First Metro, DBS cut ʼ25 PSEi outlook by 700 points to 6,900
The local bourse may close the year at 6,900 after US President Donald Trump’s protectionist policies muted the previously rosy outlook on Philippine equities.
In their latest market report, First Metro Securities Brokerage Corp. and Singapore’s DBS Bank said this was lower than their initial outlook of 7,600 for the benchmark Philippine Stock Exchange Index (PSEi).
According to First Metro-DBS, investors in the Philippines have already discarded their previous anchors, including limited exposure to the global trade war, positive earnings outlook and an opportunity to negotiate with the United States.
“Recent developments have created a more complex investment environment,” First Metro-DBS said, also citing Trump’s sweeping policy changes—trade protectionism and immigration reforms, among others—as the main culprits behind the lower index outlook.
“We now expect the local equities market to oscillate between pricing in the Philippines’ constructive macroeconomic fundamentals and discounting uncertainties surrounding Trump 2.0 policies,” First Metro-DBS added.
Although better than its regional peers, the local bourse has underperformed year-to-date, declining by 5.9 percent due to heightened volatility, data from First Metro-DBS showed.
The revised target is based on a higher projected equity risk premium (ERP) of 490 basis points, implying that investors are cautious about buying stocks at a high price amid lingering risks.
A higher ERP also indicates elevated risk conditions. In this case, investors are worried about global economic risks, which could pull down the PSEi to as low as 5,800.
Domestic consumption
Still, First Metro-DBS pointed out that a 6,900 closing value was possible if consumer sentiment and domestic consumption recovered due to the midterm elections. These could also get a boost if gross domestic product (GDP) growth ends at 5.8 percent.
At the same time, First Metro-DBS said the index can reach as high as 8,000, especially if investors bought large-cap cyclical index stocks that would book gains from the country’s economic growth. These include Bank of the Philippine Islands, BDO Unibank Inc., Ayala Land Inc. and SM Prime Holdings Inc.
Banks and property firms are also seen to benefit the most from interest rate cuts since lower borrowing costs drive up demand for loans, including mortgage.
In the event that economic growth slows, investors can also shift their focus toward high dividend-paying companies like real estate investment trusts, PLDT Inc. and Wilcon Depot Inc.
Midterm election winners Jollibee Foods Corp., SM Investments Corp. and Puregold Price Club Inc. will also be good investments as these benefit from high consumption during this busy period, First Metro-DBS added.
