PSEi Composite poised for modest gains amid fluctuating market sentiment

Outlook: PSEi Composite index is assigned short-term B2 & long-term Ba3 estimated rating.
AUC Score : What is AUC Score?
Short-term Tactic¹ :
Dominant Strategy :
Time series to forecast n: for Weeks²
ML Model Testing : Modular Neural Network (News Feed Sentiment Analysis)
Hypothesis Testing : Linear Regression
Surveillance : Major exchange and OTC

¹Short-term revised.

²Time series is updated based on short-term trends.

Key Points

The PSEi Composite index is projected to exhibit moderate volatility. The index could experience periods of upward momentum, driven by sustained investor confidence and positive economic indicators, potentially reaching higher valuations. However, it faces risks that could trigger downward corrections, stemming from factors such as rising inflation, shifts in global market sentiments, and potential policy changes within the Philippines. These risks might lead to a period of consolidation or even a decline, thus, prudent investment strategies and risk management are crucial.

About PSEi Composite Index

The Philippine Stock Exchange Index (PSEi) serves as the primary benchmark for the Philippine stock market, reflecting the performance of a select group of publicly listed companies. It represents the overall market sentiment and is widely used by investors, analysts, and financial institutions to gauge the health and direction of the Philippine economy. The composition of the PSEi is periodically reviewed, with changes made to ensure it accurately represents the most significant and actively traded companies in the market. Its fluctuations are closely watched as they offer insight into the performance of various sectors like finance, consumer goods, and property, influencing investment decisions and economic forecasts.

The PSEi's performance is influenced by a complex interplay of factors, including domestic economic growth, corporate earnings, investor sentiment, and global market trends. Government policies, interest rate changes, and geopolitical events can also exert significant influence. The index provides a valuable tool for investors to monitor market trends, assess portfolio performance, and make informed investment choices within the Philippine equities market. Understanding the drivers of the PSEi's movements is therefore crucial for anyone seeking to participate in or analyze the Philippine financial landscape.

Machine Learning Model for PSEi Composite Index Forecasting

Our interdisciplinary team of data scientists and economists has developed a machine learning model for forecasting the performance of the Philippine Stock Exchange Composite Index (PSEi). This model leverages a diverse range of historical financial data and macroeconomic indicators to predict future market movements. The core methodology revolves around employing a Recurrent Neural Network (RNN), specifically a Long Short-Term Memory (LSTM) network, to capture the temporal dependencies inherent in financial time series data. This architecture is particularly well-suited to identify complex patterns and non-linear relationships, crucial for understanding the dynamics of the PSEi. The input features include daily values of the PSEi, trading volume, and a collection of technical indicators, such as moving averages, relative strength index (RSI), and MACD (Moving Average Convergence Divergence). These technical indicators provide signals on market momentum and potential overbought/oversold conditions.

Furthermore, we integrate macroeconomic factors that significantly influence the PSEi. These factors include inflation rates, interest rates set by the Bangko Sentral ng Pilipinas (BSP), gross domestic product (GDP) growth, foreign exchange rates (specifically the Philippine Peso against the US Dollar), and the performance of other major international stock indices like the S&P 500 and the Dow Jones Industrial Average. Economic data is preprocessed to ensure consistency and relevance. To mitigate the effects of missing data and outliers, imputation techniques are applied. Feature engineering is a crucial step, as we create derived variables from our raw data, such as percentage changes and lagged values, enabling the model to recognize trends and patterns. The model is trained on historical data, with a significant portion used for validation and testing to evaluate its accuracy and generalizability. We utilize common performance metrics such as Mean Squared Error (MSE), Root Mean Squared Error (RMSE), and Mean Absolute Percentage Error (MAPE). Hyperparameter tuning is carefully undertaken to optimize the model's performance.

The output of the model forecasts the PSEi's future value for a defined period, allowing investors to gain insights into market trends. We incorporate risk management strategies by assessing the model's forecast accuracy and considering market volatility. The model's outputs can be employed in various applications, including portfolio allocation, asset pricing, and risk management. Our ongoing effort includes continuous monitoring of market changes and model performance and regularly retraining and updating the model with the latest available data. The model's forecasts are not a guarantee of future performance and we advise users to use the output in the model as one of the multiple sources of market insights and combine it with due diligence and professional financial advice.

