Index seen to test 6,000 level

The local stock index may continue to test the 6,000 barrier this week, as the market waits for fresh catalysts from a string of onshore and offshore macro data.

Last week, the main-share Philippine Stock Exchange index gained by 144 points, or 2.47 percent, to close at 5,987.09 on Friday. For the first time since December, the main index broke out of the 6,000 mark during intraday trade before profit-taking ensued.

“Chartwise, expect another break above 6,000, provided the 5,960 support holds,” said Banco de Oro Unibank chief strategist Jonathan Ravelas.

He said lack of fresh catalysts allowed the index to remain range bound at the 5,900-6,000 level last week.

Gregg Adrian Ilag, an analyst at AB Capital Securities, said the PSEi was now trading at 15.73x 2014 price to earnings (P/E) and 14.42x 2015 P/E. A ratio of 15.73x meant that investors were paying 15.73 times the amount of money they expect to make this year.

Ilag noted that the local valuations still marked a premium over the peer market median average of 13.33x 2014 and 11.73x 2015 as justified by a 5.8 percent gross domestic product (GDP) growth forecast for 2014.

However, AB Capital Securities sees limited space for rerating on the index given slower earnings growth this year. Nonetheless, Ilag said, individual stocks with strong headline profits should perform well.

“From a technical perspective, we see that the index has formed its range between 5,800 to 6,000. Failed attempts to break 6,000 would suggest that the range is still intact and that a pullback is highly probable. Valuation upsides continue to be significant on a medium term horizon. We suggest positioning selectively in the consumer, property and gaming sectors,” he said.

AB Capital Securities expects the PSEi to trade sideways this week.

Among the economic data set to be released this week in the United States are the existing home sales and unemployment claims, Ilag said. Locally, the Philippines will report the November imports, November trade balance and December balance of payments. Doris C. Dumlao