Further consolidation seen

The local stock market may continue consolidating this week as investors await further clues on the US Federal Reserve’s monetary policy.

Last week, the main-share Philippine Stock Exchange index (PSEi) inched up a mere 0.5 percent to close at 6,500.48 on Friday. Trading volumes were thin for most of the week.

This week, investors will anticipate Federal Reserve Chair Ben Bernanke’s speech, looking for a clearer indication on when asset purchases will start to taper from his testimony, according to AB Capital Securities analyst Gregg Adrian Ilag.

After adjusting for actual 2012 earnings, Ilag said the PSEi was trading at 16.3x P/E (price to earnings) for 2013 and 15x for 2014. This means that investors are trading at 16.3 times the amount of money they expect to make for this year and 15x for 2014.

“Based on our estimates, Philippine earnings growth is twice the regional peer median. However, that is already reflected in our premium valuation to the regional peer median at 14.51 times 2013 earnings,” Ilag said.

From a technical perspective, Ilag said the PSEi had retraced half of the downtrend from the high of 7,400. He added that key resistance and support levels were near 6,600 and 6,300 based on exponential moving averages.

“With the market still at high valuation multiples, we choose to wait for another pullback before going long. We think that price multiples will revert to long-run average near 14x, which should enable favorable buying opportunities across the market,” Ilag said, adding that the strategy should be to stay liquid in the meantime. Doris C. Dumlao

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