THE BELLWETHER Philippine The Stock Exchange Index (PSEi) could end the year above 7,000 points on expectations of monetary easing here and abroad, analysts said, especially with the US Federal Reserve expected to kick in.Ff the long-awaited cycle of rate cuts this week.
On Monday, the PSEi rose 1.15% or 81.35 points to 7,104.20, while the broader all-share index rose 0.82% or 31.37 points to 3,820.
Monday’s close was the highest in more than two years for the benchmark index, as it was the best Ffinished since 7,142.42 on April 20, 2022.
This also marked an increase of 10.14% or 654.16 points compared to the PSEi’s closing price at the end of 2023 of 6,450.04.
The market’s rise was driven by the prospect of the Fed’s two-day policy meeting this week, where interest rates are expected to be cut for the US economy. FFirst time in over four years.
The prospects for monetary easing are likely to continue to boost Philippine stocks in the coming months, analysts said.
“We still maintain our forecast at 7,355, but we are open to revision after the Fed meeting,” Alfred Benjamin R. Garcia, head of research at AP Securities, Inc., told reporters. Business world via Viber message.
Juan Paolo E. Colet, managing director of China Bank Capital Corp., said the PSEi could exceed expectations as market sentiment continues to improve.
“We are maintaining our initial target of 7,100 for the time being. The current bullishness of the market and continued net foreign buying make it increasingly likely that the index will reach and perhaps even exceed that level,” he said in a Viber message.
“We will reassess the target as the market evolves in response to upcoming economic data and the path of monetary policy easing,” he added.
Michael L. Ricafort, chief economist of Rizal Commercial Banking Corp., said he expects the PSEi to end this year at the 7,000-7,500 level.
“This comes amid Fed rate cuts and local policy rates that could lower public companies’ borrowing costs,” he said in a Viber message.
“Interest rate cuts would also lead to faster economic growth in terms of higher loan demand, higher investment, more global trade such as exports and imports, more jobs, higher consumer spending and more business and other economic activity,” he said. “These in turn will lead to higher sales and profits of listed companies, which would lead to higher valuations and share prices.”
The U.S. central bank has kept the federal funds target rate at a range of 5.25%-5.5% after raising 525 basis points (bps) from March 2022 to July 2023 to tamp down high inflation. The last rate cut took place in March 2020, bringing interest rates close to zero, to support the US economy during the coronavirus pandemic.
Fed speakers and figures over the past month have shown that markets have shifted odds around the size of this week’s rate cut, with debate over whether the Fed will combat labor market weakness with aggressive cuts or a will adopt a slower wait-and-see attitude. Reuters reported this.
Futures markets had fully priced in a quarter-point cut from the Fed on Wednesday, with about a 60% chance they would opt for a larger 50 bp move. Last week the chance of a bigger move was about 15%.
Markets widely expect the Fed to cut rates by at least 100 basis points this year, with further cuts expected in 2025.
The Bangko Sentral ng Pilipinas (BSP) cut the policy rate by 25 basis points to 6.25% on August 15, the first easing measure in almost four years.
Before the cut, the Monetary Board kept the target reverse repurchase rate at a more than 17-year high of 6.5% for six consecutive meetings, following cumulative increases worth 450 basis points between May 2022 and October 2023 to help rising prices curb.
BSP Governor Eli M. Remolona Jr. has telegraphed another 25 bp cut within the year, but analysts have said easing domestic inflation and expectations of several Fed easing measures this year could boost the Philippine central bank’s confidence to further reduce borrowing costs. The last two policy-setting meetings of the Monetary Board this year are on October 17 and December 19. RMD Ochaaf of Reuters