The Philippines is still in the middle of a stock market upswing backed by an “economic supercycle” that could support the local stock barometer’s rise to 8,000-9,000 by 2014, the chief of BPI Securities Corp. said.
In an investors’ briefing on Saturday, BPI Securities chief executive Michaelangelo Oyson said the Philippines was in a “golden era” marked by strong foreign exchange levels, a healthy government fiscal position, a robust banking system and a resilient consumer sector.
“We’ve never seen this happen in our lifetime: GDP (gross domestic product) growth of at least 7 percent in the next few years is a possibility, not just a hope,” Oyson said.
Unlike other peers in the region that are having trouble with their external balance sheet like Indonesia, Oyson said the country was getting a big boost from the business process outsourcing (BPO) and overseas Filipino sectors, which respectively bring in inflows to the tune of $20 million and $60 million daily.
“The stock market basically prices in the economic cycles six to nine months before. In the case of the market, investors in the Philippines are wondering whether 6.5-6.8 percent (GDP growth) is something that can be exceeded because if not, there won’t be an upside on the price,” Oyson said.
“But if the Philippine economy grows by over 7 percent, the stock market is going to fly because more and more foreign investors are going to invest in the Philippine stock market,” he said.
For those who are wondering whether the party is over, Oyson said local equities were still “in mid-cycle. We’re not in late cycle.” By yearend, his fearless forecast is that the PSEi will be back to the 7,000 levels before climbing new heights next year.
Mid-cycle or the “inflationary stage” is marked by strong growth in GDP, corporate earnings and credit although policymakers are watchful of inflation threats, Oyson said. This is seen as distinct from a “late cycle” when growth in all these indicators is decelerating or a “recession stage” when all these indicators are on a decline.
“Every stock market crisis is always preceded by tightening liquidity in the market,” Oyson said, adding this was not yet the case in the country. As such, he said the outlook was still bullish on local equities except in the near-term period when pronouncements from policymakers in the United States, China and even India would have ripple effects on the global economy.
“Foreign funds will continue to decide the near-term outlook for the stock market and we can’t hide from that,” he said.
For instance, Oyson said the risk of the US Federal Reserve switching off the liquidity faucet in the next few weeks and months had yet to be fully priced in. “I keep on telling investors that (US Fed Chair Ben) Bernanke will determine whether it’s going to be a merry Christmas for us.”
“In 1994 when the Fed switched off the liquidity faucet, the market fell by 24 percent. Using today’s numbers, that’s 5,800. We reached that level a couple of weeks ago then moved back to 6,300-6,400. If Bernanke speaks in the next few weeks, there’s risk of the market going back to that level again,” Oyson said, adding, however, that any retreat would open up an opportunity to load up on Philippine equities.
On the other hand, he said Chinese Premier Li would determine whether the mining firms of the world would make money or if the commodity cycle would improve.