PH stock market’s gains wiped out by fears of US stimulus tapering

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MANILA, Philippines — The local stock market gave up all gains seen earlier in 2013 as jitters over the US Federal Reserve’s tapering of monetary stimulus pushed stocks deeper into bear territory.

Ahead of the Bangko Sentral ng Pilipinas’ last policy rate setting for the year, the main-share Philippine Stock Exchange index lost 126.21 points or 2.14 percent to close at 5,762.53.

The main index is now 50.2 points less than 2012’s yearend closing of 5,812.73. It has likewise pulled back by 1,637.47 points or 22 percent from the record high 7,400 seen earlier this year, dragging it to “bear” territory.

Jonathan Ravelas, chief strategist at Banco de Oro Unibank, said the index might still close the year at 6,500 – some 687.27 points or 11.8 percent higher than the end-of-2012 level – on the seasonal yearend rally. He said this yearend level would be equivalent to a price-to-earnings (P/E) ratio of 17.5x based on 2013 earnings and consistent with local companies’ return on equity (ROE) averaging from 15-16 percent.

A P/E ratio of 17.5x means that investors are paying 17.5 times the amount of money they expect to make from this market this year.

Assuming that the PSEi would bottom out at 5,500 this year – a level believed by many to be a very strong support level – Ravelas said the index would have to rise by 30 percent or towards the 7,150 level to call the bulls back to play.

The PSEi has risen four straight years beginning in 2009.

At the local market, all counters were in the red. There were about four decliners for every single gainer at the bourse. Value turnover amounted to P9.42 billion.

The day’s biggest PSEi laggers were Jollibee and AGI, which both fell by over 5 percent while JG Summit, BPI and URC slipped by over 4 percent. DMCI, RLC, MPI and AC tumbled by over 3 percent.

Ravelas said the market has reached the middle of the third out of five waves in Elliot wave technical analysis. But what the local market is seeing now is not yet the big correction, according to Ravelas.

BDO’s chief strategist said the index might again retest record highs by next year before the big correction that could drag down the index to as low as 4,700. After that big correction, he said, that would be the time for the index to climb towards 8,000 to 10,000 level. “But that can take years,” he said, adding that political risks could be part of the equation.

Based on BDO’s 2014 outlook, the PSEi is seen to surge to as high as 7,500 in 2014, equivalent to a P/E ratio of 20x based on 2014 earnings. After hitting such highs, the index would consolidate and correct to the 7,000 level or about 18x P/E ratio, Ravelas said. The US Federal Reserve’s decision on quantitative easing would significantly weigh on the market’s direction, he said.

The steep decline of the PSEi from a record-high of 7,400 this year was largely due to expectations that the US Fed would begin tapering the monetary stimulus that had buoyed emerging market assets in the last three years.

“Among the companies that will likely enjoy higher share prices next year are those in consumer goods, retail, real estate, construction and tourism industry,” Ravelas said in BDO’s 2014 outlook,” Ravelas said.

“OFWs (overseas Filipino workers) for instance, spend a big portion of their money on food and housing. Meanwhile, the rising affluence of Filipinos, affordable mortgage rates and amortization, and the backlog in supply of housing have been a boon to real estate developers. Constructions firms, and those engaged in the business of supplying construction materials will also perform well given the reconstruction needed in regions affected by typhoon ‘Yolanda’ (Haiyan),” he said.