'Sideways-to-downward' direction expected for PSEi

'Sideways-to-downward' direction expected for PSEi

THE stock market could keep falling as investors respond to reciprocal tariffs announced by US President Donald Trump last week, analysts said, but a lift could come from bargain hunting and a likely Bangko Sentral ng Pilipinas (BSP) policy rate cut.

The benchmark Philippine Stock Exchange index (PSEi) closed at 6,084.19 on Friday, down 1.03 percent week on week, as it joined other equities markets in reacting negatively to unilateral tariffs unveiled by Trump on April 2.

Philstocks Financial Inc. research manager Japhet Tantiangco said that "chartwise, the market is having a difficult time getting past its 50-day exponential moving average," he noted, implying "bearish momentum."

"Trading has been anemic, reflecting the weak market confidence amid the global downside risks," he added.

But as the market has now fallen for four straight weeks, Tantiangco said that investors could go hunting for bargains.

"Expectations that the BSP will cut policy rates [on April 10] in their upcoming meeting following the further decline in inflation last March may give sentiment a boost," he added.

Global economic concerns remain the biggest risk, however, and fresh news related to Trump's tariffs could pull the market lower.

DragonFi Securities Inc. equity research analyst Jarrod Tin said the PSEi could trade with a "sideways-to-downward bias" this week with a possible boost from a BSP rate cut.

Unicapital Group research head Wendy Estacio-Cru said, "We anticipate the index to continue trading within the 5,800 to 6,300 range, as the impact of tariffs imposed by the US government has yet to be fully felt."

Online stockbrokerage 2TradeAsia.com, for its part, said the relatively low 17-percent tariff levied on the Philippines, along with domestic consumption and monetary policy adjustments, would help "continue to insulate against the worst of the shock, but the extent to which these tariffs and restrictive trade policies become structural will play a crucial role in shaping foreign capital flows in the region for the rest of the year."

"From a more long-term standpoint, it will be interesting to speculate on the potential shifting of supply chains once the dust settles," it added.

PHL to benefit from trade diversion due to US reciprocal tariffs

TRADE DIVERSION in Asia arising from the United States’ reciprocal tariff orders could benefit the Philippines as it is one of the few countries slapped with a lower tariff.

“This time around, the US tariffs are imposed globally, with differing tariff hikes across countries,” Nomura Global Markets Research said in a report.

“This could result in US firms replacing some of their imports from countries that have higher tariffs (e.g. Thailand, Vietnam) with imports from countries that have lower tariffs (e.g. Philippines).”

US President Donald J. Trump on April 2 announced the imposition of a baseline tariff of 10% on all its trading partners. Some countries were hit with higher-than-expected tariffs, with the Philippines facing a 17% tariff that will be implemented starting April 9.

Nomura said trade diversion benefits to the low-tariff countries could be a “partial offset.”

"There may be some scope for trade diversion, as some countries have higher tariff rates than others."

“Back in 2017-18, US tariffs on China resulted in US firms replacing some of their imports from China with imports from other countries, including those in Asia,” it added.

In the region, the Philippines has the second-lowest tariff rate, just after Singapore, which received the 10% baseline tariff.

Countries that were recipients of “moderate” tariffs (24% to 27%) were Japan, South Korea and India.

Meanwhile, Cambodia, Vietnam, Thailand, Indonesia and China bore the brunt of higher tariffs (32% to 49%).

“Higher reciprocal tariffs will also influence the next round of supply-chain shifts. During the last eight years, Southeast Asian countries such as Vietnam have benefited from US-China trade tensions,” Nomura said.

“Higher reciprocal tariffs on Vietnam and Cambodia, if they are sustained, will eliminate this advantage. Instead, India, which faces a 27% reciprocal tariff and is trying to negotiate this down, stands to benefit from the next round of supply-chain shifts, helped also by its strategic alliance to the US.”

The Philippines’ top destination for exports is the United States, accounting for about 17% of the total in 2024.

Data from Nomura showed that US exports accounted for 2.6% of the Philippines’ gross domestic product last year.

“For the same reason, we would put the Philippines in this relatively less affected camp because of the government’s drive to implement infrastructure projects.”

Meanwhile, Nomura noted the potential channels that could be affected by tariffs, such as electronics, machinery and textiles sectors.

“Product-wise concentration (US exposure) is a concern for textiles (Indonesia, Philippines, Vietnam), machinery (Korea) and electronics (Thailand),” it said.

Around 35% to 45% of the Philippines, Indonesia and Vietnam’s textile exports go to the US. “This means that the impact on specific sectors might be more severe in some economies,” it added.

Meanwhile, ING Bank in a separate report said the Philippines will still experience spillovers from the US tariff order.

“Although the Philippines is relatively well-positioned with a lower tariff rate and reduced exposure to US exports, it is unlikely to remain completely unaffected,” it said.

These tariffs could “exert downward pressure on US growth and the Federal Reserve to cut rates.”

“The gloomier near-term outlook for the economy means that risks are skewed to the central bank having to do more this year,” ING said.

“This should take away concerns around the Philippines cutting rates too fast too soon, and staying largely aligned with US rate actions.”

The Bangko Sentral ng Pilipinas held interest rates steady in February due to the uncertainties from global trade policies.

All 17 analysts surveyed in a BusinessWorld poll expect the Monetary Board to cut rates by 25 basis points on Thursday.