Global financial services giant Manulife has turned upbeat on Philippine equities this year, expecting the slowdown in inflation to support a faster corporate earnings growth of 8-10 percent this year.
Mark Canizares, head of equities at Manulife Asset Management and Trust Corp. (MAMTC), said his company had turned positive on local equities starting the fourth quarter of 2018 when inflation peaked.
Citing market consensus, Canizares said the main-share Philippine Stock Exchange index (PSEi) was expected to rise by 6-8 percent this year. “But that’s due to be revised once fourth quarter 2018 earnings and first quarter 2019 earnings come out,” Canizares said in a recent interview. “What we don’t want to happen is to see earnings expectations downgrade.”
“We’re now just at the mean 10-year price to earnings ratio and historically, the Philippines has traded above that,” he said.
He said the market was looking for the new catalysts to emerge.
Meanwhile, the inflation concerns that hounded the market last year were no longer in play this year.
“There will be a few more drivers for Philippine equities this year like midterm elections. You will have companies starting to reassert their pricing power because their cost to input has started to come down. We’ve been hearing a lot about retailers starting to get positive. Consumer confidence starts to move back up,” he said.
“Inflation expectations are likely to also start falling, and that should translate to higher consumption spending,” he added.
At the same time, the usual drivers like government spending are still there, he noted. In the fourth quarter of 2018, he said government spending had a big contribution to gross domestic product (GDP) growth.
“For 2019, we’re expecting (Philippine) corporate earnings to grow by 8-10 percent and that’s expected to accelerate to about 13 percent in 2020,” Canizares said.
The growth in corporate earnings is seen to be a lot better than Manulife’s projected average earnings of 5-6 percent in 2018.
“I believe inflation is already priced into the forecast. We’re still waiting for fourth quarter (2018) and first quarter (2019) numbers,” he said.