Philippine Stocks Rally on Fresh Rate-Cut Bets, Attracting $125M in Foreign Buys

Philippine stocks saw a surge in foreign investment on Thursday, as global investors bought the most shares in over two years, buoyed by expectations of an interest rate cut by the Bangko Sentral ng Pilipinas (BSP). The buying spree pushed offshore traders to net $125.6 million into equities, according to Bloomberg-compiled data. The benchmark Philippine Stock Exchange index (PSEi) climbed nearly 7% for the week, signaling renewed optimism in the market.

The central bank has cut borrowing costs by 175 basis points since August 2024, bringing the benchmark rate to 4.75%, its lowest in over three years. Governor Eli M. Remolona, Jr. hinted at the possibility of a further 25-basis-point cut at the Monetary Board's December 11 meeting.

Such easing is seen as crucial in supporting domestic consumption and stabilizing business sentiment, which have been hit by corruption scandals and slower economic growth.

Investors are betting on a broader rotation of capital into Philippine assets as they anticipate more aggressive monetary easing. Peso swaps suggest about 22 basis points of rate cuts from the BSP over the next three months. With local stocks down more than 8% this year, the market is now positioning for a rebound amid oversold conditions and rising investor expectations.

Why the Standoff Happened

The recent buying spree by foreigners was driven by both fundamental and technical factors. On the fundamental side, the BSP's easing stance is seen as a direct response to the country's slowing economic growth and weak domestic demand. The central bank has already cut rates seven times since August 2024, with more easing expected in 2025.

On the technical side, the market had become significantly oversold, prompting bargain hunting as investors anticipated a reversal in trend. Luis A. Limlingan, head of sales at Regina Capital Development Corp., noted that investor sentiment improved after the central bank signaled the possibility of another rate cut by year-end.

The optimism also came despite ongoing political and economic uncertainties. The flood control corruption scandal and the country's recent political upheaval have weighed on business confidence. However, the market appears to be pricing in a resolution or at least a stabilization of conditions as it looks ahead to monetary easing.

How Markets Reacted

The PSEi closed up 0.99% on Wednesday, with most sectoral indexes advancing. Financials led the charge, rising 1.77%, while industrials jumped 1.55%. Holding firms and property also saw gains, though mining and oil declined by 0.47% according to the latest market data. The market breadth was positive, with 112 stocks advancing versus 61 decliners.

Value turnover dipped slightly to P6.23 billion, with net foreign selling easing to P915.4 million from P1.31 billion the previous day. This marked a significant shift from the earlier trend of net foreign selling, which had persisted for weeks. The move came as offshore investors took advantage of the market's correction and positioned for a potential rebound.

Meanwhile, the broader global market environment remained cautious. US stocks fell below a key technical level as investors awaited retail and semiconductor earnings reports. The Philippine market, however, managed to decouple slightly and showed resilience according to market analysis.

What Analysts Are Watching

Analysts are closely monitoring the monetary policy meeting for further clues about the central bank's stance. Governor Remolona has stressed that the Monetary Board remains inclined toward gradual easing, but the pace and magnitude of future cuts will depend on incoming economic data.

Market participants are also watching how the flood control corruption scandal and political developments play out. The scandal has already contributed to weaker growth in the third quarter, with the economy expanding at just 4%, the slowest in four years. The government has attributed this to both corruption-related disruptions and typhoon impacts according to official reports.

Investors are also keeping an eye on the central bank's potential move to cut banks' reserve requirements, which could further ease liquidity conditions. While Remolona did not specify a timeline for such a move, he confirmed that it remains under study according to official statements.

As the market continues to price in rate cuts, the focus is shifting toward how quickly and effectively these measures will translate into improved economic conditions. For now, the improved sentiment has drawn foreign capital back into Philippine assets, signaling a potential turning point in the market's short-term trajectory.