Market on short-lived high, but investors optimistic for 2020

MANILA, Philippines — Stock market investors had high hopes last year. They expected the Philippine stock market to finally perk up, coming from 2018’s volatility caused by the high-inflation environment.

The optimism was felt early on, at the start of the year as market investors were eager to go back to the market after a lackluster 2018.

A clear indication of this was the return of companies which previously deferred their plans to debut in the Philippine stock market.

Among these companies are Kepwealth, Villar-owned AllHome, coconut producer Axelum Resources, Fruitas, Cal-Comp, AudioWav and even AirAsia.

With these big companies indicating in the early part of 2019 that they would embark on their respective initial public offerings (IPOs), many market observers thought the heyday of the stock market was back.

To those who don’t remember that time, it was around the 1990s.

In 1993 for instance, the market saw the historic stock market debut of Lopez-owned Benpres Holdings.

The holding company of the Lopez family listed in the market, opening at P12 per share or way above the P3.50 offer price.

In 1994, the following year, 21 companies listed on the stock exchange, raising P37 billion. They include some of the biggest names in the market now – SM Prime, Universal Robina and Aboitiz.

After all the excitement, however, the market seems to have gone back to its usual lackluster mood.

The IPOs last year didn’t really sizzle except for Kepwealth and Fruitas, although a short-lived one.

On the last trading day of the year, the benchmark Philippine Stock Exchange index (PSEi) closed at 7,815.26 points. Year to date, the main index gained 4.7 percent.

The All Shares index was also higher year to date as it ended at 4,649.67 points, up by 2.9 percent. Four sector indices finished in positive territory.  The Property index was up the most with a gain of 14.5 percent. The Services index ended higher by 6.1 percent while the financials and holding firms indices rose 4.7 percent and 3.4 percent, respectively. The industrial and mining and oil indices saw losses this year and were down by 12.0 percent and 1.3 percent, respectively.

“The PSEi still had a decent finish despite the hefty decline in the share price of index stocks in the water distribution business. We hope that the issues concerning their sector will soon be resolved to lessen market jitters,” PSE president and CEO Ramon Monzon said.

 The local bourse’s market capitalization registered a three percent increase to P13.95 trillion.

 Daily average value turnover for the year came in at P7.29 billion, up from the P7.15 billion average in 2018. The market registered P14.50 billion worth of net foreign selling versus the P61.01 billion net foreign selling in 2018.

For the year, total capital raised amounted to P95.22 billion, around half of the P187.84 billion raised in 2018.

 “The capital raising number last year was affected by issuers’ opting to tap the bond market or postponing their fund raising plans. Also, two banks accounted for 60 percent of the capital raised in 2018 and we did not have similar big deals last year. We hope this year’s capital raising pipeline will be more robust,” Monzon explained.

 For 2020, the PSE hopes to receive regulatory approval to launch short selling and Real Estate Investment Trust as well as introduce the new sector classification.

Michael Ricafort, chief economist at Yuchengco-owned Rizal Commercial Banking Corp. said the market still made significant improvements the past year.

“Since the start of 2019, the PSEi has already gained by a total of 5.5 percent -- an improvement after a decline of 12.8 percent in 2018 due to the sharp increase in inflation and interest rates as well as the escalation and lingering of US-China trade war back then,” he said.

The sharp decline in both interest rates and inflation so far in 2019 have also reduced the borrowing and financing costs of the businesses and listed companies, thereby leading to lower interest rate costs, higher net incomes, and higher valuations,” he said.

Ricafort said local monetary policy easing measures have supported the gains in the local economy and financial markets, in terms of lower borrowing costs and financing costs and increased peso liquidity in the financial system, creating an environment that is more conducive to increased economic activities and faster economic growth as well as gains in the local financial markets.

The Bangko Sentral ng Pilipinas (BSP) has already cut local policy rates by a total 75 basis points since the start of 2019 to four percent (after a total increase of 175 bps in 2018).

In all, total bank reserve requirement ratio (RRR) cuts already totaled 400 bps and already infused a total of more than P450 billion in additional liquidity into the financial system.

“Lower interest rates, mostly among two-year lows recently, as fundamentally supported by inflation rate among 3.5-year lows have sharply reduced borrowing and financing costs for consumers, businesses, government, and other institutions, thereby effectively increasing disposable incomes and spending power,” Ricafort said.

As a result, local interest rates, especially long-term tenors, have already declined by a total of 200-250 bps since the start of 2019 and also declined by a total of 350-380 bps from the decade-highs posted in October 2018.

Market investors welcomed the low interest and inflation environment as it improved the business climate.

“Lower interest rates and easing inflation have helped sustained the resilience and robust growth in consumer spending, which accounts for about 70 percent of the local economy, thereby fundamentally supporting faster net income growth for the country’s biggest companies/businesses as well as leading to faster economic growth,” Ricafort also said.

Commenting on external factors, he said, “any further positive global financial market reaction to the phase one US-China trade deal, as manifested by new record highs in the key gauges of US and global stock markets could continue to prompt positive reaction and gains as well in the Philippine financial markets in the coming weeks and months.”

He sees immediate major support level at the 7,500 to 7,700 levels, which have been consistently the lower part of the trading range in recent weeks while immediate resistance levels are seen at the 8,000 to 8,200 levels, which have been the upper part of the trading range in recent weeks.

Moving forward, he said the improvement in the global market sentiment and risk appetite with the phase one US-China trade deal signaling a step in the right direction in scaling down the lingering US-China trade war per se would lead to some improvement in global economic outlook, thereby supporting further gains in the local economy and financial markets as well.

For 2020, BPI Securities sees the benchmark index hitting 9,000.

BPI president Haj Narvaez expects 2020 earnings growth for the PSEi to match this year’s figure of 12 percent. “next year’s growth in earnings is likely to be fuelled by the banks, property and the resurgent consumer sector.