PSEi seen to perform better in 2024

Investors in the local stock market have reason to be guardedly optimistic about 2024 following a lackluster trading in 2023.

“The expected improvement in macroeconomic indicators are poised to drive market conditions in 2024,” said Philippine Stock Exchange (PSE) President and CEO Ramon S. Monzon.

He noted that, “the Philippines is projected to lead the ASEAN region with the highest GDP (gross domestic product) growth in 2024 at 6.2 percent (Vietnam 6 percent, Indonesia 5 percent, Malaysia 4.6 percent, Thailand 3.3 percent, Singapore 2.5 percent) based on the Asian Development Bank’s Asian Development Outlook.”

“The Philippines’ inflation rate is projected to decrease close to 4.0 percent from an average of 6.9 percent year-to-date as of end-November 2023. The US Fed and BSP (Bangko Sentral ng Pilipinas) are expected to cut rates in 2024,” added Monzon.

He also said that “the expected rate cuts by the US Fed and BSP, as well as Philippine government’s aggressive spending on infrastructure projects, and continued increase in foreign investment pledges are expected to stimulate consumption, generate job opportunities, and encourage additional investment.”

“There are reasons to be optimistic about the equity market next year, and I see a reasonable chance that the index will reach the 7,000 level,” according to China Bank Capital Corporation Managing Director Juan Paolo Colet.

He explained that, “there are potentially three major drivers of better market performance: first, a dovish shift in monetary policy that creates a more favorable interest rate environment; second, higher economic growth on the back of improved domestic and external demand; and, third, implementation of capital markets reforms, such as the proposed reduction of the stock transaction tax to 0.10 percent.”

He also cited significant progress in steps to liberalize the economic provisions of the Constitution.

Colet said the Maharlika Investment Fund, Government Service Insurance System, and Social Security System can also play a role in stimulating demand for local equities if they make strategic investments in listed companies or anchor potential initial public offerings (IPOs).

“Given this backdrop, we can expect IPOs and equity deals next year, especially as interest rates start to move down. Delistings are not out of the picture, but hopefully we see more listings,” he noted.

Bargains and risks 

For his part, Philstocks Financial Research Manager Japhet Tantiangco said stock prices remain at bargain levels despite the recent rally but the market needs to show more conviction as trading volume has remained this throughout the year.

“Many of our index members are trading below their historical (price-to-earnings per share) PE averages with the five ones farthest from their PE average being (ACEN, CNVRG, GTCAP, AGI, and ICT. This implies that many of our index members are at bargain levels marketability-wise,” he noted.

However, Tantiangco said that, “as we’ve seen in 2023, being at attractive levels doesn’t necessarily lead to a rally for the bourse. Compelling catalysts are also needed to push the market higher.”

Among the catalysts that are expected to push the market higher is if the inflation settles within the government’s two percent to four percent target and if the BSP starts its monetary policy easing.

Also seen to boost the stock market is if the local economic growth re-accelerates while the Federal Reserve acts on the rate cuts it hinted on at its Federal Open Market Committee meeting last December 2023.

Philstocks Financial Assistant Research Manager Claire Alviar said, “the local bourse has showed upward momentum… The market’s support is seen at the 6,400 level while a strong resistance is seen at the 6,700 line.”

“The market has already formed a higher high. To confirm a trend reversal, we need to see the establishment of a higher low,” she added.

However, PSE’s Monzon also noted that “risks to the positive outlook (this) year remain such as the potential impact of higher transport charges, electricity rates, and international oil prices.”

Colet also cautioned that, “as always, there are risks. Among those we should watch out for are a hawkish monetary policy overshoot that stuns economic growth; a failure by China to shore up the world’s second largest economy; and geopolitical flareups or natural calamities that severely destabilize supply chains and financial markets.”

“Downside risks that may, at the very least, keep the market at suppressed levels, and at most, pull the market lower” include inflation rising again mainly due to supply shocks primarily due to El Nino, said Tantiangco.

He added that, “other risks include the BSP keeping its tight policy stance for a while, or worse, tightening further to curb inflation and inflation expectations; the local economic growth further slowing down; and the Federal Reserve not acting on the rate cuts it hinted at.”

For 2024, Monzon said analysts project the PSEi at a range of 6,800 to 8,300 points while Colet said “our estimate is for the index to regain the 7,000 level with an initial target of 7,100. If the stars align, then the index could go much higher, perhaps around 7,500.” — James A. Loyola