The PSEi valuation reflects a positive outlook, says the analyst

The Philippine Stock Exchange Index (PSEi) numbers and valuations reflect a positive outlook for 2025 amid concerns over the macroeconomy, geopolitical situation and the new president of the United States, stock brokerage firm Luna Securities Inc. said in a report.

Annika Angeles, research analyst and strategist at Luna Securities, said PSEi could trade at a low of 7,030 and a high of 8,080 next year.

“At the current level of 6,500, the Luna APSIS quantitative risk-reward ratio suggests that the market can still overcome the wall of worries,” she emphasized, noting that in the most optimistic scenario there is a potential high of 9,399 would be available.

Angeles described the final three months of 2024 as “extremely volatile” due to interest rate movements, inflation and the US presidential election.

“Despite headlines about further interest rate cuts, the market turned around: the 10-year bond rose from 3.6 percent to 4.6 percent (compared to the Federal Reserve rate of 4 percent) and the USD index rose against other major currencies from 101 to 108,” she explained.

In historical context, the local stock market has seen growth in five out of 10 years during periods of stability, with an average growth of 5.77 percent, Angeles said.

“(An) established historical trend serves as the basis for our sensitivity analysis. We believe the market normalization phase is still relevant and has helped us navigate the difficult last two years with consistent outperformance for our managed and advised clients,” she added.

The ratio between PSEi yields and bond yields with a difference of 3 percent or more represents a buying opportunity, while a difference of 0.5 percent to 2.5 percent indicates a selling stance, Angeles said.

In October, Angeles said the gap was 0.85 percent, suggesting caution or selling, while last month when the PSEi fell and interest rate cuts represented a larger gap, suggesting a buying opportunity space.

“Given the current sensitivity analysis, which includes three scenarios: 0 percent growth, 2.5 percent growth and 5 percent growth – and the recent 25 basis point cut, the base case suggests that the PSEi valuation is between a floor of 7,030 and one upper limit of 8,080 will fluctuate.” “she said.

The floor and ceiling index indicate an upside potential of 8.15 percent and 24 percent, respectively.

“With further rate cuts and earnings improvements, the upside potential grows,” concluded Angeles.

Lower capital raising

Meanwhile, the PSE recorded lower capital raising of P82.37 billion this year compared to P140.95 billion in 2023 due to “internal and external economic and geopolitical headwinds affecting the market for most of the year.” “In the case of public offerings (IPOs), applicants are asked to postpone their public offer,” said PSE President and CEO Ramon Monzon.

The local exchange, which wanted to double last year’s IPO to six, was only able to list three.

OceanaGold (Philippines) Inc. (OGP), Citicore Renewable Energy Corp. were listed on the local stock exchange for the first time. (CREC) and NexGen Energy Corp. noted.

However, according to Deloitte, the three listings raised over $203 million (P11.76 billion) at a market cap of $972 million, compared to $81 million (P4.7 billion) for one last year Market cap of $287 million.

OGP and CREC were among the top IPOs in Southeast Asia in terms of the amount of capital raised. OGP raised $104 million (P6.08 billion) in May, while CREC raised $90 million (P5.3 billion), ranking fourth and seventh largest in the region.

The benchmark PSEi marked a year-on-year increase for the first time since 2019, closing at 6,528.79 points on Friday, up 1.2 percent or 78.75 points from last year’s reading of 6,450.04.

The PSE MidCap index, which tracks the performance of mid-sized companies, grew 29.1 percent year-on-year, while the PSE DivY index, which focuses on high-dividend-yielding companies, grew 22.4 percent year-on-year.

Daily average value turnover reached P6.10 billion while year-end domestic capitalization rose 11.2 percent to P14.57 trillion compared to P13.10 trillion last year.

The market recorded net foreign sales worth P23.18 billion compared to P53.65 billion last year.

“One of the investment considerations at this time is the direction of economic policy of the new US administration,” Monzon explained. “An outcome favorable to the Philippines could help boost foreign purchases and create the market conditions applicants are waiting for.”

The services index, which rose 29.7 percent, was hailed as the best performing index in 2024.

“PSE remains committed to initiatives that improve stock market liquidity, including the launch of Global Philippine Depositary Receipts and the acquisition of Philippine Dealing System Holdings Corp.,” Monzon said.

“This acquisition aims to create operational synergies by, among other things, creating a unified marketplace for fixed income and equity products and a single platform for raising capital.”