PHL stock market seen to get much-needed lift from BSP easing cycle

Further rate cuts by the Bangko Sentral ng Pilipinas (BSP) are expected to give the Philippine stock market a much-needed boost, analysts said.

The Philippine Stock Exchange index (PSEi) has been flirting with the 7,000 level since the BSP began its easing cycle with a 25-basis-point (bp) rate cut on Aug. 15.

“The dovish shift in monetary policy should bode well for the stock market. Lower interest rates mean lower borrowing costs and improved equity valuations,” China Bank Capital Corp. Managing Director Juan Paolo E. Colet told BusinessWorld in a Viber message.

“Better market performance, a stable exchange rate, and sustained economic growth due to well-calibrated rate cuts would also help attract foreign fund flows that can significantly lift trading volumes,” he added.

First Metro Investment Corp. Head of Research Cristina S. Ulang said the PSEi is “already within striking distance” of the 7,000 level following the BSP rate cut.

The PSEi on Tuesday closed higher for a third day in a row, ending the day up by 0.79% or 54.89 points to 6,944.76. It reached as high as 7,005.27 during the session.

The Monetary Board last Thursday delivered a 25-bp rate cut, bringing the benchmark rate to 6.25% from the over 17-year high of 6.5%. This was the first time the BSP reduced rates since November 2020.

BSP Governor Eli M. Remolona, Jr. has said there is room for another rate cut, possibly by 25 bps, in the fourth quarter.

Globalinks Securities and Stocks, Inc. Trader Mark V. Santarina said in a Viber message that he expects the PSEi rising above the 7,000 level before yearend, “reflecting growing investor confidence and market strength.”

“The Philippine market is likely to see a generally positive trend in the remaining months of 2024, driven by the expected rate cuts from the BSP and Federal Reserve. These cuts should enhance liquidity and lower borrowing costs, which could stimulate economic growth and boost corporate earnings,” he said.

Mr. Santarina said there may be increased market volatility following the rate cuts. 

“Volatility may increase in response to the rate cuts as markets adjust to the new monetary policy environment,” he said. “Initially, we might see a spike in trading volumes as investors react to the news and reposition their portfolios, seeking higher returns in equities over fixed income.”

SECTORS TO BENEFIT

Property firms and real estate investment trusts (REITs), as well as consumer goods companies, are among those that will benefit from the central bank’s rate cuts, analysts said.

“The rate cuts will bode well for REITs, banks, and consumer-related stocks,” Ms. Ulang said in a Viber message.

Mr. Santarina said that consumer-related stocks may also get a lift as household spending is likely to pick up ahead of the holiday season.

“Specific sectors that are likely to benefit from the rate cuts include consumer discretionary, real estate, and financials. Consumer discretionary sectors could see a boost from increased consumer spending, as lower interest rates make financing more accessible,” he said.

Meanwhile, COL Financial Group, Inc. Chief Equity Strategist April Lynn Lee-Tan said she maintains a cautiously optimistic stock market outlook for the rest of the year as high inflation may further dampen consumer spending.

“Lower rates are good, but a bigger factor would be earnings. If corporate earnings continue to be affected by consumers that are still recovering from high prices, then it will be difficult to expect a continuous increase in share prices,” she said in a Viber message.

Household consumption, which accounts for about three-fourths of the economy, slowed to 4.6% in the second quarter from 5.5% a year ago, reflecting the impact of elevated inflation and high interest rates.

Ms. Tan said there is also the risk of a possible recession in the United States.

“Also, at this point there is still a risk that the US will suffer from a recession and a bear market. Historically, we always suffered from a contagion when this happens,” she added.

Mr. Colet flagged other risks such as geopolitical tensions, a potential economic slowdown, and natural calamities.