Betting on a bull or bear market in 2023? It might just be better to be marked safe.
While trading opportunities abound during volatile periods, analysts and strategists say investors can also focus on building portfolios that are both responsive to the growing economy but also defensive, meaning these should include reliable dividend-paying stocks, to shield against looming risks.
“The landscape remains uncertain so imagine the economy is a white leopard with a few spots. The spots are the likes of inflation, demand volatility, foreign exchange risks because of the US [Federal Reserve], recession and the impact of the Russia-Ukraine war,” Jonathan Ravelas, managing director at eManagement for Business and Marketing Services, tells the Inquirer.
The stock market was off to choppy start after entering a short-lived bull run that pushed the Philippine Stock Exchange index (PSEi) to a high of 7,137 just after the Lunar New Year in January.
This raised hopes the benchmark index, which ended 2022 at 6,566.4, would breach the multi-year pandemic ceiling of about 7,500. Instead, it swiftly corrected to 6,779.02 as of Friday, underscoring continued risk aversion because of the uncertain outlook.
Gabryle D. Aguila
“This year, risks loom in the form of elevated inflation and [gross domestic product] growth slowdown with still-rising interest rates, yet trajectories point towards easing headwinds,” says Gabryle Aguila, head of equity research at stock brokerage house Unicapital Securities Inc.
“In our view, the Philippine economy will stay resilient this 2023 and still log in sustainable growth,” he adds.
Ravelas’ yearend base case for the benchmark PSEi is 6,500 with a chance to reach either 7,000 or 5,700 for his best and worst case scenarios.
Average inflation is also seen to remain elevated at 5.3 percent, he says, which may hurt the spending power of consumers, the bedrock of the Philippine economy.
The Bangko Sentral ng Pilipinas (BSP) is responding accordingly, announcing another 50 basis point interest rate hike on Feb. 16 that raised the key policy rate to 6 percent.
“The Philippine economy is still driven by food, retail, construction and real estate. If you’re creating a defensive portfolio, I will put also in dividend-paying stocks for yields,” Ravelas says.
For investors with less risk tolerance, Ravelas says it is better to wait for lower entry points before building up their stock portfolio.
“When in doubt, pull out. You can stay in short-term government securities and when inflation peaks, you might want to look at equities, especially if the [PSEi] goes below 6,000,” he says.
Estella Dhel Villamiel
Estella Dhel Villamiel, First Metro Securities equity research department head for institutional investments, sees a 6,700 year-end target for the PSEi, with bull and bear case scenarios at 5,900 and 7,400, respectively.
But volatility can also open up trading opportunities for more active investors.
“For the first half of next year, we prefer to tactically take a risk-on view of a Fed pivot/pause leading to bear market rallies and presenting opportunities to take profit. We expect the market to trade closer, if not overshoot, the upper end of our target range,” Villamiel says in an email.
“For the second half, we prefer to lighten positions on Philippine equities, as we expect the market to discount the lagged impact of policy tightening on the economy and earnings. Let us remember that a Fed/[BSP] pause is a signal to the end of the late economic cycle and the beginning of a downturn,” she adds.
Villamiel advises investors to pay attention to the current market cycle, considering higher interest rates and the relatively weak Philippine peso.
“At the moment, we prefer to stay on the sidelines for property developers, especially those with high exposure to the residential segment,” she says.
Villamiel is underweight on the telecommunications sector due to increasing competition and potentially higher capital spending requirements, which will be amplified by currency volatility.
Corporate earnings are forecast to grow 9.2 percent in 2023 and 6.7 percent in 2024, she adds.
“This assumes growth worries coming to fore, with the impact of higher interest rates on the economy and earnings felt in the next 12 months,” Villamiel says.
In its 2023 Economic Market Outlook, Security Bank says the PSEi could reach 7,621 by the end of the year while earnings could grow by over 10 percent.
Security Bank favors banking, consumer (retail) and power (utilities). It is neutral on holding companies, property and telecommunications.
Online stock brokerage house COL Financial Group says the PSEi has room for upside given its projection of 13 percent growth for corporate earnings. COL, which underscores risks from high inflation and a US recession, says the PSEi could still reach 7,500 to 8,250 this 2023.
Meanwhile, initial public offerings (IPO) are getting a second wind in 2023 as the Philippine Stock Exchange president Ramon Monzon expects 14 new listings this year after nine IPOs last year. Among the largest firms poised to go public are billionaire Enrique Razon Jr.’s Prime Infrastructure Capital Inc. and tycoon Edgar Saavedra’s Citicore Renewable Energy Corp.
Other firms that have set their IPOs in 2023 are electronics retailer Upson International Corp. and renewable energy firm Alternergy Holdings Corp.
April Lee-Tan
Stock picks
Analysts also share their top stock picks for the year.
Unicapital’s Aguila says he favors Universal Robina Corp. (target price: P162 per share), Jollibee Foods Corp. (P286 per share), and Manila Electric Co. (P378 per share).
“We think domestic consumption trends remain intact further supported by January’s inflation running hotter than expected and see potential for [Universal Robina] as increasing mobility and return to onsite school and work settings will continue to drive demand,” Aguila says.
For Jollibee, he expects strong growth to continue in 2023 with “potential for a surprise to the upside” from its North America segment and China.
“With expectations of a healthy and sustained economic activity, we view [Manila Electric] to be beneficiary of energy demand growth,” Aguila says.
First Metro’s Villamiel prefers defensive stocks that have a strong balance sheet.
Her top picks are Century Pacific Food Inc. (target price: P29 per share), Robinsons Retail Holdings Inc. (P70 per share) and Universal Robina (P150 per share).
Dividend-focused real estate investment trusts (REITs) are also seen to benefit from a rate hike pivot or pause by the central bank.
“Hence, the next 12 months will present opportunities to enter the Philippine REITs sector as investors can lock in yields and, at the same, benefit from capital appreciation,” she says.
Top REIT picks were Citicore Energy REIT Corp. (target price P2.54 per share), MREIT Inc. (P15.30 per share), and RL Commercial REIT Inc. (P6.15 per share). This would translate to an annual dividend yield of 8.2 percent, 7.1 percent and 7 percent, respectively.
Villamiel says their targets also do not factor in potential asset infusions for the REIT firms.
Security Bank’s top picks are BDO Unibank Inc. (target price: P143.10 per share), Jollibee (P298.90 per share), Robinsons Land Corp. (P20.13), Robinsons Retail Holdings (P70.50) and Semirara Mining and Power Corp. (P40.70 per share).
COL chief equity strategist April Lynn Tan favors banks, power and consumer bets.
Her top picks for the year are Aboitiz Power (target price: P45.20 per share), Ayala Corp. (P907 per share), GT Capital Holdings (P940 per share), Metropolitan Bank & Trust Co. (P85.80 per share), Ayala Land Inc. (P40 per share), Robinsons Land Corp. (P26 per share), Jollibee Foods Corp. (P305 per share), D&L Industries Inc. (P11.40 per share) and Puregold Price Club Inc. (P55.70 per sahre). Citicore Energy REIT is also among her top picks but no price target is available.