Capital Market Set to Rebound

I believe the strong performance of the Philippine Stock Exchange (PSE) in the first month of the year presents a good opportunity for companies and individuals to raise funds. Hopefully, such improvement in the equities market in 2019 will also spread to the capital market and enable our companies to continue their expansion and bolster economic growth.

While 2018 was a bit challenging for the market, the outlook for 2019 seems positive, as the PSEi index, the 30-company bellwether, climbed 7.9 percent as of January 25. The benchmark index lost 12.8 percent in 2018.

The gross domestic product, which grew 6.2 percent in 2018, is likely to perform better this year, which will lift business sentiment and encourage companies to expand and hire more people. Supporting such expansion is not only the equities market but also the capital market, which deals with the issuance of bonds or fixed-income securities (debt) by companies. People who buy such bonds and securities earn fixed interest on a fixed schedule.

First Metro Investment Corp., a local investment bank, said capital-raising activities in 2018 actually declined 25 percent, dragged down by a 46-percent drop in fixed-income issues. FMIC believes the capital market is poised for a strong rebound in 2019.

Data show that, while fixed-income issues declined, bond listings increased last year. Philippine Dealing and Exchange Corp., which serves as the trading platform for fixed-income securities, said it listed over P256.4 billion worth of bond issues in 2018, up 24 percent from P207 billion in 2017 and P109 billion in 2016.

It achieved the milestone last year despite the 175-basis-point increase in the benchmark borrowing rate of the Bangko Sentral ng Pilipinas to 4.75 percent. The BSP adjusted the key policy rate in a bid to curb the inflation rate, which hit a nine-year high of 6.7 percent in September and October 2018.

Bond listing is expected to reach P200 billion anew this year, as more companies raise funds to support capital expenditures or refinance debt. These companies include conglomerates, banks, property developers and infrastructure builders, which are expected to bankroll the government’s “Build, Build, Build” program.

Data show 164 bond issues were listed in the fixed-income trading platform with the total amount of P1.05 trillion as of end-2018.

In the equities market, total capital raised through the local stock exchange reached a record P188 billion in 2018, up 12.5 percent from P167 billion in 2017, despite the fact that only one initial public offering took place last year.

The PSE expects companies that deferred their IPOs in 2018 to go public this year amid better market conditions. The local bourse is, in fact, eyeing a total of P200 billion in capital-raising activities in 2019, including from at least six IPOs and backdoor listings.

What makes me more optimistic this year is the deceleration of the inflation rate, from 6.7 percent in October 2018 to 5.1 percent in December 2018. The continued softening of prices this year will encourage the BSP to switch from its defensive monetary tightening stance to supporting economic growth with a 25-percentage-point rate cut, hopefully.

The government’s economic managers believe that as inflationary pressures subside, given a subdued outlook on international oil prices and the lower rice prices following the expected enactment of the rice tariffication law, household consumption will subsequently pick up. A stronger household spending will be good for companies and the general economy.

Another factor is the faster economic growth anticipated this year. Our GDP grew 6.2 percent in 2018, representing the seventh consecutive year that our economy sustained growth of more than 6 percent. It also cemented the Philippines’s standing as one of the fastest-growing economies in Asia, according to our economic managers.

I see a more stable economy this year, accompanied by a vibrant capital and equities market and supported by lower inflation and interest rates that will be good for household spending and corporate investments.

We just need to remain steady and avoid any sudden movement to keep our economy on the right track.