PSEi is expected to return to 8200 next year

Faster inflation in July prompted Maybank Securities Inc. to delay by “several months” its 12-month forecast of 8,200 points for the Philippine Stock Exchange Index (PSEi), while investors turned their attention to the policy stance of the Bangko Sentral ng Pilipinas.

Maybank’s forecast is 23.35 percent higher than the stock index’s closing level of 6,647.80 points on Friday.

In its latest market report, Maybank said valuations are currently attractive at just 11 times potential earnings, meaning Philippine stocks are trading at a low price compared to the money they can make for investors. This is usually attractive to investors because they can buy cheap stocks and later pocket the profits when the price rises.

The brokerage house also predicts that corporate profits will grow by 9 percent annually over the next two years, indicating improved profitability.

While this outlook “still holds,” Maybank research chief Kervin Sisayan explained that a faster-than-expected inflation reading in July could lower their PSEi target.

“It is more about delaying the achievement of the target because lower inflation may be delayed for another few months,” Sisayan told the Inquirer last week.

The Philippine Statistics Authority said inflation rose to 4.4 percent in July, exceeding the government’s target of 2 percent to 4 percent, due to increases in housing, utilities, transportation and food prices.

Maybank is betting on a tariff cut on rice imports, which will help lift the stock market index to 8,200 points, as such a policy will lead to lower prices and inflation.

The price of rice contributed 1.9 percentage points to overall inflation last month. That’s 37.2 percent of the reading.

All eyes on Bangko Sentral

Maybank indicated that in addition to improving inflation, interest rate cuts would also help spur market optimism.

However, Central Bank Governor Eli Remolona Jr. said the Monetary Policy Committee was “slightly less likely” to cut interest rates on Aug. 15, although he did not rule out the possibility of off-cycle easing.

Maybank is confident the local central bank will keep its word and cut interest rates by 50 basis points this year.

Fears of a U.S. recession rocked Asian markets last week, with the PSEi index recording its second-biggest sell-off this year and falling below 6,500.

However, by Friday, the index was able to regain its footing and break through the 6,600 mark as the Philippine economy improved. The PSEi gained 0.64 percent from the previous week.

According to Japhet Tantiangco, research manager at Philstocks Financial Inc., all attention this week will be on the interest rates set by the local central bank.

“The interest rate cut is expected to maintain the upward momentum of the local market, while an unchanged interest rate could lead to a decline in the market,” Tantiangco said.

Easing concerns about a possible recession could also improve market sentiment, he added. INQ