HSBC recasts PSEi forecast to lower 8,600 by end-2019

MANILA, Philippines — British banking giant Hongkong and Shanghai Banking Corp. (HSBC) expects a lower Philippine Stock Exchange index (PSEi) of 8,600 instead of 8,720 in end-2019 due to tight liquidity in the financial system.

In a report, HSBC said it remains overweight in the country after the MSCI (Morgan Stanley Capital International) Philippines had a difficult year and corrected by 17.4 percent in 2018.

Year-to-date, HSBC said MSCI Philippines has outperformed the regional benchmark by three percentage points.

“We believe this will continue on the back of monetary easing, a positive macro environment, strong earnings growth and multiples re-rating. Investor positioning also suggests that the market is under-owned,” HSBC said.

It said consensus now expects strong 2019 earnings growth of 13.2 percent as downside risk seems limited as the growth is diversified across many stocks.

Meanwhile, valuations in the Philippines remain attractive as the MSCI Philippines trades at a 12-month forward price to earnings (PE) ratio of 16.2 times, a discount of nine percent as compared with the five-year average.

“Investor positioning points to the market being under-owned.  Another factor that should give comfort to investors is its largely domestic nature, which has helped it weather periods of rising US dollar strength and corrections in emerging market equities in the past,” it said.

HSBC said downside risks would be limited if trade tensions between the US and China continue to remain elevated.

HSBC said the market has been affected by the tight domestic liquidity after the Bangko Sentral ng Pilipinas (BSP) lifted interest rates by 175 basis points in five straight rate setting meetings between May and November last year in a bid to tame inflation.

With inflation risks abating, HSBC said the BSP is turning its focus back to growth and recently cut its benchmark rate by 25 basis points and the reserve requirement ratio by 100 basis points.

HSBC said it expects the BSP to cut rates by another 25 basis points and further reduce the level of deposits banks are required to keep with the central bank by another 100 basis points by the end of 2019.

“These measures should help boost liquidity in the banking system, reduce interest rates and help banks increase lending,” it said.