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HSBC bullish on PH growth, neutral on equities market

/ 03:07 AM June 26, 2017

British banking giant HSBC is upbeat on the Philippines’ growth story but has a “neutral” view on domestic equities on expectations of muted expansion in corporate earnings this 2017.

HSBC is projecting the Philippine Stock Exchange index to end the year at 7,800 or lower than the first semester peaks that retested the 8,000 mark.

This yearend outlook suggests a “flattish” view compared to current levels, this represents a net increase of 959.36 points or 14 percent from the end-2016 closing of 6,840.64.

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“We remain positive on the macro growth outlook in the country but, on the other hand, currently the market is projecting a single digit EPS (earnings per share) growth for the Philippines. It is partly due to the difficult competitive environment for a number of domestic sectors, such as utilities and telecom and on a high comparison base last year,” HSBC managing director and head of Asia investment strategy and advisory Cheuk Wan Fan said in a briefing last week.

A “neutral” rating means HSBC is neither bullish nor bearish on local equities. A neutral trend occurs when, after a sustained increase or decrease in price, the price begins hitting levels of resistance or support.

Among regional emerging markets, HSBC has an “overweight” rating on China, India and Singapore, which means it recommends increasing exposure to these markets relative to the benchmark index.

Last year, Philippine corporate earnings had an extraordinary boost from the presidential elections. This year, however, Fan said earnings growth momentum would be “relatively moderate” compared to regional peers.

Fan said HSBC was projecting an average EPS growth of 3.9 percent for Philippine companies this 2017. This is slower than the double-digit expansion seen in earlier years. However, she said growth was projected to improve to 11.7 percent in 2018.

In the meantime, HSBC expects the country’s gross domestic product (GDP) growth to ease to 6.5 percent this year and next year from 6.8 percent last year.

“With the strong support from private consumption, we still have a neutral view on the Philippines market. But given that the Philippine composite index had already exceeded our yearend high of 7,800, we would expect the second half performance of the Philippine market to likely lag behind the first half,” she said.

Asked whether the siege of Marawi by a terrorist group that has pledged loyalty to ISIS had any impact on investors’ sentiment, Fan said the more important drivers remained the macroeconomic outlook and the domestic demand growth story.

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Selective buying is thus seen as the preferred strategy in the stock market for the second semester. While the index could remain flat for the rest of the year, Fan said there could be selective companies that could outperform the index.

“We are more positive on the property, consumer and infrastructure-related sector in the Philippines,” she said.

For the rest of the Southeast Asian region, Fan said HSBC’s house view implied a smaller or limited upside potential for indices to rise further compared to the first half.

London-based Willem Sels, HSBC chief market strategist, said for global markets, the house view pointed to a slow tightening of interest rates by the US Federal Reserve. —WITH A REPORT FROM ODELINNE JAN LINA

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