Well-oiled, firms seen lifting market to 8,200

Local investment house First Metro Investment Corp. (FMIC) sees the stock barometer hitting a new high this year as corporate earnings are expected to pick up pace despite a more moderate economic growth.

FMIC sees the Philippine Stock Exchange index (PSEi) peaking this year at 8,200 on the back of a 10-percent growth in core earnings per share (EPS). This marked an upgrade from an earlier forecast that the market would peak at 7,800 on an EPS growth of 8 percent. FMIC’s earnings forecast factors in only recurring earnings and takes out the impact of the telecommunication sector, deemed an outlier among listed companies.

In a joint research with the University of Asia and the Pacific, FMIC also revised its growth outlook for the Philippines to 6.5-7 percent this year.

Despite a downgrade from its earlier forecast of a 7-7.5 percent growth, FMIC expects the economy to remain strong, underpinned by vigorous capital goods imports, steady rise in foreign direct investments and the resurgence of manufacturing. Other key drivers include the steady expansion of overseas Filipino worker remittances and contributions from the business process outsourcing (BPO) and tourism sectors.

“If the ‘Build, Build, Build’ campaign of the Duterte administration—which is expected to increase the productive capacity of the economy, create jobs and strengthen the investment climate—would move at a faster pace, we would still be able to reach the earlier forecast of above 7 percent growth,” FMIC president Rabboni Francis Arjonillo said.

FMIC expects infrastructure spending this year to grow to 4.5 to 5 percent of GDP albeit lower than the government’s target infrastructure spending of 5.3 percent.

The tax package set to be tackled next at the Senate, among others, lowers personal income tax rates while broadening value added tax coverage, rationalizing estate and donor’s tax and adjusting oil and automobile excise taxes.

For the rest of the year, FMIC’s upgraded forecast for the PSEi assumes that the stock market will trade at a price-to-earnings ratio of 19x, which means investors are willing to pay 19 times the amount of earnings they expect this year.

The market made a record high finish of 8,127.48 on April 10, 2015. This year, the index has already breached the 8,000-mark twice.

FMIC head of research Cristina Ulang said benign inflation and excess financial liquidity were also keeping the cost of money low, thus boosting spending. “If you have affordable cars, affordable condominiums, you’ll see construction continuing and infrastructure is really key to industry growth,” she said in a press briefing yesterday.

She said business and consumer confidence would likely continue on the back of the country’s progress in the areas of poverty alleviation and job creation.

FMIC maintained its inflation forecast for the year at 2.8 to 3.2 percent. Food prices are seen remaining stable while oil prices are expected to remain low due to increased crude oil production and higher US shale oil output.

The investment house also maintained its peso-dollar forecast at an average of P51 against the US dollar. —WITH A REPORT FROM ODELINNE JAN LINA