Companies in the 30-member Philippine Stock Exchange index (PSEi) are likely to continue their strong earnings growth for the remainder of the year following their impressive performance in the first half.

This is according to Philstocks Financial's H12023 Review and the 2023 Revised Forecasts for the Economy and the Market, titled 'Navigating the Turbulent Market.'

'Our projection for corporate earnings in the PSEi remains at five percent to 15 percent following the impressive performance of companies in the initial half, where an average growth of 18.90 percent was achieved. In the second half, we still expect the PSEi members, in total, to post bottom line growth. However, this could be slower compared to the growth in the first half as economic headwinds pose challenges,' Philstocks said in its report.

However, analysts Claire Alviar and Mikhail Plopenio noted in the report that this could be slower compared to the first half, with revenues expected to take a hit from the consumption growth slowdown.

Revenge spending has waned, borrowing rates remain high, and inflation may pose additional challenges.

'On top of these is our country's inflation which may continue to remain elevated due to non-core factors,' the report noted. Meanwhile, net profit margins may also take a hit as input inflation may cause production costs to take more out of company revenues, especially those in the consumer front, Philstocks said.

Latest data from the Philippine Statistics Authority showed inflation rose to 5.3 percent in August from 4.7 percent in July.

On a positive note, Philstocks said, there are offsetting factors to the challenging environment, as it noted: 'Consumption slowdown could be tempered by the strong household spending we expect in the Christmas season.'

'At the same time, firms may also deal with high finance expenses due to the Bangko Sentral ng Pilipinas' monetary tightening. We set a base case projected growth at 10 percent. However, if GDP growth hits the upper end while inflation hits the lower end of our forecasts, we may see corporate earnings grow 15 percent. On the other hand, if GDP growth settles at the lower end while inflation settles at the upper end of our forecasts, corporate earnings growth may slow down to five percent,' Philstocks noted.

For the PSEi, Philstocks has revised its initial year-end projection to 6,877 to 7,532 from the initial range of 7,350 to 8,050.

'Considering corporate fundamentals, the market may reach 7,204 at a 10 percent earnings growth. However, the lingering economic risks could cast a shadow on earnings, possibly limiting earnings growth to five percent. This may allow the market to reach only 6,877, our worst-case scenario,' it said.

On the other hand, if corporate earnings strongly perform with a growth rate of 15 percent, the main index could reach 7,532.

'While we maintain confidence in the growth potential of corporate earnings, we also acknowledge the need to adjust our year-end level targets to reflect the lingering bearish sentiment amid evolving market conditions and potential risks. Bearish sentiment is seen to have dominated the market ever since the release of the dismal second quarter economic data,' Philstocks said.

'The susceptibility of the Philippines to global shocks, particularly in relation to oil and food prices, underscores the potential for inflationary pressures. Then there is the Federal Reserve which up to this writing is still maintaining a hawkish stance with the possibility of even raising rates further. In addition, there's weakened demand globally and foreign investors are continuing to leave the local bourse, which could put downward pressure on the market.

On a positive note, we still project that companies' earnings will grow by five to 15 percent, despite the economic challenges. This presents an opportunity for investors to buy stocks at bargain levels, potentially boosting the market. Moreover, the possibility of a Santa Claus rally in the last month of the year could provide further support to the bourse,' Philstocks said

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