COL head of research April Lee-Tan, COL Premium Group head Ed Martinez
Online stock brokerage COL Financial sees the bulls continuing to dominate the stock market this year. It, however, cautioned investors against exhausting their funds or buying aggressively at lofty prices, citing opportunities to load up during market corrections.
COL sees corporate earnings growing by at least 10 percent this year, in turn seen to support the rise of the Philippine Stock Exchange index (PSEi) to 9,300 or about 9 percent up from last year’s finish. The potential new record high for the PSEi is only 384.08 points away from Friday’s close.
“What we’re telling investors is at this stage, yes, we are positive but if you’re a fund manager, now is not the time to be overweight in the market. Maybe you should keep a little money in cash and wait for the markets to correct to buy more aggressively,” COL head of research April Lee-Tan said in a briefing on Friday.
An “overweight” position refers to the loading up of more stocks in excess of the allocation prescribed by a benchmark index, typically the MSCI.
When investors are overly positive, Tan said the market would also be more sensitive to negative surprises.
“There will be corrections but they will just be corrections. It doesn’t mean the bull market will not continue,” she said.
COL chief technical analyst Juan Barredo said the eventual target of the PSEi—now seen riding the fifth wave or the last wave of the Elliot Wave technical analysis—would be 9,700. He said PSEi might test the next resistance levels at 9,000 and 9,200 during the first semester.
“But necessary pullbacks may be expected—these reactions may urge rollbacks of 5 to 10 percent,” Barredo said. “Such pullbacks may propose better buying options for traders,” he said.
Tan said Philippine equities remained attractive as the country was still in a demographic sweet spot and its per capita GDP (gross domestic product) was close to the critical $3,000 level, generally believed as an inflection point of consumer affluence.
With a median age of 23, a resilient business process outsourcing (BPO) sector earning $25 billion a year and overseas remittances seen hitting $27 billion in 2017 and the tax reform program that will allow the government to boost its infrastructure spending, Tan said maybe this time, the country would hit the 7-9 percent yearly growth rate aspired for by the Duterte administration.
The key risks to watch for would be the execution of the tax reform program, potential upside surprise in inflation and expensive valuations, she said.
Tan said investors were closely tracking the government’s budget deficit, which could shoot up beyond the comfortable ratio of 3 percent of GDP if the State would fail to collect what was expected from the tax reform program.
COL’s favored sectors this year are property, gaming and consumer-related stocks, particularly retail and restaurants. It is also optimistic on the financial sector. Its top stock picks are Ayala Land, Megaworld Corp., Bloomberry Resorts, D&L Industries, Shakey’s Asia Pizza Ventures, Metropolitan Bank & Trust Co., Semirara Mining & Power Corp., Aboitiz Power and Ayala Corp.