BROKERAGE firm COL Financial Inc. on Monday said the rise of the benchmark Philippine Stock Exchange index (PSEi) may be capped at 8,600 points by the end of the year on slower government spending and weaker global growth.
April Lynn Tan, the broker’s head of research, said there are expectations of lower government spending this year and slower global economic growth, both of which will have an effect on the rise of the stock market as investors’ sentiments may turn sour.
Last year, COL predicted the main index would end at 9,100 points. The index did reach that level, but early in 2018 before jittery markets pulled prices down, closing the year at the 8,000-point level.
“Although there are reasons we should be optimistic this year, I feel like we have to be cautiously optimistic because the upside is capped. First, we still have problems domestically, the twin deficits, the risks of slower investment and slower government spending going into 2019 and we may not be as resilient to this global economic growth,” Tan said during the company’s economic briefing.
The twin deficit that Tan is referring to is the current account and budget deficits, as both are seen to limit the peso’s strength.
There are expectations of a slower growth of government investment and spending due to the delays in the passage of the 2019 budget, as well as the election ban on release of public funds, while the slower global economy could also hurt Philippine exports and remittances.
Tan, however, said inflation has peaked last year and this could mean an end to interest rate hikes and a reduction in banks’ reserve requirements will boost consumer spending.
Based on technical charts, COL’s chief technical analyst Juan Barredo said the main index may soon need to correct due to its stretched rebound with resistance at 8,200 to 8,300.
“The first half may be beset by zig-zag swings or wide patterns as some risks may cause opposing volatility. But, if the PSEi can remain over 7,300, or better at 7,580, then the rally posture may linger despite some pit stops and side reactions,” he said.
“Some risks show as US rally may stall, the weakness in the peso is still a concern, and oil prices are rallying from a major low, but the rally may be capped,” he said.