Dearth of good news to keep PSEi within 6,000 level in Q2

MANILA, Philippines — Bleak economic outlook at home is feeding into the local bourse, which is bound to get stuck around mid-6,000 level next quarter as investors lacked leads to take more risk.

“The scarcity of positive economic news and unexciting earnings contribute to its weakness,” analysts at First Metro Investments Corp. (FMIC), an investment firm, and University of Asia and the Pacific (UA&P) said in a report on Wednesday.

There can be some “buying opportunities” in some oversold sectors, they said, but ultimately, investors would be looking for signs of clear vaccine rollout and economic recovery to gain confidence and bet on stocks again. The forecast means PSEi would hardly move from its 6,443.09 closing for the first quarter on Wednesday.

As it is, PSEi’s first-quarter closing was down 9.8% from its 2020 closing.

Unfortunately for the bourse, there are not much reasons to go on buying from there. While FMIC and UA&P said there were some “green shoots” that an economic rebound is already forthcoming, these gains in manufacturing and revenue collections would struggle to survive the latest government decision to tighten restrictions in Metro Manila and four nearby provinces.

The National Capital Region alone accounts for 32% of gross domestic product, and so when restrained output from Rizal, Laguna, Bulacan and Cavite are added, the analysts said the enhanced community quarantine will “make consumers more wary about spending” in the consumption-reliant economy.

Add to that worries about inflation that FMIC and UA&P only expects to peak to 4.9% in the first half, and essentially, equity investors would most likely be on the sidelines next quarter, also with no signs sluggish inoculations would accelerate by that time.

“Inflation should clearly slow down by Q3 (third quarter) when food production would have normalized more and crude oil process expected to fall starting May as the US Energy Information Administration projects,” they assessed. 

Yet even before prices can taper off, and because of the ECQ, the Bangko Sentral ng Pilipinas (BSP) could again act to salvage the failing economy through another rate cut, analysts said. So far, BSP had resisted to, but had also kept steady a record-low policy rate of 2% to keep credit cheap and flowing to those who need it. 

In the short term however, a mix of fast inflation and tepid economic output would keep investors piling up on the less risky fixed income market. Short-term bonds, which will allow them to adjust easily to changes, are particularly attractive. For companies that raised cash to remain liquid last year, that means they will not be quick to do so this year, at the risk of paying up more. 

“Only a change of heart in the market that inflation will go and stay below 4.0% can we see more appetite for the longer tenors,” the report said.