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‘Stock market rally sustainable’

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“Can we still invest?”

That’s a question you often hear these days.  The stock market has been on an extended run-up, reaching new highs almost every other day this year.

Not even the most optimistic forecast I heard last year predicted the stellar performance we’ve seen so far!  And warnings are now being issued that the market is overvalued.

But yes, while we expect a healthy correction, there are three reasons why we believe this rally is sustainable:

Liquidity. There is just too much money in the system. Domestic liquidity alone would be enough to push the market to all-time highs; this is further exacerbated by foreign money pouring in as the west struggles with weakened economies.

Robust earnings growth. The premium prices seen now are very well supported by the strong earnings growth of the listed companies.  Earnings were up more than 15 percent in 2012, led by the banking sector.

With a domestically driven economy and a GDP growth forecast of between 6-7 percent, this strong earnings growth is expected to continue.

Strong political mandate.  The changes the government has been making are structural in nature, and set the stage for more lasting economic growth. Efforts to root out corruption and improve transparency and governance at all levels have been particularly well received.

Credit rating

How long can this last?

The much-awaited credit rating upgrade to investment grade will provide a boost, and as we approach the so-called “demographic sweet spot”—where a young and increasingly prosperous working population drive rapidly increasing consumption—a long period of prosperity for the Philippines is forecast by most economists.

Infrastructure, on which the government has put particular emphasis, will be critical to ensuring lasting economic growth.

Without the necessary investments in power plants, roads, airports, etc., the growth we are seeing could easily stall. Streamlining the bureaucracy and modernizing the regulatory environment are also important, and the positive reforms being implemented should be institutionalized so that they can no longer be reversed.

How the government performs on these fronts will be closely watched.

In the near term, what factors could cause the market to slow down?

A more sustainable recovery in the more developed markets such as the United States and Japan could cause foreign money to flow out of our market and into those markets.

Another is inflation and the likely attendant increase in interest rates, which would make other investment instruments more attractive.

Which brings me to another point.

I would put a cautionary note that the stock market is not for everyone, and is not the only way you can grow your money.

If you’re joining the bandwagon and are in it to try to make opportunistic gains, or simply relying on tips, you could get burned pretty badly when the inevitable correction comes.

Diversification

You would need a fairly large amount to be able to diversify your portfolio properly, and a strong stomach to be able to take the ups and downs.  You should be prepared to leave your money for several years, but also have the wisdom to know when to cut your losses and the discipline to get out if it’s unlikely for a stock to ever recover in price or to recover within a reasonable timeframe.

Too many people hang on to a stock until it’s practically worthless!

Pooled funds such as mutual funds and unit investment trust funds (UITFs), allow you to participate in the market even with a small amount of money, as minimum investment is only P5,000.

They also have the advantage of being run by professional fund managers. An equity fund will have up to 90 percent of its funds invested in a wide variety of stocks (100 percent for UITF equity funds), giving you the diversification you need.

Bear in mind, however, that returns are not guaranteed and an equity fund will generally move up and down with the market.

An older person or one who needs the money in the near future is better off investing in bonds, which give lower returns but are more stable.  A pooled fund invested mainly in bonds is a good alternative.

In fact, while more people have been investing in equity funds, bond funds are still the most popular pooled fund in the country, perhaps an indicator of generally lower risk appetites.

Balanced funds, with their close to 50:50 mix of stocks and bonds, have also been growing as they provide a good balance between risk and return.

Perversely, bond prices rise as interest rates decline, so with the declining interest rates of late, bond funds have also been giving good returns.

Given the strong economic performance of the Philippines, the massive liquidity, and the expected ratings upgrade, interest rates are not expected to rise anytime soon.

Thus, this is a good year to invest because wherever you put your money, whether in stocks or bonds, you are likely to make good returns.

Financial manager

However, the key is in knowing what you are doing.

For most of us who have neither the time nor the money to understand and play the markets properly, it is probably better and easier to leave management of our funds to a reputable company with professional fund managers.

Growth is sustainable as it stands on excellent fundamentals, but it will not be a straight line upward—corrections are healthy and inevitable.

You can leave the worrying about how to allocate your money and when to move it to a professional.

It is also advisable to talk to a financial advisor.

A good one will take the time to thoroughly understand your needs, determine your cash flow requirements, and help you allocate your funds to various types of financial instruments, both for short and long term needs.

