The bears may be dominating the local stock market now, but this only provides an opportunity for investors to pick up quality stocks as the market remains on a long-term bull run, leading online stock brokerage COL Financial said.
In a press briefing Monday, COL head of research April Lee-Tan said if the local market would enter into a “bear” market, it would only be a “cyclical bear in a secular bull.”
“This means that the long-term trend is still up, but in between, there are pockets of weaknesses. That also means that in the next bull market, we’ll see levels higher than 8,100,” said Tan, referring to the peak level seen by the Philippine Stock Exchange index (PSEi) in April last year.
Bear markets are technically defined as a retreat of 20 percent or more in multiple market indices over at least a two-month period. A bear cycle typically lasts one to three years.
The PSEi has been languishing in bear territory for three weeks now. The last time the index knocked down the bears was in 2014, but they promptly pounced back. The last bear cycle was in 2008 during the US-epicentered global financial cycle, but markets started rebounding by 2009.
COL believes it’s a “buyer’s market” these days. Analysts said investors could take advantage of attractive valuations resulting from the ongoing market rout to generate gains over the long term.
Tan said the secular bull market that started in 2000 has yet to make another run and that it would still be possible for the PSEi to reach the 10,000 milestone by 2020.
COL head of technical research Juan Barredo said the PSEi could find support at 5,890 and a stronger barrier at 5,700.
“Expect choppiness and volatility to continue. But oversold prices may soon offer up some recoveries,” Barredo said, adding that such a rebound may reach 6,600 to 6,700 or even test 7,000 “if we’re lucky.”
Barredo said investors should thus focus on “oversold” quality stocks backed by good trading volumes.
Tan said the PSEi’s fair value would still be at 7,400, based on a “bottoms-up” approach or individual assessment of component stocks. COL sees corporate earnings growing by an average of 10 percent.
Tan said the performance of the PSEi would likely remain weak in the first half of the year as the challenges encountered in 2015 were likely to extend this year. These include the disappointing earnings performance of listed companies, the continuous weakness of the Chinese economy and the US Federal Reserve (Fed)’s tightening of monetary policy.
“Although the Philippines is relatively resilient as it is a net importer of commodities and as it has a current account surplus equivalent to 4.4 percent of GDP (gross domestic product), it is already showing signs of vulnerability. OFW (overseas Filipino worker) remittances growth already decelerated to 3.7 percent during the first 10 months of 2015 and is at risk of weakening further given Filipinos OFWs large exposure to the Middle East (23 percent of total remittances and 61 percent of annual land-based deployments), which is highly dependent on oil exports,” Tan said.
Tan also sees a weaker peso and higher interest rates.
To manage risks, Tan said investors should use only long-term money when buying stocks, never use margins, spread out buying over a period of 18 months, set conservative buying prices, be defensive (choose stocks that thrive in good times or bad) in stock selection and be mentally prepared to see losses in the short-term.
COL’s stock picks include First Gen Corp., SM Prime Holdings, Ayala Land Inc., Megaworld Corp., Robinsons Land Corp., D&L Industries and Century Pacific Food Inc.