MANILA, Philippines —The local investment arm of Canada-based financial services firm Sun Life sees the stock market “flying away” to greater heights this year on the back of projected policy rate cuts, thereby improving corporate earnings.
Ritchie Teo, chief investment officer of Sun Life Investment Management and Trust Corp., on Thursday said they expected the benchmark Philippine Stock Exchange Index (PSEi) to hit 7,200 by year-end, implying a 4.3-percent jump from the present level.
The PSEi is comprised of 30 of the country’s largest and most actively traded companies.
“Because inflation has peaked, it will return to normal. With lower rates, that will provide better corporate earnings,” Teo said during a media briefing on their 2024 outlook.
The Philippine Statistics Authority has reported that inflation eased to 2.8 percent in January, putting it well within the government’s target range of 2 to 4 percent.
READ: PH inflation slowed to 2.8% in January
To reach the 7,200 base target, however, Teo noted that it would be critical for the market to stay above the 6,700 level to maintain momentum. Currently, the PSEi is staying around 6,900.
Private sector role in infra dev’t
“Most likely, this is something that we think can be sustained,” he said, adding that the government’s reliance on the private sector to boost infrastructure development could further push the stock market forward.
He also cited the upcoming upgrade of Ninoy Aquino International Airport awarded to a consortium led by conglomerate San Miguel Corp. as among the drivers of growth and investment interest.
An earnings growth of 8.4 percent—which is already “well above” prepandemic levels—is likewise anticipated at a price to earnings multiple of 12.8 times, driven by property, banks and consumer discretionary players in the stock market.
READ: After 4-year downturn, stock market recovery seen to come this year
“[Valuation] is still cheap and there’s still some room for growth … Regionally, it is also one of the cheaper ones, together with Hong Kong and China. There is still a lot of room for it to improve,” he said.
Teo warned investors, however, to remain cautious of key risks this year, including the El Niño climate pattern that may impact soft commodity prices, thereby increasing inflation and halting their projected rate cuts.
Sun Life Investment expects the country’s gross domestic product growth to accelerate to 6 percent this year, up from 5.6 percent in 2023.
Positive economic outlook
Major elections worldwide, particularly in the United States, are the company’s “wildcard,” as the outcomes may have different impacts on the local market.
“Our outlook is very positive because of the rate cuts that we’re expecting, which would lead to the positive market expectations,” Teo noted.
“With this, hopefully all of the public would really take advantage of this market scenario … We’re seeing a good opportunity [for investments] and the best way is to participate in them,“ he added.
Sun Life Investment is also seeing a “stabler” Philippine peso by year-end at around 53 to 55 against the US dollar.
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“The stronger the peso is, foreigners would come in more and invest in it. We’d want to see the peso stabler and even strengthen so we can see foreign inflows coming in,” Teo said.
