Philippine Stocks seen testing record highs

Local stocks are seen retesting record highs this week as investors selectively sift through rich valuations in the market.

Last week, the main-share Philippine Stock Exchange index gained 0.82 percent to 5,468.79 on the back of good third-quarter income results and a benign inflation rate.

BPI Securities said that this week, the Philippine market “may continue to traverse the upward trend as spending for the holiday season is approaching.”

Freya May Natividad, an analyst at 2TradeAsia.com said the 5,400 zone was likely to be supported this week by funding windows that have been opened to emerging markets such as the Philippines, citing a $1-billion risk-sharing facility announced by IFC and Citi Global to help boost trade in emerging markets through 2015. “This might help support ascents to 5,500, barring unforeseen negative events,” Natividad said. Immediate support is 5,400 and resistance at 5,500, she said.

AB Capital Securities analyst Gregg Ilag, on the other hand, said since valuation multiples have expanded significantly this year, a further upside might be limited.

“The Philippine Stock Exchange index (PSEi) was trading at 14x 2012 earnings during the start of the year and is now at 17x. We think that additional multiple expansions for this year are improbable unless 2012 earnings are upgraded. Given that earnings were generally in line with expectations, upgrades on earning projections are unlikely,” Ilag said.

A price to earnings multiple of 17x means that investors are paying 17 times the amount of money the market will make in a given year.

From a technical perspective, Ilag said there might be consolidation between 5,400 and 5,450. “Momentum indicators are showing a near-term positive divergence but are near the overbought territory,” Ilag said.

Ilag said investors should remain selective in buying equities. The brokerage has a “buy” recommendaiton on JG Summit and Ayala Corp.—Doris C. Dumlao