The PSEi jumped by 1.35% yesterday to close at 7,045.48 points, the first time in months the index broke the 7,000 level. <\/p>\n\n\n\n
This is close to 24% higher than the PSEi’s recent low of 5,699.30 on October 3, 2022 — satisfying the classic definition of a bull market of a 20% gain from the most recent low. The stock market rally was driven mainly by three themes: easing inflation, China reopening, and BSP signaling that it is nearing the end of its monetary tightening policy.<\/p>\n\n\n\n
Our take: Classic New Year optimism. There is something about ringing in the start of a new year that inspires optimism, despite the bad things that happened the previous year.<\/p>\n\n\n\n
To be fair, all signs are indicating that inflation in the US has peaked sometime in October, which led the Federal Reserve to start signaling that it will consider slower rate hikes if data continues to show that inflation is on a downtrend. <\/p>\n\n\n\n
This weakened the dollar, which in turn took the pressure off the Bangko Sentral ng Pilipinas to match the Fed\u2019s rate hikes and be more supportive of the economy. BSP Governor Medalla has recently commented that the Monetary Board will reduce rate hikes to 25 bps per cycle until the end of Q1, and the BSP is looking to reduce bank\u2019s reserve requirements to single digits. <\/p>\n\n\n\n
Lastly, China has finally taken a hammer and smashed its COVID-zero policy to pieces, and effectively threw its borders wide open for the first time since 2020. Tourism destinations around China, like most of the members of the ASEAN, South Korea, and Japan are now looking to welcome back Chinese tourists, and economic activity in the area will immediately be boosted as the world\u2019s second largest economic engine roars back to life.<\/p>\n\n\n\n
We acknowledge these positive developments, but we keep in mind that the economic effects of last year\u2019s tightening cycle are still on the horizon. A global recession may still be replaced by slow growth, but financing will likely be tight as interest rates remain elevated. <\/p>\n\n\n\n
We will be revisiting our EPS and P\/E multiple assumptions for 2023 once the Q4 2022 economic data and corporate earnings become clearer, but offhand, we believe that the stock market has reached the peak of its fair valuation. Volatility may persist and cause some overshoots, but we believe that we will end the year with an index value that is not very far from where it is today.<\/p>\n\n\n\n