Local investors to temper PSEi slump as foreigners turn cautious

MANILA, Philippines — Local investors at the Philippine Stock Exchange are expected to do the heavy lifting as foreign investors flee amid Russia's continued invasion of Ukraine, but cautious optimism remains on the local front.

The local bourse's performance improved on Wednesday, inching up 0.29% to finish at 7,167.02. Analysts at First Metro Investment Corp. (FMIC) and the University of Asia & the Pacific (UA&P), made the case for local investors to take the lead.

"Even if foreign investors would stay in the sidelines during that period, local investors appear ready to take up any slack as may be seen in the past months bolstered by strong earnings growth in Q1. Thus, we remain cautiously optimistic and keep on the lookout for undervalued stocks," FMIC and UA&P said in their monthly “The Market Call” report on Wednesday.

"With higher inflation expected due to the Russian invasion of Ukraine, uncertainty and thus volatility should characterize the local bourse probably into Q2. The momentary drop of PSEi to below 7,000 in early March attests to this," they added. "However, election spending should provide the partially offsetting factor for the economy and PSEi."

Global equity markets continued to suffer as commodity prices, such as fuel, are on the rise as Russia has not let up in its invasion. Unlike equity markets in Europe and the United States which depend heavily on Russian oil, Asian markets were relatively unscathed since February owing to their limited trade and economic activity with Moscow.

In their report, FMIC and UA&P said election spending and recovery momentum in the first half of 2022 will likely offset any impact of geopolitical hostilities. Inflation is expected to pick up by 4% in March, analysts said.

Likewise, FMIC and UA&P project the Bangko Sentral ng Pilipinas will leave interest rates unchanged until the final quarter of the year to make room for economic growth.

At the fixed-income bourse, FMIC and UA&P analysts expect ordinary investors to shy away from longer tenor bonds in the second quarter, partly due to higher inflation by May and the US Federal Reserve's next round of hikes. Considering the circumstances, the investors' mood is justified, especially since peso bonds are "increasingly unattractive" for the first half of 2022, FMIC and UA&P said.

Sentiment will only improve if Russia ends its invasion of Ukraine, they added.