THE LOCAL stock barometer can revisit the 8,000 level and sustain its uptrend over the long term on the back of strong Philippine macroeconomic fundamentals, an economist from Maybank ATR Kim Eng Securities said.
In a forum organized by Sun Life of Canada (Philippines) last week, Maybank ATR Kim Eng Securities economist Luz Lorenzo said that even if domestic economic growth had slowed down since last year, it was still the best performing economy in Southeast Asia.
For this year, Lorenzo downgraded her full-year gross domestic product (GDP) growth forecast to 6.4 percent from 7 percent, but noted that this would still turn out to be the strongest growth pace among the major economies of Southeast Asia.
“Because of these fundamentals, we will continue to attract foreign as well as domestic investors. We will have low interest rates, which are good for investments, for direct investments, for investments in construction, equipment and also for investing in the equity market,” Lorenzo said.
Maybank ATR Kim Eng is expecting average corporate earnings to grow by 16 percent this year. Average earnings per share of the stockbrokerage house’s basket of stocks is seen to grow by 12 to 13 percent. This basket of stocks is not too far from the components of the Philippine Stock Exchange index (PSEi) except for the inclusion of some mid- and small-cap stocks.
By the end of the year, Lorenzo said it was possible for the index to return to the 8,000 levels and sustain its upswing.
“We’re not bullish because there’s (a presidential) election next year. We’re bullish because of the economic fundamentals. That’s the source of optimism,” she said.
Lorenzo said the short-term volatility seen in the local stock market recently had to do with foreign flows. In the early part of the year, she noted that there was large net foreign buying that led the index to new peaks (8,100) in April. But as jitters over the Greek debt crisis, the stock market rout in China and the US Federal Reserve’s imminent interest rate increase intensified, she said that was when foreign investors started selling out of the market.
However, Lorenzo noted that prior to 2012—when the Philippine sovereign got the much-coveted investment-grade rating from major credit watchdogs—net inflows were actually much smaller than what the local bourse was seeing now.
She said foreign flows would soon return, noting that the Philippine growth story remained compelling.
“When you compare the fundamentals of the Philippines in terms of fiscal space, in terms of current-account surplus, in terms of liquidity, in terms of banking strength, there are not that many countries with the same characteristics,” Lorenzo said. “The long-term growth story of the Philippines is intact.”
Lorenzo said she was hoping that the US Fed would start its interest rate increases soon to remove such overhang on the market. As the Greek crisis had been resolved with a new bailout deal with the European Union and the stock market shakeout in China would likely be temporary, she said the waiting game on the US Fed was now the single-biggest uncertainty for the market.
If the US Fed raises its targeted interest rate, now at near-zero level, by 25 basis points this year and by 50 basis points in 2016, she said the market could deal with it.
The PSEi has been rising for the seventh straight year after bottoming out at 1,704.41 in Oct. 28, 2008, amid the US-epicentered global financial crunch. As of Thursday’s close, the PSEi stood at 7,617.13, marking a year-to-date gain of 386.56 points or 5.3 percent.