BPI Securities tempers PSEi target to 7,300 amid tariff war

Contributed Photo /BPI

MANILA, Philippines — The stock brokerage arm of Ayala-led Bank of the Philippine Islands (BPI) sees the local stock barometer surging to 7,300 by the end of the year, citing encouraging corporate earnings and cooling inflation.

This implies an uphill climb of 14.4 percent from the 6,381.32 closing value of the benchmark Philippine Stock Exchange Index on Wednesday.

READ: Progress in US-China tariff talks lifts PSEi closer to 6,400

BPI Securities Corp. (BSC) noted in a statement its new index target was lower than its initial year-end goal of 7,600. This was after taking into account the volatility brought about by the global tariff war.

“Global economic uncertainties arising from US tariff measures continue to weigh on investor confidence,” BSC said, adding that weaker-than-expected first-quarter gross domestic product growth also dampened confidence.

Still, it pointed out that the Philippines’ position as a domestic-driven economy would spare it from worse beating relative to its regional peers.

READ: Philippines upbeat on conclusion of trade talks with US

BSC’s revised PSEi target is based on a forward price-to-earnings ratio of 11.6x. This means that investors are willing to pay 11.6 times a company’s future earnings for its stock, signaling market optimism.

Corporate earnings this year are expected to grow by an average of 7.9 percent, according to BSC.

“Factors supportive of a market valuation re-rating are resilient corporate earnings, waning domestic inflation and further rate cuts,” it said.

Top picks

To recall, inflation last month cooled to 1.3 percent from 1.4 percent in April due to lower utility costs. As a result, analysts are seeing more room for the Bangko Sentral ng Pilipinas to cut its overnight borrowing rate.

BSC’s top stock picks are conglomerates Ayala Corp. and SM Investments Corp., as both are seen to benefit from improved consumer spending.

Dividend-yield plays with strong expansion prospects such as Manila Water Co. Inc., Puregold Price Club Inc. and RL Commercial REIT Corp. are also good choices, BSC said.

It also recognized, however, that local equities may still be impacted by supply shocks from the trade war escalation, risks of smaller rate cuts by the American central bank and stricter immigration rules that could affect remittances and revenues from business process outsourcing firms.

READ: Why the next market shock could hit more PSE firms