[ANALYSIS] What’s driving the current Philippine stock market rally?
Foreign fund flows often serve as a critical determinant to the stock market’s direction, for they account for over 50% of total value turnover on the average. So, when they enter, the market goes up, and when they exit, the market goes down.
This is exactly what happened in the market’s latest rally in the last two weeks. Foreign investors shifted into the net buying position. The amount they poured in overwhelmed domestic profit-taking. It also enabled the Philippine Stock Exchange Index (PSEi) to break the 6,400 milestone that stubbornly held in the last four months.
Curiously, foreign investors appear to have been favoring Enrique Razon Jr.’s International Container Terminal Services Inc. (ICTSI) and the Po family’s Century Pacific Food Inc. (CNPF), to mention two of their top picks.
ICTSI has been lately the market’s primary engine, pushing the market higher for its high-growth structural expansions. CNPF is actively sought as a defensive consumer hedge against broader macroeconomic uncertainty.
The return of foreign funds to the local market is at the moment being driven, according to analysts, by a shift from cooling US inflation pressures to proactive, hawkish local central bank policies. This combination has incidentally stabilized the local currency and boosted investors’ confidence.
There is reportedly a downward shift in the US June producer price index, which eased global anxieties regarding aggressive US Federal Reserve policy, directly driving capital back into emerging markets like the Philippines. Sentiments were further reinforced by robust international interest in local energy infrastructure, notably highlighted by the massive US$5 billion foreign acquisition proposal for the Lopez family’s Energy Development Corporation (EDC).
The US Consumer Price Index (CPI) for June also slowed significantly to 3.5%, down from 4.2% in May. This cooler-than-expected outcome immediately softened fears of an aggressive, multi-rate hike path from the US Federal Reserve.
Likewise, the US Producer Price Index (PPI) dropped by 0.3% in June. This contraction mitigated long-term policy uncertainties, sparking a global “risk-on” sentiment that redirected institutional capital away from safe-haven US assets and into emerging markets like the Philippines, again.
While global pressures are easing, the Bangko Sentral ng Pilipinas (BSP) has taken a highly aggressive stance to defend domestic economic stability. To combat stubborn commodity prices, the BSP Monetary Board raised its benchmark reverse repurchase (RRP) rate by 25 basis points to 4.75%.
BSP Governor Eli Remolona Jr. has explicitly stated that the robust domestic economy can absorb an additional interest rate hike if needed to anchor inflation expectations. This resolute monetary discipline reassures foreign funds that the central bank will not let domestic inflation slip out of control.
In contrast, local price pressures are showing signs of exhaustion. Philippine headline inflation slowed to 6.4% in June from 6.8% in May. While still high, this moderation proves that the BSP’s aggressive rate cycle is successfully cooling the economy, giving foreign investors a clear entry window before prices normalize further.
A primary concern for international fund managers is currency depreciation, which can erode equity gains. The BSP’s higher local interest rates, coupled with resilient overseas remittances, have successfully stabilized the Philippine peso. By creating an attractive interest-rate differential against the US dollar, foreign portfolios face less foreign-exchange risk, making the local bourse a safer location to park capital. (READ: [In This Economy] The peso is now at P60 to the dollar. Now what?)
In addition, foreign capital is actively anchoring on large-cap blue chips such as ICTSI and other conglomerate-heavyweights which are providing a vital psychological safety net as they have successfully absorbed geopolitical shocks stemming from the escalating US-Iran conflict.
Expected Q2 corporate earnings results
A double-digit growth figure is projected in the net income and revenues of ICTSI for the Q2. This builds seamlessly on its Q1 momentum, where net profits surged by 23%, equivalent to US$293.57 million.
Its core drivers for this growth are due to an 11% surge in global container volumes and aggressive, self-funded international hub expansions like the Durban Gateway Terminal in South Africa and Batu Ampar in Indonesia.
Furthermore, a long-term extension of its Melbourne port concession until 2066 reinforces a highly secure, multi-decade cash flow outlook that justifies its aggressive foreign premium buying. At the same time, it could allow ICTSI to easily absorb local macroeconomic pressures.
For CNPF, foreign investors are seeking out CNPF as both a stable and defensive stock play. The company is experiencing parallel double-digit expansions across both its domestic and export markets.
Foreigner investors are utilizing CNPF as a margin cushion. The company’s dollar-denominated export naturally acts as hedge on local input cost adjustments. Conversely, CNPF’s pricing power on grocery shelf essentials also shields its business from broader inflationary shifts.
