The Philippine stock market seems to be suffering from a pessimistic mindset, with investors focusing more on the risks rather than the positive developments. Despite several good news such as lower inflation, falling unemployment rates, and a statement from the new BSP Governor Eli Remolona that the central bank may cut policy rates, the stock market experienced a lackluster performance last week.
One of the concerns affecting the market sentiment is the onset of El Niño, as it is expected to negatively impact the agricultural sector and potentially lead to inflationary pressures later in the year. Additionally, the market is pricing in a 95-percent chance of the US Federal Reserve increasing interest rates, causing US bond rates to rise and consequently making Philippine bonds less attractive to investors.
There is also a growing trend of companies delisting from the Philippine Stock Exchange. Recently, Holcim announced its plans to leave the PSE due to a significant drop in its public float. Metro Pacific may also consider delisting if the consortium of its principals and new investors successfully buy a substantial number of shares held by the public. On the other hand, there are very few companies going public, with SM Prime’s planned real estate investment trust filing possibly being delayed due to potentially weak demand.
These delistings, combined with fewer initial public offerings, lead to a reduction in the size of the Philippine equity market, which in turn makes it less attractive to foreign investors who consider market size as an important criterion.
Despite these short-term risks, there are measures that can be taken to make the market more appealing in the long run. One of these is the government’s efforts to attract and grow foreign direct investments, which would not only create more jobs but also help develop new industries that are attractive to stock market investors.
Addressing the problems faced by the agriculture sector is another crucial step. By reducing dependence on imported food products, the government can mitigate the problem of inflation in the long term.
In the past, the Philippine stock market experienced a boom due to factors such as an increase in the value-added tax rate and the rise of business process outsourcing companies. These developments improved the country’s finances and secured an investment grade credit rating.
There is no reason why the Philippine stock market can’t regain its popularity if the government focuses on addressing economic issues and maintains a growth rate of over 7 percent.
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