Place chips on robust growth

Place chips on robust growth | Daily Tribune

Serious investors continue to bet the economy will remain resilient as clearer signals from the Trump administration point to a minimal and temporary rise in global inflation which should increase local consumption and investments among households and businesses.

EastWest Bank chief investment officer Bede Gomez said this will drive growth to 6.3 percent this year, which falls within the government’s outlook range of 6 to 6.5 percent.

As inflation eases, he expects higher household consumption of goods and services, supporting Filipino firms’ possible average earnings growth of 11 to 13 percent.

Accordingly, he projected a decent growth of the Philippine Stock Exchange Composite Index (PSEi) at 7,700 to 8,000.

Previously, Gomez forecasted a 7,250 PSEi level for 2024 amid higher interest and inflation rates.

“When he won the elections, Trump’s narrative on tariffs has toned down. Tariffs will be laser focused on certain countries,” Gomez said last Thursday during the EastWest Bank Priority Lifestyle Event at Solaire North, Quezon City.

Prior to his inauguration on 20 January, Trump promised to impose a 10 percent tariff on all US imports, and even 60 percent on Chinese goods.

Economists said global inflation could rise as businesses pass the tariff cost to consumers.

Following Trump’s inauguration, Gomez said that should not be much of a concern for the Philippines as the US president now focuses on countries with “unfair practices.”

“Stocks are not only about numbers, but also investors’ sentiment,” Gomez said.

He said local inflation could fall as China navigates the tariff barrier.

“We could be the dumping ground for Chinese goods that could be temporary. That will be good for our prices because of more supply of goods,” Gomez said.

“And Trump is probably more curious about immigration laws against its neighbor Mexico,” he added.

Gomez said income from remittances of overseas Filipino workers (OFWs) will also support higher consumption and investment of their families back home, while the Philippines has yet to boost its manufacturing capacity.

“It’s hard to put tariffs on OFW remittances or natural sources of dollars,” he said.

Hot stocks

Gomez said the logistics and transport, manufacturing, and mining sectors will continue to see the highest revenues this year, as consumers and firms continue to rely on coal despite the growing presence of electric vehicles and clean energy facilities worldwide.

“Coal is still the cheapest source of power, and coal will not be gone in the next five and even 10 years,” he said.

Apart from a positive economic forecast, Bede said the relatively cheaper Philippine stocks should encourage investors to diversify funds into the Philippine market.

“Malaysia and Thailand are expensive but the worst,” he said.

The International Monetary Fund (IMF) sees the local economy to grow by 6.1 percent this year or higher than Malaysia’s 4.7 percent and Thailand’s 2.9 percent.

Other top recipients of equity investments include wholesale retail and repair of vehicles and motorcycles, technology and communication, and financials.

Apart from easing inflation, Gomez said innovations among players in the banking and financial industry like Globe’s GCash should spur higher consumption as banks strive to remain relevant to consumers.

“GCash’s initial public offering (IPO) is seen to be the largest in the country and is expected to generate more income than its parent company Globe,” he shared.

“According to GCash executives, most of the IPO proceeds will go to digital lending. That will be a disruption,” Gomez continued.

The EastWest Bank officer said investment fund managers are also seen to maximize gains from technology giants like Tesla, Apple, Facebook or Meta, Google, Amazon and Nvidia.

“They might not achieve a double- digit growth in return this year but they are still generating revenues. In 2000, you cannot compare the value of their revenues because at that time, their growth was speculative,” Gomez said.

“We expect higher equity prices of technology and defense stocks. I believe the US government will continue to spend on defense,” he stressed.

Shift to longer-dated bonds

Given the possible easing policy rates of global central banks, Gomez said investors will be keen on longer-dated bonds as they maximize gains under still-elevated rates.

He agreed with the IMF that the benchmark for interest rates from the Bangko Sentral ng Pilipinas will fall to 5 percent this year from 5.75 percent due to lower inflation.

The IMF expects Philippine average inflation to settle at 3 percent, which Gomez said should reflect lower oil prices.

“Trump wants to extract all oils and fuels in the US. He wants to flood the markets. That’s good for the Philippines because we are net oil importer,” he said.

Sustained loan growth

EastWest Bank projects about 25 percent growth in total loans this year due to easing inflation and interest rates.

“This year, we can see more emergence of Chinese auto brands. We expect a double-digit growth for auto loans within the entire banking industry,” EastWest Bank senior executive vice president Rafael Algarra said.

To further support financing requirements, Algarra also shared the bank is considering issuing bonds this year.

Stressing the bank’s bright economic outlook, he said other corporations will satisfy clients’ higher demand for loans and take advantage of cheaper borrowing costs from investors.

“We’re looking to issue one peso bond within the year. But we have to ensure that the runway is free. We don’t want to compete with other issuances,” Algarra said.