PH stock market rally seen to continue

MANILA, Philippines—The local stock market was still in a “structural bull” run that could bring the main barometer to 8,000 by the end of next year, said a fund manager of Philippine American Life and General Insurance Co. (Philam Life).

In an interview, Philamlife equity fund manager Eduardo Banaag Jr. said there were only two words to describe the local stock market at present: “No shares.”

When investors are not willing to sell, Banaag said this meant that stock market investors had confidence in the market’s long-term prospects. This, in turn, is encouraging more corporate issuers to tap the market, as indicated by the number of companies selling treasury shares and conducting initial public offerings (IPOs) and follow-on offerings.

“When everyone wants to buy, this nudges up prices, so we’ll stay expensive for a while,” Banaag said. “I’m comfortable with the market staying above 19x P/E (price to equity).” A P/E ratio of 19x means investors are paying 19 times the amount of money the companies are making in a given period.

At present, Banaag estimated that the market was already trading at a P/E ratio of 20.5x. “P/Es will gradually decline as the earnings grow, it’s the E that will catch up with the P,” he said.

This is the fifth year of the run-up of the Philippine Stock Exchange index. Since the start of this year, the main index has rallied by 20.8 percent to 7,021.95 as of last Friday.

Banaag’s end-2014 outlook suggested a rally of another 14 percent from the level as of Friday.

“The key is for interest rates to stay low and the market is convinced it will stay low. It may not fall much further but it will stay low,” Banaag said.

While there were concerns that the US Federal Reserve might scale back on its monetary stimulus program, Banaag said this would be determined by the stream of data that have yet to come out. He said the markets would be assessing whether the US economy had gained a sure footing to a recovery. So far, this has yet to happen, Banaag said.

“It’s gaining traction but there’s no recovery trend. It’s growing slowly. When it’s accelerating, the unemployment will improve, then that’s the time that the US will withdraw [its quantitative easing]. But in the meantime, since we don’t see it yet, then interest rates will stay low. It will rise if inflation accelerates abruptly, but we don’t see that yet,” he said.

The strong liquidity, combined with upbeat sentiment, is seen keeping the market buoyant. “Liquidity looking for risk assets will keep the market expensive,” he said.—Doris C. Dumlao