By Bjorn Biel M. Beltran, Special Features and Content Assistant Editor
SKYROCKETING INFLATION and interest rates are major concerns for investors planning ahead in 2023, as many are uncertain how much of an influence even a positive economic trajectory for the Philippines can bolster their investments amid such a grim global outlook.
According to the latest Global Economic Prospects report by the World Bank, global growth is expected to slacken from 2.9% in 2022 to 1.7% in 2023. The likelihood of increased inflation, further tighter monetary policy, financial stress, and escalating geopolitical tensions are just a few of the adverse risks that dampen the forecast.
These factors play a large role in the Philippine equities market as foreign investors account for a large part of the Philippine market. April Lynn Lee-Tan, COL Financial Group, Inc. chief equity strategist, said as much during the first face-to-face BusinessWorld Insights held last Feb. 28 at Sheraton Hotel in Pasay City.
Despite this, the Philippines’ economic momentum and solid fundamentals do paint a better picture than many other countries, especially as many corporations posted positive earnings during 2022 as well.
“The economy has to have a good story to attract both local and foreign investors. You are competing with so many equity markets all over the world. Every little bit helps,” she said.
Michael Gerard D. Enriquez, president and chief investment officer of Sun Life Investment Management and Trust Corp., echoed the sentiment as expectations for an easing inflation rate alongside the Bangko Sentral ng Pilipinas’ (BSP) monetary policy reaching terminal value this March will do much to assuage investor concerns.
“Overall, we’re bullish for 2023 in terms of valuation for the PSEi (Philippine Stock Exchange index). I think there are a lot of aspects to sway investors to start buying. We’re looking at earnings growth driven by real estate, conglomerates, and financials, so practically the majority of the sectors will perform,” Mr. Enriquez said.
He added that they are expecting a terminal rate near 6.25% or a hike of another 50 basis points (bps) when the monetary authorities review the policy rate later this month.
“Probably in March, we will start to see a decline in inflation towards mid of this year. Probably, we’ll see the BSP starting to be more dovish on their rhetoric. That is something where the market will move higher,” he said.
“This is not the first time in history that rates have moved up and equities moved down. Overall, we are very bullish. There is a lot of underappreciated value right now.”
With so much uncertainty and volatility in the market, analyst forecasts see the PSEi to hit anywhere from 5,700 to 7,800 within the year.
IMPROVING PARTICIPATION IN LOCAL MARKET
Meanwhile, the PSE expects about 14 initial public offerings being listed in 2023, which could indicate a bullish outlook for many companies.
Ms. Lee-Tan, however, noted that there would be more companies that could go public, if not for the stringent regulatory requirements and expensive costs associated with doing so.
“We’re not seeing more companies list. I think the regulatory requirements are quite difficult,” Ms. Lee-Tan said.
She said companies that are keen to list would need to undergo auditing from big firms, shelling out a large amount of money in the process.
“Right now, a lot of companies would like to list, but one of the requirements for them is to be audited by big audit firms,” she said, adding that the process could cost them “millions of pesos.”
“And it’s also very expensive for companies to be listed. This is one of the issues that are facing companies that would want to list,” she added.
There was also the issue of being undervalued even if companies do end up going public, which is a relevant concern amid the fears of a global recession.
According to her, investors today would prefer lower single-digit price-earnings (P/E) ratios over those in the double-digits. She claimed that because of the decreased valuation, businesses are unwilling to make concessions.
Mr. Enriquez pointed out that because the local market is very dependent on foreign investors, it unfortunately ties the Philippine stock markets to global investor sentiment.
“If we help improve local investor participation, then disruptions created by the global market will be addressed,” Mr. Enriquez said.
Jong Layug, vice-president and head of wealth management at GCash, said that since launching their GInvest program that allows their users to directly invest in the stock market, they have been seeing a lot of interest among Filipinos.
“When we first introduced GInvest, we were able to increase accounts in the market. There is a lot of interest there. Filipinos want to be part of the investment ecosystem, but we need to make it easier for them,” he said.
The PSE had inked a three-way deal between the exchange, GCash, and the stock brokerage AB Capital late last year, to allow GCash’s 67 million users the ability to directly invest in the stock market.
GCash has also recently opened its platform to be used abroad by Filipinos owning international SIM cards, as well as offered sustainable investment products under its GFunds portfolio with a partnership with ATR Asset Management (ATRAM).
Mr. Layug added that GCash hopes to increase the local investor population through the program, expand the Philippine investment market, and make it more accessible for Filipinos all over.
As of 2021 data, there were only approximately 1.6 million retail accounts in the Philippines’ stock market, a tiny fraction of the local population.
“We’re very excited to offer stocks in this kind of environment because there’s really nowhere to go but up,” he said.
This BusinessWorld Insights forum was presented by BusinessWorld Publishing Corp., in partnership with Robinsons Land Corp.; and is sponsored by Globe; with partner organizations American Chamber of Commerce in the Philippines, Asian Society of the Philippines, British Chamber of Commerce of the Philippines, Bank Marketing Association of the Philippines, French Chamber of Commerce and Industry in the Philippines, Management Association of the Philippines, the Makati Business Club, Philippine Chamber of Commerce and Industry, Philippine Franchise Association; and media partner The Philippine STAR.