CNPF’s earnings result for Q2 is scheduled to be reported on August 7, 2026. EPS is estimated to average at P1.82 apiece, based on analysts’ forecasts. In this regard, the company’s executive chairman Christopher Po has expressed that the company expects to sustain a double-digit growth in revenue and profit for the full year despite a challenging year due to supply chain factors.
Prognosis on the market rally
Again, the market’s rally is driven by expectations of an accommodative policy stance from the central bank, attractive valuations, and growing investors’ optimism on corporate earnings results for the second-quarter.
As mentioned earlier, the last time the market broke the 6,400 level was four months ago on February 10, when it closed at 6,474.60.
However, the market fell last Tuesday, July 21, at the 6,333.80 level, down 81.92 points or 1.28% from a market transaction of P7.39 billion, excluding cross transactions. Trading was apparently affected by the rise in oil prices by two digits that took effect within the day. Investors’ sentiments were dampened, as they were reminded of the continuing global risk caused by rising oil prices.
On Wednesday, July 22, the market opened with a strong start in the morning session – surging by as much as 1% before trimming gains – as investor sentiment cooled off by midday to sit at 6,286.55 by the noon recess.
At the end of the day, the market closed at 6,267.85, down 65.59 points or 1.04% on a smaller total value turnover of P5.78 billion, excluding cross transactions. It was apparently affected by the upcoming index methodology changes to be implemented, which would trigger portfolio repositioning.
Asked what he thinks about the current market rally, Jofer Gaite, vice president for sales of B.A. Securities, Inc., was quite straightforward in giving a not-so-encouraging assessment. In his observation, “foreign inflows and retail investors are pushing the market higher, momentarily ignoring the US-Iran noise.” But the headwinds of slower growth, tacky inflation, and elevated interest rates continue to be big challenges to company revenues and profits.
On a technical basis, “the market’s rise is not broad-based but mainly due to ICTSI’s fantastic run.” The market’s value turnover has been also anemic that foreign inflows are “tipping the balance greatly.”
Joel de la Peña, market strategist and chief trader of H.E. Bennett Securities Inc., has a better outlook. While the market is only oversold, incomes of companies are getting better. He likens the current market with what it was in 2013. Investors also started to reposition then, looking for bargain stocks. At that time, dividends were getting better as they are now.
Moreover, while the market is lingering at a low level, he believes that it may soon continue to rise as the economy grows albeit at a low pace due to high inflation.
Even with the market’s two-day consecutive decline, Andro Leo “Andoy” I. Beltran, vice president and head of the Digital Solutions & Investor Engagement Division of First Metro Securities Brokerage Corp. (FirstMetroSec) of the Metrobank Group, has an equally positive assessment about the market’s status.
Over the short term, according to him, investors are once again pricing geopolitical risk, leading to risk-off sentiment – a market environment where investors prioritize capital preservation and avoid volatility due to economic uncertainty or geopolitical fear.
Nevertheless, over the medium to long term, corporate earnings, interest rates, and economic fundamentals will have a much greater influence on where the market will be ultimately.
Stockbroker Rene de los Reyes of Abacus Securities Inc. of Abacus Capital & Investment Corporation group, feels that the market rally is both fundamentally and technically driven. For the longest time, according to their studies, the market has been “ridiculously” undervalued, even though it is at present technically lifted by foreign interest in ICTSI, which has an assigned weight of 27% in the main index.
Deliberately funny, Reuben Mark A. Angeles, first vice-president and Equity Research Division and Customer Experience head of FirstMetroSec of the Metrobank Group, sums the market’s current rally as what he calls “investors’ fatigue on the Middle East issue.”
Come to think of it, one stops being scared at some point in time. Nonetheless, being brave is not enough. He recommends to follow wisely what the foreign investors are doing at the moment: focus on blue-chip conglomerates, steady dividend payers, and resilient consumer brands with high-volume, liquid stocks driven by strong price action, near-term catalysts, or index changes.
Agreeably, the current market is primarily a “reset” driven by bargain hunting, foreign inflows, and relief as oil prices ease from previous Middle East war peaks. However, with the market trading near the 6,400 to 6,450 resistance zone, it will be ultimately sustained by developing macroeconomic triggers where fundamentals will ultimately prevail. – Rappler.com
(The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise. Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity. You may reach the writer at densomera@yahoo.com)
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