It sometimes proves difficult to predict how well an industry sector will do during the year due to the many uncertainties. The Philippines Business Inquirer has in fact reviewed the market trends for 2019 and has come up with 4 sectors that are most likely to have a profitable run this year.
As the country is expecting a lower rate of inflation during 2019, it is bound to attract consumers, hence boosting margins for consumer companies. Customers are more likely to be confident in the market, with a peak in inflation in the Philippines towards the end of last year; this will influence them to spend higher this year.
With the cost of raw materials remaining relatively stable, consumer companies are bound to benefit from this trend. The mid-term elections scheduled for this year will also boost spending on items like groceries and fast food
Contrary to the fact that interest rates are on the rise, which would lead to slower loan growths, these higher rates will also improve the margins for banks.
Bigger banks can take advantage of the pool of low-cost current and savings account deposits that do no change despite the higher interest rates. They can also take into account the long-term investments such at 10-year bonds that have definitely gone down from their peak levels in the second half of last year. This leads to banks being able to trade gains, which will contribute to the recovery of the falling rates and eventually higher bond prices.
Due to the lower inflation, there may be a cut in the banks’ reserve requirements by Banko Sentral NG Pilipinas, hence the funding costs may go down. This will in turn affect the amount that banks can loan out without the need to increase interest rates.
This section is also expected to do well this year as the demand is expected to be strong with the plan to spend on infrastructure still remains priority. The surprise comes with the new duty costs introduced by the Department of Trade and Industry, on each bag of cement imported, resulting in a 4% increase in the price. The demand for cement in the past few years has remained quite steady in the past few years but but the new duty charges is what will cause a boost in this industry. It will encourage locally produced cement companies to use competitive prices hence reducing the pressure for prices to go down altogether.
Besides the facts stated above a drop in oil and coal prices in the worldwide market will definitely help cement companies costs reduce. As most industry professionals are aware, fuel and power account for around 45% of cement companies’ costs of goods sold. This overall trend will of lower costs and this accompanied with an increase in selling prices will definitely lead to an improvement in margins and profitability for cement companies.
Last but definitely not the least, demand for travel has always been very strong in the Philippines. But because of the weaker peso and the cost of oil going up and down spend has been increasing more than revenue. We take value of the peso into consideration because around 65% of operating expenses with airlines are dollar denominated. However, the peso seems to be stabilizing this year given the status of the dollar and oil prices seem to be lowering compared to 2018.
Given the positive evidence of each of the sectors above, their stocks are bound to be selling at higher costs and have done well so far. However, there are some less liquid, smaller capitalized stocks belonging to the four sectors are still trading at attractive prices. Corrections also create opportunities to buy consumer, banking, cement and airline stocks for cheap.