2023: A year of crossroads and resilience in stock market

MANILA, Philippines — Stock market investors kept their fingers crossed for most of 2023, hoping for a year better than the debilitating COVID-19 pandemic.

Data as of Dec.15 showed the Philippine stock market had faced significant challenges, evident in its decline from its January 2023 peak to its October low.

Adding to this is investors’ low confidence in entering the market amid uncertainties, as shown by the anemic value turnover for the year, according to Japhet Tantiangco, senior research analyst at Philstocks Financial.

This was despite the market rallies experienced at the start of 2023.

The market started the year on a positive note, rising by 8.7 percent from end-2022 to its peak for the year at 7,137.62 on Jan. 24, according to data from the Philippine Stock Exchange (PSE).

This positive trend can be attributed to the easing of US inflation, which declined to 6.5 percent in December 2022 from 7.1 percent in November 2022. At that time, this raised hopes the US Federal Reserve would pause its monetary tightening.

Unfortunately, the market was unable to sustain this positive momentum. It reached its lowest close for the year at 5,961.99 on Oct. 27.

Fortunately for investors, the market rebounded toward the end of 2023.

“This was driven by the decline of inflation in the Philippines in October and November, the satisfactory third quarter gross domestic product growth, the decline in US Treasury yields, and the Federal Reserve’s hints of three 25 basis-point cuts in their policy rates by 2024,” Tantiangco said.

Several factors weighed down the market for the most part of the year,” he added.

Topping the list is the slowdown in economic growth to 5.6 percent in the first nine months of 2023 compared to 7.8 percent in the same period last year.

This includes a 4.3 percent growth in the second quarter, the lowest since the 3.8 percent contraction in the first quarter of 2021 – the height of the pandemic.

In addition, Tantiangco said skyrocketing inflation, which accelerated to 6.2 percent in the first 11 months from 5.6 percent in the same period last year, went above the government’s two to four percent target.

To counter inflation, the Bangko Sentral ng Pilipinas raised its policy rate to a record 6.5 percent from 5.5 percent at the end of 2022.

Aside from local headwinds, there were also challenges from abroad.

These include the further tightening and hawkish messages from the US Fed; banking sector worries triggered by the collapse of Silicon Valley Bank in March 2023; the budget impasse in the US Congress; the weakening of China’s economy; and the Israel-Hamas conflict, said Philstocks Financial.

Bargain levels

“At its closing last Dec. 15, the local market stands at a price-to-earnings ratio of 13.27x, below its 2018 - 2022 average of 19.08x. With this, from a historical standpoint, it can be said that the market is at bargain levels,” Philstocks said.

Despite the challenging year for the stock market, the December issue of The Market Call said the market may not end with a whimper after all despite the lack of new and fresh leads.

“Equity investors headed back to the bourses around the world amid the fall in inflation and the plunge in crude oil prices. Majority of our tracked (12) global equities markets landed in the green, while only two performed negatively in November,” said the Market Call, a joint publication of UA&P and First Metro Investments Corp.

Joining the parade, the PSEi posted a 4.2 percent month-on-month gain, ending November at 6,223.73.

During that month alone, the PSE’s property sector claimed the top spot, with Ayala Land Inc. posting the largest gain of 12 percent month-on-month among PSEi-constituent stocks.

For the year, Market Call said a last-minute rush to the local equities market comes with a higher risk appetite, considering that the VIX Volatility Index—typically used as an indicator of financial market risk—has remained in a ‘calm’ period below 15 points for a month now, despite the ongoing wars in Ukraine and the Middle East.

In response, the PSE expressed its commitment to reviving investor interest in the local bourse despite the challenging market conditions.

During a recent economic forum organized by BusinessWorld, PSE president and CEO Ramon Monzon said that the PSE is collaborating with lawmakers to advocate for initiatives aimed at reducing friction costs in the market.

‘What hurts the Philippine market? Friction costs. If you’re a foreign trader seeking three percent to four percent growth in a day and fees are already costing you over one percent, then that is already a significant factor,’ Monzon said.

He assured investors that the PSE continues to work on products and services to enhance the investing experience at the PSE.

“We are also hoping that the bill seeking to reduce the stock transaction tax will soon be passed into law to help attract more investors,” Monzon said.

Overall, Monzon said the PSE is likely to miss its target to raise P140 billion to P160 billion this year as some companies have postponed their plans to tap the capital market.

The local bourse expects to end the year with P105 billion to P110 billion worth of capital raised from the market. At this level, the PSE would reach the same capital raised as last year, which was P110 billion.

Among the companies that have already listed this year are Alternergy Holdings Corp., which made its P1.61-billion market debut in March, and Upson International Corp., a retailer of personal computers and other tech gadgets, which went public on April 3, raising P1.65 billion.

The PSE faced challenges in 2023, but investors are entering 2024 with hope.

“Given the slowdown in the US inflation rate, we expect to see the Federal Reserve carrying out the rate cuts it hinted at. This, in turn, would be positive for the global economy,” Philstocks said.