He or she will also facilitate the placement of your funds and ensure you fill out all the necessary documentation properly.

As to how high the PSEi can go this year … 7500?  Why not!

(The author is president and CEO of Sun Life Financial Philippines.)

 


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  • OFW_Investor

    We believe that Portfolio concentration is the key to creating wealth in the stock market, we believe that our investible funds should go to our best ideas in the stock market and not on our 10th, 11th, or 12th best idea.At any given time, we hold on
    ly 5 to 6 shares, with one of them 65% of our total fund. We believe portfolio concentration forces the investor to think and analyze the buisness more rationally. Diversifiaction means pedestrian returns to a know nothing investor. Why would I invest with a mutual fund who seeks diversification?I can do that myself, just spread my investments to a basket of stocks that mimic the PSE , anybody can do that. What is the mutual fund bringing on the table to warrant the fees?If the PSE i
    s being predicted to go to 7500 by Sunlife then thye should show conviction and go all in to one or two best ideas.

  • http://profile.yahoo.com/SPLUBLEOSERDBOIJTDOC6XIWGU mxsclxmxn

    An insidious byproduct of Freemasonry is to keep husbands and wives out of churches & away from their children and their homes…

    Satan does not need to receive worship to achieve his goals. All he has to do is to keep a man from following Jesus. Satan knows that anyone who does not follow in the teachings of Jesus does not have God. (2 John 9)

    Satan’s Synagogue as per Pope Clement XII year 1738

    In the P100 BILL series 2012 Serial # ZK188477 has a logo of the Grand Lodge of Free and Accepted Masons. Freemasonry has its goal of destroying Christendom and replacing it with man-centered government and Satanic religion filled with errors.

    How can this logo of a satanic group be allowed to print in the monetary instrument of the country with the constitution believing in a God asking for HIS Divine Providence?

    In Freemasonry the god of the secret societies is covertly substituted for the One True God. This false god is identified in the Masonic lodges as “the Great Architect.”

    Since Freemasonry has attempted so strenuously to claim that they are just a “good ole boy” fraternity that does good works and has a good time, most people will be shocked to learn the bitter truth behind that facade. Freemasonry certainly isn’t “free”. It could cost you your soul.

    Once Masons progress to the higher degrees and they finally believe the ‘Masonic lie”; and they will ‘understand’ that the Grand Architect of the Universe is not the God of the Old or New Testaments, but instead is the perfect dues paying Mason in good standing, who like the statue example above, they chipped away at, and finally shed needless ‘layers’ from both their old useless religion, and from loyalties outside of Masonry, which all along were what concealed them from their own personal true image, as the one and only real God.

    Freemasonry is one of many apostate religions dedicated to the destruction of traditional Judaism and Christianity. Those who aspire to grow in their closeness to Jesus Christ, and to increase their discernment in these days, would do well to stay very clear of Freemasonry. Are your loyalties with Jesus Christ or are they with the lodge? Both are diametrically opposed to one another as you will see below.

    Masons have mixed idolatry, paganism, the occult, Gnosticism, Kabala, fertility cults, Satanism, spiritualism, demonology, and put it into a blender and come up with the Masonic religion. It is not of God! It is a false religion; the Harlot of Babylon. Masons say they offer new candidates “the light”. The light they are actually giving is: Lucifer. The Christian Bible says that Satan walks to and fro on this earth masquerading as an “angel of light”, that many might be deceived.

    • http://www.facebook.com/katipunan Andres Bonifacio

      JHC…you forget to take your MEDS again!!!!

      • http://profile.yahoo.com/SPLUBLEOSERDBOIJTDOC6XIWGU mxsclxmxn

        and you are dead by now!

      • http://pulse.yahoo.com/_DR2PAT3AO2DOH4IDYIGZQDM7CY thg

        I guess its a manifestation of OD. LoL

  • rburke

    not unless these greedy companies share their earnings through dividends, whatever increase in share prices would just be the fruit of speculation, nothing substantive is returned back to the investors and eventually the prices will go down, together with our hard earned investment..just too much greed..

    • http://www.facebook.com/katipunan Andres Bonifacio

      I sold therefore I reap..What are you talking about…..????

      • rburke

        yeah, just keep selling until you got nothing left to sell..the sign of a healthy market is price stability, too much speculation will eventually kill the market..if you want to gamble, you’re in the wrong place, better go to a casino..

  • isprikitik

    nice…



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