PHILIPPINE stocks are expected to withstand a possible US Federal Reserve rate hike later this year thanks to the country’s positive economic outlook.
Some analysts polled by The Manila Times agreed that a Fed rate hike is likely either in September or December, after US Fed Chair Janet Yellen announced that the case for increasing interest rates has strengthened in recent months on the back of improvements in the labor market and the likelihood of the US economy continuing its moderate growth.
Eduardo Francisco, president of BDO Capital & Investment Corp., is betting on a rate hike by the end of the year, but sees minimal effect on the local market because of businesses are bullish on the market and the economy under the Duterte administration.
“Yes, a rate hike end of the year is still expected but probably just 25 to 50 basis points only, so we can get it out of the way,” Francisco said.
“Overall outlook for equities is bright. Now that the ghost month has ended, I expect to see a resurgence in the market. [This is because] business is positive under Duterte, so we remain bullish,” he added, noting that attractive sectors to invest in are the housing, consumer products and infrastructure sectors.
His view was echoed by Miguel Agarao, investment analyst at Wealth Securities Inc., who said, “Though we are neutral in the short term, we are bullish on the long term prospects of Philippine stocks.”
Harry Liu, president of Summit Securities Inc., said that a slight increase in US interest rates in 2016 would depend on whether the US economy performs well, which would also be positive for the Philippine economy in terms of trade and investments.
“There might be an increase, but not a huge increase. The Fed will make sure that the US economy will improve before it conducts a rate hike. It depends on the economic situation at that time but with the election, I think the raise will be controlled,” Liu said.
US Fed policy meetings for the rest of the year are scheduled in September, November and December.
The consensus forecast for a Fed rate hike is in September or in December, depending on how good the turnout of labor markets data by September will be, according to BDO chief market strategist Jonathan Ravelas.
“The PSEi [Philippine Stock Exchange index] at 7,845.49 now suggests the market to range within the 7,800-7,950 levels; near term bias is for further correction towards 7,500 levels. However, I am keeping my yearend target of 8,000 levels,” Ravelas said.
For her part, IB Gimenez Securities Inc. equity analyst Joylin Telagen said the local stock barometer is seen to reach “8,000 to 8,200 by yearend,” driven by optimism on US elections in November and how President Rodrigo Duterte carries out his 10-point agenda mainly on boosting infrastructure spending.
However, she remains cautious on the turnout of the UK Parliament vote on Britain’s exit from the European Union.
Telagen said a Fed rate hike would be good for the global economy, but it will lead to fund managers turning to faster developed countries like the US rather than emerging markets like the Philippines.
“Should there be no interest rate hike, it’s also good since if interest rate is low, the fund managers will look for higher returns, which is in equities. This and the Brexit uncertainties will determine the [direction of the]equities market for emerging markets like the Philippines,” Telagen said.
“Anything higher than 8,200 [points]by the end of the year should be supported by strong earnings,” she added.
Summit Securities’ Liu said he remains positive for the local stock market towards the end of the year, nothing that the country’s economic momentum will continue to build up local stimulus that can keep Philippine equities attractive to both domestic and foreign investors.
Aside from his war on drugs and his promise to bring peace and order in the country, President Rodrigo Duterte’s 10-point economic agenda has also lifted the sentiment of the business community.
The agenda focuses on improving infrastructure spending, and improving ease of doing business as well as the internet and telecoms services, repairing traffic roadblocks, and providing support for farmers and agri-business firms, among others.
On Friday, the bellwether PSEi ended flat, slipping 0.12 percent or 9.05 points to 7,845.49, while the wider All Shares index dipped by 0.05 percent or 2.18 points to 4,661.61. Trading was suspended on Monday, August 29, in observance of National Heroes Day.