Broker sees PSEi returning to 7,000 levelBy Doris C. Dumlao
Philippine Daily Inquirer
MANILA, Philippines—The country’s leading online stock brokerage, COL Financial, sees favorable macroeconomic fundamentals and ample domestic liquidity keeping local stocks buoyant, allowing the main index to return to the 7,000 level by yearend and to post new record highs by next year.
The Philippine Stock Exchange index is seen ending this year at 7,250 or as high as 7,500, based on latest COL forecasts. By the middle of next year, the index is seen hitting new highs between 7,450 and 7,700.
“We’re still bullish on Philippine equities even with less liquidity,” said COL head of research April Lee-Tan, citing a favorable and more sustainable economic growth trajectory and less vulnerability to global risks.
At the same time, she said, central bank restrictions on special deposit accounts (SDAs) will free up a lot of liquidity. “We expect some of them to go to stock market and this will help mitigate impact of foreign fund (out)flows given the very positive picture of the Philippines,” she said.
The low end of COL’s PSEi forecast range—7,250 for this year and 7,450 for mid-2014—is the “bear” case scenario, which assumes an increase in 10-year local treasury bond yields to 4.5 percent. The “base” case assumes that 10-year T-bond rates will be capped at 4 percent.
The government recently raised P150 billion from the sale of 10-year retail treasury bonds at 3.25 percent per annum.
COL shrugged off concerns that local equities were expensive, noting that potential earnings yields were not so expensive, taking into account fixed income yields. While Philippine valuations are high compared to stock markets in Thailand in Indonesia, she explained that these neighboring markets were cheaper because their respective main indices comprise commodities. In the case of the Philippines, she said, there’s only one mining issuer in the PSEi, Philex Mining which had an index weight of less than 1 percent.
This year, COL expects earnings per share ) of PSEi companies to grow by 12 percent but ease to 5.9 percent next year due to the likely flattish earnings of banks next year, coming from extraordinary trading gains that are bloating earnings this year.
COL’s top stock picks now are: construction firm EEI Corp., retailer Puregold Price Club Inc., conglomerates Ayala Corp. and Alliance Global Group Inc., property developers Megaworld Corp. and Robinsons Land Corp., telecom giant Philippine Long Distance Telephone Co. and D&L Industries, a food ingredient and specialty plastic additive manufacturer.
Based on its technical analysis, COL sees a strong index support at 6,100 and assigns a 35-percent probability that the index will again fall below 6,000 and retest recent lows.
On a macroeconomic backdrop, Lee-Tan said out of the four major drivers of the local economy, three are still growing – consumer, investment and government spending while the only lagger was the export sector. She said the Philippines, however, was never dependent on exports.
She said consumer spending was underpinned by the resilience of overseas remittances and business process outsourcing revenues while the weaker peso is benefiting these two foreign exchange-earning segments.
The Philippines is on a “virtuous” cycle, she said, adding that the strong banking system was oiling the needs of the economy. While the rollout of infrastructure projects under the public-private partnership (PPP) framework has been disappointing, she said. But she said more of these PPP projects may now move forward, thereby perking up growth.
She also noted the demographic window that the country would benefit from by 2015 when at least 60 percent of the population would reach working age.