Why market players are optimistic about equities in 2024

THE PHILIPPINE stock market is expected to improve in 2024 amid more opportunities for capital raising and growth, according to industry players and analysts.

Ramon S. Monzon, president and chief executive officer of local bourse operator the Philippine Stock Exchange, Inc. (PSE), said in an interview that about P160 billion worth of capital-raising activities is expected next year, higher than the expected P120 billion this year.

“Next year, we’re going to ramp it up to P150 billion to P160 billion worth of capital raising,” Mr. Monzon said.

“I projected a capital raising of P160 billion [in 2023]. We’re only going to hit about P120 billion,” he added.

As of end-September, the PSE said that total capital raised was at P91.88 billion, of which 58.4% were from follow-on offerings, followed by private placements at 21.9%, stock rights offerings at 15%, and initial public offerings (IPOs) at 4.7%.   

China Bank Capital Corp. Managing Director Juan Paolo E. Colet said in a Viber message that the PSE’s main index could hit the 7,000 level next year on the back of a better interest rate environment.

“There are reasons to be optimistic about the equity market next year, and I see a reasonable chance that the index will reach the 7,000 level,” Mr. Colet said.

“There are potentially three major drivers of better market performance: first, a dovish shift in monetary policy that creates a more favorable interest rate environment; second, higher economic growth on the back of improved domestic and external demand; and third, implementation of capital markets reforms, such as the proposed reduction of the stock transaction tax to 0.10%,” he added.

As of the Dec. 15 close, the PSE index rose 67.96 points or 1.06% to 6,478.44 while the broader all shares index improved by 14.59 points or 0.43% to 3,409.55.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that there is a good chance for market conditions to improve next year and hit the 7,000 level.

“There is a good chance for market conditions to improve so some local listed companies could revive share sale and IPO plans in 2024 as they can sell shares at the highest possible price especially if the Fed starts cutting rates in 2024, [which] would reduce borrowing costs, spur more investments, increase profits and boost stock market valuations, on top of the further recovery of the economy,” Mr. Ricafort said.

Mr. Ricafort added that higher investment valuations for the local stock market are expected following the government’s move in July to lift the state of public health emergency due to the coronavirus disease 2019 (COVID-19) pandemic.   

“This boosted employment and generated more business opportunities, all of which would help support higher investment valuations,” Mr. Ricafort said.

He warned that although the lifting improved revenues, “these could be offset by still relatively higher prices and still relatively higher interest rates.”   

Alvin D. Lao, president and chief executive officer of listed oleochemicals and specialty food ingredients manufacturer D&L Industries, Inc., said that next year is expected to be better as interest rates are seen to ease. 

“It is possible that next year would be quite different because one thing that happened this year is that interest rates went up by a lot. When interest rates rapidly change, definitely it’s disruptive. In this case, when interest rates go up so much, financing becomes very expensive,” Mr. Lao said in an interview. 

“For next year, even though the conditions are similar to where we are now, the increase in rates is not as bad anymore because we’re starting at a higher level. So for next year, I don’t think there’s a chance that interest rates will go up even more. From that perspective, next year would be better than this year,” he added.

The Bangko Sentral ng Pilipinas (BSP) on Dec. 14 decided to keep its key rate unchanged at 6.5% for a second straight meeting but signaled a “tighter-for-longer” policy until inflation expectations have become more firmly anchored.    

“The Monetary Board continues to see the need to keep monetary policy settings sufficiently tight to allow inflation expectations to settle more firmly within the target range,” BSP Governor Eli M. Remolona, Jr. said in a statement.

The country’s headline inflation slowed to 4.1% in November compared with 4.9% in October. The inflation figure for November signaled the 20^th consecutive month that inflation exceeded the central bank’s 2-4% target range. Inflation averaged 6.2% during the January-to-November period. 

Henry D. Antonio, president and chief executive officer of listed construction firm EEI Corp., said that 2024 would be a different year for listed companies, citing the resurgence of the US economy.

“I think next year would be different for listed companies because the US has already started to get on this run. The US always has a significant impact on the equities market. If the rates start easing, confidence will return,” Mr. Antonio said in an interview.

The US Federal Reserve opted to maintain its benchmark overnight borrowing rate at the 5.25% to 5.5% range on the back of easing inflation. It also announced that there would be at least three rate cuts next year. 

In terms of IPOs, analysts and stakeholders predict about four stock launches next year.

PSE’s Mr. Monzon said the possible listings consist of Sy-led SM Prime Holdings, Inc.’s real estate investment trust (REIT) IPO, as well as companies in the mining, industrial, and food sectors.

“As of now, we have about four big IPOs in line [for next year],” Mr. Monzon said.

For 2023, the PSE saw three conducted IPOs, namely: Alternergy Holdings Corp. in March, Upson International Corp. in April, and Repower Energy Development Corp. in July.

Eduardo V. Francisco, president of top investment house BDO Capital and Investment Corp., projected that the PSE could see two to three IPOs next year. 

“Realistically, I see about two to three IPOs,” Mr. Francisco said in an interview.   

“Five IPOs are already optimistic because [the] first half [of next year] will be muted if rates are still high. If the rates don’t go down, no one would do an IPO because the yield is too high. Those (IPOs) might all come in the second half of next year,” he added. 

EEI’s Mr. Antonio projected that IPOs could come by the latter part of 2024, adding that the local bourse has been “very resilient.” 

“We will see more IPOs coming in. Probably not in the beginning of next year, maybe towards the end of next year is what I would expect. But the nice thing is that the Philippines is very resilient in terms of the market,” Mr. Antonio said. 

Meanwhile, Mr. Colet said that more IPOs and equity deals are projected in 2024 but warned that risks such as hawkish monetary policy and geopolitical tensions could hamper the projection. 

“Given this backdrop, we can expect IPOs and equity deals next year, especially as interest rates start to move down. Delistings are not out of the picture, but hopefully, we see more listings,” Mr. Colet said. 

“As always, there are risks. Among those we should watch out for are a hawkish monetary policy overshoot that stuns economic growth, a failure by China to shore up the world’s second-largest economy, and geopolitical flareups or natural calamities that severely destabilize supply chains and financial markets,” he added. — By Revin Mikhael D. Ochave, Reporter