The local stock market is unlikely to slip into “bear” territory despite external jitters arising from China’s turbulent asset market and uncertainties over the US Federal Reserve’s interest rate hike, online stock brokerage COL Financial said.
COL head of research April Lee-Tan, in a presentation before the Shareholders’ Association of the Philippines (SharePhil) on Friday, said the local market’s pullback had given investors the opportunity to start accumulating equities to take advantage of the country’s still favorable long-term outlook.
“This is just a major correction not a bear market,” Tan said.
But even if COL’s forecast would turn out incorrect, Tan said investors could take comfort in the fact that bear markets historically didn’t last too long. While there is still risk that contagion would push the local stock market to a freefall, Tan said any visit to bear territory would likely be “short and shallow.”
When the local stock market slid during the global stocks meltdown on Aug. 24, called the “Black Monday,” the Philippine Stock Exchange index pulled back by some 17 percent from the all-time high closing of 8,127.48 earlier this year. When a stock barometer falls by 20 percent, the market is deemed to be technically in bear territory.
“We believe that investors can already start accumulating stocks, although we advise them to use peso averaging,” Tan said.
Peso cost averaging refers to the strategy of regularly buying the same stocks or set of stocks—typically blue chip companies—regardless of price over a long period of time.
Tan’s recommendation is for investors to “focus on quality and highly capitalized liquid stocks trading at attractive valuations as these are expected to lead the market’s eventual recovery.”
The recent pullback in the market, Tan said, was largely due to the devaluation of the yuan, the sell-off in Asian stocks and domestically, the disappointing corporate earnings growth. In the case of COL, average earnings per share (EPS) forecast for 2015 was downgraded to a more modest growth rate of 4 percent from 15 percent previously.
It may take a long time for the local stock market to recover, Tan said, noting that the Philippines still offered a very attractive story to investors.
“The Philippines still has the best fundamental long-term story globally,” Tan said. She noted that the country was still growing faster than most of its peers, government finances remained healthy, investment spending was picking up, sound banking system and strong current account surplus.
Meanwhile, Tan said China’s central government remained “under deleveraged,” noting that debt accounted for only 41.1 percent of its net resources, suggesting that the government could absorb losses from defaults and eventually stabilize the economy.
As the ongoing market weakness is an opportunity for investors to buy values, COL is upbeat on the following sectors: Airlines, banks, properties, power and conglomerates. Its stock picks are Cebu Pacific, Metropolitan Bank and Trust Co., Banco de Oro Unibank, SM Prime Holdings, Ayala Land Inc., Megaworld Corp., First Gen Corp. and Ayala Corp.