2017 seen a good time to accumulate stocks

This year is a good time for investors to accumulate stocks at a lower price as the country’s strong economic growth may not necessarily translate to a big surge in the local stock barometer, the chief investments officer of Sun Life Financial Philippines said on Wednesday.

The Philippine Stock Exchange index (PSEi) may peak this year at 7,400 to 7,800 as average corporate earnings may not be as high as the levels in previous years, Sun Life’s Michael Enriquez said in an interview at the sidelines of the insurance giant’s briefing on 2017 market outlook.

Earnings of PSEi companies may ease to 8 percent this year compared to double-digit levels in the previous years, weighed down by the sluggish performance of telecommunication stocks.  But excluding telecom stocks, average earnings growth may remain at double-digit levels, Enriquez said.

“There are other companies outside the index that can have potential for double-digit earnings growth,” he said, adding that the consumer sector would be one sector that could perform well this year.

Sun Life’s base case scenario is for the PSEi to peak at 7,400 this year, which is not too far from current levels while its best-case scenario is for the local stock barometer to retest 7,800.  By the end of the year, Sun Life sees the index settling at 7,500 to 7,600.

The Philippines is seen remaining one of the fastest growing economies in the region this year, with gross domestic product growth projected at 6.7 percent from an estimated 7 percent last year.  Enriquez said year-on-year fourth quarter 2016 growth would likely be about 7.2 percent.

“This year, the economy is strong but it may not necessarily translate to a strong equity market, and there are a lot of factors affecting that. Earnings growth rate is not as strong as what was seen in previous year so that won’t translate to stronger market,” he said in a news briefing.

“But what I’d like to highlight is it’s the best opportunity to get asset prices cheaper because down the road, once the government gets its act together, it will be an opportunity for asset prices to go much higher,” he said.

Over the long-term, the government’s massive infrastructure spending could be a fresh catalyst for the market.  The Duterte administration has pledged to usher in a “golden age of infrastructure” during its six-year term, vowing to raise infrastructure spending as a ratio of GDP to at least 5 percent to a high of 7 percent.

Once the market sees at least one or two projects progressing, that would bring good tidings to the market, Enriquez said.

Over the short-term, he said the government’s tax reform program would also offer a positive catalyst for the market.  “That’s something that can add money to the consumer and hopefully for the government so that’s positive overall.  That will be positive for next year.”

Duterte’s tax reform package seeks to reduce the maximum personal income tax from 32 percent to 25 percent and the corporate income tax from 30 percent to 25 percent.  It also seeks to expand the value-added tax (VAT) base by reducing the coverage of its exemptions.