ML Model Testing

F(Linear Regression)^6,7= $\begin{array}{cccc}{p}_{\mathrm{a}1}& p_{\mathrm{a}2}& \dots & p_{1n}\\ & ⋮\\ p_{j1}& p_{j2}& \dots & p_{jn}\\ & ⋮\\ p_{k1}& p_{k2}& \dots & p_{kn}\\ & ⋮\\ p_{n1}& p_{n2}& \dots & p_{nn}\end{array}$ X R(Modular Neural Network (News Feed Sentiment Analysis))^3,4,5 X S(n):→ 16 Weeks $R=\left(\begin{array}{ccc}1& 0& 0\\ 0& 1& 0\\ 0& 0& 1\end{array}\right)$

n:Time series to forecast

p:Price signals of PSEi Composite index

j:Nash equilibria (Neural Network)

k:Dominated move of PSEi Composite index holders

a:Best response for PSEi Composite target price

 

For further technical information as per how our model work we invite you to visit the article below: 

How do KappaSignal algorithms actually work?

PSEi Composite Index Forecast Strategic Interaction Table

Strategic Interaction Table Legend:

X axis: *Likelihood% (The higher the percentage value, the more likely the event will occur.)

Y axis: *Potential Impact% (The higher the percentage value, the more likely the price will deviate.)

Z axis (Grey to Black): *Technical Analysis%

Philippine Stock Exchange Index (PSEi) Composite: Outlook and Forecast

The Philippine Stock Exchange Index (PSEi) Composite is anticipated to exhibit moderate growth over the coming quarters, buoyed by a confluence of factors. Key drivers include the robust domestic consumption, a historically significant contributor to the Philippine economy, coupled with the anticipated easing of inflation. Further support is expected from ongoing infrastructure development projects, such as the "Build Better More" program, which stimulates demand and creates job opportunities, indirectly benefiting various listed companies. The financial sector, typically a significant component of the PSEi, is expected to perform steadily, supported by improved profitability and the growing digitization of financial services. Remittances from overseas Filipino workers (OFWs), a reliable source of income for many Filipino households, are also projected to remain stable or experience modest growth, fostering consumer confidence and spending. Furthermore, the government's commitment to fiscal discipline and prudent economic management provides a stable foundation for investor confidence and market stability. International investments are also likely to grow given the country's improving economic landscape and positive growth prospects.

Further supporting the positive outlook is the expected continued foreign investment interest, fueled by strategic partnerships and global trends. Sectors such as manufacturing, technology, and tourism are expected to attract increased foreign direct investment (FDI), leading to increased production and employment. The Philippines' relatively young and growing population provides a significant demographic advantage, supporting long-term economic sustainability. The country's strategic geographical location in Southeast Asia makes it an attractive hub for regional trade and investment. Moreover, improvements in ease of doing business and the streamlining of government processes are anticipated to further enhance investor sentiment. This should support expansion and create new investment opportunities. In addition, government initiatives like tax reforms and public-private partnerships (PPPs) are expected to contribute towards sustainable financial progress.

However, the PSEi's growth will face challenges. Geopolitical uncertainties, including ongoing tensions in various regions and the potential for trade disruptions, could negatively impact global economic growth, affecting the performance of export-oriented companies. The country's susceptibility to natural disasters poses a continuous risk to infrastructure and economic activity, potentially disrupting business operations. The fluctuating global commodity prices, particularly oil, could exacerbate inflationary pressures, thereby impacting consumer spending and corporate profitability. Additionally, any significant changes in monetary policy by the Bangko Sentral ng Pilipinas (BSP) or major central banks globally, such as interest rate hikes, could affect market liquidity and investor sentiment. The speed of economic recovery in major trading partners is also a relevant factor; if these partners experience slower growth, the Philippine economy may also face reduced demand and potential setbacks.

In conclusion, the forecast for the PSEi is cautiously optimistic. While economic growth factors are strong, with consumer spending and infrastructure development supporting overall market dynamics, the index is predicted to perform well in the coming months. Risks include volatility in commodity prices, potential impacts from geopolitical events, and the effects of possible increases in interest rates. Further, a lack of foreign investment inflows, changes in government policy, and the impact of climate change are other significant factors. Prudent portfolio diversification, combined with a long-term investment horizon, will be crucial for navigating market volatility. Investors should closely monitor economic indicators, political developments, and corporate earnings reports to make informed decisions and manage risks effectively.

Rating	Short-Term	Long-Term Senior
Outlook	B2	Ba3
Income Statement	Caa2	Baa2
Balance Sheet	Caa2	Ba3
Leverage Ratios	B1	Ba1
Cash Flow	C	Ba3
Rates of Return and Profitability	Baa2	C

*An aggregate rating for an index summarizes the overall sentiment towards the companies it includes. This rating is calculated by considering individual ratings assigned to each stock within the index. By taking an average of these ratings, weighted by each stock's importance in the index, a single score is generated. This aggregate rating offers a simplified view of how the index's performance is generally perceived.
How does neural network examine financial reports and understand financial state of the company?

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