Analysts: Confidence in stock market may return once inflation eases for another month
MANILA, Philippines — It may take another month of inflation slowdown into November before investors can confidently return to the Philippine stock market, economists at First Metro Investment Corp. and University of Asia and the Pacific said Tuesday.
Inflation jumped to a nine-year high of 6.7 percent in September, keeping the pressure on the Bangko Sentral ng Pilipinas to jack up policy rates further.
In its latest monthly report, FMIC and UA&P analysts said soaring prices, rising interest rates and a depreciating currency continued to fray investors’ nerves in October, dragging down local stocks into the bear territory in three out of the first five trading days this month.
In September, the bellwether Philippine Stock Exchange index plunged 7.4 percent to end the month at 7,276.82, the worst performance in Southeast Asia. The slump spilled into early October due to strong US employment data.
“The financial markets remained nervous though about whether inflation has peaked or not,” FMIC and UA&P economists said, adding that inflation has likely peaked in September.
“This is because their investible funds may have reached their limits given the tighter liquidity in the market. Unusually strong Q3 earnings could provide the impetus, although that remains a question mark, amidst the backdrop of inflation peaking in Q3 and rising interest rates,” they also said.
“Since volume had been way below average in the first week of October, we cannot say that the PSEi has entered unequivocally the bear market.”
Prices began soaring at the start of the year after the government slapped higher excise taxes on fuel and other commodities. The price hikes quickly spread to cover more goods amid food supply bottlenecks and a weakening peso.
Stubbornly high global oil prices have also motored this year, pushing up local pump prices.
In a bid to cool down red-hot inflation, the BSP has lifted its policy rate by a cumulative 150 basis points since May. High interest rates tend to encourage investors to pull out their funds from the stock market and invest them instead in fixed-income securities like bonds.
But analysts at FMIC and UA&P — who expect another 25 bps hike from the central bank before the end of 2018 — said wariness focused on rising domestic inflation will likely keep away investors from the local currency bond markets.
“Local bond investors have largely priced-in future rate hikes, and so the key factors on future bond yields would be inflation and market liquidity,” they said.
“With rice prices actually falling by early October and crude oil prices receding from last month’s peak, we think inflation would have peaked in September. However, entry into the market should be disciplined and only when elevated real yields exceed historical averages,” they added. — Ian Nicolas Cigaral
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