The fledgling Philippine bull market has some more way to go, possibly lifting the main index to a new record high of 9,300 by next year, leading online stock brokerage COL Financial said.
But now is not the time to put all eggs into the equities basket as heightened volatility may continue and there may be ample opportunity to pick up the same stocks at lower prices, COL head of research April Lee-Tan said in a press briefing on Monday.
Tan urged investors to manage the size of their exposure, invest only long-term money and focus on attractively valued stocks to get the best chance of riding on the market’s upswing, which might reach 8,600 this year.
She said it was not a good idea at this time to invest more than one’s historical allotment to local equities.
The Philippine Stock Exchange index (PSEi) hit a historical peak of 9,078.37 in intraday trade on Jan. 29, 2018, and closed at a record high of 9,058.62 on the same day. This was before the inflation scare that dragged the index to bear territory.
COL’s projected recovery to 8,600 this year is based on an assumption that average corporate earnings will grow by 13 percent this year, Lee-Tan said.
This earnings growth forecast has been upgraded from the 11 percent growth outlook at the beginning of the year, due to the stronger-than-expected performance of the property sector.
Recently, the PSEi went back to bull territory, having breached 8,148.60 to mark a 20-percent recovery after bottoming out at 6,790.50 in this cycle.
Lee-Tan said the bull market would continue because the factors that pulled down market sentiment last year had dissipated.
Apart from last year’s inflation pressures, she noted that interest rates were on the decline, the peso now stable against the US dollar, foreign investors back to a net buying position and the national budget deadlock now a thing of the past.
The Bangko Sentral ng Pilipinas is seen to have more room to loosen monetary policy given a more dovish US Federal Reserve.
“Valuations of stocks remain attractive relative to their historical average,” Lee-Tan said.
For next year, Lee-Tan said COL’s average earnings growth forecast of 9 percent will be enough to bring the PSEi to 9,300.
COL chief technical analyst Juan Barredo said the PSEi’s immediate upside might be capped, with the immediate resistance at 8,200.
By sector, COL is most upbeat on the property, banking and aviation sectors.
Property firms are seen to benefit from the decline in interest rates and higher leasing rates while banks are seen to benefit from the reduction in the reserve requirement alongside higher trading gains as a result of lower interest rates.
Airline operators are seen to enjoy growing demand, unlock gains from falling oil prices and the stable peso.
Lee-Tan’s top stock picks are Ayala Land, Megaworld, Filinvest Land, Metrobank, Security Bank, D&L Industries, SSI, Max’s Group, Century Pacific Group and Ayala Corp.