.