PSEi seen capping 2021 above 7,000-level despite Delta threat

MANILA, Philippines — The local bourse is still forecast to cap the year above the 7,000-level despite market volatility brought by the Delta variant, as improving business outlook due to a pick-up in vaccinations is seen trumping pandemic uncertainties.

In a report released Monday, analysts at First Metro Investment Corp. (FMIC) and University of Asia & the Pacific (UA&P) said they still expect the Philippine Stock Exchange index (PSEi) to finish at 7,400-7,800 this year on expectations that corporate earnings will continue showing signs of recovery from a pandemic-led slump last year.

The report showed that second quarter earnings of blue chip companies — excluding five names which are yet to report their latest financial results — soared 252% on-year, with so-called base effects providing a boost. FMIC and UA&P analysts said the recovery can be sustained if the country continues to make headway in vaccinations, which is key to more easing of lockdowns.

“With reported earnings for PSEi constituent stocks… and positive prints for Q2 (gross domestic product), employment, manufacturing, capital goods imports and exports, we still think that the index will hit 7,400-7,800 this year,” they said.

Data showed PSEi shed 9.2% month-on-month in July, which UA&P and FMIC attributed to detection of highly contagious Delta variant in the country that later triggered tighter restrictions in the capital and nearby areas. Adding to the selling pressure during the month was Fitch Ratings’ “negative” outlook on the Philippines that put the nation’s investment grade at risk.

But despite stricter curbs in August — also known as a “ghost month” wherein investors avoid big market moves because it is believed to be a period of bad luck — PSEi has so far eked out 8.2% gains month-on-month. There is still one more trading day left in August.

For FMIC and UA&P analysts, the July slump was “a needed base-building for a strong rebound” after the ghost month. “Despite the renewed lockdowns, business firms appear more confident in boosting their production as vaccination rollouts have started gaining traction,” they said.

GDP grew 11.8% year-on-year in the second quarter, with base effects from last year’s pandemic-led collapse magnifying a shallow recovery. Government data showed GDP contracted 1.3% quarter-on-quarter in April-June period, no thanks to retightening of curbs early this year to arrest elevated virus caseloads.

But the Philippines went full circle after Metro Manila and some provinces outside the capital briefly returned to ECQ in August, this time to curb a flare-up of cases believed to be fueled by the highly-contagious Delta variant. In its report, FMIC and UA&P said the Bangko Sentral ng Pilipinas may need to “ease slightly” — either through rate cuts or reduction in banks’ reserve requirement — to “continue fueling the recovery”.

Despite the BSP’s ultra-loose monetary policy, FMIC and UA&P said local bond yields showed “an upward bias” starting in mid-August, as the US Federal Reserve begins communicating its pandemic exit strategy. At its auction last August 24, the Bureau of the Treasury rejected all bids for 11-year T-bonds after rates went “unreasonably” high.

Still, FMIC and UA&P believe the ascent in local yields “may not last long” especially if the Fed begins to reduce its bond purchases “only late Q4 or January 2022”.