Global insurance giant Sun Life of Canada sees the Philippine stock index rising to as high as 7,000 this year on a favorable mix of historically low interest rates, high investor confidence, strong macroeconomic fundamentals and better global economic backdrop.
In a briefing on Wednesday, Sun Life chief investment officer for Asia Michael Manuel said that although the main-share Philippine Stock Exchange index might not accelerate in the same pace as seen in the last two years, there was still room for stock prices to hit new highs.
Over the next 12 months, Manuel said Sun Life’s base scenario was for the main index to rise to 6,500, suggesting an upside of about 12 percent from the end-2012 level of 5,812.73. He, however, added that the best-case scenario would be 7,000, given the rosy outlook presented by President Aquino to the Fil-Swiss community in Zurich over the weekend.
Speaking before advisers of Sun Life Asset Management Co. (SLAMC), the mutual fund management unit of Sun Life in the Philippines, Manuel said advisers should “not to be blinded” by index targets. He said it was the fund managers’ job to pick stocks so that investors could participate in the Philippine story.
He said the investment strategy for the Philippines this year would be to remain “overweight” (a recommendation to accumulate in excess of the benchmark index) on equities and invest in a combination of big and small caps. Sun Life’s preferred sectors are banking, infrastructure/cement, property and conglomerates, Manuel said.
During her opening speech in this internal forum, Sun Life Financial Philippines president Riza Mantaring said the Philippines was “in the middle of an economic upswing.”
“It really feels like we’re on the verge of economic take-off,” she added.
SLMAC’s target is to hit P50 billion in assets under management (AUM) by 2015 from some P29 billion as of end-January. Mantaring said the target this year would be to expand AUM to P35 billion which, she said, could easily be exceeded.
Manuel said the combination of low interest rates and high confidence was very good for the economy. The Philippine growth story, he added, was supported by robust consumer spending, improving investments, stable banking system and a much-improved government fiscal situation.
“The confidence is not only in the economy but also in the political leadership,” Manuel said.
Manuel said the Philippine sovereign was on the brink of getting an investment grade rating this year, predicting that an upgrade from Fitch Ratings and Moody’s would likely come ahead of Standard & Poor’s. He said the Philippines was in a better shape compared to Indonesia, which already enjoys investment grade.
In an interview after his presentation, Manuel said Sun Life’s stock market outlook for this year assumed a 12-percent growth in corporate earnings. Excluding telecom stocks, he said the average corporate earnings could grow by as much as 17 percent this year.
He said that price-to-earnings (P/E) ratio was at about 18x expected earnings for 2013. However, he said the market paid as high as 22x P/E in 1997 when the country was facing an Asian currency crisis.