The Philippine Stock Exchange index (PSEi) may still have enough gas to breach the 7,800 level in the next 12 months, said Michaelangelo Oyson, managing director of BPI Securities.
He said the 7,886 mark would be a “reasonable” target based on assumed earnings growth of 12-13 percent. But after that, the market could become challenging.
Oyson Friday pointed out that the market was moving from the middle to late phase of the current cycle. And while the market at present continues to gain ground, the advances are bound to end.
“Parties don’t last forever because earnings will need to drive performance,” he explained.
Oyson said going to the 8,000 would be “a bit of a challenge,” citing headwinds to the banking sector, price wars and capital spending pressures on the telco sector amid an environment of rising interest rates and tightening rules from the central bank.
The earnings downgrade on PLDT have yet to be fully priced into the market, he added.
“The easy money has been made,” Oyson said, noting that the market was no longer cheap and more drivers would be needed to bring the price to earnings (P/E) multiple to 23x. “We’re almost priced to perfection,” he said.
A P/E ratio of 23x means that investors are willing to pay 23 times the amount of money they expect to make.
“I’m not sure if we can stay above 20x P/E over a long period of time,” he said.
In about 18 months, he said, the market would likely enter a “limbo,” or a period of consolidation. From there, he said, the market would likely move up or decline.
“It depends on who becomes the president of the country,” Oyson said, noting that the strong performance of the market in the last five years was largely due to the people’s confidence in the government.
“Analysts focus on cash flows, etc., but at the end of the day it’s psychology that will drive flows,” he said.
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