After volatility in the first half, stock prices seen to track expected economic growth in second half of 2019

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Metro Manila (CNN Philippines, June 21) — Investors view the Philippines as a volatile market, parking their funds when local and international developments are favorable but pulling out just as fast during signs of weakening.

The PSE index hit its highest in the first half on February 1, closing at 8,144 points. But it took a major hit on May 16, closing at 7,475 as investors shied away from equities because of jitters from the US-China trade war.

The peso also moved sideways in the first half of the year. The peso was strongest as it neared the half mark of the year closing at P51.41 against the US dollar on June 21. But it was at a low on January 22, closing at P52.91 against the dollar.

Locally, the delayed 2019 national budget also dampened investor sentiment because of slow infrastructure spending as well as weak economic growth. Shares fell on May 9 after data showed the country only grew by 5.6% in the first quarter to mark a four-year low. However, investors later returned to the market in response to an S&P Global Ratings upgrade for the Philippines.

Philippine companies also released their first quarter profits, with the industrial, services and financials sub-sectors leading the list.

Port developer and operator, International Container Terminal Services (ICTSI) leads the list of gainers with a 77% profit surge to P3.7 billion from P2.1 billion in the first three months last year. Sy family-led BDO Unibank, Inc. (BDO) also saw first quarter net income soaring to P9.8 billion, up 66% from P5.9 billion the year before, on account of expanded core banking operations. Net profit of JG Summit Holdings, Inc. (JGSHI) surged by 54% year-on-year to P7.4 billion, driven by a double-digit growth in its airline and real estate businesses.

On the other hand, some first posted lower net profit in the first quarter. Biggest loser was Semirara Mining and Power Corp. (SCC), with net income plunging by 48% to P2.33 billion due to lower coal sales. Solaire operator Bloomberry Resorts Corp. (BLOOM) net income fell 40% to P2.2 billion in January to March. Aboitiz Equity Ventures, Inc. (AEV) saw profits fall 27% year-on-year to P3.5 billion from P4.8 billion due to lower earnings from its power, banking and food business.

As the government ramps up spending to recover momentum after an earlier delay in the national budget, analysts believe a number of industries will perform much better in the second half.

BDO Unibank chief market strategist Jonathan Ravelas believes the retail, property, consumer and infrastructure stocks are "worth investing in" as they consistently benefit from economic expansion.

“Now that we’ve seen the trend that the government will continue [its] infrastructure spending, sectors like construction will also benefit in this case. But what we’ve seen in the past two years, consumer, property and retail seem to have benefited from all this,” Ravelas said in a phone interview.

Analysts are also confident economic growth will pick up because of improved spending in the second half of the year.

ATRAM's Head of Equities Research Jomar Lacson says he expects the economy to grow at around 6% by the end of the year, supported by sustained consumption and a recovery in asset investment.

“Apart from the public construction part, we also expect the private sector to be buoyed or private investment spending to be buoyed by lower interest rates based on a year-on-year basis,” Lacson says.

“At the same time, the [reserve requirement ratio] cuts of the central bank should add more liquidity to the market plus an expected policy rate cut so that monetary policy right now is supportive of increased investment spending. So that’s one of the reasons behind our view that the second half should be much better than what the first quarter GDP growth was implying,” he added.