5 days ago
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The Philippine Stock Exchange (PSE) has been enjoying a relative rally these past couple of days, with the PSE index now at the 6,206.55, up from the doldrums of the 6,000 index support level, and at times even below.
To most Filipino investors this is a surprise, considering it comes with the looming shadow of huge tariffs being imposed by the US against its trading partners Canada, Mexico and China, that similarly threatens the world with a significant trade war that will disrupt the global supply chain.
The local stock market rally, of course, stems from events and perceptions of the US economy.
First, because of the uncertainties of a trade war, the US dollar has lost four percent of its value. Upon the announcement by US President Donald Trump of the 25 percent tariff on imports from Canada and Mexico, US stocks fell by almost 700 points, prompting a JP Morgan economist to predict a 40 percent chance of recession in the US economy “owing to extreme US policies.”
Even as I write this column, the US stock market dropped by another 900 points following the imposition of additional tariffs on China, with Trump digging in and acknowledging that US farmers may feel some pain before they feel the gain that would come from his tariff policy.
As such, US consumer growth is now flat due to the uncertainties, with American consumer confidence now down by two percent. US housing and construction projects are now on a “wait and see” attitude, cautious about a possible rise in the cost of construction materials of up to 18 percent.
The Trump administration’s tariff moves have, thus, helped the Philippine economy, with local inflation now down to 2.1 percent, much lower than the expectation of a 2.6 percent inflation. The actual 2.1 inflation is the lowest in five years, with core inflation at around 2.4 percent.
Most significant about the inflation data is the lower prices for food and beverage, considering that the high prices of tomatoes were the culprit in the previous inflation rating. Tomato prices have now significantly declined.
With the lower than expected inflation figure, there is now speculation that during the scheduled April 3 BSP Monetary Board meeting, the BSP may resume its interest rate easing. However, what may hinder the BSP easing is the uptick in unemployment to 4.3 percent in January after an illustrious 2024, during which the unemployment rate had dropped to 3.8 percent.
Another big help to the PSE rally is the fact that March is the season for stock and cash dividends of shares.
Leading this season is Aboitiz Power Corp.’s cash dividend of P2.35 per share scheduled for payment on March 28, which would also spur retail investor interest in the Aboitiz-owned energy firm’s planned P20 billion retail bond offering in the second quarter of this year. The bond offering is part of the P100 billion shelf registration approved by the PSE.
Also significant to the local bourse’s rally is the perception that local investors fueled last week’s rally. Interested foreign buyers may now be taking a second look at the Philippine market, considering that stock markets around the world are all uncertain of their direction, and with the “flip flop” of President Trump on the imposition of tariffs to Canada and Mexico and an increase in tariffs on China.
But will the recent stock market rally be sustained? The answer is still “your guess is as good as mine” because whatever happens to the US economy can change the PSE’s prospects and opportunities overnight.
There is the general feeling that US President Trump holds all the cards in the near future, including the future of the PSE and the Philippine economy.
Even as the US president digs in on his tariff policy, a sustained drop in the US stock market may eventually force him to ease up and reverse his course, or a new trade deal may emerge.
According to Eagle Securities’ Joey Roxas, to sustain the Philippine stock market rally, the return of foreign stock market investors is a must as local market players alone cannot maintain the rally.
However, Roxas acknowledges that President Trump’s bold economic moves had caused the US stock market to surge and thus, all market action is there right now. But with the US market’s decline of 900 points as I write this column, stock market players may be looking at other alternatives now.
Even so, Roxas also laments the fact that foreign buyers have been losing interest in key Philippine listed companies, such as those in the energy and infrastructure sector, because of political and regulatory issues that negatively affect the profitability of select companies that would otherwise be of interest to foreign investors.
Let’s hope our economic managers know how to manage the current market turmoil.
